Legal Considerations Before Signing a Commercial Lease
Securing the right space and location for your business is an important step, but before signing a commercial lease, it’s essential to understand the legal implications. A commercial lease is a binding contract that outlines the rights and responsibilities of both the landlord and the tenant. Unlike residential leases, commercial leases are governed by distinct legal principles, and in Ontario, they are subject to the Commercial Tenancies Act (CTA). Consulting with a business lawyer experienced in reviewing or crafting commercial leases can help protect your interests and prevent costly disputes.
Key Legal Differences in Commercial Leases
Commercial leases differ from residential leases in several ways. For example, a commercial property owner cannot reclaim the premises for personal use unless explicitly stated in the lease. Additionally, commercial leases often include complex provisions that can impact business operations. Because a signed lease agreement may take precedence over the CTA, it is vital to thoroughly review all terms before committing.
Essential Components of a Commercial Lease Agreement
A commercial lease is a tailored contract, with terms that vary depending on the nature of the business and the property. However, most commercial leases address the following key aspects:
- Rent and Increases: Specifies the base rent, any additional costs, and the conditions for rent increases.
- Security Deposit: Details the amount and conditions for its return.
- Insurance Requirements: Outlines the coverage obligations for both parties.
- Repair and Maintenance Obligations: Defines responsibilities for property upkeep.
- Lease Term and Renewal Terms: Clarifies whether the lease is fixed-term or month-to-month and how renewals work.
- Leasehold Improvements: Determines who is responsible for modifications or renovations.
- Services Provided by the Landlord: Lists utilities, maintenance services, and other amenities.
- Environmental Responsibilities: Some leases include clauses making tenants liable for environmental damages caused by their business activities.
Because lease terms can significantly impact business operations, an experienced commercial lawyer should review all provisions to ensure they align with your business needs and are fair for both parties.
Rules for Terminating a Commercial Lease
A commercial lease should specify the conditions under which either party can terminate the agreement. Unlike residential leases, tenants are typically bound to pay rent for the entire lease term unless an early termination clause is negotiated. If a tenant wishes to exit the lease early, the agreement must outline acceptable conditions, such as subleasing or a lease buyout.
Breach of Lease and Remedies
A commercial lease may define what constitutes a breach and the consequences for non-compliance. Common breaches include failure to pay rent, unauthorized alterations, or violating use restrictions. Landlords typically must:
- Provide written notice of the breach.
- Allow a reasonable period for the tenant to remedy the issue.
- If unaddressed, the landlord may pursue legal remedies, such as changing the locks or seeking damages.
Late or Unpaid Rent: Landlord’s Legal Remedies
Under the CTA, landlords have two primary options for handling unpaid rent, however, they cannot do both. The landlord can lock out the tenant by changing the locks, effectively ending the tenancy. The landlord may seize the tenant’s property and sell tenant assets to recover unpaid rent.
Types of Commercial Leases
Commercial leases vary in structure, affecting how expenses are allocated between the landlord and tenant:
- Gross Lease: The tenant pays a fixed rent covering all expenses, regardless of increases.
- Net Lease: The tenant pays base rent plus a proportionate share of property taxes and operating costs.
- Double Net Lease: Includes base rent, property taxes, and insurance.
- Triple Net Lease: Covers base rent, property taxes, insurance, and maintenance costs.
- Percentage Lease: Typically used in retail spaces, this lease includes base rent plus a percentage of business revenue.
Understanding these lease structures is a must in order to negotiate favourable terms.
Legal Advice: An Essential Step in Leasing Any Commercial Property
Because commercial leases involve complex legal obligations, consulting a commercial lawyer before signing a lease can save you from misinterpreting the terms of your contract, which may lead to problems in the future. Your commercial business lawyer can:
- Identify and revise unfavourable terms.
- Negotiate modifications that better protect your business.
- Ensure compliance with the CTA and other applicable laws.
Every business has unique leasing needs, so taking the time to carefully review and negotiate a commercial lease can prevent future disputes and financial strain. By securing legal advice from an experienced commercial lawyer, business owners can enter agreements that support their long-term success.
The Most Important Step To Take Before Signing Your Commercial Lease? Consulting With An Experienced Lawyer
Negotiating the complexities of a commercial lease without legal guidance can leave business owners vulnerable to unfavourable terms and costly disputes or fees. An experienced commercial lawyer like those at Hukam Law can provide invaluable insights, ensuring that lease agreements are clear, enforceable, and aligned with your business objectives. Investing in professional legal assistance now can prevent significant challenges down the road.
At Hukam Law, we have an extensive background in commercial law and have assisted many local business owners in negotiating their leases in the Barrie, Simcoe County, Brampton, or GTA area. Call us 📞 at 705-915-0884, or send us an email at info@hukamlaw.ca if you have questions. We’ll make sure that you have the legal representation you deserve.
***The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.