New Tips

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

Rented v. Rentable

Most commercial leases provide for the tenant to pay a proportionate share of the Landlord’s operating costs in the shopping centre, but what if that proportionate share is based on a fraction, the numerator of which is the rentable area of the premises and the denominator is the rented area in the shopping centre.  If the shopping centre comprises a number of stores but only one is rented, then the tenant under this fraction would pay 100% of the Landlord’s operating costs.  The creative solution for the tenant is to change the word “rented” to “rentable”

Mediation/Arbitration/Litigation

In the event of a dispute, mediate first.  If that doesn’t work, arbitrate.  And if that doesn’t work, then litigate.  Why?  Because the cost of mediation is less than arbitration, and the cost of arbitration is a lot less than the cost of litigation.

Distress

A Landlord should be aware that, unless the lease provides for notice, the Landlord has the right in the event of a default by the tenant for the payment of rent, to distrain (i.e. seize) the tenant’s goods, chattels and inventory for the outstanding rent, without notice to the tenant.
 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

Redline v. Blackline in Site Plans Difference?

Whether it is in an offer to lease or in the lease itself, do not outline the tenant’s premises in red.

Why not?

Usually many copies are made of either the offer of the lease in which the site plan of the tenant’s premises is included.  After the first copy or second copy, it is often forgotten to outline the tenant’s premises in red.  Better that the premises be cross hatched in black, as you can run as many photocopies of the site plan you wish, but the premises will always come out cross hatched in black.

Giving Notice:

Make sure that whenever either party has to give notice, they must first give it in accordance with the terms of the lease.

Lessee v. Lessor

Is there a difference?

Yes.

It is too easy to make a mistake using the terms “lessor” and “lessee”.  Instead, use “Landlord” and “Tenant”

 

 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

 

Is the Lease really the entire Agreement?

Usually the answer is yes, but sometimes the Court will look outside of the lease to examine an issue that appears to be ambiguous.

Notice of Rent Default v. Notice of Non-Rent Default

There are two types of notices that must be taken into consideration:

  1. One is a notice of rent default, which tells the tenant it is in default and usually tells the tenant it has so many days to cure that default; failing which, the landlord will exercise all of its legal rights.
  2. The other notice is a non-rent default, which must be given by the landlord (under the Ontario Commercial Tenancies Act) before it exercises any right to terminate the lease.

Significance of a “non-Disturbance Agreement” for a tenant

A non-disturbance agreement is absolutely essential for a tenant in that it provides that the landlord, if it defaults in its mortgage, must obtain a non-disturbance agreement from the mortgagee of the development; which basically says that if the tenant is not in default when the mortgagee takes over possession of the development, then the mortgagee must honour the term of the tenant’s lease.

If there is no non-disturbance agreement in favour of the tenant, a mortgagee has no relationship whatsoever with the tenant.  Meaning, the mortgagee can simply terminate the tenant’s lease on 6 months’ notice.
 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

 

What is the Difference Between an Offer to Lease and an Agreement to Lease?

My understanding is that there is no difference between the two.  Some say that the offer to lease is “unsigned”, whereas an agreement to lease is “signed” by the parties.

Is a Non-Binding Offer to Lease Really Non-Binding?

In the United States, most landlords would not accept an offer to lease, but require that the tenant go directly to a lease.  No lease, no possession.  However, in Canada, there still is a prevalent opinion that an offer to lease is really necessary.

Why?

Because an offer to lease is merely generally a few pages long whereas the lease could be 50 pages in its entirety.  It is much easier to negotiate an offer to lease.
 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

 

Is Percentage Rent Being Phased Out?

It depends on the clout of the tenant.  If the tenant has a lot of clout, such as a supermarket or a department store, it can take the position that it is not prepared to pay any percentage rent.  In some leases, such as an office lease, or a bank or financial institution, percentage rent is not normally payable.

 

How Do We Distinguish Between “Net”, “Net Net” and “Net Net Net”?

My understanding is that there is no difference between the 3 terms, as the word “net” implies that the tenant is responsible for the taxes, maintenance and insurance on its premises.

How Do You Properly Evaluate Proportionate Share?

A pure “pro rata” share of what the tenant pays towards the landlord’s “operating costs”, is based on a fraction, namely: a numerator being the rentable area of the premises, and a denominator being the rentable area of the development.

Many leases modify this fraction.
 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

 

Don’t Miss It

A tenant has a option to renew, but misses the date to exercise that option, can the tenant ask the Court for relief from forfeiture (in other word to reinstate the tenant’s right to renew)?

No.

Why Not?

Because the Ontario Superior Court of Justice has held that relief from forfeiture is only available where there is a forfeiture of the lease and failure to exercise an option to renew is not a forfeiture.

The Landlord/Tenant Relationship

A landlord distrains (i.e. seizes) a tenant’s “goods” in the leased premises on April 25, 2013 for outstanding rent arrears, and on April 30, 2013, the lease term ends, without the distress having been completed.

Does the landlord’s distress continue, as there is no longer any lease or a landlord/tenant relationship (which must be in order for the landlord to render a distress)?

Yes and No.

Yes, if the tenant continues to remain in possession of the leased premises, and if there is an overholding clause in the lease, which renders the tenant a monthly tenant, thus continuing the landlord/tenant relationship.

No, if the tenant has moved out, the distress is incomplete, and the landlord has lost its right to render a distress on the tenant’s “goods”.

Define Rent

Most commercial leases provide for annual minimum rent, a percentage rent and additional rent.  What is important for a landlord is that all of these items be designated in the lease as “Rent”.

Why?

Because a landlord can only distrain (i.e. seize”) a tenant’s goods chattels and inventory (“goods”) for outstanding “Rent”.  If Rent is not owing, the landlord cannot distrain against the tenants “goods”.
 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

 

Administration Fee

What if a landlord’s offer to lease does not contain a charge by the landlord of any administration fee to the tenant?  Can the Landlord claim an administration fee?

No.

Our Courts have held that a landlord must include a specific clause in the offer that expressly provides that he is entitled to charge an administration fee.  Otherwise, our Courts will not force a tenant to pay such a fee.

Two Fees?

Can a landlord, in its offer to lease charge a tenant both an administration fee (usually 5-15% of operating costs) and a management fee (typically 2-5% of rental revenues)?

If both parties agree in writing to it, then the answer is yes.  Nevertheless, a tenant should be very concerned about this form of double charging.  A tenant should seek to eliminate either fee, or at least exclude “administration fees” from the definition of operating costs.

Commercial or Residential?

A tenant leased space on the ground floor for a retail store with living accommodations in the basement; upon the tenant’s default, the question before the Court was whether this space was “commercial” or “residential”.

The Ontario Superior Court of Justice held that a lease of a retail store with associate living accommodations was not a residential tenancy under the Ontario Residential Tenancies Act.  In this instance, the Court held that although the tenant may not have used the premises for commercial purposes, it expressly reserves the right to do so and the Court held that the tenant had entered into a commercial lease with the landlord that was not subject to the Ontario Residential Tenancies Act.

 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

 

No Competition

A landlord should always insist on a radius clause (if it is a retail development) by which a tenant covenants and agrees that it will not compete with itself, within a designated radius from the development.  A tenant should try to reduce or eliminate the radius.

Architect’s Certificate

A landlord should make arrangements to provide its tenants with an Architect’s Certificate as to the rentable area of the tenant’s leased premises before the lease is singed.

Why?

This will avoid all kinds of problems, particularly since rent is based on the rentable area of the premises.

Audited Statement

A landlord should always provide its tenants with an audited statement of the landlord’s “operating costs” and should always include the cost of the audit as part of the landlord’s operating costs.

Why?

By the landlord providing an audited statement to a tenant, it will save a great deal of aggravation for the landlord, as inevitably there is a dispute as to the tenant’s share of operating costs.
 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

 

Don’t Guess

A landlord should not, under any circumstances, give specific figures when asked for yearly taxes and operating costs by a tenant.  A landlord should always indicate that it is a “guestimate” or and “estimate”.  It is a simple way for a landlord to avoid litigation.

Don’t Wait

A landlord is the one who will know if the rent is in default.  If it is, a landlord should act quickly.  It should not wait.  As the longer it does, the sorrier it will be.

Lease First

If the landlord agrees to give a tenant a leasehold improvement allowance, it should make sure that one of the conditions of payment is that the lease is first fully executed by both the tenant and the landlord.
 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

Insurance on Leasehold Improvements

Did you know that both the landlord and the tenant can separately insure their respective interests in the tenant’s leasehold improvements in the premises as each have their own respective interest in the leasehold?

Waiver of Subrogation

Did you know that a tenant’s “Waiver of Subrogation” only applies to the tenant’s “property” and not its “liability”?

 

Insurance Certificate

Did you know that insurance certificates have to be carefully checked as many of them are incorrect?
 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

 

Distress

What is “distress”?

It is a landlord’s right to seize a commercial tenant’s goods, chattels and inventory (“goods”) for outstand rental arrears.

Can a landlord do so if it is not outstanding rent?

No.

So what do landlords do?

They insert in their commercial lease that all money payable to the landlord is deemed to be “additional rent”, which means the landlord can seize the tenant’s goods in the amount now designated as “rent”.

Distress – When?

I have indicated to you that a commercial landlord can seize a tenants goods, chattels and inventory for outstanding rental arrears.  The question is, “can a commercial landlord do so at any time”?

No, a landlord can only seize a tenants goods after sunrise and before sunset.  It is an old law, but it is still the law.

Can the landlord exercise the distress between sunrise and sunset on any day during the week?

Yes, even on a Sunday!

Distress – Fixtures?

Can a commercial landlord “seize” a tenant’s chattels (such as tables and chairs for outstanding arrears?

Yes, since they are chattels.

Can a commercial landlord seize a tenants “fixtures”?

No, a landlord cannot seize anything that is attached to and forming part of the premises, such as a tenant’s built in bar for serving drinks.

Can a landlord seize a tenant’s “leasehold improvements” – such as a tenant’s light fixtures?

No.  The Law is far from clear on differentiating between what can and cannot be seized by a commercial landlord for outstanding rent, so be careful!
 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

 

Arbitration

If a lease provides that in the event of any dispute between the landlord and the tenant, then it is to be settled by arbitration.

Can a tenant nevertheless bring an application to the Court to decide the matter?

No.

The Arbitration Agreement speaks for itself.

Proper Notice

Make sure that a tenant gives notice exactly as prescribed under the lease.  Improper notice can invalidate whatever notice the tenant is giving.

Late Notice

The lease calls for written notice to be delivered to the landlord and the notice is deemed to be delivered on the date of delivery.  The tenant, exercising its right to extend the term, sends its extension notice by regular mail and it is received by the landlord 2 days after the date it was supposed to have been delivered.

Has the tenant lost its right to extend because of the late date of delivery?

Yes.  Except in the event of extremely mitigating circumstances.  Canadian Courts have taken a position that delivery of an extension notice when it is supposed to have been delivered is a “condition precedent” and they will construe it strictly.  American Courts appear to be more lenient in such event, particularly if there is no prejudice to the landlord.
 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

 

No Relocation

If the tenant has enough clout, it should insist that one it has taken possession of its premises, that the landlord cannot relocate it.

Architect’s Certificate

A tenant should insist on receiving from the landlord an independent Architect’s Certificate as to the rentable area of the premises before the lease is signed.  This will avoid all kinds of problems, particularly since the tenant’s rent is based on the rentable area of the premises.
 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

 

Title

A tenant should have his/her lawyer always sub-search the title to the property to determine:

  1. That the owner of the property is in fact the landlord under the lease (and if not, why not);
  2. If there are any restrictions on title which can affect the operation of the tenant’s business (such as any restrictive covenants given by the landlord to other tenants, or easements given to third parties); and
  3. Whether there are any mortgages or encumbrances registered on title (as a tenant will want the landlord to obtain a “non-disturbance agreement from any mortgagee in the tenant`s favour).

Zoning

A tenant should have his/her lawyer determine that the property is properly zoned to permit the tenants use of the premises, and to make absolutely sure that the landlord`s lands are properly zoned so as to permit a shopping centre or whatever development is contemplated.

Corporate Search

If the landlord is a corporation, the tenant should make a corporate search of the landlord at the Ministry of Consumer and Commercial Relations in order to determine the following:

  1. If the name of the landlord is accurately spelled;
  2. That it exists;
  • in what jurisdiction it was incorporated; and
  1. The names and addresses of the directors and officers.

 

HELPFUL COMMERCIAL LEASING,
ARBITRATION AND MEDIATION TIPS

PRESENTED BY: HARVEY M. HABER, Q.C., L.S.M., C.A.R.B., C. MED.

 

 

Office Lease Use Clause

Many office leases simply provide that the premises are to be used solely for “general office purposes”.

Is that a problem?

Absolutely!  The landlord may have given one office tenant a restrictive covenant for a particular use (such as an insurance office) and then discover that another office tenant is using its premises for the same use (as the other office premises may simply have in their lease that their office premises can be used for “general office purposes”).

What should a landlord do to avoid this?  For example, if it is an insurance office, the landlord should provide that the offices premises will be used only for the purpose of insurance administration.  In that way, the landlord can avoid a law suit by being specific as to what any other office premises are not to be used for.

 

Shell Company

A landlord should make the necessary searches to determine whether the tenant is financially viable or merely a “shell” company.  If it is a “shell” company without any assets, this will inevitably leave a problem to the landlord if the tenant subsequently defaults under the lease.  A tenant should make the necessary searches to determine whether the landlord is financially viable or merely a “shell” company without any assets, this will inevitably leave a problem to the tenant if the landlord subsequently defaults under the lease or under any mortgage on the property.

Always Ask

A tenant should always ask the landlord what the annual taxes and operating costs are (in addition, of course, to asking what the basic rent, and if applicable, what the percentage rent is).

Why?

Because the tenant wants to determine its annual budget using relevant figures.