Commercial Leases in Times of Trouble
Who this resource is for: Many non-profits are facing significant challenges and may have had to suspend operations. Paying the rent can be a challenge. The best possible outcome for many tenants will be the negotiation of a rent deferral (or better still an abatement.) The following is intended to help tenants begin this process with their landlord.
Who made it: © Pacific Legal Education and Outreach Society (PLEO). Written by lawyer Grant Haddock with input from PLEO Legal Director Martha Rans. It is intended for educational use only and available to anyone on that basis. Grant Haddock established Haddock & Company in 2001. Grant’s preferred areas of practice are corporate housing law (including non-profit), strata property law, commercial and residential tenancy and construction law.
How do I start negotiating a rent deferral?
1. Read the Lease
The average commercial lease is lengthy. While often “boilerplate” they vary depending on the use of the premises and the type of landlord. You cannot rely on what someone else’s lease says. The first step is to read the lease. Many leases require that rent be paid AND that the tenant pay a portion of the operating costs on the unit/building. This is the so-called “triple-net lease.” Operating costs could be equal to the rent. It may be possible to get a rent deferral, however, operating costs still need to be covered.
2. What do you ask a landlord for in a rent deferral?
A deferral on rental payments for 3–6 months. If the landlord objects to a deferral, the tenant could suggest that those rental payments are then spread over the following 6 months once all has returned to normal; for a reduction in rent; or that the rent is reduced by 50% so both landlord and tenant “share the pain”.
3. Present the landlord with payment options
Tenants will be better placed to negotiate a rent deferral if they offer even a portion of the rent or a payment plan. That way, the tenant has not refused to pay the rent but rather has attempted to mitigate the non-payment. The landlord may refuse to accept the proposal, however, they may also be better disposed to negotiate a deferral where there is an indication from the tenant that they will pay them.
4. We paid first and last month’s rent. Can we apply the last month to this month?
Hopefully yes. That will depend on your landlord. They may be prepared to accept that as it will buy the society time to negotiate a rent abatement or deferral. As with any kind of negotiation, offering something will often go further then offering nothing. Those non-profits have some contingency funds.
5. Read your Insurance Policy and Contact your Insurer
Review your insurance policy to determine whether it covers business disruption, and whether you have crisis management insurance or mitigation insurance. It is quite possible, however, that the business disruption insurance will not apply in cases of a force majeure type event i.e. a pandemic.
Landlords may have insurance coverage for rental loss. Knowing this may help you negotiate with your landlord.
6. Is your non-profit required to remain open?
Many leases have provisions in them that limit the activities conducted by the lessee as well a requirement that they remain open. Review your lease and where necessary advise both your landlord and insurer of the changes to your activities to ensure that the society remains covered. All levels of government have declared COVID-19 pandemic an emergency. It is unlikely a Court would enforce a requirement to be open in the face of a pandemic.
7. How does a landlord evict a tenant in a commercial tenancy?
A commercial landlord decides that it will enforce non-payment by seeking forfeiture or an order of possession. Both involve recourse to the Courts. At this point, the Court are closed and are not available to address such matters.
8. Can we rely on a force majeure clause?
Here is an example of a standard force majeure clause:
"Force Majeure 14.5 If either the Landlord or the Tenant is delayed, hindered or prevented from the performance of any covenant or agreement required hereunder by reason of any Unavoidable Cause, then performance of such covenant or agreement shall be excused for the period during which such performance is delayed, hindered or prevented and the time for the performance thereof shall be extended accordingly, but this shall not operate to excuse the Tenant from the prompt payment of Rent or any other payments required under this Lease.”
As noted, the payment of rent or other payments is exempt from application of the provision pandemic clause in the future - they won’t be included in force majeure.
9. When do we get legal advice?
If your landlord presents you with a rent deferral agreement get legal advice.
Additional Resources on Commercial Leases in Times of Trouble:
Download a Sample Rent Deferral Agreement (Commercial Leases).
Still have questions?
Submit an inquiry to our Ask a Law Student service*
* Our law students can only provide general legal information, not advice about what steps you should take in your specific circumstance. They also cannot provide legal opinions, including on whether you are considered a lobbyist under the Act.