Other clauses of interest
Insurance
Insurance clauses are often very complex clauses with significant economic implications. In this situation, you should recommend that your client verify the content of such clauses with insurers or lawyers who are experts in the field.
Default
Default clauses are intended to specify when the lessee (or lessor) is in default and what remedies are available to the other party. The most common default is the default of rent. Despite what the Civil Code states,1 a formal notice is usually required before a commercial lease can be terminated for this reason. Some commercial leases mention the possibility of terminating the lease simply by giving notice of default. The broker must be attentive to the terms of the default clause to properly advise his client. Note also that a lessee who files a notice of intention to file a proposal in bankruptcy before receiving a notice of default is protected under the Bankruptcy and Insolvency Act.
Expansion, first offer and first refusal
Right to expand: The lessor and the lessee designate a space that the lessee may lease, at his discretion, within a certain period and according to often preset terms.
Right of first offer: The lessee has the privilege of making an offer to lease a previously identified space that becomes vacant, under certain conditions (location, absence of lessee default, etc.).
Right of first refusal: In this case, the holder of the right has the privilege of being able to lease a space that the lessor is preparing to lease to a third party, by offering to lease it on the terms offered to the third party; in other words, the lessee matches the third party’s offer (except in case of special agreement).
The broker must be attentive to the terms of each of these clauses, especially to the conditions under which and the period in which these rights may be exercised.
Refer to the article Four clauses of interest in a commercial lease for more information on other clauses of interest that can be found in commercial leases:
The conduct of a brokerage transaction involving a commercial co-ownership property can differ significantly from the above due to the nature of divided co-ownership. Refer to the Guideline on divided co-ownership to learn more, particularly the article Commercial leases in the context of co-ownership.
1 Art.1594 C.C.Q.
