Professional Documents
Culture Documents
Negotiating The Commercial Lease: Peter Collins, Kevin Schouten, Katherine Kowalchuk
Negotiating The Commercial Lease: Peter Collins, Kevin Schouten, Katherine Kowalchuk
Seminar Focus
Review of major areas of offer to lease and lease with a view to identifying common issues and typical solutions Viewed from both Landlord and Tenant perspectives
Offer to Lease
An outline document of essential terms Can act as an interim lease if it has the five essentials:
Parties Place Term Commencement Date Rent
Bridge to Lease
The offer might compel tenant to sign landlords standard lease Landlord will want to preclude Tenant from negotiating changes to Lease Tenant will want ability to negotiate change
Lease
Lengthy formal comprehensive agreement Usually heavily weighted in landlords favour May carry over construction and lease startup provisions from Offer/Agreement There is no government or CSA approved standard lease
REALPAC has an approved form of office lease favours landlords
Union affiliation
Fixturing period
Fixed v. open for business Pay for utilities only
Rent
Three basic types:
Gross rent Net rents + additional costs Percentage rents
Gross Rent
Read the definitions carefully Should be all inclusive Landlord should pay all operating and repair costs and taxes Tenant should pay only rent and GST
Net Rent
Net/ triple net etc. Landlord shifts some portion of ownership and operating costs into tenant Most leases require Tenant to pay
Landlords operation costs Landlords insurance Property taxes
Percentage Rent
Often found in retail premises leases Landlord charges a percentage of tenants gross revenues Definition of gross revenue is flexible Tenants should beware cash flow inclusions
Lotteries Vending machines
Operating Expenses
Three main categories Operating/administrative cost recovery Property taxes Insurance
Audit Provisions
Tenant should seek to include right to audit the landlords Statement of Operating Costs If Landlord grants audit right, Landlord should limit the exercise period Tenant should seek right to audit at least one year back
Financial Inducements
Three common major types
Free rent - base or all rent? Straight inducement - cash payment on opening Tenant improvement allowance - linked to construction costs
Excluding GST
Exclusivity
Landlords are reluctant to grant exclusivity Exclusivity might be critical to tenants success Exclusivity is usually narrowly defined Major tenants are often excepted Tenant should ensure it applies to renewals/extensions
Insurance
Landlord and tenant each insure. Typically:
Landlord insures building Tenant insures own (interior) premises and contents
Insurance, contd.
Tenant should protect itself by obtaining
Waiver of subrogation Waiver of cross claim
Tenant should always review insurance requirements with tenants insurance broker Change in insurability can permit landlord to cancel lease
Transfer
Assignment v. sublease If lease silent, no restrictions Most leases tightly control lease transfers Can affect ability to transfer lease as part of sale of business
Transfer - contd.
Typical transfer control provisions include Landlords consent Approval of financial strength and character of assignee Review and approval fee Original tenant remains liable after transfer Change of corporate ownership triggering transfer clause
Transfer - contd.
Tenants should beware: Unreasonable and arbitrary withholding of consent Long list of tests to meet Take-back right by landlord No change of use on transfer
Estoppel Certificates
Tenant certifies facts to the landlord/lender/potential buyer Can result in tenant waiving claims against landlord Tenant should limit scope of certificate during lease negotiations Tenant should compare requested certificate to lease obligation Nothing in it for tenant tenant shouldnt give more than tenant contracted to give
Lease Renewal
Limits on right to exercise/timing of exercise Ensure rent is set or there is a rent-setting mechanism Definition of fair market value
Improved space? What comparables?
Summary
Leases are usually heavily weighted against most tenants Your ability to negotiate improvements to your position is limited by many factors out of your control Keep your perspective
Small tenant = small changes Small landlord + big tenant = big changes
Questions??