COMMERCIAL LEASE AMENDMENTS & ALTERATIONS

Experienced commercial leasing lawyer for real property and equipment lease arrangements (in Alberta and Ontario, Canada).

Contact Neufeld Legal PC at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

Attaining the amendment or alteration of an existing commercial lease arrangement is not necessarily an easily realized objective, with the landlord or lessor being all too often committed to the executed lease agreement and the strict obligations that it imposes upon the lessee. Nevertheless, where amendments or alterations to the commercial lease arrangement need to be addressed, especially where it is dictated by the financial situation of the business enterprises, these matters need to be promptly advanced and with the support of experienced legal counsel.

Commercial Lease Amendments

Amendments are formal modifications to the entire lease agreement. These are typically used for significant changes to the terms and conditions that affect the landlord-tenant (or lessor-lessee) relationship and the overall contract. An amendment is a legally binding document that is drafted, agreed upon, and signed by both the landlord (lessor) and the tenant (lessee).

With respect to the lease of real property, common examples of amendments include:

• Extending or shortening the lease term.

• Changing the rent amount or payment schedule.

• Adjusting common area maintenance (CAM) charges or other financial terms.

• Changing the permitted use of the space.

• Adding or removing parties to the lease.

• Negotiating a subleasing or assignment clause.

Commercial Lease Alterations

Alterations refer specifically to physical changes made to the leased premises. These are often addressed within a specific clause in the original lease agreement, known as the "Alterations and Improvements" clause. This clause outlines the rules and requirements for a tenant to make physical changes to the space.

With respect to the lease of real property, common examples of alterations include:

• Remodeling the interior (e.g., adding or removing walls, installing new flooring).

• Upgrading electrical or plumbing systems.

• Installing new fixtures or signage.

• Making changes to the exterior or structural elements of the building.

As previously indicated, most commercial lease agreements contain a clause that sets out the rules for alterations. It is vital for commercial tenants to understand this section before undertaking any work. Alterations and Improvements clauses typically address:

• Consent: It almost always requires the tenant to obtain the landlord's prior written consent for any non-minor alterations.

• Minor vs. Major Alterations: A well-drafted clause will distinguish between minor cosmetic changes (e.g., painting, changing floor coverings) that may not require consent, and major alterations that do. A "minor" alteration is often defined by criteria such as:

  • No structural impact on the building.

  • No effect on building systems (HVAC, plumbing, electrical).

  • No significant impact on other tenants.

  • No decrease in the value of the property.

  • No permits or variances required.

• Conditions for Approval: The clause will specify the conditions under which the landlord will grant approval. Landlords are generally not allowed to "unreasonably withhold, condition, or delay" their consent for alterations that are considered improvements to the property or beneficial to the tenant's business.

• Responsibility and Cost: The clause will outline who is responsible for the cost of the alterations and who is responsible for the work itself.

• "Yield-Up" or "Make Good" Provisions: This is a critical point for tenants. The clause may require the tenant to remove the alterations and restore the premises to its original condition at the end of the lease term. This can be a significant and unexpected cost for tenants.

As a commercial tenant (lessee), whether you are amending the lease or requesting permission for alterations, the process is similar and requires careful consideration and negotiation.

• Understand Your Needs: Clearly define what you want to change, whether it's a new lease term or a physical modification to the space.

• Review the Original Lease Agreement: Carefully read the relevant clauses in your existing lease agreement, particularly the "Alterations and Improvements" clause and any other clauses that might be affected. This will help you understand the existing rules and your rights.

• Negotiate with the Landlord (Lessor): Open a dialogue with your landlord (lessor). Present your request and be prepared to negotiate. For amendments, this could involve discussing a new rent rate for an extended term. For alterations, you may need to provide detailed plans and specifications.

• Draft the Document: Once an agreement is reached in principle, a formal, legally binding document must be drafted. This will be either a "Lease Amendment" or a "Lease Alteration Agreement."

• Engage Legal Counsel: It is highly recommended that both parties involve legal counsel to review and draft the amendment or alteration agreement. A commercial leasing lawyer can ensure the terms are fair, legally sound, and protect your interests.

• Sign and Record: Both the landlord and the tenant must sign the new document. The amendment should clearly reference the original lease and specify which sections are being modified.

As those amendments and alterations that are sought by commercial tenants (lessees) are significant to their business enterprise, it is important to consider in advance some key takeaways when contemplating the pursuit of amendments or alterations to the commercial lease, and pushing forward in one's discussions with the landlord (lessor):

• Being Proactive is Critical: Do not make any physical changes to your commercial space without the landlord's written consent, unless the lease explicitly allows it for minor cosmetic work.

• Negotiate from the Start: The best time to address potential needs for alterations or future amendments is during the initial lease negotiation; and when potential issues or concerns subsequently arise in relation to the commercial lease, it is important to promptly engage with the landlord (lessor), as well as a knowledgeable commercial lawyer.

• Clarity is Crucial: Ensure that any amendment or alteration agreement is clear, concise, and unambiguous to prevent future disputes.

• Know Your Leverage: Your ability to negotiate an amendment or alteration depends on your position. A long-term, reliable tenant may have more leverage than a new one. .

For knowledgeable and experienced legal representation in commercial leasing matters, whether that entails lease review, drafting, negotiation and enforcement, contact commercial leasing lawyer Christopher Neufeld at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.

Importance of Commercial Lease Review: Even though most commercial lease agreements are viewed as standardized and with very little flexibility for change from the landlord, it is nevertheless important that commercial tenants have some degree of legal review of their commercial lease agreements in advance of signing them. Read More.

 

Net Lease versus Gross Lease: In the world of commercial real estate, landlords never seek to be outdone when it comes to the rent that they charge commercial tenants for renting the leased premises. Nevertheless, the manner in which landlords structure rental payments can vary substantively, based on how the landlord believes it will best incentivize a prospective tenant to commit to the proposed lease arrangement. Read More.

 

What is a Sublease? A sublease is a legal agreement whereby an existing tenant / lessee (the "sublessor") rents out a portion of their leased premises to another party (the "subtenant" or "sublessee") for a portion of the original lease term. A key characteristic associated with a sublease is that the original tenant remains fully responsible to the landlord for the rent and all the terms of the original lease agreement, and most often requires the written consent of the landlord to proceed with the sublease (so as not to breach the original lease agreement). Read More.