Commercial leases are an integral part of the business world in Quebec. Regardless of the industry in which your business operates, there is a high probability that you have entered into a commercial lease to run it. Indeed, whether it is to set up offices, operate a business or even a factory, commercial leasing is omnipresent among Quebec businesses.
That said, do you really know your rights and obligations when signing a commercial lease? Do you know how it will be renewed and at what price? Do you have the right to assign the lease or sublet the commercial premises if circumstances force you to move?
Before embarking on a long-term commercial lease, make sure you are adequately informed about the legal obligations that result from it! The best way to protect the financial interests of your business is to entrust the drafting and analysis of your lease to a lawyer specialized in business law!
What are the services of lawyers in terms of commercial leases?
The field of commercial leasing is a real specialty in law . While we often hear about residential rental problems in terms of housing, disputes surrounding commercial leases tend to go unnoticed. This is why the services of lawyers in this field are often unknown, while in reality, they are essential for Quebec businesses.
Everything starts with the negotiation of the commercial lease! Let's mention right off the bat that the commercial lease is completely different from the residential lease. Indeed, in the context of a residential lease, the tenant benefits from several legal protections of public order aimed at protecting them against undue eviction and other abuses by the landlord. In other words, the legislation surrounding residential leases tends to protect the tenant, which is not the case in the commercial field.
Given that the parties to the contract, namely the landlord owner of the building and the tenant of the premises, are both businesses, there is a rebalancing of forces between them, which gives them greater discretion when drafting the lease.
Moreover, the drafting of leases is an integral part of a lawyer's services! Given that this type of lease can include a wide range of clauses concerning the duration, the renewal, the rent as well as the assignment of the contract, the intervention of lawyers specialized in the field is highly recommended in order to protect both the landlord and the tenant.
Should the tenant fail to meet their obligations, the lawyer may also proceed with theclaim for overdue rent. When such a situation becomes recurrent, the termination of the lease may become the only viable solution and that's when you will need a lawyer to represent youin commercial disputes related to leasing.
Finally, your lawyer is primarily a legal advisor for your company, intervening at all stages of the conclusion of your lease, from negotiation to signing!
Drafting a valid commercial lease, everything you need to know!
The commercial lease is a consensual contract. Explained in common language, this means that it is a type of agreement adhering to the theory of obligations which stipulates that a contract is formed by the mere exchange of consents between the parties. Thus, the lease can be concluded verbally, without affecting its validity.
However, as required by the theory of obligations, the contract will only be formed if the co-contractor accepts an offer containing all the essential elements of a proposed contract. This means that the lease must designate the rented premises, theamount of rent and the duration of the lease in order to be validly concluded.
Does this mean a verbal agreement is enough? Absolutely not! The commercial lease is a complex contract and involves significant amounts of money over the long term. In order to protect your business from a dispute with your landlord, it is definitely preferable to put everything in a clear and comprehensive written agreement.
This same written lease should also contain certain essential clauses that should always be in the agreement! Here are the main clauses that your commercial lease should contain!
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Rent cost
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Type of lease (Gross, net, supernatant, hypernet, etc.)
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Duration of the commercial lease
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Renewal terms
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Possibilities of transfer or subletting
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Usage clauses
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Bond
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Insurance obligations
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Non-competition clause
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Leasehold improvements
In case of ambiguity in the lease, how to interpret the clauses? As no one is immune from a misunderstanding about the meaning to give to a contract, it is possible that the landlord and the tenant misunderstand the scope of a clause in the lease. In such a scenario, how to determine who is right between the landlord and the tenant?
Once again, it is the general rules of contract interpretation that will come into play. This means in particular that the contract will be interpreted in favor of the one who adhered to it and against the one who stipulated it. In the context of a commercial lease, this therefore implies that the contract will be interpreted against the landlord and in favor of the tenant, unless the latter has also stipulated contractual clauses.
Obviously, this analysis of the lease implies the respect of many other interpretation rules, but it is better to simply avoid having to resort to it by soliciting a qualified lawyer from the start!
This person will be able to draft an unambiguous lease containing clear clauses, which will greatly reduce the potential for litigation between the landlord and the tenant of a commercial premise!
Gross lease, net lease and triple net lease: what are the differences between the various commercial leases?
In terms of commercial leasing, there are several types of leases, which greatly vary the extent of the parties' obligations. While residential rent simply stipulates a duration and a rent amount to be paid, commercial rent can include more significant financial obligations for the tenant.
It is therefore essential to distinguish the gross lease from the net lease, triple net lease and absolute net lease!
The gross lease is the simplest form that residential lease can take. In such an agreement, the tenant only assumes as rent the payment of a fixed amount, in addition to taking on the minor maintenance repairs that are provided for in the Civil Code of Quebec.
As for the net lease, this agreement provides for the payment of a fixed amount as rent, to which will be added an additional sum used to pay municipal and school taxes. Other expenses can be added depending on the negotiations of the parties, and know that the distribution of expenses among the different commercial tenants is generally done in proportion to the area occupied in the building.
The double net lease (supra net), on the other hand, obliges the tenant to the same commitments as the net lease, but adding the burden of major repairs to the tenant. A concrete example would be the change of the roof, windows or another costly procedure.
The triple net lease (hyper net), finally, assumes all the obligations of a supra net lease, to which insurance, heating, air conditioning and regulatory compliance costs will be added.
As you can see, the commercial lease can provide obligations for the tenant that bring it closer to those that a owner would assume. It is therefore important to negotiate the type of lease that also benefits your interests.
But how do you negotiate the type of commercial lease that suits your business? You get the wise advice of an experienced lawyer in the field, who will be happy to analyze your financial situation as well as your commercial projects to propose a type of lease that suits you!
Lease termination, assignment and subletting, the rights of the landlord and the tenant!
The commercial lease is a contract allowing the tenant and the landlord to provide between them the terms of termination of the lease. In doing so, a clause can be added to list the situations in which the tenant or the landlord will be justified in terminating the lease.
In the absence of a termination clause, what reasons can justify the termination of the commercial lease? When the parties have failed to draft a clause, they will be bound by the lease until its expiry, unless one or the other fails to fulfill its obligations! This would be the case for a tenant who does not pay his rent or a landlord who delivers a premises in poor repair or who disturbs the peaceful enjoyment of his tenant.
What about assignment and subleasing in commercial matters? First, know that the assignment and subleasing of the lease are two different mechanisms, which has an impact on the possibilities for the tenant who wishes to get rid of his lease.
During a commercial lease assignment, the tenant assigns his lease and the rights that result from it to a third party, who now assumes the obligations of the tenant towards the landlord. The legal relationship between these latter is now broken.
On the other hand, in the case of a sublease, the tenant transfers the rights and obligations of his lease to the subtenant, but he remains personally liable to the landlord. As a result, he remains a party to the contract and in case of default of payment by the subtenant, the landlord will be justified in turning to him. It's better to be careful in such a scenario.
Do you have the right to sublease or assign your commercial lease? It all depends on the terms of the contract! In fact, the parties are free to limit, frame or even completely prohibit the right to assign or sublease the premises. These limiting clauses are perfectly valid and the tenant will not be able to get rid of his lease.
However, when the lease is silent, it is the civil code that will dictate the tenant's rights. The law therefore provides that the tenant has the right to assign or sublet his lease and that the landlord can refuse only in the presence of a serious reason. What's more, in the absence of a response from the landlord, the latter will be deemed to have accepted the assignment or sublet.
Is the publication of a commercial lease essential?
Too few commercial tenants are aware of this fact, but the publication of the commercial lease is one of the most important aspects to protect your business. In Quebec, the publication of the commercial lease is not mandatory. As a result, the lease remains perfectly valid even if you sign it and then store it in a drawer. The problem, however, is not with its validity, but with its enforceability!
Indeed, publication is essential to protect you as a tenant and preserve your right to remain on the premises in case of sale of the building! Put simply, should your landlord decide to sell the building in which you rent premises and the lease has never been published in the Land Register, the new owner can evict you and refuse to honor the lease. There's no need to paint a picture, this could hurt your business badly.
That being said, should you have taken care to publish the commercial lease in the Register, the new owner will be obliged to respect it until its expiry, since the contract was enforceable at the time of purchase. This is why the publication of a lease is much more than a simple formality, it is an essential step that will protect your business in case of a change of ownership.
Everything you need to check before signing a commercial lease for your business!
Just because you're renting instead of buying doesn't mean that you should consider due diligence as optional. On the contrary, it is in your best interest to exercise caution before signing a lease to ensure that the operation of your business can proceed as anticipated.
This means checking the following aspects before finalizing the lease!
-The condition of the rented premises. The pre-rental inspection can be part of the lease conditions to ensure that the premises are in good condition, that it does not contain mold, that it is free of defects and that it is suitable to accommodate your business.
-Do municipal regulations allow for the operation of a business. Municipal regulations and zoning laws can both restrict your right to operate a business in certain areas of the city. It is up to you to check if public order limitations prevent the operation of a business in the proposed premises.
-The payment of municipal taxes and the solvency of the landlord. Although you are not responsible for the debts of the owner, you could still find yourself involved in a bankruptcy process if your landlord becomes insolvent and the bankruptcy trustee obtains the seizure of the building. It is better to make sure everything is in order on the landlord's side before formalizing the agreement.
Moreover, by hiring a business law attorney for the drafting of a commercial lease, the latter will not fail to carry out all the necessary checks diligently required to ensure you get a safe and optimal lease.
How is a commercial lease renewed? Seek advice from a qualified lawyer!
The commercial lease does not automatically renew and unlike the residential lease, the tenant does not have a right to stay in the premises! Since the commercial lease is more like a contract concluded by mutual agreement in the course of regular business activities, it is therefore up to the tenant and the landlord to negotiate the terms of the renewal themselves!
Thus, the renewal clause is a crucial clause in the commercial lease! However, be careful to stipulate the right type of renewal clause. Indeed, a clause stating only the obligation to negotiate the renewal with the tenant will not protect the latter, since the landlord will have the opportunity to demand new conditions, failing which he will turn to a new tenant.
On the other hand, a renewal clause providing in advance for the terms of the new lease - or at least the way to determine them - will work in favor of the tenant who will be able to remain in the rented premises as well as for the benefit of the landlord who will ensure to keep a long-term tenant.
What is the renewal clause with rent renegotiation? This is a clause providing that the lease will indeed be renewed upon expiration, but provided that the parties can agree on the amount of the new rent, which can be renegotiated.
The best solution is to anticipate in advance how the lease terms will be determined rather than stipulating them exhaustively. For example, stipulating that certain economic indices will be used to determine a new fair rent could be fair for both parties.
JuriGo refers you to the right lawyers for drafting a commercial lease!
You have certainly noticed that the commercial lease is a more complex contract than it seems, especially when compared to the residential lease! The cost of rent, the duration of the lease, the renewal terms and the wide range of additional clauses that can be inserted certainly justify the intervention of a qualified lawyer to support you!
The professional you need is the business law attorney specialized in drafting commercial leases. With a long expertise in commercial leasing, your lawyer will not only be able to draft your lease, but he can also negotiate its clauses so that your interests are protected.
Take advantage of such a personalized approach to your commercial reality and entrust your search for business law lawyers to JuriGo!
Our service is simple, all you have to do is fill out our form at the bottom of the page and we will put you in touch with the lawyer that matches your needs in your area. This service is free and without obligation, so contact JuriGo to facilitate your search.