Drafting a Binding Commercial Lease: The Basics

  • December 02, 2022
  • Vanessa Carment, real estate lawyer at Soloway Wright LLP

Unlike residential tenancies, the terms and conditions of commercial leases are almost entirely negotiable between the parties. As such, the customizable nature of commercial leases presents an interesting challenge when it comes to both interpretation and drafting since no two are exactly the same. However, this flexibility can also be intimidating for a recent call who, at the very least, wants to ensure that the agreement is binding. Fortunately, the Court has established the below guidance with respect to the handful of provisions that must be included in a commercial lease for it to be enforceable.

  1. In Writing Requirement

Under the Statute of Frauds, any agreement that creates an interest in land must be in writing and signed by the parties in order to be enforceable. A commercial lease is deemed to have created an interest in land where the term of the lease is more than three years in length. It is standard for commercial leases to be at least five years in length, and, as such, many commercial leases will be subject to the Statute of Frauds. in accordance with Electronic Commerce Act, 2000, the in-writing requirement can be satisfied where an agreement is in electronic form as long as the agreement remains accessible so as to be usable for subsequent reference. Further, the Court has found that typed names and/or email signature blocks may even be adequate evidence of execution by the parties in fulfillment of the signing requirement of Statute of Frauds.

  1. Defined Premises

In order to be an enforceable, a commercial lease must define the premises that form the subject of the agreement in such a way that they are clearly ascertainable. Essentially, it must be clear as to which premises the tenant is leasing from the landlord and that the landlord is leasing to the tenant. The Court will typically look at the specific words in the alleged lease and use common sense when determining whether this requirement is met.

  1. Correctly Named Parties

While this requirement is fairly self-explanatory, it also acts as an important reminder that lawyers must ensure that all parties are using their proper legal names when entering into a lease (or any agreement, for that matter). Pulling a Corporate Profile Report on corporate landlords and tenants is a simple way to double check that the name of the corporation on the lease matches what is registered with the Ministry of Finance. It is not adequate for a party to enter into lease agreements using the name that they operate under (even if that name is recognizable) if it is not their legal name.

  1. Rent Payable

The amount of rent that the tenant is required to pay to the landlord must be clearly set out and agreed to by the parties. Where there is debate as to whether the parties had actually agreed to the amount of rent payable to the Landlord, the Court will consider the conduct of the parties after the rent had allegedly been agreed to. For example, the tenant paying the supposedly agreed upon the rent to the landlord is likely evidence that the parties had a meeting of the minds with respect to the rent due under the lease.

  1. Lease Term

The alleged lease must be clear enough on the lease term that the parties know when it began and when it ends. In a lease renewal, the date of commencement and duration of the lease must be set out with reasonable certainty in order to be enforceable.

  1. All Other Materials Terms

While the Court has not clearly delineated what may constitute “all material terms”, it has advised that this would likely include any provisions that are not incidental to the relationship between the landlord and the tenant and would likely include any terms that have been mentioned by one side and not unconditionally accepted by the other. Where these matters rest in negotiation and have not been agreed to, there is likely no concluded contract and the lease is not likely enforceable.

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