A common and expensive misunderstanding in commercial leasing is that the offer to lease is a preliminary document and the real negotiation happens later, over the formal lease. In practice it is normally the reverse.
The offer is generally binding
An accepted offer to lease is ordinarily a binding contract on the business terms it contains. The formal lease that follows elaborates those terms into a long document, but it does not reopen them. A term you conceded — or failed to ask for — in the offer is very difficult to recover afterwards.
Treat the offer as the negotiation. Everything material belongs in it.
What “material” means
- Premises, rentable area and the measurement standard
- Term, commencement date and fixturing period
- Net rent for each year of the term
- How additional rent is calculated, and any caps or exclusions agreed
- Improvement allowance or landlord’s work, with scope and payment triggers
- Free rent, if any, and which months
- Renewal option and the mechanism for setting renewal rent
- Early termination right, if any, and its formula
- Assignment and subletting, including change of control
- Deposit, security and any indemnity
- Permitted use, and any exclusivity
- Parking
- Conditions, each with a date
Conditions need dates, not adjectives
“Subject to the tenant obtaining satisfactory financing within a reasonable time” is an invitation to argue. Conditions should say what has to be satisfied, who decides, and by which date. Common conditions: zoning and permitted use confirmation, development and building permit feasibility, financing, franchisor or board approval, and review of the landlord’s form of lease.
That last one matters. Making the offer conditional on the tenant’s satisfactory review of the actual lease document preserves a genuine opportunity to address anything the offer did not cover.
Fixturing period is not free rent
The fixturing period is time before the term commences during which the tenant builds out and installs. Free rent is an inducement applied during the term. They are often conflated, and the difference matters for when obligations start, when the term ends, and how renewal dates fall.
Read the clauses that outlive the term
Restoration, environmental, indemnity and holdover survive the lease. Restoration in particular can require a tenant to demolish improvements the landlord funded. The time to narrow it is now, by agreeing that the landlord will identify at the approval stage which elements must be removed and waive the rest.
Get a lawyer on it
This article is general information, not legal advice. A commercial real estate lawyer reviewing an offer to lease before acceptance costs a small fraction of what a badly drafted renewal or restoration clause costs five years later.
Talk it through with Rimrock
Rimrock Sales & Leasing works with owners, investors and tenants across Calgary, Edmonton and Lethbridge. Get in touch or call 403-910-4611.