COMMERCIAL LEASES GUIDE
LEASE NET NET NET
NET OR TRIPLE (Base Rent)
Base rent ("net" rent "net net" or "triple net") is the portion that is paid per square foot EXCLUDING additional costs (operational expenses) such as building maintenance, property, municipal, water & school taxes, electricity, gaz, administration fees, proportional share of common areas, etc. The Base rent is usually specified by an X amount per square foot. In a net lease you will find the base rent of X amount per square foot and the operation costs of X amount per square foot. Also if you are renting retail space in a shopping centre, you will most likely pay an additional rent based on your reported sales called "Percentage rent".
A gross lease usually includes all expenses in the monthly rent (base rent, taxes, electricity, gaz, etc., but usually excludes GST / QST). There are however some building owners that even include GST / QST taxes. Make sure to define and clarify what is included with the owner of the building. Also note that it is quite rare if not almost impossible to find a property owner who is willing to offer a gross lease.
ADDITIONAL RENT (also called operation costs)
The additional rent represents building costs that usually
include real estate taxes and any other municipal taxes, building maintenance,
management fees, etc., based on the
square footage used. These charges can
also include the proportional share of costs related to common areas.
Additional rent or operation costs are usually specified in net, net net, or triple net leases by X amount per square foot.
There are no standard universal lease document used to conclude a commercial lease. The building owner decides the lease document he wants to use with specific clauses that he decides. Even though the building owner can decide how to draw up his lease, 90% if not more of commercial leases used have essentially similar clauses. It must be understood that commercial leases are always to the advantage of the building owner.
At the signing of the lease the landlord usually requires a security deposit payable immediately by certified check of X amount representing the last months of rent or more depending on tenant credit and also depending on how long the company has been in business. This amount usually includes the base rent + operations costs + GST / QST. The building owner may also require a bank letter of credit guarantee in an amount to be determined by the building owner.
Before a tenant can occupy the leased premises and get the keys to his new premises, the building owner will require the Tenant proof of an “all risks” insurance in the amount of coverage as required by the building owner.
HYDRO AND GAZ METER METRO
On the first day you get the keys to your new premises make sure to ask the building owner a document indicating the electric and gaz meter readings. We recommend to take a picture of each counter readings as backup for your records.
Commercial leases contain a clause entitled "Movable Hypothec" in order to protect the building owner’s property in case of default of the lease by the Tenant. There are two different versions of this clause (one with deposit and one without deposit). The Landlord may require one or the other.
1. The movable hypothec with delivery (deposit)
In order to guarantee the payment of amounts due under the lease, the tenant gives upon signing of the lease to the building owner a certified check or or a bank letter of credit of an amount to be determined by the building owner. The building owner can apply that amount as collateral to debts owed by the tenant in the event the tenant is in default on his obligations.
2. The movable hypothec without delivery (a formality)
In order to guarantee the payment of amounts due under the lease, the tenant agrees to establish in favor of the landlord a movable hypothec on the universality of his equipment & furniture. To ensure that the value of his equipment & furniture is sufficient, this clause will mention that the tenant agrees to provide and maintain in the leased premises sufficient equipment and furniture to secure payment of at least X months rent.
LEGAL RIGHTS COMMERCIAL LEASES IN QUEBEC (Quebec Civil Code)
1. A commercial lease is a contract by which a person, the Lessor (Building Owner), undertakes to another person, the Lessee (Tenant), to pay the building owner a rent, enjoyment of leased premises, movable or immovable, for a determined period of time (Art. 1851 CCQ). In Quebec, the commercial lease does not confer any right to the tenant in the building itself. It only confers rights to require the other party the execution of certain benefits, rights and conditions as stipulated in the lease agreement.
2. Commercial Leases in Quebec
No particular leasing document is required with respect to a commercial lease. The signed lease document will be valid between both parties, to the extent that it contains all the essential elements of the identity of the landlord, the identity of the tenant, a sufficiently accurate description of the leased building and premises, the rent payments and the conditions required so that the tenant can occupy the leased premises.
The landlord is responsible to provide the tenant for quiet enjoyment for the entire duration of the lease (Art. 1854 and 1858 CCQ).
4. Tenant Obligations
The tenant is required to conduct himself so as not to disturb the normal enjoyment of other tenants in the same building ; if the tenant violates this obligation, the landlord may request termination of the lease or take other legal procedures. (Art. 1855 CCQ).
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