Prevent Heartache By Having a Lawyer Review Your Commercial Lease
Part I – The Rent Increase Control Clause
I recently came across a story in the news highlighting the unfortunately common situation where a small business owner is facing financial disaster as a result of terms in their commercial lease they didn’t fully understand when they signed. Cash flow challenges are reality for most small business, particularly those in the start up phase. As a result, many view spending money to have a lawyer review what appears to be a standard lease is a luxury they can’t afford.
In the article the shop owner is lamenting that the government hasn’t but in legislation limiting a landlord’s ability to increase rent. In a free market society, that simply won’t work. Unlike a residential lease situation, where the government has chosen to put in protections to protect renters, a business is not forced to entered into any given lease or accept any particular lease terms. Conversely, we all need a safe, affordable place to live. Compounding that, the relationship between residential landlords and tenants is often a David vs. Goliath situation. With a commercial lease you have two business parties, both seeking to make a profit, entering negotiations to see whether there is a good fit. If either party decides it’s not a good fit (ie they aren’t happy with the terms of the lease), then that party can walk away and seek out a better alternative.
In the newspaper story the shopkeeper was upset that she was effectively forced to move out of her location at the end of her lease because she couldn’t afford the increased rent the landlord was offering to renew the lease. The landlord had done significant renovations to the building and understood the market could bear a significantly higher rent for the location. The situation could have been avoided without government interference had the shopkeeper negotiated a rent increase control clause into the lease. In a situation where a tenant is renewing their lease, this type of clause limits the amount of rent increase under the new lease. Typically, a rent increase clause is tied to the local Consumer Price Index or set at a certain percentage.
Most small business owners would benefit from having a lawyer in their back pocket that they can call if they have questions. Having your commercial lease reviewed by a lawyer is a great way to develop just such a relationship. In addition, the relatively small amount you’ll pay to get advice that can help you prevent a disastrous situation like this one is certainly worth it.
If you're looking for guidance on this topic we'd be happy to help. You can call us at (902) 826-3070 to set up a meeting or contact us online. You can also schedule a no commitment Issue Review Consult for $100+HST where you have the opportunity to explain your situation to a lawyer and get basic advice before deciding whether or not you'd like to retain us.
If you thought this information was helpful, keep an eye out for more posts in this new series ‘Prevent Heartache By Having a Lawyer Review Your Commercial Lease’.
By: Dianna M. Rievaj, MBA, LLB - Managing Lawyer
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