Commercial Real Estate Law
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are pleased to provide our most recent news releases and articles for
your information. Our clients count on us to stay ahead of new
developments in the law and their impact on business. We constantly
research, advise and write about all aspects of the law relating to
commercial leasing.
Our commercial real estate law firm contributes regularly to the International Council of Shopping Centre Annual Canadian Law Conferences, Canadian Bar Association (Ontario) programmes, The Shopping Centre Newsletter, Law Society of Upper Canada courses, and continuing education services such as Insight Legal Education Service Programmes.
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Latest Articles
Construction Lien for Dummies
The lawyers at Daoust Vukovich LLP are frequently invited to speak at the various conferences hosted by the International Council of Shopping Centers (ICSC), the global trade association of the shopping center industry.
This year, several members from the Daoust Vukovich team were invited to speak at the 2011 ICSC Canadian Law Conference. Among them was Wolfgang Kaufmann, who was asked to co-host a roundtable discussion and prepare an article on construction liens with David Holmes of Miller Thomson LLP. The article focuses on the key issues relating to the nature, registration and discharge of construction liens. Further, it provides a useful overview of the key legislation governing construction liens in Ontario and a listing of some of the more significant cases on the topic. For access to the complete article, click here >>Read Article.
BOMA 2010 Office Standard and New BOMA 2010 Retail Standard
Our website recently featured an article by Dennis Daoust entitled “Office Measurement Standards: BOMA 2010”, which discussed some of the key changes introduced by the new 2010 BOMA office standard. At a recent conference hosted by the Law Society of Upper Canada entitled “The Six Minute Commercial Leasing Lawyer”, Dennis Daoust was asked to present his new paper entitled “BOMA 2010 Office Standard and New BOMA 2010 Standard”. His article provides a recap of the 2010 BOMA office measurement standard. However, it also extends the analysis from his previous article to include the new 2010 BOMA retail measurement standard. The article recognizes that the new retail standard eliminates some of the uncertainty inherent to those currently employed by retail landlords. However, additional work will need to be done to clarify intent before the 2010 BOMA retail standard can be regarded as an improvement to standards currently employed by retail landlords.>>Read Article
Practice Management Issues in Commercial Leasing
Effective practice management is an integral part of any legal practice. Though there are many topics that are relevant to all practice areas, different areas of practice do give rise to their own unique set of challenges. At a recent conference hosted by the Law Society of Upper Canada entitled “The Six Minute Commercial Leasing Lawyer”, our very own Jeanne Banka was asked to present her paper on practice management issues. Her presentation identifies some of the key practice management issues within the commercial leasing context, and provides useful tips for managing a successful commercial leasing practice.>>Read Article
Arbitration Clauses: What should they say and how do I use it?
Arbitration is a legal procedure for resolving disputes in which one to three private, neutral “arbitrators” who are appointed by or on behalf of the parties act as decision-makers. Unless another format is agreed upon, the arbitrator decides the issues in dispute by applying rules of law and equity and their decisions are final and binding.
The first step is to identify the issue between the Landlord and Tenant. The commercial lease should be examined for any existing arbitration clauses, which may outline important information, such as the jurisdiction which governs the arbitration. The Claimant must serve a Notice of Arbitration to the other party. Once the Landlord and Tenant appoint an arbitrator, a preliminary hearing is held discussing the related issues to the arbitration, including but not limited to the procedure to be used, location, witnesses, and procedure for appeal. The claimant must serve the respondent and arbitrator with its Arbitration Submissions and the respondent is to serve the claimant and arbitrator with its Reply Submissions. All documentary evidence, witness statements and expert reports must be exchanged.
After the arbitration takes place, the arbitrator renders her “Award”.
There is generally an appeal period. Once this period expires, the
successful party may enforce the award and if the respondent fails to
pay, the claimant may bring an Application to the Ontario Superior Court
of Justice to have the Award transferred to the Courts for enforcement
purposes. For more information about the arbitration process and various
examples of arbitration clauses, ranging from simple to complex. >>Read
Article.
Show me the Money! (a.k.a. Security for Leases)
Have you ever wondered about the different types of security available
for leases? Guarantees and indemnities are often confused for each other,
but there are several important differences. A guarantee is a secondary
obligation, since it does not survive the disclaimer of the tenant’s
lease in a bankruptcy. An indemnity, on the other hand, is a primary
obligation which, if properly drafted, will survive the bankruptcy of a
tenant and the disclaimer of the lease. The indemnifier is jointly liable
with the tenant to perform the tenant’s obligations under the lease.
Tenants can also provide deposits as security for leases. A rent deposit
is one option. This is collected by the landlord and applied towards rent
at specified times during the term, such as first and last months rent. A
security deposit is collected as security for the tenant’s performance of
its obligations under the lease and may be applied against non-rental
defaults, such as repairs or unpaid utility bills at the end of the term.
There are important considerations for landlords and tenants when
drafting agreements for rent and security deposits. Landlords should be
concerned about issues such as the replenishment of a security deposit
and how much time they have after the expiry of the lease term to fulfill
any restoration obligations before returning the security deposit to the
tenant. While tenants will also be concerned about the return of the
security deposit, they must also consider other issues, such as whether
interest accrues on the deposit.
Landlord may also opt to use a general security agreement (GSA) or PPSA
registration as security for their leases. A GSA grants a security
interest in certain defined collateral, usually the assets of the tenant,
to secure the tenant’s covenants under the lease. As a secured creditor,
the landlord can claim against the property in priority of other
creditors. Landlords and tenants should be aware of the importance of
careful drafting before entering into any type of security agreement. For
drafting tips, as well as information about another type of security for
leases, the letter of credit. >>
Read Article.
Operating Costs – A Review and Something New: Capital Expenditures – Amortization and Depreciation & Upcoming IFRS Changes to GAAP
Are capital expenditures properly recoverable as Operating Costs? How relevant are the International Financial Reporting Standards (IFRS) soon to be implemented in 2011 to this topic? Although the definition of “Operating Costs” in most leases includes capital costs, tenants generally take exception to this. Case law has left us with little guidance about the meaning of the phrase “capital costs” and/or “costs/expenditures of a capital nature”. Many leases give reference to “capital costs in accordance with GAAP” in their definitions of “Operating Costs”; however, the CICA refers to the concept of “betterment”, excluding the term “capital costs”. Based on the CICA Handbook’s definition of “capital assets”, we can conclude that expenditures incurred to create, acquire or improve a capital asset would amount to a capital cost. An expenditure incurred to repair a capital asset, however, would not fall under this definition. Further, a cost incurred to generate revenue or operate the business would not constitute a capital cost.
Defining capital costs is not the only challenge for landlords and tenants. There is often debate about how capital costs included in Operating Costs under a net commercial lease will be passed on. Specifically, the debate relates to whether capital costs will be fully charged in the year in which the cost was incurred, whether the expenditure will be amortized and what method of amortization will be used. There is confusion over the differences between amortization and depreciation. The CICA Handbook no longer uses the term “depreciation” and some leases only allow the recovery through Operating Costs of “amortization, but not depreciation”. The intention behind this may be to allow certain costs, incurred to replace and/or improve an asset, to be spread out and recovered over a period longer than a year, but to disallow recovery of the original cost of the initial acquisition on a “sinking fund” basis. Further issues relating to amortization arise where a tenant under a new lease pays amortization relating to an expenditure incurred prior to the lease commencement date or on the other hand, if landlords are entitled to recover an interest cost on the unamortized portion of the capital cost.
It is important for landlords and tenants who have leases that refer to
GAAP to have an understanding of the upcoming IFRS Standards; however,
due to the complexity of GAAP and IFRS, it is suggested that costs
recoverable under commercial leases should not be tied to GAAP, but
spelled out in clear lease terms. For more information about the
significant differences between IFRS and the existing CICA Handbook that
may impact landlords. >>Read
Article
Back to the Basics: An Overview of the Commercial Lease
Before drafting an effective commercial lease, it is essential to have a good understanding of the nature of leases and how they differentiate from licenses, as well as the differences between the various categories of commercial leases. A lease of real property is a contract between one party, the landlord, and another, the tenant, under which the landlord grants to the tenant the right of exclusive use of the identified property for a determinate period of time in consideration for which the tenant agrees to pay rent to the landlord. A license, on the other hand, is a simple contract under which the owner of property, the licensor, grants to another party, the licensee, permission to occupy or use the property; however, the licensee has no interest in the property. >>Read Article
Green Commercial Real Estate: Staying on Top of the Latest Trends and
Requirements
With growing concern over global warming caused by greenhouse gas emissions (GHGs), the government and commercial leasing industry have been forced to step up to the plate to address these issues. The Canadian government has made several important steps, including signing the Kyoto Accord and provinces have followed with their own initiatives, including the Western Climate Initiative and Regional Greenhouse Gas Initiative. There are also various systems being introduced to reduce GHGs such as the cap and trade system, where carbon credits are bought and sold within a regulatory framework that controls the methods by which GHGs are measured and reported and controls the procedures for trading these credits. The article also discusses renewable energy certificates (RECs) and the value potential for RECs and carbon credits. >>Read Article
News
Tenants halt the wrecking ball’s swing
Property owners and developers may have grand plans about how they would like to make their mark on the face a city’s downtown core by redeveloping older properties. These plans, however, can come to a halt when faced with existing properties filled with lease-holding tenants. Existing leases can at best be a thorn in a developer’s side, and at the very worst, a deal-killer. In order to get around these issues, landlords a nd property owners need a little foresight and a little flexibility.
Read the complete
article here.
Commercial Property Market – A
Tale of Two Regions
The economic downturn has impacted commercial real estate landlords
and tenants throughout
News ReLeases
The Covenant to Maintain & Repair: How Far Does It Go?
Typically, commercial leases express obligations on the part of the landlord and tenant to “maintain and repair” certain property, including leased premises, common areas, facilities and equipment. The ordinary meanings of the words “repair” and “maintain” are easy enough to understand; however, the question of just how far a covenant to “repair and maintain” extends is less clear. The following article provides insight into the meaning of a repair covenant in a commercial lease, including when “repair” includes an obligation to “replace”, as well as the relationship between “repair” and “restore”. Overall, this article emphasizes the importance of drafting and negotiating clear maintenance and repair covenants in commercial leases.Read the complete article here.
Weathering the Storm: The Force Majeure Clause
Often overlooked as an automatic boilerplate provision, the force majeure clause in a commercial lease can serve as a powerful tool for landlords and tenants when allocating risk in the event of unforeseen circumstances. The force majeure clause generally operates to relieve one or both parties from their obligations under the lease when an intervening event renders performance impossible. Though the standard force majeure clause contemplates events such as wars, natural disasters and other “Acts of God”, parties to a commercial lease can shape their force majeure clause to control any risks that both parties consider undesirable or bothersome. This article will provide insight into the critical elements of a force majeure clause, considerations for drafting an effective force majeure clause and the recent materialization of “economic force majeure” in Canadian case law.Read the complete article here.
Fundamental Breach: Digging to the “Root” of the Lease
Contract law recognizes that when a party to a contract commits a breach of such significance that it deprives the other party of the very essence of what it contracted for, a "fundamental breach" has taken place and the wronged party can not only claim damages, but also walk away from the contract without exposure to a claim for damages by the defaulting party. In the context of a lease for many years it was believed that since the essence of a lease is the right to use space, and since the space itself could not be eliminated by a breach by a landlord, there would never be a breach so fundamental that the tenant is permitted to treat the lease as terminated. However, as courts have become willing to contractualize commercial leases, contractual remedies, including fundamental breach, are gaining popularity. Read the complete article here.
What you Need to Know About a Right of First Offer
Tenants try to ensure that their commercial leases provide them with rights that will allow them to acquire more space as their enterprise grows. These rights often come in the form of options to lease additional designated space, rights of first refusal (ROFR), and rights of first offer (ROFO). These provisions attempt to strike a balance between the tenant’s interest in future expansion and the landlord’s interest in having flexibility to lease the designated expansion space as it sees fit. The following article provides a discussion on the nature and importance of a ROFO in the context of the leasing of commercial space. It provides insight into why landlords do and should prefer the inclusion of a ROFO to other rights in their commercial leases, what tenants should know about the impact of a ROFO on expansionary rights, and considerations relating to the drafting of ROFO clauses. Read the complete article here.
Office Measurement Standards: BOMA 2010
The Building Owners and Managers Association (BOMA) method for
floor measurement has served as Canada’s national standard since 1915. It
has undergone various changes to respond to the changing needs of
landlords and tenants across the country. The last version (the “1996
BOMA Standard”) relating to office spaces has been replaced by the “BOMA
2010 Standard”. According to Dennis Daoust, a founding partner at Daoust
Vukovich LLP,
“The 1996 Standard introduced a feature that involved the grossing up of
Rentable Areas to include a share of Building Common Areas such as main
floor lobbies, loading areas and boiler rooms, and it included other
improvements but it still needed some ‘tinkering’ to make it work better.
As well, there has been a need expressed by industry participants for a
method of measurement that simplified things by using a single gross up
factor for all space in the building.”
The BOMA 2010 Standard provides for two different methods of measurement
from which one may choose. Method A (the Legacy Method) essentially
replicates the method available under the 1996 Standard, but it
introduces some refinements. Method B (the Single Load Factor Method)
applies a single gross up factor to all tenants in the building
regardless of the floor occupied. While deciding on the most appropriate
method will depend on the space being considered, users will have a
choice of method that was not available under BOMA 1996.
Both Method A and Method B, unlike the 1996 Standard, exclude storage
areas in defining Rentable Area. Under the 1996 Standard, areas
designated as storage and not intended for occupation are included in
calculating the Rentable Area for a building. This had the effect of
artificially inflating the size of the Rentable Area and therefore
eliminating tenant obligations respecting the costs and taxes associated
with these areas. That resulted in landlords subsidizing tenants with
respect to the costs associated with storage areas.
Another refinement made by BOMA 2010 includes a new method for
calculating the gross up relating to Floor Common Areas. A more
appropriate apportionment of Floor Common Areas is provided for so that
in grossing up space on floors containing Building Service Areas (such as
boiler rooms and mechanical rooms), tenants on other floors no longer
absorb a share of Floor Common Areas that should be apportioned to the
tenants on the floor containing the Building Service Areas.
For further information on the new 2010 BOMA standard and useful drafting
tips, please review the article written by Dennis Daoust entitled “BOMA
2010: A New Approach to Office Measurement Standards”
Read the complete
article here.
Gold in the Sunshine on Your Roof –Solar Facility Rooftop
Leases
Concern over greenhouse gas emissions (GHGs) has produced a new
phenomenon – leases of rooftop space for the installation and operation
of solar power facilities.
Last May Ontario passed the Green Energy Act. One of its main objectives was to establish a feed-in tariff program (a"FIT" Program) whereby the Ontario Power Authority (the"OPA") committed to purchase, at very favourable rates, all of the green energy produced in the Province. In response to this incentive, owners of buildings are likely to be approached by solar power companies wishing to lease rooftop space to install and operate green energy systems.
Once an application is approved by the OPA, the applicant must sign a power purchase contract with the OPA for a term of 20 years. An important component of that contract is the transfer to the OPA of all of the environmental attributes associated with the project. As a consequence, any carbon credits and renewable energy credits belong to the OPA and not to the solar power company or the landlord of the property on which the solar power facility is installed. Read the complete article here.
Ontario Update: Preparing for the Harmonized Sales Tax
In March 2009, the Ontario government announced that it would be
harmonizing its PST with the federal GST in order to create a single
consumption tax of 13% effective July 1, 2010 (“Harmonized Sales Tax” or
“HST”). Other provinces have previously implemented a similar regime or
are about to follow suit. The change brings with it the need for both
landlords and tenants to understand and plan. From a leasing perspective,
that includes ensuring that their leases adequately address the new
system.
Read the complete
article here.
July 28th 2009 - Realty Taxes: What To Do When The Assessor
Drops The Ball
The process of apportioning realty taxes changed
on January 1, 1998, when business taxes ceased to be imposed. Since that
time there has been no need for individual assessments for specific
rental units. This poses a challenge to landlords and tenants in net
leases because the apportionment of real property taxes to individual
units is more difficult.
Read the complete
article here.
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