Negotiate a Better Commercial Lease

By Janice Mucalov, LL.B.

 

 

If you’re looking for office or retail space, you’ll want to negotiate the best deal possible. One savvy law firm managed to sign a lease for no rent! All they had to do was pay their share of the property taxes and the building’s heating, security, snow removal and other operating expenses. Plus, they could walk away from their five-year lease by only giving six months’ notice.

Landlords want to attract and keep good tenants. So you do have bargaining power when it comes to negotiating your lease. How much depends on the market.

Ask what “tenant inducements” are being offered – those freebies designed to make you want to sign up. Typically, these include:

• a rent-free fixturing period (a move-in period before the lease starts, so you can get the space ready for your business),

• payment for your carpeting, shelving, interior partitioning and other leasehold improvements, and

• several months’ reduced or free rent.

If you’re moving out of other space, your new landlord might also be willing to pay any remaining lease payments and perhaps even your relocation expenses.

Also try to obtain the following:

• the right to lease neighbouring space when it becomes available (so you can expand in future if you wish),

• exclusive parking spots, if you need them,

• the right to renew your lease in future at the same rent, not future rental rates (if higher),

• the right to sublet or transfer the lease without the landlord’s consent (if the landlord insists on approving the proposed subtenant or transferee, make sure the landlord’s approval can’t be unreasonably witheld),

• a cap on your share of the building’s operating expenses (for example: “The Tenant’s share of operating expenses and taxes for the first year of the lease term will not be more than $5.00 per square foot, and will not increase more than 5% in any one year compared to the previous year.”), 

• the right to be protected by the landlord’s building insurance,

• the right to reduce or stop paying rent during any time the premises can’t be used because of fire damage, and

• if your lease is for three years or longer, the right to register notice of the lease on the landlord’s title (so if the landlord sells the building, the buyer can’t throw you out) – but discuss this with your lawyer.

If you’re leasing retail space for a clothing boutique, coffee shop or other store, make sure the landlord also agrees to give you the following things:

• an exclusive business clause preventing a competing business from renting and setting up shop in the same building,

• the right to put up prominent signs, especially if you depend on foot or street traffic, and

• the right to cancel your lease if nearby stores and businesses, on whose traffic flow you depend, stop operating.

Finally, if the landlord’s leasing agent asks you to sign an offer to lease, remember that offers to lease often obligate you to sign the landlord’s standard lease form. Since these are almost always written with the landlord’s best interests in mind, be sure your lawyer reviews them before you sign.

 

This column has been written with the assistance of ANDREW LAU. The column provides information only and must not be relied on for legal advice. Please contact ANDREW LAU at (604) 681-3833 for legal advice concerning your particular case.

 

Lawyer Janice Mucalov, author of this article, writes about legal affairs for several publications. “You and the Law” is a registered trade-mark. © Janice Mucalov.

 

ANDREW LAU LAW CORPORATION

1500-885 West Georgia Street

Vancouver, BC V6C 3E8

Phone: 604.681.3833

Fax: 604.681.3897

E-mail: lau@ayclawoffice.com