Offer to Lease in BC: What You're Agreeing to Before the Formal Lease

When you find commercial premises, the landlord or its agent will usually send an offer to lease before any formal lease. It looks like a short preliminary document, and many tenants sign it quickly to secure the space.

In practice, the offer to lease is where most of the business terms are settled. By the time the formal lease arrives, there is often little room left to negotiate. This article explains what the offer does, when it can be binding, and what to check before you sign.

What an offer to lease is

An offer to lease, sometimes called a letter of intent or term sheet, is a short agreement between a prospective tenant and a landlord. It typically sets out the premises and their size, the term and any renewal options, basic rent and estimated additional rent, the deposit, the start date, any fixturing or rent-free period, the work the landlord will do and the allowances it will pay, and the conditions each side needs satisfied. It usually says the parties will later sign a formal lease on the landlord's standard form.

Our article on commercial lease clauses to review before you sign covers the formal lease itself. This one is about the earlier document, which often matters more than tenants expect.

Can it bind you before the lease is signed?

It can. Whether a particular offer to lease is binding depends on its wording and on whether the essential terms have been agreed. When the parties, the premises, the term, the rent and the start date are settled and both sides have signed, a court may treat the document as an enforceable agreement to lease even though a formal lease was still to follow. Wording that says the document is non-binding, or binding only for certain clauses such as confidentiality, is important, and so is how the parties behave afterwards.

BC's Law and Equity Act also bears on this. A contract respecting land is generally enforceable only if there is writing signed by the party to be charged, or that party has acted in a way that shows a contract was made, or the other side relied on it so that refusing to enforce it would be inequitable (s 59(3)). Paying or accepting a deposit can count as such an act (s 59(4)). A writing can be enough even if a term is left out or wrongly stated (s 59(7)). And the writing requirement does not apply at all to a lease, or a contract to grant a lease, for a term of 3 years or less (s 59(2)).

The practical result: "we never signed the lease" is not always a way out. Treat a signed offer to lease as a commitment.

Terms that get locked in at the offer stage

• Rent and additional rent. Basic rent is only part of the cost. Ask what additional rent includes (operating costs, property taxes, management fees, insurance) and for the current estimate.
• Term and renewal. Check the length of the term, whether there is an option to renew, and how renewal rent will be set.
• Possession, fixturing and rent-free periods. Confirm when you get access, how long you have to build out before rent starts, and whether additional rent is payable during that time.
• Landlord's work and allowances. Spell out what the landlord will build, by when, and when any tenant allowance is paid.
• Use and exclusivity. Make sure the permitted use covers your whole business, and ask for exclusivity if you need it.
• Deposit. Know how much it is, whether it is applied to rent or held as security, and when it is refunded if conditions are not met.
• Personal guarantee. Many offers require one. A personal guarantee must be evidenced in writing signed by the guarantor, or by conduct showing it was given (s 59(6)), and it can make you personally liable for the tenant's obligations over the term.
• The landlord's standard form. If the offer says the lease will be on the landlord's standard form, you are agreeing to a document you may not have seen. Ask for it now.

Conditions and deadlines

Conditions protect you while you confirm that the deal works. Common tenant conditions include financing, the municipality's approvals and business licence for your use, inspection of the premises, approval of the formal lease by you and your lawyer, and approval by your board or franchisor. Each condition has a deadline, and missing it can mean the condition is treated as waived or the deal ends, depending on the wording. Diarise every date and allow enough time for each review.

Commercial tenants have fewer statutory protections

BC's Residential Tenancy Act applies to rental units, which it defines as living accommodation (s 1). It does not cover shops, offices or industrial units, so the rules on deposits, rent increases and notice that residential tenants rely on do not apply to your business premises. For a commercial tenant, the terms you negotiate are the main protection you get.

If you are buying a business and taking over its premises, the lease questions are different again; see lease assignment when buying a business.

Before you sign

• Read the whole offer, including the schedules, and ask for the landlord's standard form lease.
• Check which clauses are said to be binding and which are not.
• Make lease review a condition, with a realistic deadline.
• Confirm the total occupancy cost, not only the basic rent.
• Decide who will sign, and in what capacity, before any personal guarantee is given.

Received an offer to lease? Have it reviewed before you sign

Our business lawyers can review the offer to lease and the landlord's standard form lease, identify terms to negotiate, and carry the agreed terms into the formal lease.

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