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- Aug 30, 2007
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Excerpted from my blog on the Edmonton industrial real estate scene, some ideas to get the wheels turning for those entertaining entering commercial investments. If you have experiences in commercial leasing you`d like to alert others to, please add your tips!1. Don`t Get it in Writing.
Residential leases (in Alberta) are governed Alberta Residential Tenancies Act, and the Act will trump any disparity between the lease agreement and the act. But there is no such animal for commercial leases; the terms of the lease will prevail. In a commercial lease agreement, what`s "normal" holds water like a sieve, and there is no such thing as a "standard lease". For example, it is common for structural repairs to the foundation, exterior walls, and roof to be the responsibility of the landlord, but if the lease agreement states otherwise, it`s not likely you will be able to argue your way out of the bill. You can see a similar case study in action over at the Law of the Land blog; except in this example, when the Landlord issued a $32,000 roof repair bill to the tenant, the tenant was protected by a term in the lease agreement stating this type of repair to be a Landlord`s responsibility. If that clause had not been there, the results would be different.
It`s a cliché that can stand repeating, a verbal agreement is as valuable as the paper its written on. The Landlord may very well have promised you that the property would be cleaned out by the middle of the month during the verbal negotiations, but if you don`t have it on record, it is going to be tough to claim damages for the month you were not able to profit from your new space due to the previous tenant`s equipment being in the way. You don`t need to have an evil Landlord for seemingly small issues to become hot buttons - expensive buttons; all you need is a "too busy" Landlord.
2. Don`t Verify the Claims.
"There`s 15,500 square feet available here . . ."
"There is "abundant" heat provided by the "newer" HVAC . . .
"With the new ventilation system coming in there won`t be any fumes from the neighboring tenants . . ."
"Plenty of power here . . ."
"600 amp electrical service throughout the building . . ."
Its not likely you are an expert in all of the construction trades required to make a building function, so expect to use third party expertise for verification . . . and expect to pay for it. If you need 600 amp electrical service to make your widgets, hire an electrician to verify it. The Landlord isn`t necessarily trying to mislead you by telling you its 600 amp service, it may just be what he/she was told when it was purchased, and there wasn`t a need to verify it at the time. A building inspector is not just a good idea when purchasing a property, set aside a few hundred dollars of your moving budget to get things right the first time in your leased space.
2.5. Don`t Be A Team Player
I`m aware this is self-serving advice - but its still good. Unless you are well versed in your local real estate market, and have a background in contract law, you are wise to utilize a commercial leasing agent and a lawyer in addition to your building inspector. A commercial leasing agent can make sure you are not overpaying for your space (or undervaluing your property if you are a Landlord), and help you determine a rent-free period and other tenant inducements that are in-line with the market. Fortunately if you are a tenant, representation by a commercial leasing agent is usually paid for by the Landlord, and the agent can also take much of the legwork out of finding appropriate space for your business. Your lawyer will likewise ensure that the lease agreement adequately represents all parties involved, the cost for this is usually determined by the length of the lease agreement, typically $300-500 well spent.
Disclaimer: I am a real estate associate licensed in the province of Alberta, not a lawyer, and this white paper is not intended to provide legal advice. Please consult with your lawyer for counsel specific to your situation.
Residential leases (in Alberta) are governed Alberta Residential Tenancies Act, and the Act will trump any disparity between the lease agreement and the act. But there is no such animal for commercial leases; the terms of the lease will prevail. In a commercial lease agreement, what`s "normal" holds water like a sieve, and there is no such thing as a "standard lease". For example, it is common for structural repairs to the foundation, exterior walls, and roof to be the responsibility of the landlord, but if the lease agreement states otherwise, it`s not likely you will be able to argue your way out of the bill. You can see a similar case study in action over at the Law of the Land blog; except in this example, when the Landlord issued a $32,000 roof repair bill to the tenant, the tenant was protected by a term in the lease agreement stating this type of repair to be a Landlord`s responsibility. If that clause had not been there, the results would be different.
It`s a cliché that can stand repeating, a verbal agreement is as valuable as the paper its written on. The Landlord may very well have promised you that the property would be cleaned out by the middle of the month during the verbal negotiations, but if you don`t have it on record, it is going to be tough to claim damages for the month you were not able to profit from your new space due to the previous tenant`s equipment being in the way. You don`t need to have an evil Landlord for seemingly small issues to become hot buttons - expensive buttons; all you need is a "too busy" Landlord.
2. Don`t Verify the Claims.
"There`s 15,500 square feet available here . . ."
"There is "abundant" heat provided by the "newer" HVAC . . .
"With the new ventilation system coming in there won`t be any fumes from the neighboring tenants . . ."
"Plenty of power here . . ."
"600 amp electrical service throughout the building . . ."
Its not likely you are an expert in all of the construction trades required to make a building function, so expect to use third party expertise for verification . . . and expect to pay for it. If you need 600 amp electrical service to make your widgets, hire an electrician to verify it. The Landlord isn`t necessarily trying to mislead you by telling you its 600 amp service, it may just be what he/she was told when it was purchased, and there wasn`t a need to verify it at the time. A building inspector is not just a good idea when purchasing a property, set aside a few hundred dollars of your moving budget to get things right the first time in your leased space.
2.5. Don`t Be A Team Player
I`m aware this is self-serving advice - but its still good. Unless you are well versed in your local real estate market, and have a background in contract law, you are wise to utilize a commercial leasing agent and a lawyer in addition to your building inspector. A commercial leasing agent can make sure you are not overpaying for your space (or undervaluing your property if you are a Landlord), and help you determine a rent-free period and other tenant inducements that are in-line with the market. Fortunately if you are a tenant, representation by a commercial leasing agent is usually paid for by the Landlord, and the agent can also take much of the legwork out of finding appropriate space for your business. Your lawyer will likewise ensure that the lease agreement adequately represents all parties involved, the cost for this is usually determined by the length of the lease agreement, typically $300-500 well spent.
Disclaimer: I am a real estate associate licensed in the province of Alberta, not a lawyer, and this white paper is not intended to provide legal advice. Please consult with your lawyer for counsel specific to your situation.