The ins and outs of renting

Pizza may be a marvel verging on the supernatural, but it does not drop on us like manna from heaven. Pizza has to be made and sold from a physical location on earth. The location will probably be rented, so the question is, “How do I protect myself when renting?” Here are some things to keep in mind when renting a building for your establishment.

If the two sides sign a document called an offer to lease and then never replace it with an actual lease, the offer to lease might be as binding as if it were a lease. Ensure you do not sign an offer to lease casually.

Pizza may be a marvel verging on the supernatural, but it does not drop
on us like manna from heaven. Pizza has to be made and sold from a
physical location on earth. The location will probably be rented, so the
question is, “How do I protect myself when renting?” Here are some
things to keep in mind when renting a building for your establishment.

Zoning and licensing
The
mere fact that you lease space for a restaurant or a food production
facility does not mean that the government agrees you are allowed to run
such a business there. It is up to you to check that the premises are
zoned for your planned use, and that you have the necessary licences.

Make
sure of zoning and licensing before you sign the lease or
offer-to-lease documents. Your lawyer can help you check the zoning. Ask
the various levels of government what licences you need and how to get
them.

A restaurateur once bought the assets of a restaurant
including its name, planning to run a restaurant in the same place with
the same name. The Liquor Control Board of Ontario (LCBO) then said he
would first have to pay off the massive debt the prior owner had run up
with the LCBO – otherwise, no liquor licence.

The LCBO did not care
in the slightest that he was a new owner, nor that he had bought assets
rather than shares of the prior company, so he and his new company were
not legally liable for the prior company’s LCBO debt. The LCBO did
agree, however, that he could get a liquor licence without paying the
debt if he used a certain name he picked that was similar to, but not
exactly the same, as the old restaurant name. His real estate lawyer had
asked me to help in court with various issues about the sale, and as
part of that I got an order from a judge reducing the purchase price
because the restaurateur could not use the exact name he had bought.

Offer to lease
Oddly
enough, if the two sides sign a document called an offer to lease and
then never replace it with an actual lease, the offer to lease might be
binding as if it were a lease. Do not sign an offer to lease casually –
it could have important legal consequences.

Triple net leases
You
might think that your rent is all you have to pay for the space. In
fact, many leases, such as the typical triple net lease, also make you
pay just about any imaginable expense associated with the space. Before
you sign, find out – at least approximately – what you will really have
to pay. Ask your accountant and lawyer to help with this.

Lease period and renewals
You
will want to have the option to stay in the same location for a long
time. Check not only that the lease is for a certain number of years (I
have seen five-year terms on many leases), but also that you have the
right to renew repeatedly if you choose.

Subleasing
You should
be able to sublet some or all of the space you are renting. Ideally,
you could sublet to anyone you choose in your absolute discretion. The
landlord is likelier to agree that you may sublet with his or her
consent, which consent is not to be unreasonably withheld.

Avoid
agreeing that the landlord has an unfettered discretion to grant or
withhold consent. If the lease says you need the landlord’s consent, but
does not say that the consent is not to be unreasonably withheld, in
any dispute the landlord is likely to argue that means the landlord has
unfettered discretion.

As with the other terms in the draft lease,
you never know if you can negotiate a change until you try. You can
refuse the offer and look elsewhere for space.

Assignability
At
some point you might want to assign the lease, for example, if you are
selling the business. As with subleasing, ideally you want to be able to
assign in your absolute discretion. However, the landlord is likelier
to agree to a lease providing for assignment on consent, such consent
not to be unreasonably withheld. Of course, you will be careful to check
that consenting or withholding is not in the landlord’s unfettered
discretion.

A massive and mysterious pile of paper
A
commercial lease can be a massive, mysterious pile of paper. I have
mentioned just a few of the many factors. If you do not know the ins and
outs of commercial leasing, get help from people who do, such as your
lawyer, real estate agent or accountant. Asking the landlord would cause
a conflict of interest.

With the right lease ingredients you can be happily making and selling pizza for years to come.

Albert S. Frank is a business and trial lawyer with Rosenbaum & Frank LLP in Toronto. He blogs at www.rosenbaum.com/albertfranklawandlife. To contact him please call 416-929-7202 or e-mail afrank@franklaw.ca.