CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Patrick Morin, Stikeman Elliott LLP
lease, tenants are charged an “all-in” fixed gross rent to cover the landlord’s operating and capital costs and expenses, while providing the tenant certainty as to its financial obligations. Ground Leases Ground leases are generally long-term, with few landlord obligations and often include the right or obligation of the tenant to construct and con - trol the improvements on the land. In Quebec, “emphyteutic leases” (a conveyance of a dis - memberment of ownership for a term) are analo - gous to ground leases. Ground leases allow the tenant to invest in, and enjoy the depreciation of, the buildings on the land. Accordingly, the landlord will enjoy a low threshold of oversight and control, while the tenant will have greater contractual certainty to protect and finance its investment. 6.3 Regulation of Rents or Lease Terms Rents and lease terms for commercial leases are freely negotiable, with the exception that the Quebec Civil Code caps the term at 100 years. In response to the pandemic, temporary meas - ures were introduced, such as the Canada Emergency Commercial Rent Assistance Pro - gram; Canada Emergency Rent Subsidy, Tour - ism and Hospitality Recovery Program; and the Hardest-Hit Business Recovery Program. These temporary measures have ended and there are An initial lease term typically ranges between five and ten years, subject to a tenant’s option to extend for one or more additional periods. A ground lease, in which the tenant will have financed and constructed the buildings on the land, will have a longer initial term and options to extend. In a typical multi-tenant complex, the no ongoing measures in place. 6.4 Typical Terms of a Lease
tenant will commonly be responsible for repair and maintenance of the premises and leasehold improvements, while the landlord may remain responsible for repair and maintenance of the building (including structural items) and the common areas (typically subject to some cost reimbursement through the operating cost pro - visions – see 6.9 Payment of Maintenance and Repair ). In a single-tenant project, the landlord and the tenant may negotiate different repair and maintenance obligations. Rent is most common - ly paid on a monthly basis. As a result of COVID-19, both landlords and tenants have revisited limited lease provisions, including the definition and effect of force majeure provisions and quiet enjoyment cov - enants. However, landlords have typically not entertained rent abatements in the event of future pandemics, nor have landlords accom - modated potential delays in construction build- out or supply chain issues. 6.5 Rent Variation For commercial leases, rent is based on market conditions and negotiated prior to settling the lease agreement. Market conditions will deter - mine 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 land - lord and tenant; • set at the market rate for a comparable prop - erty at the time of extension or renewal; or • increased based on an index (such as the Canadian Consumer Price Index).
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