CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Miguel Manzano, Stikeman Elliott LLP
repair and maintenance obligations. Rent is most commonly paid on a monthly basis. 6.5 Rent Variation For commercial leases, rent is based on market condi - tions and negotiated prior to settling the lease agree - ment. Market conditions will determine whether there will be a fixed rental rate for the term, or whether the rental rate will increase throughout the term. 6.6 Determination of New Rent Rent is commonly increased during renewal terms. The rent payable for an extension or renewal can be: • fixed through negotiation between the landlord and tenant; • set at the market rate for a comparable property at the time of extension or renewal; or • increased based on an index (such as the Cana - dian Consumer Price Index). 6.7 Payment of VAT Goods and services tax (GST), harmonised sales tax (HST) or Quebec sales tax (QST) is payable on rent and must be collected by landlords. If the commercial tenant is registered for GST/HST/QST purposes and is incurring the rent payments in the course of its com - mercial activities, up to 100% of those taxes should be recoverable by the tenant. GST/HST/QST paid by commercial landlords on their expenses is generally recoverable, whereas GST/HST/QST paid by residen - tial landlords is not. 6.8 Costs Payable by a Tenant at the Start of a Lease A security deposit, prepaid rent or other security may be due at the commencement of a commercial lease. In some jurisdictions, transfer tax may be triggered if the lease term exceeds certain thresholds. 6.9 Payment of Maintenance and Repair Tenants occupying leased commercial premises in a multi-tenanted development will typically pay a pro rata share of the expenses for maintaining and repair - ing common areas, as additional rent. In more land - lord-friendly markets, responsibility for maintenance, repair and replacement costs will be allocated to the tenants, including for structural matters. However,
major capital costs are often allocated to the tenant on an annual amortised/depreciated basis, so that the tenant’s proportionate share of such major costs is not
charged to the tenant all at once. 6.10 Payment of Utilities and Telecommunications
Tenants are typically responsible for the cost of their own utilities and telecommunications services, plus a proportionate share of such costs for common areas. 6.11 Payment of Property Taxes Tenants are typically responsible for property taxes in respect of the leased premises. In a multi-tenanted development, the landlord typically pays the property taxes to the municipality and collects these amounts from the tenants as additional rent. In some single- tenant leases, a tenant may be responsible for paying property taxes directly to the municipality. 6.12 Insurance Issues Landlords typically insure the buildings of a leased development, whereas tenants are responsible for insuring fixtures, trade fixtures and personal property. Insurance premiums paid by the landlord are typically recovered from tenants as additional rent. Tenants must typically carry “all-risks” physical damage insur - ance and general liability insurance. The interpretation of business-interruption insurance provisions generally did not result in tenants being covered as a result of office closures during the COV - ID-19 pandemic. 6.13 Restrictions on the Use of Real Estate Landlords may impose restrictions on how a tenant uses the real estate, in addition to generally applicable land use, zoning and planning laws. The use of real estate can also be affected by restrictive covenants. 6.14 Tenant’s Ability to Alter and Improve Real Estate The terms and conditions of a lease will determine whether a tenant is permitted to alter or improve leased premises or install tenant trade fixtures. Land - lords often restrict work that affects the structure of the leased premises or affects or disturbs other ten - ants. Tenants will usually be responsible for the repair
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