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Terms In a Lease

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What terms are in a lease?

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The Parties

The lease should clearly identify who is the landlord and the tenant. The landlord is often a company. Ensure that the company is in good standing when the lease is entered into and that the company is permitted to sign the lease.

If the tenant is a company, the landlord will want the shareholders to personally guarantee the obligations of the tenant. If the tenant company doesn't pay, you pay. Of course, as tenant, you will want to avoid personal guaranteeing the lease. Who win? The one with more bargaining power!

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Identification of Property to be Leased

The lease should clearly describe the property to be leased. This should include the legal description of the property designated by the Land Title Office. If the property rented is less than the whole building (like a unit in a shopping mall) a plan of the building with the unit to be leased outlined in thick, black ink should be attached to the lease. The lease should set out the right of the tenant (and the tenant's employees and visitors) to use the common areas of the mall. The common areas are areas such as the lobby, driveway, entrance, stairs, elevators, corridors and washrooms.

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Starting Date and Length

The lease should state its starting date and length of the term. Sometimes, the starting date cannot be determined (such as if the mall is still being built). The lease will then usually begin when the property is ready to be occupied as determined by an architect or engineer.

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Option to Renew

As the tenant, you should try to negotiate an option to renew the lease. Usually, the option will require the tenant to exercise it within a certain time period (for example, 6 months before the lease expires). The renewal rent is sometimes set out in the lease, but it is more common to have the rent determined as the fair market value at the time of the renewal.

The option to renew is quite valuable, because your café business will be most valuable in that specific location; move across the street and you will likely lose some customers, and move a few blocks away and you might as well start over from scratch!

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Basic Rent

The lease will usually describe the rent payable as a fixed monthly rate, which may increase during the term. Some leases, especially in malls, include a percentage rent based on gross sales. This allows the landlord to participate in the success of the tenant's business.

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Taxes, Operating Costs, and Insurance

Usually, the landlords will charge each tenant in a building a proportionate share of all the taxes, operating costs, and insurance. These are often called "triple net expenses". The objective is to have the basic rent be "net income" to the landlord, assuming that the building is fully leased.

You should review the clauses charging the taxes, operating costs and insurance carefully with your lawyer. If the previous year's operating costs statement is available, you should review this as well.

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This page last updated: November 20, 1999
© copyright 1999 Lawyers-B.C..Com Services Ltd.