Friday, February 24, 2012

Special Guest Blog Post by Paul Blunt: Intro to Environmental Assessment

Today we have another guest blog post. Paul Blunt, Environmental Engineer with Coffee Geotechnics and servicing the Southwestern Ontario Market, will provide us with an intro to environmental assessment:

A Phase 1 Environmental Site Assessment (ESA), is commonly completed prior to the acquisition of a property, generally for due diligence and/or as a requirement of financing. The purpose of a Phase 1 ESA is to identify actual or potential Site environmental impacts and discuss the relevant liabilities.

Phase 1 will assess ‘the Site’ and adjoining properties by conducting interviews with persons having specific knowledge of the Site, reviewing available regulatory files and Site records for the property. Other activities may include reviewing the municipal directories, fire insurance plans and aerial photographs for the subject Site and adjoining properties.

In the case of a lease it may be prudent for an owner or tenant to complete a Phase 1 ESA prior to leasing a Site. A Phase 1 ESA would reveal the history of the Site and potentially contaminating activities (PCA) that may have been conducted at a Site or adjoining properties. The Phase 1 ESA can serve as a ‘base line’ assessment prior to occupying the Site. This becomes increasingly important if the operations are several decades old and the history is unknown or industries replacing like industries (i.e. a dry cleaner drop location is replacing a dry cleaner).

Special thanks to Paul for his contribution. To learn more about his environmental engineering services, visit the company website or call him at 1-416-315-9694.

Friday, February 17, 2012

Security Deposits/1st & Last Month's Rental

Next segment in our Leasing Series…Security Deposits/1st & Last Month's Rental.

Deposit monies on typical commercial lease agreements can take 2 forms. The first is a basic security deposit and the other would be based on 1st and last month’s rent being paid upfront – both being due at the time of entering into a lease agreement.

With a security deposit, the Landlord often requests it to ensure the Tenant maintains and returns the space at the end of the lease term, in the same condition it was received. Detailed inspections of the condition of the premises at both the time of lease commencement and termination, should clearly be a priority given the implications it has on any security deposit. Grounds for forfeiture of a security deposit, should be clearly understood by both parties and well defined within the lease agreement.

Two months rental in advance (most often 1st and last month’s rent) is typical in a commercial lease, where the landlord wants some additional security in the form of a second’s months rent in advance. This effectively ensures some coverage for the landlord, albeit 1 month, in the event of non-payment of rent and a future default by the Tenant.

Other things to consider with either form of deposit:

1. Is interest payable?
2. Is the lease automatically terminated, if a deposit is liquidated?
3. Is notice required, if it is liquidated?
4. Must the landlord hold it in a separate account?
5. Is it protected in the event of sale of the property by the landlord
6. How does it affect the Tenant’s cash flow? (ie, large premises)

As with everything in commercial leasing, all terms are up for negotiation and deposit requirements will vary from deal to deal. In the case of large multi-national tenants, they for the most part are not willing to advance deposits (beyond a first month’s rental), and generally have any such requirement waived based on their covenant.

Again seek out experienced commercial realtors with strong leasing backgrounds, to assist you in working through the area of deposits with respect to your transaction. To learn more about our experience and background click here.

Thursday, February 9, 2012

Early Termination Provisions

Next segment in our Leasing Series…Early Termination Provisions.

Early termination provisions can be included by either landlord or tenant, within the provisions of an Agreement to Lease. Often referred to as a ‘Break Clause’, they allow the lease to be terminated, subject to meeting certain conditions for termination. Let’s consider it from both sides, to demonstrate how and why it may be necessary for either side to consider such a provision within a term lease.

A typical example with respect to a tenant, might be due to a loss of funding - say in the case of a non-profit organization, where the ability to fund operations cease. In this case, if the Tenant requires continuation of funding on an annual basis in order to carry-on business activities, they cannot make term commitments beyond one year without having the ability to terminate.

An example where the landlord might require it, is where the premises may be needed for other purposes at some future point. Perhaps the landlord needs to create a new entrance lobby into the building, and this particular area is where the plans call for it to go. In this case, the landlord would grant himself that right by way of an early termination, to ensure he can proceed with the building modification as proposed.

There is no ‘common/typical’ early termination clause (or break clause) and they all generally relate to the circumstances of the parties involved. Beyond the actual purpose of the termination being well defined – other areas to be clear on include the timing, frequency, and financial penalties which apply. Any early termination provision becomes a term of negotiation, as with all other terms within any Lease Agreement, and must be dealt with
and understood as such.

Again seek out experienced commercial realtors with strong leasing backgrounds, to assist you in working through the termination provisions in your lease. You can find out more about our Tenant Representation services here.