Helpful Commercial Leasing Hints

Your commercial lease is the cornerstone that will set the foundation for your relationship with your tenants. CLLI advisory board member Harvey M. Haber, a Toronto real estate attorney, offers the following helpful hints for creating a more favorable lease for your shopping center or office building.

Basement Area

If you describe the leased premises by its municipal address only, is the basement area which was intended to form part of the leased premises automatically included as part of the tenant’s leased premises? It depends! If the basement area is considered ”necessary” to the enjoyment of the leased premises, it is included. However, if the basement area is merely considered “convenient,” it is not. Avoid ambiguity by specifically providing that the basement area does not or does not form part of the leased premises.

Extension Rent

If you are acting for a landlord and give a tenant an extension option in which the annual rent during each such extension period is to be either mutually agreed upon, or failing agreement, determined by arbitration under the relevant arbitration act, always provide that the annual rent during the extension period will not be lower than the annual rent during the last year of the initial term. Why? Because you want to make sure that the landlord’s annual rent during the extension is not lower than the annual rent during the last year of the initial term of the lease. Otherwise, if the parties can’t agree on an extension rent, and it has to go to arbitration, then without this wording, the extension rent could possibly end up lower than the rent during the last year of the initial term.

Roof Replacement

Is a roof replacement a capital expenditure or is it a repair expense? A landlord should be aware that if the roof of the shopping centere is replaced with the same quality roof, then the landlord can write off the replacement costs in that year. Butif the landlord substantially improves the quality of the value of the roof, it must depreciate the cost over a period of years.

Rent

A landlord should make sure that the term “rent” is defined in its shopping center lease to mean all minimum rent, percentage rent, and additional rent payable pursuant to the lease, because in the event of a default by the tenant, then the landlord has the right to exercise its claim against the “rent” under the lease.

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.

For more information, go to www.gnsh.com.