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About the Law of Commercial Leases


After a long search, you've finally found the perfect location for your little cafe.  It's in a busy shopping mall on the trendy side of town.  Fantastic! You contact the landlord and the landlord wants you to sign a lease.  A few questions probably pop into your mind:
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What is a lease?

Legally, a lease is a temporary transfer of an interest in a property from the owner to a tenant, which allows the tenant to occupy and use that land for a period of time. The lease document sets the terms and conditions of the relationship between the tenant and landlord, and often favour the landlord.

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The offer to lease

Usually, the leasing process begins with an Offer to Lease. Here, the tenant will give a written offer to the landlord to lease a particular property on certain terms and conditions, including the property, rent, term, renewal options, and sometimes incentives to the tenant, usually called "tenant inducements".

Tenant Inducements: Landlords will often give tenant inducements such as:
  • a leasehold improvement allowance, to pay for all or part of the renovations to premises
  • a fixturing period while the premises are being renovated: This is usually free of both basic rent and triple net expenses
  • a rent free period (during occupancy): normally after the tenant occupies the premises, if the landlord grants a rent free period, the tenant usually must pay the triple net expenses
  • cash payments: in some cases, the landlord may pay a sum of cash to the tenant in order to induce the tenant to sign a lease
The tenant's ability to negotiate these inducements will depend upon market conditions for the premises, the financial strength of the tenant, and the landlord's objectives.  Also, each of these incentives will have different tax consequences to the tenant. You should review these with your lawyer when negotiating your lease.

Conditions: Often the offer is subject to certain conditions being met.  This may include the tenant's lawyers reviewing and approving the actual lease document; approval from the landlord's board of directors; or other conditions.

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What terms are in the lease?
  • The Parties
  • Identification of Property to be Leased
  • Starting Date and Length
  • Option to Renew
  • Basic Rent
  • Taxes, Operating Costs, and Insurance
For more details, see our article "What Terms Are in a Lease?".

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What does the landlord have to do? The parties to a lease make certain promises and have certain obligations to each other. Here are some common obligations of the landlord:
  • Quiet enjoyment: The landlord usually agrees to give the tenant quiet enjoyment of the premises. This means that the landlord won't unduly interfere with the tenant's use or occupation of the premises (as long as the tenant doesn't breach other provisions of the lease).
  • Use restriction on other tenants: Sometimes a tenant may negotiate a "restrictive covenant" with the landlord, to ensure that there aren't competing businesses in the same building. For example, the perfect mall location for your trendy cafe might not be so perfect if a Starbucks moves in next door!

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What does the tenant have to do? Some of the common obligations of a tenant in a commercial lease are as follows:
  • Rent and triple net charges
  • No assignment or subletting
  • Leave premises in good repair
  • Permitted use
  • Indemnity
  • Notices "for sale" or "for lease"
For more details, see our article "Tenant Obligations."

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What can the landlord do if the tenant breaks the lease? Most leases give a lot of powers and options to the landlord if the tenant breaks the lease. These might be some of the remedies available to the landlord:
  • Distress
  • Damages
  • Re-entry as agent of tenant
  • Termination and re-entry
The tenant can often apply to the court for "relief from forfeiture" of the lease if it immediately makes good on the amounts owed.

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How does the lease end?
  • Expiry of term: The lease may end because the term has expired and the parties chose
    • not to renew the lease.
  • Frustration: This happens when the lease cannot continue because of factors which are not the fault of either the tenant or the landlord.  The lease is "frustrated." This might occur because of a major catastrophe (i.e. war; revolution; natural disaster etc.)

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More questions?
Contact a lawyer experienced in commercial leases for a consultation
see Vancouver & Victoria Directory



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This page last updated: November 20, 1999
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