Commercial Property

Customer Toll-Free: 

  1-844-466-6529

Negotiate a Commercial Lease

While a major consideration, negotiating a commercial lease agreement is more difficult than simply discussing rent. Rather, to negotiate a commercial lease well, there are a number of important considerations to be aware of. In fact, the first step in properly negotiating a commercial lease is to understand and evaluate one’s own needs. How much space do you need now? How much space will you need in the future? What is your budget? Where do you prefer to be located? By first considering your own needs at a high-level, you will be able to approach the negotiation with specific goals in mind.

Having understood your own needs, it is next important to understand the options available to you. For one, you should consider whether costs (like taxes, insurance, and utilities) will be covered in the base rent or not. For example, a gross rent lease will require the tenant to pay a single amount to the landlord, which covers base rent and any incidentals. Compare this with the various types of net leases (net, double net, and triple net leases) where the tenant pays for some incidentals directly. Other options, like the parties’ rights to terminate/renew the lease, competition clauses, repairs, signage, and alterations, etc. are all considerations that go into negotiations.

Handling Rent Increases

Legally speaking, there is no limit on how much a landlord can increase the rent each year under a commercial lease. Accordingly, commercial tenants should weigh the pros and cons of entering into a long-term lease in order to fix the cost of in the near future. While this may provide the tenant with stability, it may also lock the tenant into a lease that they later wish to get out of. Alternatively, the tenant and landlord may negotiate a short-term lease with options to renew at a specific base rent (whether fixed or variable based on the Consumer Price Index or other inflation index or market increases).

Assignment and Subletting

The landlord and tenant relationship typically result in a power imbalance in favor of the landlord. Such control typically is especially exerted by landlords in their ability to prevent tenants from transferring the lease to another party (i.e. an assignment of the lease) and/or leasing the rented space to another tenant (i.e. subletting). May commercial leases provide that a tenant cannot assign or sublet without the landlord’s prior consent, which may make it difficult for a tenant looking to sell its business. If being able to freely assign or sublet is important to the tenant, then the tenant should consider negotiating such that (i) the tenant can assign or sublet without the landlord’s consent; or (ii) the tenant can assign or sublet with the landlord’s consent, but the landlord must consent within a specified time period and cannot unreasonably withhold consent.

Obtaining Additional Space

If a tenant is experiencing or expecting high growth, the space rented under a commercial lease may be insufficient in the future. Accordingly, such tenants should consider negotiating the commercial lease agreement to provide for certain rights of expansion. For example, a tenant may negotiate a right of first offer, which gives the tenant the first right to offer lease space if it becomes available. Similarly, a tenant may negotiate for a right of first refusal, which gives it the right to match any third-party offer made on the vacant premises. However, tenants should be aware that such rights do not guarantee them such additional space (as these rights only arise upon space becoming available). Accordingly, a tenant should be aware of the likelihood of such spaces becoming available and should negotiate accordingly.

Customer Toll-Free: 

  1-844-466-6529

Written Agreement

You will also need to discuss who will be responsible for the property tax. Your companies success will be partly subject to our terms of the agreement you sign. If you are a landlord, your entire business success will be subject to our terms of the lease agreement.

Landlord And The Tenant

Security Deposits For A Commercial Lease Agreement

Commercial Lease Agreement Ontario