Commercial leases in BC: clauses to understand before you sign

A commercial lease is often the largest and longest commitment a new or growing business makes. Once you sign, the document you agreed to, not a tenant-protection statute, decides most of what happens next.

This guide walks through the clauses that matter most for BC tenants, from the offer to lease to the day you hand back the keys, so you know what to question before you commit.

The lease, not the Residential Tenancy Act, sets the rules

If you rent an apartment, BC's Residential Tenancy Act sets rules your tenancy agreement cannot override; a term that ignores the Act cannot be enforced. Commercial space is different. The Province says that in most cases the Residential Tenancy Act does not apply to commercial tenancies, which are contracts between landlord and tenant. The Residential Tenancy Branch generally does not hear these disputes; they may be resolved by the Civil Resolution Tribunal or the courts.

The Commercial Tenancy Act is short and old, and mostly deals with landlords' remedies. With the Rent Distress Act, it sets out what a landlord can do when rent is not paid. It also lets a landlord apply to the Supreme Court for possession if a tenant wrongfully refuses, on written demand, to leave after the lease ends, and a tenant who wilfully holds over after written demand can be made to pay at a rate of double the yearly value of the premises for as long as it stays. Beyond that, your rights are largely what the lease says.

The offer to lease is where the deal is made

Many commercial leases start with an offer to lease or letter of intent, often signed quickly and with a deposit. Treat it seriously. Depending on its wording, it can be a binding agreement for lease, and the key business terms (rent, term, renewal options, the landlord's work and any rent-free period) are usually settled there. Landlords are often reluctant to reopen them later.

Before you sign an offer, check whether it is conditional on the things you need, such as financing, a satisfactory inspection, approval of your use by the City and your review of the landlord's standard lease. If the lease will be on the landlord's form, ask to see it at the offer stage.

Term, renewal and registration

The term is how long you are committed. Look at when it starts, whether there is a fixturing period before rent begins and whether you have any right to end early. A longer term protects your investment in the space but binds you if the business struggles or you want to move.

Renewal options are only as good as their drafting. Most require written notice within a fixed window before the term ends; miss it and the option may be lost. Check how rent for the renewal term will be set (for example, at fair market rent, with a process for resolving disagreement) and whether the option stays with you personally or passes to someone who buys your business.

Registration matters for longer leases. Under section 20 of the Land Title Act, an unregistered instrument affecting land does not pass an interest in the land except against the person who made it. That rule does not apply to a lease or agreement for lease for a term of three years or less if there is actual occupation under it. If your lease is longer, ask whether to register it at the Land Title Office so your tenancy is better protected if the property is sold or mortgaged.

Rent, additional rent and operating costs

Basic rent, often quoted per square foot per year, is only part of the cost in many leases. Under a net or triple-net lease, the tenant also pays a share of the building's operating costs, property taxes and the landlord's insurance, usually as monthly estimates reconciled after year-end. Check:

• What is included. Operating cost definitions can sweep in management fees and capital repairs or replacements. Ask what is excluded and whether any costs are capped.
• How your share is calculated. Your proportionate share usually depends on the area of your unit compared with the building, so check how the space is measured.
• Your right to review. Look for a right to see the landlord's year-end statements and supporting records, and a time limit for corrections.
• Deposits and rent-free periods. Know when the deposit is applied or returned, and whether a rent-free period covers additional rent as well as basic rent.

Use, exclusivity and City approvals

The use clause says what business you may run in the space. A narrow clause can stop you adding a product line or selling to a buyer in a related trade, so ask for wording that leaves room to grow. Retail tenants should also ask about an exclusive, which restricts the landlord from leasing nearby units to a direct competitor.

Your use must also be allowed by the municipality. In Vancouver, every business needs a licence to operate, and the City advises checking a proposed location before you lease or buy space, because a location may need alterations that require a permit, may need an inspection or may not be approved. Our legal checklist for starting a business in Vancouver covers licensing in more detail. Where you can, make the offer to lease conditional on confirming your use is permitted.

Assignment, subletting and personal guarantees

Most leases bar you from assigning or subletting without the landlord's consent. Ask for consent not to be unreasonably withheld, and read the detail: some leases treat a change in who controls your company as an assignment, let the landlord take back the space instead of consenting, or keep you liable for the rest of the term after you assign. These points matter when you later sell the business.

Landlords often ask the owners of a small company to sign a personal guarantee. That personal guarantee is your own promise, so trading through a company does not shield you from it (see what incorporating does and does not fix). If you must give one, try to negotiate a cap, a time limit or a release once the business has a track record.

Repairs, insurance, relocation and the end of the lease

• Repairs. Know who is responsible for the roof, structure, heating, cooling and plumbing, and whether replacing worn-out equipment is a repair you pay for.
• Insurance and indemnity. Leases usually require specific coverage and an indemnity in the landlord's favour. Have your insurance broker review the requirements before you sign.
• Relocation and demolition. Some leases let the landlord move you to other premises or end the lease for redevelopment. Ask what notice and compensation apply.
• Restoration. At the end, you may have to remove your improvements and restore the premises at your own cost.
• Default. Leases typically let the landlord re-enter and end the lease after a default. BC courts have a discretionary power under the Law and Equity Act to relieve against forfeitures, but do not count on it: understand the default and cure periods before you sign.

Signing a commercial lease? Have it reviewed before you commit

Our business lawyers can review the offer to lease and the lease, explain your obligations in plain terms, identify clauses worth negotiating and advise on personal guarantees, assignment and registration.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.