Commercial lease agreements in Ontario are contractual arrangements that govern the relationship between a landlord and a commercial tenant. Unlike residential leases, commercial leases are controlled by the Commercial Tenancies Act, R.S.O. 1990. Commercial leases in Ontario operate in a significantly less regulated environment. This underscores the necessity for both parties to exercise diligence in understanding the terms and conditions outlined in the agreement. This article sheds light on five considerations that warrant attention when entering a commercial lease agreement in Ontario.
1. Types of Commercial Leases and Rent Structure
Legal Aspect: Ontario does not prescribe a standard form for commercial leases. Consequently, various types exist, such as net leases, gross leases, and percentage leases.
Rent Structure: In a net lease, for example, tenants might be responsible for rent plus property taxes, insurance, and maintenance (often called Triple Net Lease). A gross lease typically includes these costs within the rent itself.
Example: A clause might indicate that the tenant is responsible for a proportionate share of Common Area Maintenance (CAM) fees, including landscaping or snow removal.
2. Zoning Laws and Land Use
Legal Aspect: Zoning by-laws are municipal regulations that govern land use. Ensuring the property is zoned for the tenant’s intended use is crucial.
Due Diligence: Conduct due diligence by checking municipal zoning by-laws and obtaining necessary permits or variances. Failure to comply could result in fines or forced cessation of business activities.
Example: A building zoned for retail use would be unsuitable for a manufacturing operation, and running such an operation in violation of zoning laws could have legal repercussions.
3. Repair and Maintenance Obligations
Legal Aspect: Commercial leases often assign repair and maintenance responsibilities differently than residential leases.
Maintenance Obligations: Both parties must clearly understand who is responsible for what. The lease should specify maintenance obligations for common areas, structural components, HVAC systems, plumbing, etc.
Example: The lease might stipulate that the tenant is responsible for interior repairs, while the landlord is responsible for structural and exterior repairs.
4. Lease Duration and Termination
Legal Aspect: Commercial leases often have longer terms and may include renewal options. Termination conditions are usually more stringent than in residential leases.
Termination: Parties should negotiate the initial term, renewal terms, and any rent escalations during renewals. Understanding the grounds for termination and any penalties or remedies is also critical.
Example: A “continuous operation clause” may require the tenant to remain in operation for a specified number of hours and days, failing which the landlord may have the right to terminate the lease.
5. Default and Remedies
Legal Aspect: Commercial lease agreements often include detailed default provisions and the remedies available to each party.
Remedies: The agreement should outline what constitutes a default (e.g., non-payment of rent, violation of use clause, etc.) and what actions are permitted as a remedy (e.g., eviction, penalty fees).
Example: A lease may include a “cure period,” providing the tenant a specific time frame to rectify a default before the landlord can take legal action.
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Summary
Commercial lease agreements in Ontario are documents that require detailed review. Due to the less regulated nature of commercial leases, parties have more freedom but may bear more risk. Legal advice should be sought to ensure that the lease agreement complies with relevant provincial laws and municipal by-laws and adequately protects the rights and interests of both parties.
Hiring a business lawyer might help ensure your commercial lease agreement aligns with your business needs and projections. If you are seeking 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.
