Part III – Helping your lawyer help you: Negotiating a Lease or Lease Renewal

February 6, 2017 | BY SHANNON Q

 A lawyer’s time is expensive, as anyone who has reviewed a legal bill knows. It’s why bringing legal work in-house is often viewed as a way to save costs on legal spend. But even if your in-house counsel doesn’t charge by the hour, there is an imputed cost of their time. There is also an opportunity cost of their working on your issue. There is always something else important they could be doing.  

So if you’re like me – a “non-lawyer” – it’s important to prepare effectively in advance for a meeting with your lawyer. That way you will avoid multiple turns at the issue, get the advice you need sooner and maybe even make your lawyer’s Christmas card list.  And of course, you’ll save time and money.

In this third instalment of our series on helping your lawyer help you, look at commercial real estate, specifically negotiating a lease or its renewal.

I interviewed Trish Steele, one of our Calgary-based lawyers who has dealt with commercial legal matters for over 25 years.  Here are her thoughts:

 What are the common scenarios when you would be approached for advice in this area?

When a client is looking for office, industrial or retail space or if they wish to renew an existing lease, or when a Landlord opens up new space or has an existing tenant moving out.

What would you want to know from the client about the issue?

The basics, like the address of the premises, area, proposed rent and term, what the tenant plans to use the space for and what improvements will be done by either the landlord or the tenant.

Also, and depending on whether the client was a landlord or a tenant, I would really focus on what the premises will be used for.  For example, if the tenant is a roofing company and plans on using or storing chemicals that affect the air quality in a way that might disturb other tenants, you would want to make sure the landlord was aware of that in advance.  Similarly, if you’re a landlord, you want to pay particular attention to whether the tenant’s use will pose any environmental risks and address those specifically in the lease.

If the tenant wants an option to renew and we’re acting for the landlord, we will want to ensure that such option does not include a further option to renew and that the renewal is on the landlord’s form of lease in use at the time of the renewal.

What documents would you want to have on hand to review and why?

In the case of a new lease you’d want the client to complete our 2-page checklist, which allows us to adapt whichever template we are using in a way that addresses their specific needs.  

In the case of a renewal, we would want to see the original lease to ensure that the option was being properly exercised. 

For example, it must be exercised within the specified time period using the     manner of notification specified in the lease and not contain any                     conditions.  Otherwise, the exercise of the option will not be enforceable.  

What special circumstances would you flag as being important for the client to disclose?

(i) details of any obligations by the landlord or the tenant to build-out or improve the premises;

(ii) if acting for the landlord, whether the intention was for a triple net lease (i.e. no expenses to be assumed by the landlord);

(iii) if acting for the landlord, whether they wish to restrict the ability of the tenant to assign or sublet.  For example, in a rising market, the landlord would want to prevent the tenant from assigning or subletting and realising the difference between the rent in the lease and the current market.

If you could give a piece of advice to companies in general, on this issue, what would it be?

Have an understanding of whether the current market favours you, as a landlord or a tenant, and negotiate the terms of your lease accordingly.  In a recessionary market with high vacancy rates, a tenant should negotiate aggressively for improvements, rental rate, option to renew, etc.

As a landlord, be aware of what the tenant proposes to use the premises for and ensure that risk is addressed in the lease by adding additional environmental and insurance clauses, if appropriate.

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