Many businesses in Nova Scotia lease the real estate where they do business. This requires negotiating a commercial lease agreement with a landlord.
In a commercial lease, the tenant and landlord have specific interests they wish to protect. Depending on the location of the property and circumstances of the lease, there are often several other parties who have an interest in the terms included in the lease (such as other tenants, financers, etc.).
Commercial leases are different from residential leases. In Nova Scotia, there is no Commercial Tenancies Act or similar legislation to define the terms and the workings of the lease. Although Nova Scotia led the way nationally by regulating residential leases, commercial leases aren’t standardized and the landlord and the tenant must protect themselves.
When negotiating the lease, the relationship between the parties favours the landlord, particularly when a tenant has their heart set on specific location. Large tenants are increasingly more effective in the negotiation process (for example, in the case of large box chain stores forming the foundation and the “draw” to certain shopping areas).
Commercial Leases In General
All commercial leases should include terms relating to the parties involved, premises leased, length of the lease and rent due. As with all business agreements, each commercial lease is unique. There are many other terms and conditions that can be included. Here are some considerations for both parties when negotiating a lease:
• It’s important to consider just what the business is and what the premises will be used for. There are clauses specific to leases involving retail, office and industrial spaces. In retail leases, clauses restricting the use of the premises can be very important.
• The location of the business will affect the terms of the lease. Commercial leases differ from office buildings, to strip malls, to shopping centres. Landlords have different interests to protect in different locations, specifically operating costs.
• Two common types of leases are “gross” and “net” leases. A “gross” lease excludes the landlord’s operating costs from the rent. This can often favour the tenant in a case where operating costs increase. A “net” lease will include operating costs as an additional component of the rent. Net leases are often used by landlords seeking to recover the operating costs during the terms of the lease.
Other Common Terms
Landlords will restrict the use of the premises by the tenant by including a use clause. This is often done to protect the presentation or reputation of the premises and ensure compliance with other leases with other parties.
Landlords can also restrict how and when a tenant does business. Nova Scotia courts have upheld penalties for businesses remaining closed during hours of operation specified in their leases. This leads to the further issue of when a landlord can re-enter a tenant’s premises if they are failing to open. The consequences of violating the terms of the lease vary from lease to lease.
The tenant can restrict the activities of other tenants with an exclusivity clause. This clause allows a tenant’s business to grow by eliminating direct competition in the same location and also provides incentive for a tenant to stay at the premises.
The assignment of a lease is often restricted. A standard assignment clause will prohibit the tenant from assigning the lease without the landlord’s consent. Commercial leases can include a clause permitting a landlord to “unreasonably” withhold the consent to an assignment. In this situation, a landlord can deny approval of the assignment without reasons.
