Five Commercial Lease Considerations:
Type of Lease:
There are several different types of leases that are commonly used for commercial purposes.
In a Gross Lease, the Tenant will pay a specific amount to the Landlord each month, and the amount will cover all base rent, utilities, taxes, any common area fees, as well as additional fees such as landscaping and property maintenance.
It is important to note whether you are entering into a “Net” Lease. A Net Lease will appear to have a lower square footage price, but it will not include extra costs, which the Tenant may be responsible for.
A Net Lease is where the Tenant will typically pay a “base rent” fee per square footage, plus utilities, or taxes.
A Net-Net Lease is where the Tenant will pay the base rent per square footage, plus proportionate property tax and insurance costs.
A Net-Net-Net Lease is where the Tenant will pay the base rent per square footage, plus proportionate property tax, utilities, insurance, and other costs relating to the premises.
It is always a good idea to ensure that your Commercial Landlord is aware of the type of business you plan to operate within the Leased Premises. Perhaps you plan to operate a restaurant, but the unit is only zoned for residential use. You could then become stuck in a lease for a property that you cannot operate your business out of.
Build Out and Maintenance:
It is important to consider who is going to make required improvements to the space, as well as cover maintenance. An example of this is HVAC equipment. Commonly in Nova Scotia, the Landlord is responsible for the maintenance of the HVAC equipment. However, if the Lease states that the Tenant is responsible for HVAC repairs, the Tenant could be in for an expensive surprise if the equipment breaks.
What situations would allow you to break the Lease? If the building has a fire, and you are unable to operate your business, are you able to terminate the Lease? Sometimes there will be a minimum amount of days that the Tenant must wait prior to breaking the Lease after a fire, which would render the premises no longer fit for use. You don’t want to have to wait 60 days before breaking your Lease if you cannot carry on business operations in the meantime.
Length and Renewal Provisions:
You should always consider the length of time you will reasonably want to operate in that space. What other developments are happening in the area? Is there an area you would prefer to move to as the business moves to maturity? A longer Lease does not always mean you will get a better deal in the long run. Sometimes a shorter term will allow you to renegotiate more favourable terms, as an incentive for you to renew the Lease.
What are the provisions for renewal? It is common for the Landlord to grant the Tenant a first right of refusal for their space when their term is ending. It is important to consider how the Lease is to be renewed. It is also important to consider the procedure for renewal. Will the Landlord give an offer with a deadline to give notice to renew?
In Nova Scotia, commercial tenants are not protected by legislation. Typically the prospective Tenant will receive a Lease from the Landlord, with terms favouring the Landlord. Therefore, it is always a good idea to have a lawyer review your Commercial Lease prior to signing on the dotted line.