Business Leases in the Time of Covid: What you Need to Know!
By Aaron Grinhaus and Alexander Di Giovanni
Even with the “work from home revolution” caused by the Covid-19 pandemic, many businesses still need space for inventory, operations, retail facilities and for a plethora of other reasons. The Ontario Commercial Tenancies Act, which governs business leases in Ontario, can both help and hurt you depending on what side of the negotiation you are on. Although it provides much more flexibility to negotiate the terms you want, it lacks the protections that residential tenants have. This means that tenants looking at spaces that are in high demand will have to tread carefully during negotiations to ensure they do not get stuck in an oppressive, long-term lease.
When issues arise, uncertainty and risk in interpreting the lease can quickly lead to costly disputes. Common disputes generally involve the following issues:
- Uses: It is critical that both parties agree on what is permitted to take place in the leased premises. If not clearly stated, landlords may not agree with their tenants’ use, or tenants may find their permitted uses too restrictive for their business, which could lead to default.
- Renewals and Extensions: As difficult as it may be to predict the future, you will have to consider future events, such as a formula to determine the renewal rent.
- Assignment and Subletting: If there is a possibility that you may end up with more space than you need, this section must clearly state the tenant’s right to sublease part of its space.
- Operating Expenses: To help your business budget you must be clear about the fees and expenses for which you will be responsible.
- Default: The landlord and tenant must be clear on what constitutes a default and what occurs if it happens. If you are a tenant you should also try to have protections built-in, for example if rent is missed, you should be given notice in writing and a period of time to remedy the default before being locked out, in case it was an accident or caused by a misunderstanding (such as being delivered t the wrong place).
- Force Majeure: When dealing with unforeseeable events which are totally out of the control of the landlord and tenant, such as acts of god (storms, earthquakes) or government orders which prevent the business from being able to open such as those which have been imposed as a result of Covid-19, the parties to the lease must account for their liability to perform their respective obligations.
Regardless of whether one is a landlord or tenant, both parties aim to minimize the foreseeable and unforeseeable risks associated with what can be such a critical aspect to their business.
The lawyers at Grinhaus Law Firm have extensive experience in drafting and reviewing commercial leases and can help protect you when negotiating a commercial lease. Please call or email us any time for a free consultation.
PLEASE NOTE: THIS IS NOT INTENDED TO BE LEGAL ADVICE AND SHOULD NOT BE RELIED ON AS SUCH. IT IS IMPORTANT THAT YOU CONSULT WITH A LICENSED PROFESSIONAL.