Commercial Tenancy Renewals

Commercial Tenancy Renewals

Many commercial tenants face the prospect of renewing their leases with their landlords. Some will have renewal options contained within the terms of their lease. Others will have no further rights of renewal. Both groups will have important issues to deal with to protect the right to continue in their business premises.

How do I renew my lease?
For those tenants with a right of renewal in their lease, it is very important to become familiar with the language and requirements of the right of renewal. If the procedure is not followed precisely, then the tenant risks losing the right to renew altogether.

Notice must be given
Typically, most commercial leases with a right of renewal require the tenant to give notice in writing to the landlord setting out the intention to renew.

Notice must be properly delivered
The notice typically must be received at the address for delivery of notices set out in the lease. The notice must be sent as required (fax, mail, email, registered mail) by the provisions of the lease dealing with notices.

Notice must be timely
The renewal provisions will set out a time prior to the end of the existing term when the notice to renew must be received by the landlord. This length of time will vary from lease to lease, but is often 6 months or longer. Sometimes this is a “window” with a start time and an end time. The business owner should diarize the date to ensure that they are not missed.

Once notice to renew has successfully been delivered to the landlord, the tenant will have secured the right to occupy for the renewal term.

If notice to renew has not been properly delivered, the tenant may lose their right to occupy the premises unless they can negotiate an agreement with the landlord.

What if the landlord is asking too much?
The notice to renew may be given without any agreement as to the rent for the renewal term. If the tenant and the landlord cannot agree on rent, the lease will typically provide an arbitration procedure to have the rent determined.

The lease will often set out the rent to be paid in the interim until the renewal rent is settled. Often the tenant continues paying the current rent until the arbitration decision is rendered, then pays the difference back to the date of commencement of the renewal term.

If should be noted that exercising the right of renewal commits the tenant to rent for the entire renewal term, even where an arbitrator sets a rent that is higher than the tenant would like. Arbitrators will determine rent based on a large number of factors, including:

  • Other recently determined rents in the area
  • Location of the premises
  • Access to the premises

The arbitrator will likely not give much weight to the existing rent or the nature of the tenants business.

What if I fail to renew?
Failure to give adequate notice of an intention to renew will leave the tenant with the extremely remote possibility of seeking court relief against forfeiture or, more likely, negotiating with the landlord as if no right of renewal existed.

In the absence of a right of renewal, the tenant will have to negotiate a new lease, including the form of the lease. Some landlords use this opportunity to force tenants to sign a form of lease with more onerous provisions generally and not merely more onerous rent.

What if I stay in the premises anyway?
Without a right of renewal, tenants should be aware of common provisions in commercial leases dealing with over-holding (staying past the end of the term). Many leases in Whistler provide for the rent in these circumstances to be double the current rent, until a new lease is determined. There is no right to stay and the landlord may seek an order for possession of the premises.

What other help can I expect?
When negotiating a renewal of an existing lease or a new lease, market factors will determine the outcome. There are no protections similar to residential leasing which restrict the terms of the lease or amount of rent the landlord can charge. If there is high demand for commercial rental space, landlords will be able to demand premium rents and offer little or nothing in tenant inducements. If the market is flush with vacant space, the opportunity for tenant allowances improves greatly. Whether a market is tight or flush will also impact a tenant’s ability to sell their lease for value.