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| Business Development - Mentoring |
 COMMERCIAL
LEASES - TENANT'SCONCERNS - Part 1 By Dave & Cori Singleton - Legal Ease Library Inc. If you rent space for your business, your commercial lease will be one of the most significant contracts you enter into. Commercial leases are very complicated documents which are heavily weighted in favor of the landlord. In this regard, it is strongly recommended that you have the lease reviewed by a lawyer who is familiar with commercial leases before signing anything. When considering the amount of liability that a commercial lease represents, a review by a professional is money well spent. Many of the terms of a commercial lease will not be negotiable. It is nonetheless important that you understand these terms and the risks involved. On the other hand, many of the lease terms are negotiable, but the landlord will not automatically offer things in the tenant’s favor unless the tenant asks for them. Therefore, the tenant must know what to ask for. The following information will review some common terms and conditions that a tenant should be discussing with the landlord before signing a lease. Offer to Lease - an ‘offer to lease’ is a preliminary document that a landlord or the landlord’s agent has the tenant sign before entering into the lease. Be Careful! Once accepted by you, an ‘offer to lease’ creates a binding agreement. If the lease is not subsequently entered into, the landlord can still sue you based on your commitment to rent the space under the ‘offer to lease’. This ‘offer to lease’ should be reviewed by your lawyer before signing. If the landlord pressures you to sign the offer (usually because there is an assumption that someone else wants to rent the space immediately) make sure the offer contains the condition that before you are bound to rent the space, you must be able to obtain your lawyer’s satisfactory review/approval of the lease, and that the terms of the lease can be negotiated. Space - specific information should be obtained relating to the space you are interested in and included in the lease to ensure that you are entering into a lease for that specific space and not some other space. This should include number of square feet, the legal description and municipal address of the building, and an outline of the space detailing where it is located within the complex. Term - the term of the lease states how long you are entitled to have your business in the space, when the commencement date begins and when the lease ends. This should include whether you have the right to early possession to get set up. Renewal - the right to renew should be included in every lease. This clause is solely for the tenant’s benefit. If you do not want to renew, you don’t have to, but if you do exercise your renewal option, the landlord must honor it. Rent - the amount of the rent payable under a commercial lease is typically based on one or more of the following: the amount of square footage of the premises (minimum rent), the costs associated with operating the space (occupancy charges), and the amount of sales your business generates (percentage rent). When first negotiating the rent, compare this rate to what other comparable commercial spaces are being leased for. As well, try to obtain a ‘rent free period’ at the start of the lease so that you can start generating business without having the expense of rent to worry about. The length of a ‘rent free period’ could range from 1 month to more than 6 months, depending on the premises and the market. Make sure this agreement is ‘rent free’ and not just deferred to a later date. ‘Rent free’ doesn’t always mean ‘free, free’, the landlord may insist that you pay the ‘occupancy or operating costs’ associated with your space during this ‘rent free’ period. This can include utilities, maintenance and janitorial services. The different methods of charging rent are typically as follows: 1) Flat Rental Rate - the amount of rent you pay is a flat rent per month (i.e: $900.00), with no reference to the amount of space you are using. 2) Basic/Minimum Rent - this amount is based on a certain amount per square foot. If you are renting 1,000 sq. ft. at $10/sq. ft., totaling an annual rent of $10, 000.00, you will pay 1/12 of this amount each month. Be sure to have it specified, in either case, whether the rent includes or excludes GST. Your landlord will have to supply you with a legitimate GST number. Look for Part 2 on Commercial Leases in the RW Mar/Apr issue, which will include a continuation of the types of rent. Supplied by Dave & Cori Singleton, co-founders of The Legal Ease Library Inc. Call 403.215.8040 for information on where to buy your copy of the Legal EaseTM guide, ‘Understanding & Negotiating Your Commercial Lease.’ |