Commercial and residential leases are unique contracts in Manitoba. While residential leases are governed by the Residential Tenancies Act and must comply with the legislation, commercial leases are like any other contract between two parties. The presumption is that the two businesses entering the contract (the landlord and commercial tenant) are generally on equal footing. Thus, it is essential that you understand the key terms of the contract before entering a commercial lease.
A real estate lawyer in Winnipeg can help you draft and negotiate a commercial lease to ensure you are signing what you expected. Below are common key clauses you may find in a commercial lease.
Term & Termination
A term and termination clause describes how long you will occupy the lease premises for. Many contracts include rights to renew after a certain period of time. You may wish to consider negotiating the length of the term to fit your needs and any extension rights.
It is equally important to consider how you will be able to exit the lease. Will one or both parties have the right to terminate the agreement at any time or upon notice? Will you have to pay a break fee for exiting the lease?
The amount you pay for your lease can be calculated as a flat rate or as a percentage of your sales and can be payable on a monthly, bi-monthly or some other basis. It is important to understand how much and when you will be paying rent and what is included. For example, who will pay for taxes? Who will cover insurance costs?
Services & Responsibilities
When the lease is prepared, you should be able to clearly determine whether you or the landlord is responsible for maintaining the premises. Maintenance costs can include heating, electricity, air conditioning, water, an HVAC system, plumbing, electrical and all associated costs. Further, you should know what type of security is provided to your leased premises and, again, who pays for any monitoring service. There are many other areas where you may be able to negotiate, such as cleaning services, snow removal, landscaping and parking.
Similarly, when such systems break down, it should be clear who is responsible to repair the items. Repairs can be costly, and your lease may stipulate whether costs are borne by a party who was at fault or simply apportion some cost of all repairs to you.
Your landlord may specifically include in the lease that only your specific type of business is allowed on the premises and you may otherwise need prior written permission to expand your activities. This clause may place limitations on your plans to grow or expand your business so you should ensure you have enough leeway to accomplish what you need.
For example, in Geoffrey L. Moore Realty Inc. v. The Manitoba Motor League, 2003 MBCA 71 (CanLII), an automobile insurance company entered a commercial lease with its landlord to sell automobile insurance from the premises. However, the tenant began selling home insurance from its unit, contrary to the lease restricting the business. Another tenant in the shopping center had the exclusive right to sell home insurance, thus triggering the dispute. The judge found that the tenant chose to breach its contract and thus upheld the contract, prohibiting the tenant from selling home insurance from the premises.
While your business might outgrow the space quickly or you may need some additional income to supplement your business, generally, a landlord will require that you obtain prior approval before subletting your premises. If you want the right to sublet all or a portion of your space, this must be included as a right in the contract. Note however, that as a tenant, you are legally responsible for the rent and the condition of the premises during the sublet.
For example, in Corydon Village Mall Ltd. v. TEL Management Inc. et al., 2015 MBQB 67 (CanLII), a tenant proposed to sublet its leased premises in a shopping centre to a pole dancing business. The landlord declined the request primarily because the shopping centre was family-oriented and the landlord was worried this type of business might attract clientele at late night events where alcohol would be served. The landlord was concerned about security and parking as well and ultimately refused. The court held that the landlord was reasonable in its refusal and did not fundamentally breach the agreement.
No matter how successful your business may be before you enter into a lease, the landlord may require that you sign a personal guarantee so that if your business fails, the landlord can hold you personally liable to pay the rent.
Call Cassidy Ramsay, Real Estate Lawyers in Winnipeg for Your Business Needs
A real estate lawyer at Cassidy Ramsay can not only help to ensure that you understand the terms of a proposed lease and help you to negotiate terms that are favourable to your business, but also help with other aspects of your business.
If you are setting up your business or would like to change the existing business structure, Cassidy Ramsay can help incorporate and prepare the necessary filings and registrations. Your real estate and/or corporate lawyer in Winnipeg can also help in the purchase or sale of a property that is being leased. To serve your legal interests, make it your next step to contact Cassidy Ramsay, Winnipeg lawyers at 204-943-7454.