When purchasing or starting a business, an important aspect of the business will be the lease agreement for where the business will be located. This article will review the general parts of a standard simple lease for retail space. It is essential to speak to your lawyer before signing any documents especially a lease agreement.
The Term and Possession
The Term is the section of the lease that sets out how the length of time that the lease will run. This section often states that “As long as the Lease is in good standing, the Landlord covenants that the Tenant shall have quiet enjoyment of the Premises during the Term of the Lease, without any interruption or disturbance from the Landlord or any other person or persons lawfully claiming through the Landlord.” This clause ensures that the Tenant will not be disturbed by the Landlord, or a third party, for the entire length of time that the lease is in effect, provided that the lease is complied with and the Tenant is not in default.
The parties are free to decide how long they want the lease to run. A lease can vary from several months to many years. Generally, Terms of retail leases are for 3, 5, or 10 years. In addition to the initial Term, the Renewal part of the Lease also discusses how long the Term can be extended for. If the Tenant is unsure about his/her venture, it is recommended to start with a smaller Term for the lease, so that if the venture is not successful, the Tenant has the option of closing the business, without having to worry about the lease obligations. In such a case, it may be helpful to have a longer Renewal Term, so that if the business is successful, the Tenant will not be forced to move or relocate.
Option to Renewal
This section of the lease determines whether the lease can be renewed and for how long. The only matter that is not predetermined is the Rent amount, which will be determined at the time the Lease is renewed. It is recommended that both parties agree to have a group of arbitrators finalize the Rent amount, to deal with a situation where the Landlord and the Tenant are not able to reach a consensus on the Rent. This will prevent unnecessary difficulties that may arise at the time of renewal. As mentioned above, it is best to discuss your lease in entirety with your lawyer prior to signing any documents.
One of the most important questions for the Tenant will be: “how much will I have to pay for the premises?” This question can usually be answered by looking at the Rent section of the lease. There are two (2) general types of rent that will be encountered: 1) a flat rate Rent which includesadditional Rent, which is composed of other fees such as Hydro and maintenance fees; and 2) a flat rate Rent plus additional Rent which includes maintenance fees, Hydro and other fees. The main difference between choosing options 1 and 2 is that option one guarantees a specific, predetermined payment each month while option two will vary slightly depending on maintenance fees, the amount of the Hydro bills and other variables. Almost all landlords will insist on option two.
The Rent section of the lease should always have a break down of the increases in the fixed part of the rent over the lifetime of the lease.
This section of the lease is one that the Tenant can rely on to assign the lease over to someone else or to sublet the premises. The consent of the Landlord is often required and without it the Tenant may have a difficult time subleasing the premises. However, the Tenant can avoid being unduly restricted by the Landlord by ensuring that the Landlord’s consent is subject to being reasonable.
Termination Upon Notice and at End of Term
This section reviews the various ways under which the landlord can terminate the lease agreement. It also sets out how much notice the tenant should be given for various things by the landlord. Finally, it sets out what happens when the term of the lease is completed and a new agreement has not been entered into. Usually, the result is that the tenant will revert to a month to month lease, on the same terms and conditions as the original lease.
The schedules to a lease are as important as other parts of the lease and should be carefully reviewed. It is not uncommon for the landlord to use a standard lease but to introduce all sorts of important changes using the schedules.
As well, in locations where chattels and equipment are left on the premises, a schedule listing these items will be added to the lease. It is recommended that both parties review all these items and include as much information as possible about the equipment, including their serial numbers.
In conclusion, it is important to note that time spent negotiating your business’s lease agreement is time well-spent because for most businesses, their lease agreement is one of the most important agreements they will ever enter into if not the most important agreement. More importantly, often times a well-drafted lease that properly sets out the interest of both parties can prevent costly and time consuming litigation in the future.