Commercial Leasing: A-Z
DO’s & DON’Ts, CLAUSES TO LOOK FOR AND
NEGOTIATING TACTICS AND STRATEGIES
By: Sylvan Schneider LL.B.
SCHNEIDER AVOCAT INC.
What Is A Commercial Lease

Business transaction involving two parties regarding
land/property:
ex: Business developer of commercial space, purchaser of a
business, seller of property AND tenant

Contract (Highway properties Ltd. vs. Kelly Douglas &
Co. (1971) S.C.R. 562)

Involves financial consequences and remedies under the
law
First Step: Offer
Letter of understanding/ offer to lease:
Outlines the general points of a lease:
NOTE:

the parties must be named

there must be a clear description of the leased premises;

the commencement/expiration of the term must be set out;

the duration of the term must be determinable;

the rent must be agreed upon (percentage, basic, additional);

all material terms of the contract not being matters incident to the
relation of the landlord and tenant, including covenants, exceptions or
reservations must be set out.
AN OFFER TO LEASE IS NOT SUSCEPTIBLE TO REGISTRATION AND CANNOT BIND A SUBSEQUENT PURCHASER
OF THE PROPERTY
See: (Industries Ultratainer Inc. vs. Rosenberg )
(Sobeys Quebec Inc. vs. 3764681 Canada Inc.)
ND
2
Step: THE LEASE

Binding agreement upon the parties

Contract

Legal ramifications, consequences and
remedies under the law
Do’s and Don’ts
Landlord considerations:
Financing:
Landlord may want an offer to lease in
order to permit it to move forward with its
development plans.
Standard form of lease:
Landlord may include a provision to have
the tenant sign the landlord’s standard
form of lease and consequences for not
doing so.
Business decision:
Business decision of landlord to attach its
standard form of lease
Saving time and money:
If time permits and it is appropriate in the
circumstances, then it is advisable to go
straight to a lease to save time and money
Do’s and Don’ts
Tenant Considerations:
Essential terms:
Verify that all of the essential terms are agreed
upon
Extraordinary/special rights:
Include all special/extraordinary rights such as:
Renewal rights, expansion rights, options to
purchase and exclusivity rights etc.)
Legal counsel/advisor:
If possible, have the lawyer review the
agreement prior to signing, particularly when you DO
NOT have a real estate agent or broker acting on your
behalf in the negotiations.
Bargaining power:
When the tenant has bargaining power, INSIST
upon it.
Landlord’s standard form:
NEVER agree to sign the landlord’s standard
form without the right to negotiate or amend the
form
Types Of Leasing

Gross
 In addition to minimum base rent, tenant will pay the landlord a
stipulated amount per month based on the proportionate share of the
escalation of the expenses over and above the expenses and/or taxes
paid in the previous year

Net/Net (most leases today)
 Landlord passes the risk onto the tenant and tenant is
responsible for all charges and costs related to the operation of
the premises in addition to minimum base rent

Net/Net/Net
 Same as Net/Net but the Tenant is also responsible for costs of
structural repairs
Rent

Minimum Base Rent
 specific amount based on the area of the leased
premises

Additional Rent
 calculated on a proportionate share basis and
includes payment of such items as:
 operating costs (“CAM”): (Include a right to inspect/ audit
clause of landlord’s records with respect to operating costs)
 Taxes
 administrative fees
Indemnification & Insurance clauses

Landlord shifts the risk and shifts the cost of insurance
premiums onto the Tenant for all damages, loss or
claims arising from the leased premises through
exculpatory, indemnification and insurance clauses

Indemnification: Tenant will be liable regardless of
whether the Landlord was negligent or not and afford
protection of the Landlord from third party claims. (i.e slip
and fall in a store)
 Tenant will be required to obtain appropriate insurance
coverage for such liability
 Insurance company will indemnify the Landlord for all costs and
losses arising from the third party claim
Tenant consideration

Tenant should attempt to have the Landlord
agree not to claim against it for loss in excess of
the liability limits the Tenant covenants to carry.

The Tenant should force the Landlord to make a
claim to its insurer rather than just pursuing the
Tenant for recovery
Insurance/Subrogation
EXAMPLE:
 Damage to the premises caused by tenant: $5
million
 Tenant’s insurance: $1 million
 Landlord sues Tenant for recovery of monies ($4
million)
Note: Landlord’s claim is not limited or capped to tenant’s
insurance policy
 Landlord can claim the extra $4 million from the
tenant
Insurance/Protection
3 Possible Solutions:

Waivers of Subrogation
 Opinion from Insurance company
 Capping Landlord’s insurance claim (i.e capping
Tenant’s liability)
Financing And Security

Landlords ensure the solvency of their tenants
by verifying their credit (credit history, credit
reports), bank letters of credit, security deposits,
pre-payment of last month’s rent, guarantees
and indemnities
Landlord Considerations

Security deposit should be available to the Landlord to
compensate it for damages incurred as well as unfulfilled
obligations (i.e. Tenant refuses to complete repairs to the
premises which Landlord ends up doing)

Landlord should be entitled to retain the security deposit
until it can confirm that the Tenant surrendered the
premises in an appropriate state as per the Lease
Agreement
Tenant Considerations

Resist payment of a security deposit/last month’s rent
where possible (rare occurrence) unless you have an
ongoing relationship with Landlord and that you are
financially sound

Notice should be given to the Tenant prior to the
Landlord using the security deposit funds

Demand that the Landlord pay interest at a stipulated
rate each year on all security deposit funds and last
month’s rent
Guarantees

Landlord may ask for a guarantor (“Caution’) to
guarantee and compensate the Landlord for
unfulfilled obligations in the event that the tenant
is in default
Landlord Considerations

Difficult and onerous to enforce. The Landlord will likely
have to commence litigation to get the guarantor to
perform

Landlord must exhaust remedies with tenant prior to
making any demand on the guarantor (Secondary
obligation)

Preference is to obtain an indemnity, as opposed to a
guarantee
Tenant Considerations

While the Tenant may be agreeable to providing a
guarantee, it will need a party willing to act as a
guarantor

Insist on a limited time frame or limited financial liability
for the guarantee
(i.e The guarantee is only effective for the first two (2) years of
the lease term if the Tenant is not in default or the guarantee
being limited to $50,000)
Indemnity Agreement

Alternative to a guarantee: A landlord prefers an
indemnity agreement over a guarantee provided by the
Tenant

Broader form of security

Drafted as a separate agreement

Indemnitor assumes the liabilities of the Tenant and
agrees to compensate the Landlord for all liability it
incurs.

Unlike a guarantee, the liability of the indemnifier is not
contingent upon a Tenant’s failure to perform or default
under the Lease
Assignment And Subletting
Right of Landlord
Right of Tenant


Right to downsize,
restructure, or refinance
the business

Restricts the Tenant from
selling the business/
change of control and/or
any other transfers
thereby restricting the
Tenant’s ability to operate
the business effectively
and successfully


Financial stability of
Tenant sufficient to pay
rent and other leasehold
improvements
Conduct and character
compatible with the
present and prospective
tenants of other space in
the building
Costs involved in
administrating the
premises and the leases
Assignment And Subletting
Landlord Considerations

Should be broadly drafted to include all types of transfers

Landlord should reserve the right to terminate the lease
in lieu of consenting to a proposed transfer/ assignment/
subletting of the Lease

Reserve the right to increase the rent upon any Transfer/
assignment/ subletting

Transferor/ Assignor is not released from its obligations
under the Lease

Tenant remains primarily liable after any exercise of a
renewal by the transferee
Assignment And Subletting
Tenant Considerations

Where the Landlord’s consent to the assignment is required, it must do so
acting reasonably. Any reference to the Landlord being able to
unreasonably withhold consent should be deleted.

Certain permitted assignments without the consent of the Landlord include:
1.
Change of control of tenants who are public corporations;
2.
Transfers to franchisees;
3.
Transfers to affiliates or subsidiaries, family members or to a purchaser
of a company;
4.
Change of control for the purposes of amalgamation or reorganization of the
company;
5.
Finance purposes;
Assignment And Subletting
Tenant Considerations

Avoid Landlord termination rights

Lease should contain a right to share space with a
licensee, concessionaire or other third party where it will
take up a certain percentage of the floor area (i.e less
than 20%)

Try to obtain a release from the Landlord in cases of
assignments

Try to retain a profit in cases of a sublease
Defaults
Monetary Defaults

Non-Payment of rent: Notice will be given to tenant
before the Landlord exercises its rights and remedies
under the law

Action for Rent: Landlord may claim for damages for
future losses without terminating the lease

Terminating the lease: If the cost-benefit is no longer
worthwhile to have a defunct tenant, the Landlord may
terminate the lease
Defaults
Non-Monetary Defaults

If a tenant is in default to perform an obligation, then the
Landlord would prefer the tenant to comply with its
obligations pursuant to the Lease.

In the event of a default, the Landlord may attempt to ask
for specific performance from the courts
Termination Of Lease
3 ways
1.
Physically re-take possession of the premises by obtaining
possession of the premises and ensure that the tenant is
deprived of its use (i.e change locks)
2.
Commence a court action for possession of the premises
3.
Enter into a written termination agreement where the parties
agree that the tenancy has been terminated
NOTE: A Landlord should not accept rental arrears after termination of
the lease
Case Law: Termination
Highway Properties Case:
The Court held that the lease could be terminated and the
Landlord may still recover damages for losing the benefit of
the Lease over its unexpired term and that the Landlord
could claim for damages for loss of future rent for the
unexpired term of the Lease (less the actual rental value of
the premises over the term).
Early Termination Clause

If reluctant to sign a long-term lease and you are unsure
whether your business will be successful or you might
not need so much space.

Landlord may impose a right to terminate if the tenant
does not reach certain level of gross sales

Tenant has a right to terminate if a particular store
ceases to carry on their business in a shopping centre
Exclusive Rights Clause

Goal: Eliminate or reduce the competition in a
retail space within that market area

Exclusive rights to apply also to any successor
or assignee in order to increase the value of the
lease if the tenant later seeks to sell its business
Conclusion Of Certain Clauses

Failure to implement certain clauses or protect
your rights and obligations could be costly in the
future.

Lawyers need to be aware of the implications of
the lease provisions and the proposed structure
of the transaction
Negotiating Tactics and Strategies
Negotiating Tactics And Strategies
1. Understanding the needs of the parties





Identify your needs
What is the minimum acceptable terms?
What is the price spread?
What is the opposing parties needs?
Are there any compromises to be made?
Setting The Agenda And Timetable

What is the time frame?

Is the time frame realistic to close the deal?
Where to Negotiate

Your office or theirs??
 shows a sign of strength
Sometimes advantageous to concede and go to their offices

Telephone conference calls
 organize a time for the call
 Be in command of the subject matter

Face to Face meetings
 Learn from the other’s facial expressions and body language
 rarely do people get up and walk away from face to face
Negotiating Tactics And Strategies
Before Introducing the proposal

Present all the reasons that brought you to the proposal

Invite the other side to correct you: This will establish a
dialogue

Establish the facts beforehand
Negotiating Tactics And Strategies
Be Unequivocal

Be direct and unequivocal in what you
want even if it is controversial

Be honest
Negotiating Tactics And Strategies
Responding to Counter-Proposals

If the other party offers a reasonable compromise, you
should promptly accept it

If the other side makes an unsupportable proposal, resist
the temptation to criticize and reject it- try instead to rework and re-focus on the proposal

Silence is golden
Negotiating Tactics And Strategies
Avoid making statements

Ask questions instead of making statements

Questions allow the other side to respond with
information

Listen carefully to the information and evaluate the
information
Negotiating Tactics And Strategies
Avoid flat out rejections

Never state an ultimatum unless you truly mean it

Never resort to threats; Warnings are far more
legitimate
Negotiating Tactics And Strategies
2. Confronting negative tactics
A. Prior Offer Tactic
“We already have a better offer”.
If you cannot match it, simply say: “That is a great offer, if
I were you I would take it.” There is no sense now in
continuing to negotiate.
If they continue to negotiate with you, you instantly know
that there is no better offer.
Negotiating Tactics And Strategies
B. When the other side will not negotiate
“Either take it or leave it”
 Talk about the reasons for their refusal to negotiate and ask
what facts have been relied upon.
 If the facts are incorrect, suggest that there is a need to
determine whose facts are correct
Negotiating Tactics And Strategies
C. Confronting Confrontations
Confrontation is a ploy to seek control of the meeting.
 You should view this as a negotiation tactic on the other side’s
part to make you look for a compromise or find a solution
Negotiating Tactics And Strategies
D. Confronting Rudeness
“raises his voice, rude, you receive a threat…etc.”
 Tell the person that you are prepared to resume discussions
when he/she returns to civility
 Tell the person that “I do not respond well to threats- I negotiate
based on merits.”
 Last resort: walk out
Negotiating Tactics And Strategies
E. Do not Bid Against Yourself
“You have to do better than that”
 require a counter-proposal and until one is presented
stand firm on your original proposal
Negotiating Tactics And Strategies
F. Don’t respond to extreme positions
 Negotiators often start with extreme positions in order
to lower your expectations. The theory is that the
parties will end up splitting the difference.
 Ask for reasoning and merits of the other side’s
position
Negotiating Tactics And Strategies
G. Negotiate only with your counterparty
 Ensure that the person to whom you are negotiating has the full
authority to compromise
 If there is any doubt, no commitment should be made
 Adjourn the meeting until the other side can produce someone
who is able to make a binding decision
Negotiating Tactics And Strategies
Always end off on a cordial note whether
the negotiations fail or not.
Thank-you
ANY QUESTIONS???
SCHNEIDER AVOCAT INC.
Sylvan Schneider, LL.B.
1980 Sherbrooke West Suite 210
Montreal, Quebec, H3H 1E8
Email: sylvan@sylvanschneider.com
Tel:
(514) 439-1322 Ext. 112
Fax:
(514) 564-3380