by Bruce Tannas
For some business owners, investing in a commercial property may make sense (for more on that see Should You Buy or Lease a Commercial Property?). If you choose to go the route of buying commercial real estate then, depending on the commercial property, you may also be planning on earning additional income by having some of your business property for rent. This article outlines some of the obligations you will have as a commercial property landlord.
Commercial Tenancy Laws
In Canada, commercial tenancy laws are determined by the provinces. Commercial tenancy laws are different than residential tenancy laws. Residential tenancy laws are far more restrictive than commercial tenancy laws. This is because both parties to a commercial lease are businesses whereas residential tenancies are for consumers.
Generally, most commercial tenancy laws allow businesspeople the maximum flexibility to negotiate the terms of the lease contract. Having said that, it is important to review the laws in the province in which you plan to have your commercial rental, so you understand your obligations as a commercial landlord under the law.
Commercial Lease Agreement
Because the lease agreement forms the basis of your landlord tenant relationship it is important that you develop a solid lease agreement. You should discuss and develop this lease agreement with your lawyer. Since every lease situation is different, there are no leases that are exactly the same. However, you can research some standard forms of leases on the internet to save costs and serve as a springboard to your discussions with your legal advisor.
As a commercial landlord, the best practice is to present the potential tenant with your standard lease agreement for review and negotiation. Lease negotiation is part of the give and take of any business relationship so you should have a sense of what you need and what you may be willing to change in your agreement in order to have a good landlord-tenant relationship.
Once the lease is signed, it is very important that you follow the provisions in the lease. Any issues, changes, or exceptions you might have with the tenant should be in writing. This includes notices of late rent, nonpayment of rent, incomplete maintenance, etc.
If COVID 19 has taught us anything, its that bad things can happen to good businesses. Sometimes that means that you might agree to defer or forgive some rent in order to help a good tenant back on their feet. If you plan to forebear any rent, you should have your lawyer draw up a forbearance agreement with the tenant to ensure that your lease agreement remains enforceable.
Duty to Upkeep the Property
In the lease agreement, you should outline who is responsible for the various types of maintenance on the commercial building. Generally, the tenant is responsible for repairs for wear and tear while the landlord is responsible for structural repairs. It is the landlords responsibility to ensure the building is in “first class” condition. Whether the landlord needs to fix the issue themselves (under the terms of the lease) or give notice of default to the tenant. Accordingly, you should plan to inspect the property from time to time for defects or wear and tear (though you should respect the terms of the inspection clause in the lease).
As a commercial landlord you will have some additional liability regarding the property. The best ways to mitigate this liability is by clearly outlining the responsibilities in the lease contract. There is established case law that shows how important this is. In addition, ensuring the property’s upkeep will lower your potential of a lawsuit from your tenant or their customers. Finally, having a good commercial insurance policy that covers landlord liability will be equally important to mitigating risk.
Investing in a commercial property can be a rewarding business decision. If you plan to become a commercial landlord, take the time to understand your obligations so that you don’t have unexpected problems.
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