lease
Commercial Leases… It’s In The Details
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Commercial leases—they can be very overwhelming to read through, not only because of the legal jargon but because of the details on every topic they cover. But, the details are necessary to protect the property owner or landlord and the tenant, to make certain that there is no room for ambiguities or misinterpretation between the parties involved, and to ensure that all parties have the same understanding of a lease’s terms of agreement.
Some details a commercial lease should cover include the following:
- Lease Term – Is the lease for one, two … five years? Is there a restriction on how soon a tenant’s business can move in and operate once the lease is signed? Is there a renewal clause? Is there an exit clause? Is there an option to sublet? What are the terms of each?
- Area or square footage – Does the lease only apply to the square footage of the office or that the tenant’s business would occupy? What about common areas such as lobbies, hallways, washrooms, etc.—are these (or a percentage of these areas) governed by the lease a well?
- Parking, Signage – is signage included in the lease? Is there a designated parking area included in the lease?
- Renovation – Does the lease allow the tenant to have the space renovated to better suit their business needs? If so, what are the parameters and restrictions?
- Maintenance, Utilities and Repairs – Who is responsible for what repairs and operating costs? Is this to be a shared responsibility?
- Rate – What does the rent rate cover? When is it subject to rate increases?
- Insurances – what insurances are required by the lease and who is responsible?
Assumptions are not an option. If there are any ambiguities within a commercial lease, they need to be clarified and spelled out in detail. If any party does not agree to the details, an amendment can be written and initialed by both parties as part of the negotiation process.
Final tips:
- A commercial lease should be drafted, edited and finalized by professional underwriters and lawyers. (Believe it or not, there have been cases where commercial leases were drafted by the tenant only to later lead to lawsuits based on lack of details)1
- All details and fine print should be read.
- No party should sign anything until all can agree to everything.
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DJ McGauley and Associates Inc. is your Office Move, Reconstruction and Reconfiguration Project Management Company of choice for the Toronto, GTA and surrounding areas. If an office move or reconstruction of your 2000 – 25,000sqft office space is a remote possibility, consider contacting us to arrange a no-obligation site meeting. We guarantee that by the end of that meeting you will know all that would be required to make your office move/reconstruction project a successful reality.
Call 416-239-1931, email [email protected], or visit our website to complete our contact form.
Do Commercial Tenants Need to be Protected from Lease Fraud?
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Lease Fraud…it happens in both the residential as well as the commercial real estate world. Commercial lease fraud mostly occurs at the title or owner level with the fraudster manipulating documents and going through legal channels to assume the role of an executor or officer of a commercial or mixed-use property and then placing a high mortgage on that property (unbeknown to the real executor, officer or owner) and using the money for personal use.
Now I should clarify that commercial lease fraud in Ontario is extremely rare – less than 2% of all commercial leases end up being reportedly fraudulent and the entities affected are usually the owners, investors, lawyers and brokers. But what about tenants? Can they be affected by lease fraud?
Well, truth be told, tenants should not be affected by lease fraud because property owners usually have professional underwriters and lawyers draw up and edit their lease agreements and insurance brokers that outfit them with the proper insurances (e.g. title insurance) to protect their real estate from any issue of “lease fraud” before such issues can affect the tenant.
However, there is the possibility of a tenant’s lease being interrupted or cancelled by the property owner due to circumstances beyond his control. Lease fraud? Not likely. But such an interruption can have serious implications on a tenant’s business.
So what can a commercial tenant do to protect itself from such a possibility? Here are some thoughts:
- Review your lease with your own professional lawyers to see if there is a clause that speaks to such interruptions and details the responsibilities of both the tenant and the property owner. (If in the lease negotiation or renewal stage, this is a great clause to negotiate on so that the terms are fair for all parties involved)
- Seek the professional aid of an insurance broker to ensure your business has the proper rental property and lease-related insurances it needs to protect itself against the unexpected (e.g. rental interruption due to natural disaster, leasehold insurance for situations where your lease is cancelled due to circumstances outside of your control)
- Remain in good standing with your landlord or property owner. A good business relationship with your property owner could cause the property owner to “fight” to keep you as a tenant by recommending one of their other commercial sites to you.
- Do not sign anything you do not fully agree to.
Like lease fraud, lease interruptions are a rarity, but protecting your business from such possibilities can certainly be a game changer for the survival of your business.
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DJ McGauley and Associates Inc. is your Office Move, Reconstruction and Reconfiguration Project Management Company of choice for the Toronto, GTA and surrounding areas. If an office move or reconstruction of your 2000 – 25,000sqft office space is a remote possibility, consider contacting us to arrange a no-obligation site meeting. We guarantee that by the end of that meeting you will know all that would be required to make your office move/reconstruction project a successful reality.
Call 416-239-1931 , email [email protected], or visit our website to complete our contact form.
The Link Between Lease Negotiations and A Rushed Office Relocation
We see this quite often. Companies that know that they will need to relocate to a new office space start the process two, sometimes three years in advance, but they still end up rushing the physical office relocation procedures to within the last three months prior to their scheduled relocation date. Why is that?
Well, let’s look at the process. Companies planning an office relocation begin by engaging a real estate agent whose main focuses are to (a) find an ideal office space and (b) negotiate and close the lease. Often, however, the new location requires some redesign or reconstruction to “fit” the image and culture of the business that is moving in. That process requires a designer to be engaged to view the new location and draw up the plans for the company’s approval before office construction or build specialists are brought in to do the work…
Stop. Here is where the common error lies—Companies often are led to believe that they should not engage a designer until the lease is 100% finalized and signed. Getting to that stage of the lease negotiation process, however, could take up most if not all of the two or three years set aside for planning and putting into motion the physical office relocation!
So, when should a designer be brought into the picture?
Well, despite what most real estate agents may advise, we suggest that when there is an 80% commitment to the lease, even though the lease is not signed, that a designer be brought in to learn about the company’s goals and vision for the new office space, view the new office space, and draw up office design plans for approval. By the time the final office design plan is approved (an approximate three month process), the lease should be fully finalized, which means the office construction and build process along with the furniture research, purchase, delivery and set-up, and finally employee relocation-in can happen.
Leases are an important part of the office relocation process but they should not be the main cause of a rushed office relocation.
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DJ McGauley and Associates Inc. is your Office Relocation, Design, Reconstruction and Reconfiguration Project Management Company of choice for the Toronto, GTA and surrounding areas. If an office relocation or reconstruction of your 2000 – 25,000sqft office space is a remote possibility, consider contacting us to arrange a no-obligation site meeting. We guarantee that by the end of that meeting you will know all that would be required to make your office relocation/reconstruction project a successful reality.
Call 416-239-1931 , email [email protected], or visit our website to complete our contact form.
Could Target’s Exodus Significantly Effect Commercial Real Estate Lease Rates?
It was all over the news in January. Big chain American retailer, Target, announced its plan to exit out of Canada. That means the close of 133 stores, the loss of 17,600 jobs and the anticipation of approximately 20 million sq ft of commercial real estate across Canada becoming vacant. The question remains: Will Target’s mass exodus affect commercial real estate lease rates in the Canada?
Well, let’s look at the possibilities.
Other commercial or retail companies may jump at the chance to expand their businesses into some or all of those vacant spaces, paying the same lease rate Target currently pays. News has it that some large stores like Walmart, Sobeys, Loblaw’s and Metro are considering taking over approximately 55 spots accumulatively of the 133 soon-to-be vacant locations. Fitness companies like Good Life Fitness and possibly some other large fitness clubs may consider expanding into some spots as well. If all those Target locations are filled with other commercial players, then lease rates would be minimally effected if at all.
However, Target locations are, in general, large and currently only attractive to larger commercial or retail companies that may be interested in expanding into locations that best fit their “target” markets and budgets. Since not all locations may fit their criteria, there is the possibility of many of the 133 Target locations being left vacant.
Commercial Real Estate Investments companies have taken the above into consideration and have posed a possible solution. Those that own the Target locations may consider reconstructing the sites into several smaller retail units in order to make the commercial site more attractive for smaller retail companies. This would give an opportunity for commercial real estate companies to lease the smaller units at higher leasing rates.
The commercial real estate companies that have not considered the above as an option may find themselves with a fight on their hands. Co-tenants of some Target locations, particularly in malls and plazas, could take this opportunity to re-negotiate their leases knowing that the current lease rate for the Target spaces are at least 50% cheaper than those of other spaces. This could drive commercial space lease rates downwards.
So, what will happen with commercial lease rates after Target leaves Canada? Only time, tenant and commercial real estate activity will tell.
Corporate Space Planning & Relocation Advice 