Are you entering into a commercial lease agreement and need legal advice? You’ve come to the right place. We provide legal guidance and expertise when it comes to commercial lease agreements and are here to help you wade through your questions. To get you started, here is an introduction.
First, a commercial lease is a legal document which is signed between a Landlord and a Business Tenant while renting a commercial property. This contract is legally binding for the parties signing it and it outlines certain rights & obligations for both parties of a commercial tenancy.
As a Tenant, leasing a commercial property is undoubtedly one of the most important decisions you will make before starting to carry out your business.
Key Things to Consider While Leasing a Commercial Property
1. What Are the Types of a Lease Agreement?
The first and most important thing a Tenant has to do is to ensure that they know exactly what type of lease they are signing under. There are 4 different types of commercial property lease in Alberta:
- Single Net Lease: In this type of lease, the utilities and property taxes shall be paid by the Tenant. Expenses such as maintenance, repairs and insurance shall be paid and taken care of by the landlord.
- Double Net Lease: This is the type of lease where the Tenant shall pay for utilities, property taxes and insurance. However, the landlord shall be responsible for all maintenance costs and repairs to the building.
- Triple Net Lease: This is the type of lease that leaves the Tenant with the major portion of the responsibilities to a property. In a triple net lease, the Tenant shall be responsible for all costs for utilities, property taxes, insurance premiums, maintenance and repairs to the property.
- Full-Service Gross: In this type of lease, the repairs and operating costs are apportioned among the Tenant and the Landlord. Therefore, negotiating and determining what expenses are included in the operating costs in this type of lease is crucial.
2. Make Sure You Understand the Terms Thoroughly
Commercial leases are standard form agreements typically prepared by landlords including a majority of clauses structured to favor the landlords by attributing costs and responsibilities on the Tenant. Therefore, most of the time, some of the provisions in a lease agreement might seem too ambiguous and difficult to understand and give you a hard time negotiating due to lack of clear understanding.
When you want to commit your business with a lease agreement, reading in between the lines and spotting important details is crucial when it comes to determining the frame of your rights and responsibilities in a commercial lease agreement. So, even before starting to negotiate with a landlord, as a Tenant you should ask for a written contract from your landlord in order to have a better grasp of what the lease relationship will be expecting from you.
In addition to that, the Tenant needs to know the restrictions on the title if there are any such as covenants, mortgages or encumbrances. Some restrictions on title might affect the operation of a business substantially such as Landlord’s failure to meet his financial obligations on a mortgage.
3. Ask A Lawyer! You Have the Power to Negotiate!
Most Tenants tend to think that commercial lease agreements are one-sided and landlord-favourable. In practice, we usually find Tenants concentrate too much on the price of the lease which make them miss other costs that are attributed to them and, unless negotiated, will be collected by the landlord. These costs might impact a Tenant’s business significantly and cause unexpected losses in their profit in the long term.
One area in particular that is often overlooked is maintenance and repair costs which carry a high degree of importance and need to be clarified thoroughly in the contract since the maintenance of the building affects the operation of a business substantially. Furthermore, a landlord would set out some additional expenses by using technical terminology such as “additional rent” and “operating costs” which would typically favor them in a commercial lease agreement. The scope of these costs must be understood carefully in order to avoid unexpected additional charges in the future.
At Juriscorp Law, we’re here to help make legal matters easier to understand and manage. If you have a question about your commercial lease agreement, give us a call and our experienced team of lawyers at Juriscorp Law would be happy to assist you.