Legal Tips for Signing a Commercial Lease | Heritage Law Offices Edmonton

Posted by heritagelaw on Jun 21, 2023 in Blog, Commercial Law, Real Estate Law

If you are starting or running a business in Alberta, one of the most important decisions you will make is choosing the right commercial space.

Whether you are opening a retail store, an office, or a restaurant, it’s essential to understand the ins and outs of commercial leasing.

Here is what you need to know about commercial lease agreements in Alberta:

What to Look For in Your Lease Agreement

A commercial lease agreement is a legally binding document that outlines the terms and conditions of the rental agreement between the tenant and the landlord.

It’s crucial to read and understand the lease agreement before signing it.

Here are some essential things to look for in your lease agreement:

Lease Term: The lease term refers to the length of time the tenant will occupy the commercial space. It’s essential to know how long the lease will last and when it will expire.
Rent: The rent is the amount the tenant pays the landlord for the use of the commercial space. It’s important to know how much rent you will pay and when it’s due.
Security Deposit: The security deposit is a sum of money that the tenant pays to the landlord to cover any damages to the property or unpaid rent. It’s crucial to know the exact amount of the security deposit and the terms under which it will be returned.
Maintenance and Repairs: The lease agreement should specify who is responsible for repairing and maintaining the commercial space. Typically, the landlord is responsible for major repairs, while the tenant is responsible for minor repairs and maintenance.
Subleasing: The lease agreement should specify whether the tenant is allowed to sublease the commercial space to another tenant.
Termination: The lease agreement should specify the conditions under which either the landlord or the tenant can terminate the lease.

Types of Commercial Leases

There are several types of commercial leases, and each type has its advantages and disadvantages.

Here are the three most common types of commercial leases:

1. Gross Lease

When it comes to a gross lease, the tenant pays a flat monthly rent that includes all expenses, such as utilities, property taxes, and maintenance.

2. Net Lease

For net leases, the tenant pays a base rent plus additional expenses, such as property taxes, insurance, and maintenance.

3. Percentage Lease

With a percentage lease, the tenant pays a base rent plus a percentage of the business’s gross sales. This type of lease is common in retail spaces.

Differences Between a Residential and a Commercial Lease

Renting a place for your home is not the same as renting a place for your business. There are some big differences between the two.

When you rent a place to live in, it’s different from when you rent a place to work in.

Here are the main things you should know when you compare a residential lease to a commercial lease:

Length of Lease

Residential leases are usually short-term, typically lasting for one year or less.

Commercial leases, on the other hand, are often long-term and can span several years depending on the business needs.

Rent Increases

Residential leases usually have fixed rent for the length of the lease. Commercial leases often have rent increases built in, which can be based on various factors such as inflation, market demand, or the cost of living.

These increases can occur annually or at other predetermined intervals.

Maintenance and Repairs

In residential leases, the landlord is typically responsible for all maintenance and repairs, including fixing appliances, repairing damage caused by natural wear and tear, and handling major repairs like plumbing or electrical issues.

However, in commercial leases, the tenant is often responsible for most maintenance and repairs.

This includes things like cleaning the premises, repairing damage caused by employees or customers, and keeping the property up to code.

Some commercial leases may also require the tenant to cover major repairs and replacements.

What to Know Before Signing

Before signing a lease agreement for your business, there are several important things to keep in mind, such as:

Location: The location of your commercial space can have a significant impact on your business’s success. When choosing a location, consider factors like accessibility, visibility, and foot traffic. These can all affect the number of potential customers or clients who will come through your doors.
Budget: Make sure you can afford the rent and other expenses associated with the commercial space. Be sure to consider additional costs like utilities, insurance, taxes, and maintenance fees.
Negotiate: Don’t be afraid to negotiate the terms of the lease agreement. You may be able to negotiate a lower rent, a longer lease term, or other concessions that can help you save money or improve the terms of the lease.
Legal Assistance: Consider hiring a lawyer to review the lease agreement before signing. A lawyer can help you understand your rights and obligations under the lease agreement and identify any potential issues that could impact your business. They can also help you negotiate the terms of the lease and ensure that your interests are protected.

Understanding Commercial Lease Agreements in Alberta

Choosing the right commercial space is crucial to the success of your business, and understanding commercial leases is an important part of the process.

Before signing a lease agreement, it’s essential to understand the terms and conditions of the agreement, including the lease term, rent, security deposit, maintenance and repairs, subleasing, and termination.

Knowing the differences between a residential and a commercial lease and the types of commercial leases available can also help you make informed decisions.