For professionals and companies that do not own a building, rent is usually one of the main budget expenses. The signing of a commercial law must be a protection for your business and not a lot of constraining and costly unpleasant surprises. The location is chosen, the layout of the premises, and customer loyalty are often of strategic, if not capital, importance. You can also get help from the M&A advisory.
Most of the time, landlords of commercial buildings are well aware of their rights and do not hesitate to protect themselves as much as possible. Notice to tenants: avoid being handcuffed by a contract that is too favorable to the landlord. Consult your notary.
Unlike residential leases, the Civil Code of Quebec provides very few rules to protect the tenant when signing a commercial lease. Moreover, there is no generic model for a commercial lease, as is the case in the residential sector. Every commercial lease must be custom-written and must take into account many tenant-specific factors.
In addition, it is often the owners or lessors of commercial buildings who prepare the lease. They do not hesitate to include restrictions and impose obligations on the tenant. The tenant, therefore, has every interest in fully understanding the scope of the proposed clauses and above all in negotiating the terms and conditions when necessary.
PRINCIPAL OBLIGATION
Rent is the principal obligation of the tenant. What does this rent include? Does it include sales tax? Here are some points that deserve to be negotiated before signing a lease to avoid unpleasant surprises.
RENEWAL OPTION
Moving a business entails significant costs such as moving costs, insurance, changes related to stationery and business cards, etc. In the commercial field, the tenant does not benefit from the “right to stay in the premises”. At the expiration of the lease, the landlord is not obliged to offer a renewal or an extension to its current tenant, unless a specific clause is included in the lease. The M&A advisor will not be a bad choice to get the job done.
The renewal option thus assures the tenant that he will be able, at the end of his lease, to continue to rent the same premises, if he so wishes. Particular attention must be paid to the wording of the clause. Indeed, the applicable terms and conditions must be determined in advance. Otherwise, the landlord could demand a substantial rent increase. To make sure,
RIGHT OF FIRST REFUSAL
The lease may also include a “right of first refusal”. In the event of the sale of the immovable, the lessee will have priority over any other buyer, if such a clause is provided. In fact, the tenant reserves the right to buy the building himself, and this at the same price as the purchase offer made by a third party in good faith to the landlord. The tenant will then have the choice of buying the building or remaining a tenant.
PUBLICATION OF THE LEASE
Remember that to properly protect your commercial lease, it is always recommended to publish it in the Land Registry to prevent a new buyer from terminating the lease in the event of the sale of the building. This is a right that the landlord cannot object to, and the costs are minimal.
Failing to publish a lease notice, if the building is sold to a third party, the new owner could, at his sole discretion, evict the tenant within 12 months following the purchase of the building, even if there are two, three, or even ten (10) years left on the lease.
The tenant’s sole recourse will be to sue his former landlord for damages. If the lease is published, the new owner will have to respect the lease and the renewal options. In addition, the right of first refusal will be enforceable against everyone. To protect your rights,
Each case is unique. Simple strategic considerations may prompt the negotiation of special clauses. For example, it could be advantageous for a tanning salon operator to negotiate an exclusivity clause prohibiting the rental of premises in the same building to another tanning salon.
For a start-up business, it could be interesting to negotiate an exit clause, allowing the tenant to end the lease, on the basis of a few months’ notice. In short, there is no magic solution. The drafting of the lease is just as important as the negotiation. Before signing, before handcuffing yourself, consult your notary. It could make all the difference.
