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5 Tips to Consider when Considering a Commercial Tenancy

high rise buildings during night time
Photo by Josh Hild on Pexels.com

Relocating your business into a new commercial location is an exciting opportunity. Commercial real estate is among the most conflicting and overlapping bodies of Canadian law. To be a successful tenant, you must be organized and understand your contractual and common law duties to your landlord.

If you are considering moving your business to a commercial unit, here are five tips:

1. If you haven’t already: Incorporate your business PRIOR to entering into a commercial tenancy;

This allows you to sign your lease AS your corporation rather than as yourself personally. In the event that your business cannot pay rent (often by no fault of your own), or your business defaults on another obligation, you are not personally liable. It is preferable to be sued as a director of a corporation rather than personally, because more legal protections are available to you, buttressing your personal finances and your home.

You are strongly encouraged to include a clause dissolving your business partnership or corporation should an irreconcilable dispute arise between tenant business partners.

2) Tenants have considerable bargaining power when negotiating a lease with a commercial landlord.
Here is a checklist of useful clauses for you to consider:

i) When writing the definitions of your lease, carefully and meticulously itemize what costs of the unit are paid for or included within in a tenant’s “RENT”; In the event your business cannot pay rent (likely by no fault of your own), a landlord can confiscate your merchandise for sale, among other things, to recoup the Landlord’s rent. The Landlord can only recoup rent by distraining, or confiscating your property. Are water, parking lot maintenance, and property taxes represented in the cost of your rent? The more specific the language of your lease is, the more predictable your relationship with your landlord will be.

Itemizing your rent will also help you if you have an irreconcilable dispute that ends up in court.

ii) Consider including a clause for mandatory mediation in the event an irreconcilable dispute with your Landlord arises. Mandatory mediation would not apply if you were to default paying rent;

Conflict is inevitable. Frustrated parties sometimes rush to file applications to the Superior Court. As part of the Court’s process, you attend pre-trial conferences which often conclude with settlements and resolutions. It is generally in the interest of a landlord to keep a reliable tenant instead of finding a new tenant. Mandatory mediation gives you the most control over the timeliness and the terms of resolution to your dispute. Please note that mandatory mediation does not waive your rights to proceed to court. iii) Identify and allocate responsibility for extensive renovations necessary to comply with the Accessible Canada Act and overlapping provincial accessibility statutes. The Canadian Accessibility Commissioner requires all businesses to report their compliance or their progress towards complying with the Accessible Canada Act. Failure to cooperate with the Commissioner’s process results in Administrative Monetary Penalties of as much as $20,000.00 per day. Administrative Monetary Penalties can be ordered personally against a noncompliant corporation’s directors.

Contracts must predict all possible scenarios. In the event your business is ordered to undergo a significant renovation, like installing an elevator, your landlord will enjoy a valuable enhancement to the unit. By agreeing in advance to divide the cost of tribunal ordered renovations, you avoid the time and expense of litigation.

3. Expect to see an Architect’s Certificate of Rentable Land. Do not lease a unit without first obtaining an Architect’s Certificate of Rentable Land;

You need to see a site plan that is to scale, or within 5% of scale. This document clearly illustrates which parts of the unit are dedicated as office space, industrial space and manufacturing space. This Architect’s Certificate, among other architect documents, advises which portions of the commercial unit are alterable and which are not. Rent is sometimes calculated by the square foot. If a tenant accepts a lease without seeing the total square footage, they may be disappointed.

If errors within the drawings, diagrams and apportionment of spaces appear in your lease, you as a tenant might have a case for misrepresentation against the Landlord.

4. Retain the services of a lawyer to conduct a Title Search of the property you are considering leasing;

You must protect yourself from being caught in your landlord’s debts or contracts with third parties. Before leasing a property, you MUST be sure that your Landlord’s mortgages, liens or encumbrances assigned to the property will not affect your business operations. If the property ownership was to be ceased or foreclosed, your operations might be halted.

5. Use a dictation-to-text app to record of your negotiations with your landlord and their representatives.

Commercial leases are long and cumbersome documents that utilize complicated and technical language. Sometimes parties leave negotiations with very different recollections of what occurred and what the next steps will be. Taking a transcript will help you to match the language in a lease agreement with what you discussed during negotiations. The better you understand your obligations and rights as a tenant, the better prepared you will be to manage your relationship with your landlord. Microsoft Word and Google Docs take remarkably accurate voice dictation. These features can be found within the “Accessibility” settings on your computer. Dictation applications like Otter are available in the Apple and Google Play digital app stores.

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