Lease Lengths are more than Just Time
Part I: Register a Notice of Lease
When negotiating a commercial lease, the length of the term is important to consider. It is a good idea to have a Notice of Lease registered on title to the leased property for any lease of more than 3 years.
As a Tenant, leasing a commercial space can be an expensive endeavour. In order to protect your rights associated with your lease it is important to give notice of your lease to the public. The method by which this is done in practice is to have your solicitor prepare a Notice of Lease. This document is registered on title and performs 2 main functions:
- It gives notice to the public that you have an interest in the property, which interest is in priority to any instruments registered subsequently (with a few exceptions).
The importance of this is to protect your investment in the leased premises. If the landlord gives a mortgage to a lending institution the lending institution will have their solicitor search title and register the mortgage on title. If the landlord later goes into default under the mortgage the mortgagee has the right to sell the property by power of sale. The new owner will not be bound by any lease greater than 3 years unless there is notice of the lease on title.
- It discloses special rights of the tenant including restrictive covenants. Restrictive covenants are typically those covenants that bind the landlord against certain actions. For example, if a major fast food chain leases space, the restrictive covenants may prevent the landlord from leasing other space to one of that fast food chain’s competitors.
Registering a Notice of Lease gives the public notice of the rights you have negotiated in your lease and protects your priority over subsequent encumbrancers.
Contact Real Estate Lawyer Noah Potechin if you would like to see if it is possible to have a Notice of Lease registered on title to your landlord’s lands.
Part II: Planning Act Compliance
Many commercial leases are drafted with long terms to give the tenant enough time to establish itself in that location. Moving is not always good for business, so tenants want the security of a long term lease. Landlords also like to have the security that a tenant will occupy their space for as long as possible. The Planning Act, however, does not like such long term leases when the tenant is occupying all of the landlords’ building. Any lease which, with extensions and options to renew can exceed 21 years, requires Planning Act consent.
If a lease is entered into for 21 years or more, including all rights of renewal and extension, and the lease does not fall into one of the stated exceptions in the Planning Act, there is an obligation to obtain consent for such a lease from the municipal committee of adjustments or the land division committee as the case may be. According to section 50(21) of the Planning Act, a lease that is for 21 years or more (and does not fall into one of the exceptions) fails to convey an interest in land. A major exception is the leases of premises that form part of a building.
It should be noted that where a lease including all rights of renewal or extension exceeds 50 years, Land Transfer Tax will be payable.
Contact Real Estate Lawyer Noah Potechin if you would like to determine if your lease is in compliance with the Planning Act.
Contact Business Lawyer, Michell Besner, if you would like a lease review completed, or if you would like a new commercial lease to be drafted.