Commercial lease lawyers at Pax Law can you help with the process of leasing a property for your business. Whether you are a landlord hoping to lease your commercial property or a business owner hoping to negotiate a fair and thorough lease agreement for yourself, we can assist you throughout the lease process.
Commercial Lease Agreements
Commercial lease agreements are contracts between owners of property zoned for commercial use and the proprietors of businesses who wish to rent that property. Commercial lease contracts are governed by the common law (also known as case law) and the Commercial Tenancy Act of British Columbia.
The Commercial Tenancy Act is the legislation that explains the rights of landlords and tenants in British Columbia. However, it is not exhaustive. Therefore, there are aspects of the landlord-tenant relationship that the Commercial Tenancy Act does not control and regulate. Those aspects of the landlord-tenant relationship will be based on the Commercial Lease Agreement that has been signed between the landlord and the tenant.
Traditionally in BC, commercial lease agreements have terms of at least 3 years and give the tenant the right to renew the lease for further periods. The long-term nature of these contracts as well as the relatively large amounts of money involved mean that if there are mistakes or problems with the contract, the landlord and the tenant may have to pay high costs, suffer losses, and engage in court actions to resolve the dispute.
Terms in a Commercial Lease Agreement
Commercial leases involved high sums of money and long-term obligations for both the landlord and the tenant. They are one of the contracts that we strongly recommend you draft with the assistance of a knowledgeable lawyer. In this section, we will review some of the most common terms your commercial lease lawyer may include in your contract.
Parties to the Agreement
A commercial lease lawyer will investigate the nature of the entities entering into a commercial lease contract as a first step in drafting. It is important to know whether the parties to the contract are individuals, corporations, or partnerships. If the tenant is a corporation, the landlord’s commercial lease lawyer will investigate the company and advise the landlord whether a covenantor or guarantor is required to protect the landlord’s rights.
A covenantor is a real individual (as opposed to a company, which is a legal individual but not a real individual) that agrees to guarantee the corporation’s obligations under the commercial lease. Subsequently, if the corporation fails to follow the terms of the lease and is also poor enough that a legal action against it would be pointless, the landlord would sill have the option of suing the covenantor.
The tenant’s lawyer will be responsible for investigating the landlord to ensure that the landlord owns the commercial property and is entitled to enter into a legal agreement to rent it. The lawyer may also investigate the zoning of the subject property to advise the tenants about whether they will be able to do business on that property.
If the parties to the lease agreement are not determined and set out correctly, the landlord or the tenant might suffer significant losses because they have entered into an agreement and paid money but cannot enforce that agreement in court. Therefore, this step is one of the most important steps in drafting a commercial lease agreement.
A lease agreement is long and includes many complicated legal ideas. A commercial lease lawyer would set aside a portion of the contract and dedicate it to defining the capitalized terms used throught the contract. For example, some of the terms that are often defined in a commercial lease are:
|Basic Rent||The minimum annual rent reserved hereunder payable by the Tenant as set forth in paragraph xxx of the Agreement.|
|Additional Rent||The monies payable under Sections XXX of the Agreement together with all other sums of money, whether or not designated as Additional Rent, to be paid by the Tenant, whether to the Landlord or otherwise, under this Lease save and except Basic Rent.|
|Tenant’s Work||Means the work to be performed by the Tenant at its cost and expense more particularly set forth in section XXX of Schedule X.|
Basic Lease Provisions
Certain terms are included in almost every lease contract and will be set out by your commercial lease lawyer in your agreement. These terms are also the subject of the majority of negotiation regarding the lease and will be the terms that are best known to the landlord and tenant. However, despite the familiarity of the landlord and the tenant with these terms, it is still important to have the assistance of a lawyer in drafting the terms. Your lawyer will know how to draft the terms in the manner that will protect your rights and will be least likely to lead to a dispute.
Examples of the basic lease provisions are:
- The address, description, and size of the property being leased.
- Tenant’s business type, business name, and what activities they will be allowed to do on the commercial property.
- The term of the lease, how long the tenant will be entitled to occupy the property, and whether the tenant will have the right to extend the lease.
- The date the lease contract will start and the length of the fixturing period (a period during which no rent is payable).
- Basic rent: the amount the tenant will pay to the landlord, which will be known to the tenant from the beginning.
- Additional rent: the amount of rent that the tenant will have to pay, which will not be known from the beginning of the agreement and will be calculated based on the utility, water, garbage, tax, and strata fees payable by the landlord.
- Security deposit amount: Amount the tenant will have to pay as a deposit, and the landlord’s rights and responsibilities surrounding that amount.
Termination Procedures and Disputes
A thorough lease agreement drafted by a competent lawyer will include terms setting out the rights of the landlord and the tenant to end the lease agreement, and in what situations those rights will arise. For example, a landlord may be entitled to terminate the tenancy if the tenant is more than five days late on rent, whereas the tenant may be entitled to termination if the landlord does not perform an obligation to change the property to the tenant’s requirements.
Furthermore, a lease agreement should include provisions about how disputes are to be resolved. The parties have the option to go to mediation, arbitration, or litigation before the Supreme Court of British Columbia. Your lawyer will discuss each option with you and help you choose what to include in your lease agreement.
Please note that the above are incomplete summaries of the terms of a commercial lease agreement, and that you should seek legal advice regarding your specific case.
Lawyers’ Role in Protecting Your Interests
The most important role of the commercial lease lawyer you retain is knowing the most common disputes that arise in commercial lease contracts and having enough experience with commercial leases to advise you about the terms you should be seeking or avoiding.
By retaining a knowledgeable lawyer, you are ensuring that you will avoid many of the risks of entering into a commercial lease agreement and be aware of any risks that you do accept.
Commercial Lease Frequently Asked Questions
Commercial lease agreements are contracts between owners of property zoned for commercial use and the proprietors of businesses who wish to rent that property.
Commercial lease contracts are governed by the common law (also known as case law) and the Commercial Tenancy Act of British Columbia. Residential property leases in British Columbia are governed by the Residential Tenancy Act and the common law. The Residential Tenancy Act places significantly more restrictions on landlords than the Commercial Tenancy Act.
An oral lease agreement is a great way to increase the chances of disputes arising and paying high legal costs to go to court. However, a written lease agreement sets out the terms of the lease agreement on paper and creates a record of the agreement between the parties. If there are disputes in the future, the parties can attempt to resolve that disagreement by referring back to the written lease.
1. The names and identities of the parties.
2. Defining common terms used in the lease.
3. Setting our the parties’ agreement on basic and additional rent, the term of the lease, lease renewal, security deposit, and termination procedures.
Commercial lease contracts are governed by the common law (also known as case law) and the Commercial Tenancy Act of British Columbia.
A contract of lease for a commercial space is a contract between an owner of property zoned for commercial use and the proprietor of a business who wishes to rent that property.
A lease contract should definitely include the following 5 terms and many more as well:
1. Names and identities of the parties to the contract.
2. The amount of base and additional rent payable.
3. The location and description of the property being leased.
4. The term of the lease, when it will start, and whether a party has the right to extend it.
5. Whether there will be a security deposit, how much it will be, and in what circumstances the landlord will not have to return it.
You should review a commercial lease with your lawyer. However, at first glance, the three most important clauses in a commercial leases are the names of the parties, the amount of base and additional rent and how they change from year-to-year, and the length of the lease agreement.