Introduction
In the dynamic and ever-evolving realm of business, commercial leases play a pivotal role. Whether you are a startup founder seeking a suitable space for your new venture or a seasoned entrepreneur looking to expand your operations, understanding the intricacies of commercial leases is essential. This article aims to highlight some elements of commercial leasing. But first let’s learn about what a commercial lease is.
What is a Commercial Lease?
A commercial lease is a contractual agreement between a landlord and a business entity for the rental of a property. Unlike residential leases, commercial leases apply to properties used for business purposes, such as offices, retail stores, warehouses, or industrial spaces. These leases are typically for more extended periods compared to residential leases and often involve more complex terms tailored to meet the specific needs of the business.
Essential elements in a Commercial Lease
Understanding these essential elements is vital to protect your business’s interests and avoid any potential misunderstandings.
Lease Term:
A lease’s term is its duration. Sometimes the term will automatically renew once it’s over, this renewal can occur every time the term expires, or it may only renew once. It is important to clearly convey whether a new term is starting, if there have been any changes to the terms, and whether the tenant has agreed to the renewal. In the case of Greenspoon v Tsambalieros the tenant believed they had negotiated a lower rental payment for the new term. This resulted in a $100,000 deficit over the course of the new rental term. When the landlord attempted to recover the amount, the judge dismissed the landlord’s action to recover because the evidence indicated that the tenant had never agreed to the renewal of the lease, the terms were unsettled, and nothing had been signed.
Exclusive Use:
This is commonly seen in multi-unit settings like a plaza. The landlord covenants to the tenant that their unit is the only one in the complex that can engage in the tenant’s business for the duration of the term. In Umrila Holding Inc v Anand Holdings Inc the landlord promised the tenant that only their unit could be used as a dental clinic. However, the tenant took this to mean that they had the exclusive right to operate a dental clinic in the plaza, the tenant then attempted to extend this exclusivity by renting another unit in the building for ten years. In this instance the judge sided with the landlord and determined that the exclusivity only lasted for the duration of the lease on the original unit.
Subleasing and Assignment:
Assignment refers to the tenant’s ability to transfer the lease to another party. Sometimes an assignment clause may state that "Consent to an assignment will not be unreasonably withheld" these words carry heavy significance. The case of Rabin v 2490918 Ontario Inc. illustrates what happens when these words are ignored. In that case the tenant attempted to assign their lease, but the landlord delayed the process to insert a demolition clause. The judge ruled that the Landlord was not entitled to require a demolition clause as a precondition to giving consent. Specifically, the judge claimed that conditional consent is not consent and the landlord’s attempt to inject a new clause into the agreement amounted to an unreasonable withholding of consent.
Tenant Improvements:
Leases should address the conditions under which the tenant can make alterations or improvements to the property. Failing to address this issue can lead to the belief that the premises can be freely altered without consequence. In the case of Greenspoon v Tsambalieros this occurred when the tenant left the premises with some cabinetry. The total cost of the cabinetry was approximately $17,000. Although the judge had ruled that the tenant was wrong to take the cabinetry, the landlord had no claim for damages. This is because the landlord renovated the space afterward and subsequently had no use for the cabinetry. To bring a claim for damages a loss must be suffered but none occurred here. If the landlord received legal advice sooner, they might have been able to bring a claim before subsequent renovations negated the damage. Alternatively, if the landlord had a clearly written lease agreement this issue could have been avoided entirely.
Conclusion
A well-negotiated and clearly defined commercial lease can be the foundation of a successful business endeavor. As a tenant, knowing your rights and responsibilities under the lease can protect your interests and foster a positive landlord-tenant relationship. Conversely, landlords must understand the importance of creating clear and concise lease agreements to attract and retain quality tenants. By staying informed and seeking professional advice when needed, businesses can navigate the intricacies of commercial leases with confidence and set the stage for long-term growth and prosperity. The information in this article is for educational purposes only, while the information has been evaluated for accuracy it has been greatly simplified for the sake of brevity. If you require legal advice consult a lawyer.
Written by Lucas Rotino
* Please note that the information in this article is not intended as legal advice, but rather as a general overview on the subject. If you are seeking legal advice, please consult with a lawyer.
