When you are leasing commercial space, there is no standard commercial lease form and the rules around this type of lease do not fall under the authority of the Administrative Housing Tribunal (formerly the Régie du logement [Quebec rental board]). Only the basic rules of the Civil Code of Québec apply, the rest is to be determined by the agreement between the parties. That’s why it is crucial to consult a legal advisor, such as a notary, before signing anything, whether it be an offer to lease or an official lease. If not, you can end up agreeing to unfavourable clauses and by then it will be too late.
Commercial leases can stipulate gross rent, net rent, net-net rent, or even triple net rent. Remember that a gross rent usually consists of a set full amount. The “net” qualifier means that the tenant would pay a base rent to which an additional rent would be added comprising, for example, property tax costs, building maintenance expenses, management expenses, etc. The more “net” indicated, the more the lessor would offset expenses for which it would normally have to cover on the building, by transferring such expenses to its tenant.
It is quite common for an owner to require its tenant to guarantee the lease. Do you need to agree to it? You can limit the guarantee to a set amount or substitute it with a deposit, or even have a movable hypothec on the company’s assets for a certain amount. Your notary can fully advise you on the matter.
Only the basic rules of the Civil Code of Québec apply to commercial leases, the rest is determined by the agreement between the parties.
You register the lease by giving notice to the land register and it allows any interested party to see that a building is subject to a lease. This registration protects the tenant by ensuring that the new buyer of the building cannot terminate the lease before the end of its term. If your lease is not registered, the new buyer of the building may send you a six-month notice to vacate the premises within 12 months, even if you still have fours years left on your original lease, for example.
You are entitled to have your lease registered in the land register, even if the lessor opposes it. Under the Civil Code of Québec, owners cannot prohibit commercial tenants from registering the lease, but owners may require that no monetary amount, such as the rent amount, appears on the notice of lease registration. The information indicated in the register usually includes the name of the lessor, name of the tenant, lease address, lease term and lease renewal options.
The notary can support you in this likely confidential process. The notary can also prepare the purchase offer, analyze the means of ownership and what will be sold (assets or shares), as well as financing options.
Financial institutions offer various types of financing. They generally require securities, and your notary can help you understand the risks related to such securities versus the benefits your company will reap.
Even if you already have all the necessary capital to buy the coveted business, it may be a good idea to finance a portion of the purchase. In such case, it would be important to negotiate the balance of the payable sale price in three or five years. It is a good way to protect yourself against unpleasant surprises that can arise after purchase by securing the seller’s cooperation.
The notary can support you throughout the process for the purchase of a business, with your financing needs and even in the acquisition of a building to house your company.
If you plan on buying a building to house your business, the notary will guide you through the offer to purchase, the financing and the acquisition of the building.
Depending on your situation, the notary may recommend that you set up a new company to acquire the building. By doing so, one company will carry out operations, while the other company would be the owner of the building.
You will therefore have more flexibility in the future should you wish to only sell your business but keep the building, or vice versa. Furthermore, as each company is liable for its own assets and liabilities, should financial problems arise for one company, it would have no impact on the other company.
Moreover, if you want to buy a small shopping centre and covert it into several commercial co-ownership units, the notary can guide you through the process, notably in converting the building into divided co-ownership.