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exam 4 > Commercial leasing > Flashcards

Commercial leasing Flashcards

1
Q

lease

A

-is a contract were the landlord convey the land and structure to a tenant for a specific time in exchange for tent

  • upon the termination the land and structure revert back to the landlord ( reversion)
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2
Q

There is 6 common lease types

A

There is 6 common lease types

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3
Q

Gross lease

modified lease ( hybrid version)

A

-tenant pays fixed rent and the landlord is responsible for all operating expenses

  • landlord include a rent escalation clause in the lease to mitigate unexpected increases in operating costs during the lease terms
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4
Q

single net lease

A

tenant pay base rent plus a specific operating expense ( property tax or utilites)

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5
Q

double net

A

tenant pays a base rent plus two operating expense ( taxes and insurance)

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6
Q

triple net

A

tenant pays a base rent plus all operating expenses

  • sometimes referred to as pass through lease all operating expenses pass through to the tenant
  • be caution the landlord my include other capital related expenses ( structural repairs and upgrades) in the pass through working ( which be very expensive to tenant)
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7
Q

absolute net lease, carefree lease

A

tenant is responsible for all costs relating to structure + operating expenses

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8
Q

abbreviated reference

A

may appear on commercial listing to save space

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9
Q

percentage lease

A

tenant pay BASE RENT + OPERATING EXPENSES + PERCENTAGE OF GROSS INCOME GENERATED IN ECESS OF A PRE-ESTABLISHED MIN

-the landlord generates revenue from renal of the property but also financial success
-tenant submit sales volumes and percentage rent to the landlord each month

  • as an added benefit the landlord gain an insider view of the tenant retailing performance and can better assess the risk of the business failure
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10
Q

ground land lease

A

long-term lease of land only in which the tenant agrees to construct a building

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11
Q

essential elements of a lease

A
  • capacity of parties legally capable of entering into a contract
    -lawful object ( have lawful intent not illegal)
  • offer/ acceptance ( mutual concsent
    genuine intention
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12
Q

fixed or periodic

A
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13
Q

formal lease

A
  • set out exact terms between landlord and tenant

–commercial lease are typically lengthy and complex

  • fully articulate what was set out in an agreement to lease ( letter of intent)

-settled form of lease

  • it is attached to the agreement to lease to ensure there is no confusion since all landlord terms are signed
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14
Q

Agreement to lease

A

agreement for lease without settled form of lease

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15
Q

letter of intent

A

involve preliminary lease negotiations that leads to the framing of final lease terms

  • there is no standard format the letter an range from very general to specific
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16
Q

law impacting commercial leases

A
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17
Q

Statute of Frauds

A
  • the statute of frauds- states that a lease with 3 years or longer must be in writing
  • commercial lease with terms of fewer than 3 years does not have to legally be in writing BUT verbal agreement are always discouraged given complication and problems

-

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18
Q

short form of leases Act

A

this legislation permits the use of abbreviated terms rather than lengthy wordings

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19
Q

commercial tenancies act
( CTA)

A

consists of three parts
1- landlord/tenant rights
2- the right to distrain
3- issues regarding overholding ( remain on the premises after lease expire)

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20
Q

CTA and RTA

A

CTA is not nearly as detailed as RTA, commercial lease wordings are more complex

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21
Q

important CTA provision

A

1- landlord/tenant legal
obligation
- landlord– must inform tenant when a breach ofd the lease occurs and give a reasonable time for the tenant to remedy ( lease termination is an option if the tenant does not comply) - landlord have legal recourse throught small claims court and superior court

  • Tenant– must fulfill all lease obligation including rent payment ( must inform the landlord of beaches and allow for reasonable time to remedy) ( the tenant can’t withhold red when in a dispute with the landlord) - have legal recourse through small claims court or superior court
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22
Q
A

2- non- payment of rent

  • option 1— change locks - the landlord has the right to enter the property and change locks on the 16th day after the rent was due ( without formal notice to the tenant)

option 2- seize tenant property —when the landlord enter the property in option 1 he has the right to seize and dispose of tenant property without notice ( unless notice is provided in the lease)
- However the landlord is required to notify the tenant of the seizure and rent back
- the landlord has to hold the tenant property for 5 days
- if the rent back is not paid- the landlord can proceed with the disposal of the tenant property
- any dispute fall to the superior court of ontario

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23
Q

periodic tenancy

A

option 3 - termination —

– periodic tenancy - 30 day notice - landlord or tenant can terminate on 30 days written notice for a month to month tenancy

  • periodic commercial tenancies require 30 days while residential require 60 days
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24
Q

fixed term tenancy

A

no notice - tenancy ends at the end of the term not like the residential tenancy were it converts to a periodic tenancy - the tenant no longer had a legal right to occupy the premises

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25
Q

overholding

A

if a tenant overholds ( remain in the unit ( the tenant can be subject to a penalty) ( two month rent for each month overhold ) plus cost - the landlord can seek an eviction order from superior court of justice

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26
Q

there are NO rent- related restrictions

A

unlike the residential the CTA is silent on such things as rent increase restriction and deposits ( RENT are determined by normal supply/ and demands

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27
Q

how privity fits in

A
  • it is relevant when it comes to assignments and subletting. there is two types
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28
Q

privity of Estate

A
  • two or more parties ( landlord and tenant) have an intrest in the same property
  • leased premises in which the tenant has an intrest in the property ( occupies it for a specified period), before the estate revert back to the landlord when the lease ends
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29
Q

privity fo contract

A

both parties have signed a lease and only those partied can enforce the lease terms

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30
Q

Assignments

A

when an Assignments occurs the tenant entire interest in the lease is assigned to another party

  • legaly— the assignee assumes all lease obligation and the original tenant now doesn’t have privity of estate but privity of contract ( since the signed lease remain) — and for that the original tenant continue to be responsible under the lease
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31
Q

A well written lease will require

A

1- the landlord must approve any assgiments

2- approval is subject to terms and conditions ( this determine the approved assignee responsibilities regarding lease obligations)

-including if the original tenant is off the hook

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32
Q

assignment agreement

A

the landlord will typically require a formal lease assignment detailing how the tenant right and obligations are transferred to the assignee

the assignment agreement - will effectively assign privity of contract and privity of estate

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33
Q

subletting

A

sublease is basically transfer of all of the leased premised for a period less than the entire lease term

-sublet is a temporary arrangement that ends before the original lease expire

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33
Q

subletting

A

sublease is basically transfer of all of the leased premised for a period less than the entire lease term

-sublet is a temporary arrangement that ends before the original lease exire

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34
Q

subletting agreement

A

the landlord will seek some written assurance, lease term will typically include formal subletting agreement

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35
Q

the landloard can withhold either and asisgment or subletting on reasonable grounds

A
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36
Q

stsatirary compliance

A

accrssibilty leg is intended to reduce and remove barried for people with disabilites

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37
Q

accebility for ontarians with disabilities act ( AODA)

A

Acessibility for ontarians with disabilities act ( AODA)

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38
Q

ontario building codes

A
  • applies to extensive renevotion
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39
Q

new commercial buildings have been designed to accommodate accessibility needs

A
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40
Q

Quite possession ( fundamental legal right)

A
  • the landlord cannot substantially interfere with the tenant occupancy of the leased premised or in any way that adversely impact its business operation
  • this is often referred to as the most fundamental right of a tenant
  • conveyancing and law of property act
  • this right has evolved to include situations such as the inability to access the rental premises ( the presence of excessive noise and extensive)
  • basically anything that substantially interferes with the tenant right to use the leased premise
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41
Q

Types of rental Arrangement

A
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42
Q

fixed rent

A

the total rent payable by the tenant under gross lease

    • gross lease - tenant pays a flate rate and the landlord is responsible for all operating expenses
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43
Q

base min rent

A
  • min rent payable by he tenant is a NET LEASE
  • it does not include any payment relating to operating expenses
    , percentage rent
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44
Q

additional rent

A

tenant proportionate share of operating expenses as detailed in the lease

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45
Q

percentage rent

A
  • found in shopping centre leases
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46
Q

harmonised sales tax

A

HST applies to commercial leases

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47
Q

rent deposits/intrest

A

commercial tenancies act does not regulate what rent or security deposit can be charged - such matters are determined in negotation

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48
Q

rent- free periods, concessions and incentives

A
  • supply and demand forces drive wether or not rent based incentives are offered
  • common incentives involves a rent-free period ( precedes the actual start date of the lease) - early occupancy

-landlord my also offer tenant improvement allowances

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49
Q

supplementary rent

A

-it may be an annual adjustment based on an index ( consumer price index (CPI)

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50
Q

rent and advance tax payment

A

landlord may require tenant to make advance payment for propriety taxes so that funds are available to align with intermin tax payments due to dates set by the municipality

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51
Q

occupancy or rent to abate

A

1- if the rental premises is not ready for occupancy as set out int he lease - the tenant doesn’t have to pay rent until it is ready

  • the tenant cannot make any other claim ( take legal action because of delay ) against the landlord
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52
Q

expense stop

A

a landlord is not obligated to pay for a specific operating expense above a specific dollar limit

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53
Q

pass throught

A

check the lease wording carefully a landlord my pass through certain costs relating to capital improvement

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54
Q

common Area maintenance ( CAM )

A

this is all areas not included as rentable space under individual leases apply yo all areas used by two or more tenant

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55
Q

energy expense

A

LEED certified building - attract larger tenant due to energy efficiency, improved work environment, advanced recycling system, and reduced HVAC

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56
Q

common lease provisions

A
  • guarantor, indemnifiers and co-tenants
  • guarantor - sign a document and agrees, to be responsible should a tenant default on a lease

indemnification agreement- landlord seek the broader protection of an indemenfication agreement( agreeing to take place of the tenant and perform all obligation under the lease

57
Q
A

co-tenancy - in which the guarantor become a tenant and is then jointly and severely responsible for all matters involving the lease ( extend to bankrupcy)

58
Q

first right of refusal

A

– allowing tenant to rent additional space for expansion

59
Q

purchase or renewal

A
  • purchase- give the tenant the right to acquire the leased property on mutual agreement term

renew- gives tenant the right to renew the lease on mutual agreement

60
Q

maintenance/repair responsibilities

A

various maintenance and repair related provision -vary depends on the lease type

61
Q

fixtures/trade fixtures

A

provision regarding trade fixtures are typically set out in the lease to avoid any confusion

IF THE FIXTURE IS OWNERD BY THE TENANT - THE TENANT CAN REMOVE THE FIXTURE
- IF IT CAN BE TAKEN OUT WITHOUT DAMAGING THE PROPERTY AND IF ITS NECESSARY TOT HE BUSINESS OPERATION
- any damage cause by the tenant removing trade fixture is their responsibility

62
Q

landlord and tenant insurance

A

landlord provision is typically open-ended, he can obtain for damage to the building and improvement, loss of rental income, liability

  • landlord insurance would typcially not cover tenant-specific issues ( tenant loss of income)
63
Q
A

tenant is typically required to provide proof of insurance coverage

64
Q

landlord approval for changes

A

this clause typically restricts the tenant form making any changes without written landlord approval

65
Q

security provisions

A

lease can detail what security items are supplied by the landlord ( multiple camera surveillance)

66
Q

naparking allocations

A

the lease should detail cost per space or if provided for free

67
Q

signage compliance

A

required permits and other municipal specification, insulation costs, maintenance charges

68
Q

unique clauses in retail leases

A

retail use restrictions- use restrictions are intended to ensure that shipping centres offer retailing diversity ( restaurants, sporting goods..)

69
Q

lease wordings ( primary / secondary use )

A

primary use restriction - anchor tenant being protected form another similar store

secondary use restrictons- anchore store that markets cell phones while allowng other smaller retailers to market cell phones

70
Q

not permitted scheduale

A
  • attached to individual leases detail what specific uses are not allowed
71
Q

anchor tenant

A

special use arrangement

72
Q

limitations on merchandise

A

permitted times and location for merchandise and other deliveries

73
Q

continuous use requirement

A

dark space- store empty
go dark clause- allows the tenant to vacate the premises if finical problems arise

74
Q

unique clauses in industrial lease

A
  • limits office floors area
    -environmental standard compliance ( environmental protection act) - - environmental site assessment is required at the start and the end of the lease term to determine any variation from that baseline ( any contamination has occurred)
75
Q
A

hazardous material restrictions

76
Q

AGREEMENT TO LEASE

A

short lease- primarily for older properties - gross lease arrangement

long form- found in net leases

77
Q

both forms include

A

-identification of parties, premises to be leased, consideration and definite terms
- provision for the execustion

78
Q

amendment

A
  • used when parties wish to make a change after the agreement has been finalized
  • full cross-reference
    –specific details as to what is being deleted and address
    -irrevocable date
    signature of all parties
79
Q

notice of fulfillment

A
  • full cross reference
    -insert conditions
    -obtain signature
80
Q

blend and extend renewal

A

give and take strategy to renegotiate the terms of an existing lease prrior to the end of the term

81
Q

landlord responsibilities

A

– make certain reasonable access is provided for showing
–insure property complies with Ontario building code
- fulfill obligations set out in the lease
– insure insurance coverage is placed on property

–

82
Q

identifying potential uses

A

saleperson can effectively expand the potential target market to a specific property

83
Q

representing lanlord

A

1- demonstrate conscientious and competent service

2- gathering information

3- identify potential use

4- perpare a marketing plan

5- assit in qualifying potential tenant

6- lease negotions - enusure landlord interest are protected

84
Q

code advertisment

A

1- clearly and prominently disclose your name, as well as he employing brokerage name as registered with RECO
2-include specific reg status

85
Q

remuneration

A

commission

86
Q

fit-up ( rent free period0

A

the time provided to a tenant to prepare the premises for their particular use

  • customize space for their business needs
87
Q

tenant loss of income insurance

A

should be obtained by the tenant and not the landlord

88
Q

internal meter is better option to ensure accurate charged based on usage in office space

A
89
Q

assuming a brokerage has a remuneration agreement in place when representing a tenant client

A

–the tenant is typically responsible for any deficiency between the agreed remuneration and the amount paid by the landlord

– remueration can be based on a price per square foot

  • if a remuneration agreement is not established by he landlord the tenant will be required to pay the entire remunersation
90
Q

remuneration owner to the brokerage is not part of the lease

A

they are in a representation or customer service agreement

91
Q

traffic counts are mostly common with retial use not industrial

A
92
Q

industrial lease feature

A

-floor loard
-live load and dead load
-electrical system
- sprinkler density
-clear heights ( unobstructed distance from floor to ceiling- sprinklers ) / ceiling heights ( all the way from the floor to the roof)
- bay size and bay depth
-heating, ventilation and air conditioning
- loading docks and delivery areas
-Availability of Utilities, Requirements, and Costs
-Environmental Issues

93
Q

trade fixture

A

you are entitled to remove the installed barbed sink an barber chair form the leased premsied at the end of the lease ( they are deemed to be personal property under common law ) - unless it was provided in the lase other wise

94
Q

the range of operating expenses can vary based on the specific use

A

office vs industrial use

95
Q

percentage rate established often align with tenant product markup

A

percentage rate- markup

96
Q

a lease of less then 3 year duration

A

count may confirm that a lease exists under the doctrine of part performance regardless of the fact that is is not in writing

97
Q

exclusive use clause are

A

commonly found in leases for anchor tenant ( primary use)

  • given their drawing power can normally demand and receive a much more broader use clause within the lease

—-may grant one tenant the sole right to offer specific products or service within the retail shopping center

98
Q

the head land lord must approve the sub-tenant

A
98
Q

the head land lord must approve the sub-tenant

A
99
Q

restrictive use clauses

A

in commercial lease are often used to establish proper tenant mix within a shopping center,

100
Q

a breach of the lease can occur

A

if the tennat is deprived of quite enjoyment to the extent that the tenant cannot use and enjoy the property

101
Q

continuous use clause

A

helps prevent a tenant from vacating a commercial space

102
Q

wear and tear clause

A

is commonly found in commercial lease q

103
Q

notices clause in the agreement to lease

A

co-operating brokerage fax number or email address could be inserted in the notices clause

104
Q

guarantors

A

this guarantee relates to all obligation under the lease ( unless tenant is deemed by law to have no further obligation)

105
Q

gross lease

A

can include an escalation clause to mitigate the impact of increases in costs

106
Q

at the point of lease expiration

A

the tenant loses any right to lease hold improvement unless otherwise negotiated

107
Q

non-payment of rent involves the landlord right concerning non-payment NOT the tenant right

A
108
Q

anchor tenant

A

are often given certain rate concession due to their drawing power

109
Q

privity of contract

A

the right and obligation under a contract are only enforceable upon the parties to that agreement

110
Q

privity of estate

A

interest that two or more parties hold in the same property

111
Q

the landlord must wait 16 day after the date on the rent was due before changing the locks

A
112
Q

landlord and tenant’s work

A

this is a common schedule attached to a base lease

  • detailing these improvement
113
Q

commercial tenancies do not automatically renew on a month to month basic

A
114
Q

the tenant reports monthly sales figures to determine percentage rent owned

A
  • monthly sales reported are submitted to establish what percentage rent is owned
115
Q

the landlord is entitled to dispose of abandoned items at its sole discretion

A
115
Q

the landlord is entitled to dispose of abandoned items at its sole discretion

A
116
Q

CPi

A

supplementary rent

117
Q

unreasonably withold

A

this means the landlord cannot arbitrary refuse the sublet without a valid reason

118
Q

a new commercial tenant t signed a lease commencing as of may 1st, but the existing tenant will not move out on that date

A
  • contact the landlord as the landlord can then take action to resolve the matter
  • they can impose a financial penalty or obtain an eviction order
119
Q

retail percentage lease

A

typically include a fixed min rent + percentage of gross income over and above the min rent

120
Q

exclusive use clause

A
121
Q

usable area is the area exclusively used by the tenant

A
122
Q

the tenant can terminate the tenancy with one month notice

A
123
Q

letter of intent

A

is a preliminary document that can establish the overall parameter of a lease

124
Q

rent - free periods often occur in advance of the lease commencement date

A
  • rent free concession - early occupancy prior to the official commencement
124
Q

rent - free periods often occur in advance of the lease commencement date

A
  • rent free concession - early occupancy prior to the official commencement
125
Q

The distinction between assigning and subletting a
commercial lease is based on privity.

A

This is a legal concept that means a lease cannot confer rights or impose
obligations on anyone who is not a party to the lease

-A lease assignment means the original tenant’s rights and obligations are transferred to the new tenant.

-A lease
subletting agreement is a more flexible arrangement that allows an additional tenant (the sub-tenant) to use the
leased space  usually on a temporary basis.

126
Q

co-tenant

A

direct contractual relationship with the landlord

127
Q

restrictive use clauses

A

are used to establish a proper tenant mix within a shopping centre

128
Q

the confirmation of acceptance is signed by the person who finally accepts the offer as binding agreement including all changes both typed and written

A
129
Q

A signing officer signs the agreement and inset the statement “ I have the authority to bind the corporation”

A
130
Q

min rent that a tenant pay is also commonly referred to as base rent

A
131
Q

doctrine of part performance

A

when the lease is not in writing and is less then 3 years- the court may confirm that a lease exists under the doctrine of part performance

132
Q

the tenant pay rent and all expenses in a

A

triple net lease ( net net net lease)

133
Q

landlord can apply to the small claim court or superior court of justice for rent-related dispute depending on the amount involved

A
134
Q

fit-up period

A

the time provided to a tenant to prepare the premise foe their particular use

135
Q

deposits relating to commercial tenancies

A

not required to pay annual interest on a commercial tenant security deposit for the lease term ( landlord and tenant may agree to such an arrangement )

136
Q

guarantor

A

obligation under the lease

exam 4 (14 decks)

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