Varity Law is pleased to announce that we will be moving to a bigger officer on January 4th, 2021, located at Unit 203, 15 Wertheim Court, Richmond Hill. Of course, what usually accompanies the good news of a new office lease is the uncomfortable termination of the old office lease. Our team at Varity Law had to end the existing lease as the relationship with our landlord quickly turned sour throughout the term. Luckily, given our experience and knowledge, we walked away clean without any financial damage. However, most of our clients are not so lucky.
Now then, what can you do to ensure a clean break and no financial losses from your commercial landlord when the time comes?
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Clarify any lease assignment rights
Often, a commercial lease would have a term between 3 to 10 years. As you can imagine, a lot of conflicts may occur during this time between you and the landlord. It’s ideal if there is an option for you to walk away from your lease obligations before the expiry of the term.
Recognizing this, sometimes the landlord will give you an assignment right – meaning if you can find another tenant to replace you during the term, then you can walk away before the term ends. If this right is not given, it’s always good to ask for it during the lease negotiation stage.
Nevertheless, to protect themselves, the landlord usually attaches the following conditions to your assignment right:
- The new tenant must satisfy the landlord’s conditions – usually involving credit checks to show they can pay rent continuously
- You as the existing tenant must have not violated any other lease term – if you have a tendency of missing rental payments or damaging rental property, then the landlord would be hesitant to take your recommendations for a new tenant
- Even after the new tenant took over your lease, the landlord may still come after you if the new tenant violated any lease terms such as missing rental payments; to alleviate this, it’s ideal if you can sign an agreement with the new tenant, to ensure they compensate you directly if this situation occurs.
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Distinguish between what belongs to you vs. what belongs to the landlord
In many cases, the leased office would not be perfect for you, and you may want to do some renovations. During this process, it’s essential that you always obtain the landlord’s consent before doing any work, to avoid penalties charged.
More importantly, you want to consider what belongs to you vs. what belongs to the landlord after renovation. The best way, of course, is to have everything written down (e.g. items #1-10 belongs to the tenant and would be taken away at the end of the lease, while items $11-20 belongs to landlord and will be left behind at the end of the lease).
Of course, sometimes it’s hard to keep track of everything in writing. In the absence of written agreement, another rule would apply:
- Chattels always belong to the tenant; chattels are objects that can be easily removed from the leased property without damaging the property – common examples include chairs, tables, and shelves.
- Fixtures always belong to the landlord; fixtures are objects that cannot be removed from the property without causing damage, that seems to be “affixed” to the property – common examples include built-in cabinets, walls, built-in lights.
- Rental items belong to the 3rd party rental companies – they do not belong to landlord nor the tenant – the tenant cannot take it with them when the lease ends; common examples include furnace and water heaters.
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Figure out the uses of security deposits
Frequently, the landlord will take security deposit in the form of 1st and last month’s rent from the tenant upon signing the lease. The security deposit will be returned to the tenant at the end of the lease if certain conditions are satisfied.
The common knowledge is that if no damage has occurred to the leased property after the tenant moves out, then the security deposit would be returned. However, sometimes the landlord will put in very specific provisions outlining other uses of security deposits. Examples include:
- To pay outstanding rental payments & interests;
- To pay any service fees the landlord may charge for fixing the leased premises, examining renovation work, etc. (all the service fees the landlord may charge should be specifically stated in the commercial lease);
- To pay for any renovations or upgrades the landlord is conducting on the leased premises (again, such fees should be stated up front in the lease agreement or in a written agreement later).
One of the worst things is to demand for your security deposit when the lease ends, and then find out the landlord has already spent it. Thus, clarifying those concerns up front and throughout the lease term is crucial – do not leave it until the end.
Also, there should be clear language stating when the security deposit would be returned. Most landlord would say 1-2 months after the lease ends. However, to prevent situations where the landlord ghosts you after the lease ends, before you sign that commercial lease you should negotiate for the security deposit to be returned to you on the day you move out of the premises.
Conclusion
In conclusion, when signing a commercial lease, it’s always crucial to clarify the lease assignment rights, the ownership of all properties and renovations within the premises, and the uses & return provisions of security deposits.
As the commercial lease is usually drafted with many legal jargons, crucial details, and a long term (usually between 3-10 years), it’s ideal to hire an experienced law firm to review your lease before signing that binding agreement.
This article is only meant to give general legal information. For legal advice on your specific situation, please book a free initial consultation with us by clicking HERE or by calling 905-597-9357.
Yi Dan (Sabrina) Ding is the Owner & Principal Lawyer at Varity Law Prof. Corp. Varity Law is a one-stop-shop law firm that offer services in real estate law and wills & estates law, as well as business law and business immigration.
