Charities, non-profits and co-operatives often enter into commercial lease agreements without having first consulted with a lawyer.  By the time they arrive at our offices at Iler Campbell with a signed 50 or 60 page standard lease agreement (sometimes years after signing it) they often have made commitments that will have serious implications for their organizations, creating problems that likely could have been avoided if they had checked with a lawyer first.

What is a commercial lease?

If you are a charity, not-for-profit or any other small organization, and you need to rent space for your activities, you will probably need to sign a commercial lease. These leases – typically dozens of pages of opaque, complex legalese – are legally binding, long-term commitments. They have huge, long-lasting financial and legal implications.

Having a lawyer review your lease before you sign it will ensure that you know exactly what you are getting into. Lawyers with experience in advising on commercial leases can also provide practical guidance during negotiation with your landlord. They can ensure that your interests are protected.

The top 3 reasons why you should have a lawyer review your lease:

1. You may not realize the full, serious consequences of each lease provision.

• Key provisions. There are numerous provisions of leases you need to be concerned about including the following non-exhaustive list: What can the landlord do to you if you do not pay rent? What do you owe if there’s damage to the building, even if it is damage you did not cause? In addition to your basic rent, do you have to pay additional amounts as your share of the cost of maintaining the common area of the building and the property taxes? If you have to pay these amounts, how are they calculated? What are your repair obligations? How will your space be measured, and what is included in your space and what is not? What if your landlord goes bankrupt – how can you protect your tenancy under a new owner? What leeway do you have to leave the lease early? What are the implications when your lease ends?  Do you need to restore the space to its earlier condition? Are there any other fees you might incur, besides rent?

• If you are a registered charity, what do you need to watch out for? If you are a charity, you need to be mindful, for example, about what you spend on improvements to your rented space, to avoid providing an undue benefit to the landlord. Also, if you have to pay a share of the property taxes for the building in which you are renting, municipalities in Ontario have a rebate program that allows a registered charity to get back a portion of what it pays toward the property taxes. However, getting the rebate requires the co‑operation of the landlord – so, best to address that in the lease.

• Make sure the lease provisions have the flexibility to accommodate your values and needs.  For example, you may want to implement a program to collect compostables produced in your kitchen area or use energy efficient equipment and you don’t want misunderstandings about this.

2.  Good lawyers are well-informed, careful negotiators.  Three examples where a lawyer’s knowledge could save you a lot of money and pain:

• Commercial tenants and landlords often sign an offer to lease, which sets out the basic terms of the leasing arrangement. This document is a legally binding agreement, with the expectation that the offer to lease will be replaced by a longer form of lease. After signing the offer to lease, the landlord then sends along its “standard form” lease for the tenant to sign. Do not sign a standard form lease unchanged. It is fair to assume that, as the tenant, the landlord’s standard form lease puts you at a disadvantage. Also, make sure that you do not sign away your right to modify the standard form lease while you are still in the “offer to lease” stage. Involving a lawyer early on will protect you from these early, but  potentially expensive and difficult, mistakes.

• Standard form leases may give the landlord the power to request periodic financial status updates from the tenant. But since landlords are expected to conduct a comprehensive financial assessment of their tenants before the latter sign anything, periodic re-assessments often are unnecessarily intrusive. Experienced lawyers catch unbalanced requirements like this, and ask the landlord to remove them.

• Standard form leases often require the tenant to shoulder some of the financial cost of repairing common areas. Although you may read these provisions and think only of parking lot cleaning, hallway sweeping and the like, such provisions may also cover potentially costly structural repairs of all types, from rooftop to basement. A lawyer with extensive commercial tenancy experience can help you get your landlord to separate reasonable expenses from unreasonable ones.

 3. Legislation and case law may change the legal meaning of your lease. When you sign a lease, you are not only agreeing to the responsibilities and liabilities described in the lease. You are entering a relationship governed by a complex regime created by the Ontario Commercial Tenancies Act, other legislation and a rich body of law flowing from court decisions dealing with previous disputes between landlords and tenants (this body of court decisions is called “common law”).  Lawyers familiar with commercial leases understand the overarching legal context.

Conclusion: Protect your organization

To protect your organization, consult a lawyer with experience in commercial leases (and if your organization is a registered charity, a lawyer who also knows about charity law) before you sign either an offer to lease or the lease itself.  Weighed against the long term consequences of a lease heavily weighted in favour of the landlord (lawsuit, unforeseen expenses, or damaged reputation), a modest investment upfront of time and money to consult the right lawyer is worthwhile.

 

For further information on how we can help, please contact us.

Filed in: Commercial Law