CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Miguel Manzano, Stikeman Elliott LLP
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). 6.7 Payment of VAT Goods and services tax (GST), harmonized 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 commercial 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 recover - able, whereas GST/HST/QST paid by residential 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 commer - cial 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 repairing common areas, as additional rent. In more landlord-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 ten - ant’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 ser - vices, 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 typi - cally 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 ten - ants as additional rent. Tenants must typically carry “all-risks” physical damage insurance and general liability insurance.
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