A commercial lease is a legally binding agreement between a landlord and a tenant governing the use of a commercial property. It outlines the terms and conditions under which the tenant will occupy the premises, and the landlord will provide the space. Therefore, landlords and tenants need to thoroughly understand the critical components of a commercial lease to ensure a smooth and successful business relationship.

This blog post outlines several vital components of a commercial lease in British Columbia and highlights additional matters for parties to consider before executing the agreement. 

Key Components of a Commercial Lease

While all commercial leases look different, there are several key components that every commercial lease should contain. Some of these key terms and provisions are explained in further detail below:

Parties

The parties to a commercial lease should be clearly identified at the outset, including the landlord’s and tenant’s full legal names and addresses. It is also vital to ensure that the parties signing the lease have the legal authority to do so. 

Description of Premises

The commercial lease must provide a detailed description of the premises being leased. This includes the address, size, and any specific features or amenities. To avoid future disputes, this description should be unambiguous.

Use of Premises

After the premises have been described, the lease should clearly define the permitted use of the premises. This is important to ensure that the tenant’s activities comply with applicable zoning regulations and do not interfere with the rights of other tenants.

Term of the Lease

The lease term specifies the start date and end date of the lease agreement between the parties. The parties must consider factors such as the tenant’s business needs, market conditions, and the landlord’s long-term plans when determining the length of the lease. 

Base Rent and Additional Rent Charges

Most commercial leases contain both a “base rent” and an “additional rent” component. Base rent is usually listed at a specific rate per square foot, whereas additional rent is intended to cover operating costs, taxes, and other miscellaneous items. The base rent may be a fixed amount or calculated based on factors such as the size of the premises or the tenant’s sales. In addition to the base rent, a commercial lease may also include provisions for additional charges, such as:

  • Common Area Maintenance (CAM) fees: CAM fees are intended to cover the landlord’s cost of maintaining common areas in the building, such as the lobby, parking lot, washrooms and elevators. 
  • Property Taxes: The tenant may be responsible for paying a portion of the property taxes on the leased premises.
  • Utilities: The lease will generally state which party is responsible for paying costs for utilities such as electricity, water, and gas. 

Tenant Improvements

A commercial lease may address the issue of tenant improvements, which are modifications made to the premises by the tenant to suit their specific business needs. Tenant improvements can range from minor cosmetic changes, such as a coat of fresh paint or new flooring, to significant upgrades, like new plumbing systems or the construction of new walls. The lease should specify who is responsible for the cost of the improvements and who has ownership rights to them after they have been completed. 

It is common practice for the landlord to pay for the commercial leasehold improvements through a tenant improvement allowance. If the cost of enhancements exceeds that allowance, the tenant will be responsible for paying the difference. Under this method, the tenant is generally responsible for overseeing the work. Alternatively, the landlord may offer rent discounts to the tenant for a certain number of months equal to the cost of such improvements. In some cases, the landlord may offer the tenant a building standard allowance under which the tenant can choose from a package of improvements to be made, with the landlord overseeing the work.

Lease Assignment and Subletting

Some commercial leases may contain restrictions on the tenant’s ability to assign or sublet the leased premises to another party before the lease term expires. Such limits are essential to protect the landlord’s interests and ensure the tenant remains financially responsible for the lease. For instance, assignment or subletting may be permitted after obtaining the landlord’s prior approval.  

Default and Remedies

The lease should outline the remedies available to the landlord in the event that the tenant defaults on any provision. Some common remedies include the landlord’s right to terminate the lease, recover damages from the tenant, or take possession of the premises.

Security Deposit

The landlord may require the tenant to provide a security deposit to ensure that the tenant will comply with the terms of the lease and will not damage the premises. The lease should specify the amount of the security deposit and the conditions under which it will be returned to the tenant at the end of the lease term.

Holdover Provisions

A commercial lease should outline the consequences if the tenant remains in possession of the premises after the expiration of the lease term. These provisions may include various penalties or additional rent payable by the tenant to the landlord.

Additional Commercial Lease Provisions

Beyond the above-listed standard commercial lease provisions, commercial leases may also contemplate additional issues, such as:

  • Insurance: The landlord may require the tenant to carry a specific amount of liability insurance and provide proof of coverage to the landlord before the lease can be executed.
  • Signage: The lease may address whether the tenant’s signage is permitted on the leased premises and may specify who is responsible for the installation and removal of such signage at the expiration of the lease term.
  • Environmental matters: A commercial lease may contain provisions related to environmental compliance and remediation depending on the location of the premises and the nature of the tenant’s business.
  • Taxes: The lease may specify who is responsible for paying property taxes on the leased premises.
  • Force majeure: In today’s unpredictable world, many commercial leases include a force majeure clause that excuses the parties from performing their contractual obligations in the lease in the event of unforeseen circumstances beyond their control. This clause may be invoked in natural disasters (e.g. fire or floods), governmental or societal actions (e.g. civil unrest or labour strikes), and infrastructure failures.
  • Property maintenance: Depending on the location of the premises to be leased, a commercial lease may outline the parties’ respective responsibilities regarding property maintenance and waste management. In some cases, the landlord may provide landscaping and snow/ice removal services, while others may require the tenant to take on such responsibilities. 

The Benefit of Consulting With a Lawyer for Your Commercial Lease

Commercial leases are complex legal documents that require careful consideration. It is recommended that both landlords and tenants consult with an experienced commercial real estate lawyer to review and negotiate the terms of the lease to ensure that the overall agreement is fair and protects the interests of both parties. Your lawyer will be able to help you identify and resolve potential issues within the lease so both parties can ensure a successful and mutually beneficial business relationship.

CM Lawyers: Providing Skilled Commercial Lease Services in Vernon & Salmon Arm

At CM Lawyers, our team of skilled commercial real estate lawyers regularly advise our clients on a variety of commercial real estate matters, including the purchase and sale of property, mortgage issues and commercial leases. Our real estate team takes a hands-on approach to all real estate matters and helps clients carefully review all documents before execution. We take a proactive approach to commercial lease reviews and ensure that the agreement is fair and enforceable.

With offices in Vernon and Salmon Arm, CM Lawyers proudly serves clients throughout the surrounding regions, including Northern Okanagan and Shuswap. To speak with a member of our real estate team about your commercial lease matter, please contact us online or call our Vernon office at (250) 308-0338 or our Salmon Arm office at (250) 803-9171.