Common Pitfalls That Lead to Commercial Lease Disputes & How To Avoid Them
Commercial lease disputes can arise from agreements that are unclear or misunderstood, making it crucial to understand the fine print whether you are a landlord or a tenant. A commercial lease isn’t just another document—it’s a legally binding contract that sets the foundation for renting a business property. These agreements affect everything from day-to-day operations to the bottom line. Given the high stakes involved, it’s essential to be fully informed and seek legal guidance to ensure your interests are protected as the property owner or the tenant.
Commercial tenancy laws in Canada govern the relationship between landlords and tenants, defining rights and obligations for both parties. Whether you’re talking about retail space, office units, or a warehouse, understanding and abiding by these laws and the lease terms can help landlords and tenants avoid conflicts and costly disputes. Let’s take a further look at commercial leases and what leads to the most common disputes we tend to see at Gionet Fairley Wood LLP.
First, What Is a Commercial Lease and What Are Its Legal Implications?
A commercial lease is a legal contract between a landlord and a business tenant, outlining the terms and conditions for renting a commercial property. It specifies the rights and obligations of both parties, such as the permitted use of the space or restrictions on competitive businesses within the premises. These agreements are not set in stone, making it essential to understand and negotiate the terms that work for both parties.
Commercial leases can carry significant legal responsibilities, including compliance with zoning laws, building codes, and health and safety regulations. Failure to adhere to these can lead to fines, disputes, or even lease termination. Additionally, key clauses—such as indemnity provisions and dispute resolution terms—can have lasting legal consequences if misunderstood.
Given the complexity of these contracts, it’s essential to work with a commercial lawyer who can help identify potential legal issues and negotiate terms on your behalf or at minimum give you the direction needed to make sound decisions when undertaking a new lease. Whether you are the leaser or the lessee, a proactive approach reduces the risk of disputes and ensures a smoother leasing experience.
Five Common Causes of Commercial Lease Disputes
Understanding common issues that arise in commercial lease agreements can mean the difference between a great working relationship with your landlord or property manager and unnecessary headaches. Specifically these pitfalls are areas you’ll want to pay close attention to.
Maintenance Responsibilities
Even when lease terms seem straightforward, misunderstandings can arise. The lease should clearly state who is responsible for maintenance of the building or the unit so there are no nasty surprises. For instance, a tenant might assume the landlord is responsible for all plumbing repairs, only to be billed for a blockage caused during their operations.
Ambiguous Terms
Vague language in a lease can lead to conflicts down the road. Without clear definitions, misunderstandings can escalate into costly disputes, so detailed and explicit terms are key to avoiding these gray areas. Take a clause about “property upgrades” as an example— a tenant might interpret this as minor repairs while the landlord could mean major renovations.
Restrictions on Business Operations
Some leases may include clauses that limit how a business can be run and the nature of the enterprise. A lease may mandate closing by 8 p.m., so expanding your hours might not be possible; or there may be a strict no pets policy which means a grooming business is out of the question. Similarly, there may be restrictions on signage or branding, especially if the business faces a major roadway.
Challenges with Termination or Renewal
Reaching the end of a lease can bring unexpected complications for both landlords and tenants. A termination clause might require significant notice, or non-renewal could come with hefty fines that need to be defined clearly in the contract.
Renovations and Alterations
Making improvements to match your brand or business needs can be tricky if the lease doesn’t address them clearly. A tenant should review the terms of the lease before beginning renovations to be sure they are compliant with any restrictions outlined in the landlord’s lease terms. Ambiguity about who pays for approved changes can also cause friction.
How to Avoid These Commercial Lease Disputes
Understanding the complexities of a commercial lease requires attention to detail and a clear comprehension of the agreement. Overlooking key aspects can lead to costly mistakes and legal disputes for both the property owner and the lessee. We cannot stress enough that working with an experienced commercial property lawyer who can negotiate terms and conditions on behalf of either party helps ensure a good working relationship. It’s also important to note that each party needs to seek their own legal counsel.
Hire an Experienced Commercial Property Lawyer
Consulting an experienced property lawyer with a background in commercial lease negotiation will prevent you from being vulnerable to unfavourable terms. Legal professionals can spot problematic clauses, suggest adjustments, and provide peace of mind. Working with either the landlord or the tenant to negotiate terms that are agreeable and drafting a final contract that everyone is satisfied with, make a commercial property lawyer an essential piece of the commercial leasing puzzle.
Thoroughly Review Lease Terms
Every clause should be clear and explicit to avoid misunderstandings and conflicts. If anything is ambiguous, seek clarification from your commercial property lawyer to ensure both parties understand their rights and obligations. You must define the conditions for early termination, including penalties, and any restrictions for use of the property. And, if you’re not fully versed in legal terms, your lawyer can explain what the terms mean specifically, what might trip you up, and why later on down the line.
Be Aware Of All Additional Costs
Maintenance fees, property taxes, or utilities can quickly add up and strain a tenant’s budget if not accounted for upfront. As a landlord, be sure that the lease clearly states who is responsible for repairs and maintenance to prevent future conflicts.
Understand Subletting and Assignment Provisions
Unfortunately, sometimes a tenant will need to transfer their lease due to downsizing, relocation, or a business transition. Both parties of the lease contract need to understand the options available if this happens and provide a mutually agreeable plan. If a tenant is planning to make renovations, responsibilities and approvals need to be clearly defined to avoid disputes.
Understanding Tenant Protections in Ontario
In Ontario, the “Commercial Tenancies Act” (CTA) provides a legal framework to protect both landlords and tenants. Tenants should know their rights and responsibilities and consult with a commercial property lawyer to navigate potential issues confidently. Landlords should know the guidelines for a commercial lease and be sure to adhere to them when negotiating with tenants. For disputes involving amounts under $35,000, tenants can turn to Small Claims Court, while larger matters go to the Superior Court of Justice.
Timely rent payment is essential, and withholding rent—even if the landlord is not meeting the tenant’s obligations—is not permitted under the CTA. Understanding this legislation, whether you are a landlord or a tenant, can help with compliance and make it easier to resolve conflicts more effectively. If you have questions about what your rights are, whether you are a tenant or a property owner or landlord, Gionet Fairley Wood LLP is only a phone call away.
Avoiding Costly Commercial Lease Disputes Starts With Consulting an Experienced Commercial Property Lawyer Before Signing Any Contract
When entering into a commercial lease, it is imperative to safeguard your interests and ensure comprehensive legal compliance. Retaining the services of a lawyer experienced in drafting and reviewing commercial lease agreements is essential to handle the complexities of these contracts effectively.
The seasoned property lawyers at Gionet Fairley Wood LLP have over 20 years of experience in handling commercial leases in Barrie, Simcoe County and beyond. Their thorough approach ensures your agreement is structured to protect your rights and mitigate the risk of disputes that could adversely impact your business. Invest in your future and contact the lawyers you want in your corner before any issues arise. Prevention is key to unwanted claims.
***The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.