You are starting a new business and you require a commercial space to lease? It is highly likely that you will be asked to sign a commercial lease agreement with the landlord for the use of premises to run your business.
A commercial lease agreement is a legally binding contract established between the landlord and a business tenant. While the tenant is given the right to occupy the landlord’s property for a commercial or business purpose for a specific period, the landlord receives monetary payments (“rent”). It also indicates the legal rights and responsibilities of both parties. However, there are other constituent parts of a commercial lease agreement which embody this legal relationship.
It is important to understand the terms and conditions of a commercial lease agreement since this type of agreements might be complex with numerous terms and have significant implications for businesses. Identifying potential legal issues, the outcomes of legal implications and negotiating accordingly might help you avoid any future disputes or confusions.
Commercial lease agreements in Ontario are governed by the Commercial Tenancies Act and required to include key elements such as details on the parties and the subject property, type of lease, lease amount and payment terms, term of the lease, termination, insurance and liability etc.
A lease agreement is not always set in stone. Having a thorough understanding of these terms and conditions is also important to negotiate a commercial lease agreement customized to your business needs. For example, if the commercial lease agreement dictates the permitted use of the premises, it means that you can only engage in those limited types of business activities on the premises and any additional purpose of use might be subject to the Landlord’s written consent and approval. Or if you do not wish any other competitor tenants on the premises, you might want to negotiate your lease agreement accordingly.
Here are some key considerations while reviewing a commercial lease agreement:
- Type of Lease and Payment Terms: The monetary compensation is an essential element of this contract. That is why it is highly important to fully understand the rent amount, any additional charges and the payment schedule for your budgeting plans and financial commitments. Understanding when the rent is due, and the possible penalties applied for late payment is also crucial.
- Term of Lease and Renewal Options: A commercial lease agreement will outline the term of the lease and renewal options. Reviewing these terms in detail will help you foresee if they match with your business interests and needs.
- Maintenance and Repairs/Costs: There are also other items incorporated into a commercial lease agreement such as utilities, insurance and maintenance and operating costs of the building. It is important to understand which responsibility pertains to which party including any potential cost sharing arrangements.
- Permitted Use of the Premises: A commercial lease agreement might include a clause that limits the purposes of use for a specific commercial space. You might want to review this clause in detail to understand if it aligns with your business requirements.
- Assignment Options and Subletting: If the lease agreement outlines the conditions on assigning the lease or subletting the premises, you should understand the extent of the flexibility granted by the Agreement to sublet or assign the lease.
- Exclusivity: Certain commercial lease agreements might include an exclusivity clause which might be a term that addresses to your interests. This sort of terms restricts the landlord from leasing to another tenant for the same business purpose.
- Termination: The lease agreement also outlines the terms for termination of lease. This provision might include details about early termination of the lease including any penalties or fees to be paid upon.
- Insurance and Liability: The commercial lease agreement also includes terms on insurance requirements to run business operations and the party responsible for obtaining the insurance coverage. Reviewing these terms is important to determine whether or not the insurance requirements match with your business needs and understand who the liability pertains to in certain specific events. (such as damages or accidents)
A lawyer can have an essential role in reviewing a commercial lease agreement, protecting your interests and carefully ensuring that all terms are clearly stated and understood before signing. They can also identify any legal issues in the lease agreement and provide advice on how to address them with valuable insights and legal expertise.
Hiring an experienced real estate lawyer might help you ensure that your commercial lease agreement aligns with your business needs and projections. If you are seeking for legal advice when reviewing your commercial lease agreement, contact us and find out how we can assist you.
The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.
