Canada: Lease Due Diligence

Last Updated: April 13 2013
Article by Rosalyn Wallace

There are any number of searches and enquiries that can be made to complete due diligence in any type of transaction, including negotiating lease documentation. The business of the landlord and the tenant, the "hot button" issues between the parties, and the nature of the lease arrangement will shape the extent of the due diligence that is required in a particular transaction. Below is a summary of a number of searches that are commonly considered when conducting lease due diligence.

Title search

A search of title may be completed to confirm the legal description of the property and to ensure that the landlord owns the property. Where the landlord is a property manager or some other entity that is not the owner of the property, you may want to consider including a representation in the lease agreement that the particular entity has the authority to act on behalf of the landlord with respect to the negotiation and execution of the lease. Alternatively, a tenant may request a written confirmation by the landlord that the other entity is authorized to act as its agent for the purpose of entering into the lease.

A search of the property may also reveal if there are any use restrictions that may limit the anticipated use by a tenant. It is important to note that not all tenants register an exclusive right on title. A tenant should request a list of any exclusive uses from the landlord at the offer stage. There are situations where an existing tenant with an exclusive use may grant an exception to an incoming tenant. Any such exception should be documented by obtaining an authorization from the existing tenant with the exclusive use and the lease should reflect the exception as well.

If any mortgages, charges, liens, or other security interest appear on the search of title, a tenant should consider requesting that the landlord obtain a non-disturbance agreement ("NDA") from the secured party. An existing mortgagee has priority and could refuse to recognize a subsequent lease. A NDA provides comfort to the tenant in situations where the mortgagee enforces upon its security as the NDA provides that the mortgagee will not disturb or interfere with the tenant's possession or other rights of the tenant under the lease so long as the tenant is not in default. A search may also reveal if there are any construction liens or default on taxes, which gives the tenant insight into the financial position of the landlord.

Corporate searches

Corporate searches can be completed against both the landlord and the tenant to ensure the proper spelling of names and that the company is an active company. It may be that the landlord or the tenant is a partnership. If the entity is a limited partnership, a search can be conducted to obtain a limited partnership report that confirms the name of the limited partners and the general partners. It is important to note that partnerships cannot hold title to real property in Ontario. Therefore, when conducting a search where the landlord is a partnership, the owner of the real property will be the name of the general partner(s) and it is the general partner(s) that should execute the lease documentation for and on behalf of the limited partnership.

Zoning

A search of the current zoning by-law, any site specific zoning by-laws, and the official plan can be completed to determine what uses are permitted on a specific property and also those uses that are prohibited. When completing zoning searches, be aware of both the primary use of the space and any ancillary uses. Certain provisions within the lease may have to be modified to permit ancillary use(s) of a premises.

Where the tenant will be leasing space in a building or development that has been in existence for some time and its use will be identical to other tenants in the location, often the tenant will not want to incur the cost of completing a review of the applicable zoning legislation. However, when dealing with newly constructed buildings, a review of relevant zoning legislation may be appropriate as a tenant cannot take comfort in the fact that it will be using the premises for the same use as a previous tenant or other existing tenants in the location. Additionally, when a tenant is leasing space in a newly constructed space, the tenant may want to make enquiries with the landlord regarding the party responsible for development charges or costs for other infrastructure. This information will be important when the parties are negotiating the operating cost section of the lease.

Signage is an item that is important to many tenants, but there are often restrictions on the size, location, and type of signs that are permitted. Signage is normally a larger concern for retail tenants. From the landlord's perspective, consideration should be given to which tenants already have signage rights to determine whether there is any additional space on a pylon sign or on the outside of a multi-tenanted building. Zoning legislation also often includes restrictions on the number of signs that can be located on a property.

Condition of the building and the premises

A tenant should consider the condition of the building itself as part of its due diligence. An enquiry can be made to the local building department to determine if there are any open permits for work being completed on or in the building. If there are open permits, a tenant may want to make sure the permit does not apply to its premises, especially where the tenant will be completing improvements that may require its own permit. As well, a tenant may want to consider carving out the costs to close such building permits from the operating costs that the incoming tenant will be responsible for paying. Additionally, where a tenant will make significant improvements to the premises, the tenant may want to make enquiries with the local historical board to ensure that the building is not designated as historical or, if it is, that such improvements are permitted.

Where the tenant will take premises as-is or will be responsible for repair, maintenance, and replacement of the premises or parts of the building, the tenant will want to be aware of any major repairs that may need to be completed and how much such repairs will cost. If a tenant agrees to take on repair and maintenance obligations with respect to any 'big ticket' items (e.g. roof, loading docks, HVAC, doors, etc.), a tenant should consider making enquiries with the landlord to ensure that any warranties or guarantees are transferrable to the tenant.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2013 McMillan LLP

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Lindsay Kenney LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Lindsay Kenney LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions