Drafting and negotiation of a commercial lease

Document that establishes the rights and obligations of the landlord and the tenant

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The commercial lease can be either gross or net. The gross lease is mostly used for small commercial spaces. It is often similar to a residential lease where the tenant only pays a monthly payment to the landlord.

The net lease can include up to four instances of the word "net" as follows:

  • The net lease includes a periodic base rent to which the tenant's proportionate share of operating expenses is added;
  • The double net lease also includes major repairs;
  • The authors do not agree on the definitions of triple net lease and quadruple net lease, but the more instances of "net" there are, the higher the expenses payable by the tenant.
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The rent can be fixed or variable. For small commercial spaces, the rent is generally fixed. For most commercial leases, there is a base rent collected monthly, based on the rented area. An additional rent is added for the tenant's share of operating costs, proportionate to their occupancy. Operating costs are normally divided among tenants, based on the proportion of the area they occupy in the building. Additional rents are often collected monthly based on a budget, which is reviewed annually. In order to determine the rent, it is essential, both for the landlord and the tenant, to clearly describe the expenses that will be chargeable and included in the operating expenses clause. For example, should structural expenses be included. In most leases, there is a provision for rent increases, either a fixed amount, a percentage, or based on the consumer price index (CPI).

A commercial lease may contain one or more clauses granting the tenant the right to renew the lease for specific periods, according to predetermined terms. It is important for the tenant, during negotiations, to be very cautious regarding the terms of renewal. Courts have decided that a clause stating that the rent amount will be determined based on market price was difficult to apply, if not inapplicable, and that if the parties did not agree, there was no obligation to renew the lease.

We invite you to consult a member of the Notaire-Direct team because they:

  • are legal advisors;
  • are negotiators;
  • are specialists in contract drafting;
  • are required to have liability insurance;

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