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Dec

24

Commercial Subleases – Things to think about…

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Toronto Business Sublease Lawyer

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. It may not be up to date. Laws change often and without notice. If you need legal advice with respect to a residential sublet agreement or sublease contract, you should seek professional assistance (e.g. make a post on Dynamic Legal Forms). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. You can also contact me directly.

So I thought it would be worthwhile to just go over some of the issues that Commercial Tenants may need to deal with when they are trying to figure out how to sublease their business premises.

Use of the Premises

One of the first things I look for when advising a client as to whether they can sublease their premises is the use of the premises. There is usually a clause in the original lease agreement that states what the premises can be used for. It is a highly negotiated term because the Landlord wants it to be very narrow, while the Tenant wants it to be very broad. It would be a violation of the lease agreement if the Tenant carried on a business that was not expressly permitted to be carried on in the leased premises. So what does this have to do with the Sublease Agreement? Well, the Tenant’s rights to sublease the premises to a Sub-Tenant is subject to the original lease agreement. There are restrictions in the original lease agreement which the sublease agreement must conform to. The reason is simple: the Tenant of the original lease only has so many rights to do with the premises as was granted to it under the original lease. It cannot now expand its rights beyond that lease. So the use of the premises under the sublease must be the same as in the original lease. Otherwise, the Tenant could be violating the original lease. If it’s not feasible for the sublease agreement to be entered into because the original lease’s “use” clause is too restrictive or doesn’t cover the intended business to be carried on by the Sub-Tenant, then an amendment to the original lease will be required.

Exclusivity

There may not be anything covered in the original lease agreement, but it’s still worth asking the landlord if it has signed a lease agreement with another tenant that contains an exclusivity clause. The latter clause basically prevents the landlord from agreeing to lease premises out to any party that would conflict with an existing tenant’s use of their premises. Just think of it like this: if a landlord agreed with one tenant that there wouldn’t be any more restaurants in the building or within the project (which contains the Tenant’s premises), then the Landlord would not consent to a sublease to a restaurant business within the building or project. Get it? You need to ask. You may also try to get a representation from the Landlord that says, as of a certain date, there are no exclusivity clauses with existing tenants that would prevent or restrict the sublease agreement from being entered into.

Rules and Regulations

The Landlord will typically include Rules and Regulations as a schedule to the Lease. It will cover things like parking, cleaning up, smoking, environmental matters, etc. Generally, the Rules and Regulations form part of the Lease, and a violation of these Rules can result in the Lease being violated. Just make sure that, as the Tenant, if you’re subleasing, you want the Sub-Tenant to know and follow these Rules and Regulations too.

Indemnifier | Guarantor

An Indemnifier / Guarantor is someone who is responsible for paying the Landlord rent, damages, etc. in case the Tenant failed to live up to its end of the original lease agreement. The idea here is that if the Tenant sublets the premises, but the Sub-Tenant fails to abide by the terms of the original lease or sublease agreement, then the Landlord still wants to be able to go after the Indemnifier or Guarantor. These individuals are generally the principal of the business (i.e. a human being). This gives the landlord some leverage and certainty that they can go after the human beings behind corporations or because of someone else’s wrongdoings in case of a default.

Liability

It’s worth checking the original lease to see if the Tenant, Indemnifier, and / or Guarantor is still responsible for a breach of the lease agreement if it has been violated by the Sub-Tenant. Generally, it’s in the Tenant’s interests to be released from all liability via the sublease, but this usually doesn’t happen. The reason is that the Landlord does not have a direct relationship with the Sub-Tenant (unless the Sub-Tenant signed something with the Landlord), and will have to turn to the Tenant for payment of rent, damages, etc. if the Sub-Tenant violates the Sublease Agreement (which could also happen if the Sub-Tenant indirectly violates the original lease agreement).

Consent to Sublease Agreement

This is a separate written agreement from the Landlord saying that it consents to the subleasing of all or part of the premises. The background information to this agreement generally provides the context of the agreement (e.g. there was an original lease for the premises, the lease allows a part or all of the premises to be sublet, the landlord’s consent is required, etc.). Depending on the landlord (if it’s big or small, sophisticated or simply an individual), these agreements may be prepared by the Landlord or the Tenant’s lawyer. You’ll need to check the original lease to see what requirements or rights the Landlord has in giving or refusing to give consent. Importantly, section 23 of the Commercial Tenancies Act states that, unless the lease agreement says otherwise, the Landlord must not unreasonably withhold consent of a sublease. Furthermore, if the landlord refuses to give consent, an application can be made to the court to determine if such consent should be given. Sometimes, leases will give the landlord certain rights in determining whether or not to withhold consent (and it won’t be considered to be withholding consent unreasonably). This could include, for example, refusing to give consent on the basis that the Tenant is in violation of the lease, the sublease conflicts with another tenant’s lease (i.e. another tenant of the Landlord), or if the proposed sub-tenant is not in good financial standing.

Remember: if you’re a Landlord or a Tenant and you require legal assistance, you can make a post on Dynamic Lawyer or contact me directly.

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