British Columbia Law

Commercial Leases in BC: What Business Owners Need to Know Before They Sign

By Andrew Liggett, Sea to Sky Law, New Westminster, BC

Why Commercial Leases Deserve Serious Legal Attention

When a business owner signs a commercial lease, they are typically committing to years of rent payments, accepting personal liability for the obligations of their corporation, and agreeing to terms that will govern every aspect of their occupancy — including what happens if they need to move, sublease, or close.

Unlike residential tenancies, commercial leases in British Columbia are almost entirely governed by what the parties agree to in the contract. There is no equivalent of the *Residential Tenancy Act* giving commercial tenants minimum protections. The *Commercial Tenancy Act* (BC) provides a very limited framework; for everything else, the lease terms are what count.

This means that a commercial lease drafted by a landlord's lawyer — which is the document most tenants are handed — will almost always favour the landlord. A business owner who signs without legal review is agreeing to terms they may not fully understand, often for five or ten years.

The Most Important Things to Understand Before Signing

The Lease Term and Renewal Options

The base term of the lease and the renewal options are the foundation of your commercial tenancy. A five-year lease with two five-year renewal options gives you the right to occupy the space for up to fifteen years — but only if the renewal options are properly drafted and exercisable on your timeline.

Key questions:

• When must you provide notice to exercise a renewal option? Many leases require written notice six to twelve months before the end of the term. Miss the window and the option may be lost.
• At what rent will you renew? Some leases specify that renewal rent will be at market rates (requiring negotiation or arbitration if you cannot agree). Others specify a formula. Make sure you understand what you are agreeing to.
• Does the landlord have any right to terminate the lease early? Some leases include demolition or redevelopment clauses that allow the landlord to end the lease with notice — a risk that is particularly significant for businesses that have invested in leasehold improvements.

The Rent Structure

Commercial rent in BC is often more complex than it first appears. Common structures include:

Gross lease: The tenant pays a fixed monthly rent and the landlord covers operating costs. Simpler, but generally higher rent.

Net lease / triple net (NNN): The tenant pays base rent plus a share of property taxes, building insurance, and operating expenses. The tenant's total monthly cost can vary year to year, sometimes significantly. Before signing, ask for the past three years of operating cost statements so you can understand what the additional costs have actually been — not just the landlord's estimate.

Percentage rent: Common in retail, where the tenant pays base rent plus a percentage of gross sales above a threshold. Understand how sales are defined, what records the landlord can audit, and how this interacts with your business model.

Permitted Use

The permitted use clause defines what your business can do in the space. If it is drafted too narrowly — "for use as a software consulting firm" rather than "for general office use" — it can prevent you from adapting your business, subletting to a different type of tenant, or selling the business to a buyer who operates differently.

A narrowly drafted use clause can also give the landlord grounds to terminate if your business evolves. Make sure the permitted use is broad enough to accommodate how your business may grow or change over the lease term.

Leasehold Improvements

If you are planning to renovate or fit out the space, the lease needs to address:

• Who pays for the improvements?
• Who owns them at the end of the lease? (Many leases specify that improvements become the landlord's property when the lease ends — or that the tenant must remove them and restore the space, at the tenant's cost.)
• Does the landlord need to approve the architect or contractor who will carry out the improvements?
• What are the requirements for restoring the space at the end of the term?

These provisions can have significant financial implications. A tenant who has invested $200,000 in leasehold improvements that must be removed at lease end faces a very different financial reality than one who negotiated that those improvements become the landlord's property with no restoration obligation.

Assignment and Subletting

What happens if you want to sell your business — and the buyer wants to take over the lease? Or if your business outgrows the space and you want to sublet part of it?

Most commercial leases require the landlord's consent to assignment or subletting, and many give the landlord broad discretion to withhold that consent. Before you sign, understand:

• Under what circumstances can you assign the lease (e.g., in connection with a sale of the business)?
• Does the landlord have the right to take back the space rather than consent to an assignment?
• Will the original tenant remain liable under the lease after an assignment? (Often yes — meaning if the assignee defaults, the landlord can pursue the original tenant.)

A lease that cannot be assigned without the landlord's consent — and where the landlord can arbitrarily withhold consent — can effectively prevent you from selling your business or significantly reduce its value to a buyer.

Personal Guarantees

Many commercial landlords require business owners to personally guarantee the lease. This means that if the corporation cannot pay rent, the landlord can pursue the individual shareholder or director personally.

If you are asked to sign a personal guarantee, consider negotiating:

• A cap on the guarantee (e.g., limited to 12 months' rent rather than the full remaining lease term)
• A "burn-off" provision under which the guarantee reduces or expires after a period of compliant tenancy
• Release of the guarantee upon an assignment of the lease to a qualified assignee

A personal guarantee on a multi-year commercial lease is a significant personal financial obligation. It should be understood clearly before it is signed.

Common Mistakes BC Business Owners Make

Signing the landlord's standard form without negotiation. Commercial leases are almost always negotiable. A landlord who presents their "standard form" is not telling you that the terms cannot change — they are telling you what terms they would prefer. Many provisions can be modified with straightforward negotiation.

Focusing only on the monthly rent. The base rent is one number; the total occupancy cost — including operating costs, taxes, insurance, utilities, and any percentage rent — is what you will actually pay. Understand the full picture.

Not getting legal advice before signing. A lawyer reviewing a commercial lease before you sign is significantly less expensive than a lawyer helping you manage the consequences of a lease you did not understand. For a five or ten-year commitment, the investment in a proper review is straightforward to justify.

Ignoring the end-of-lease provisions. Most tenants think about the start of a lease — the rent, the term, the improvements. Few think carefully about what happens at the end: restoration obligations, renewal notice deadlines, holdover provisions (what happens if you stay past the end of the term without formally renewing).

Getting Out of a Commercial Lease in BC

If your business needs to exit a lease before the end of the term — because the business is closing, has outgrown the space, or circumstances have changed — your options are limited by what the lease says.

Common approaches include:

• Negotiating an early termination with the landlord (who may require a payment to agree)
• Assigning the lease to a new tenant (subject to landlord consent)
• Subletting the space (again, subject to landlord consent)
• Exercising any demolition or early termination clause in the lease

If none of these options are available and the business simply abandons the space, the landlord can pursue the tenant (and any personal guarantors) for unpaid rent and other losses. Getting legal advice as early as possible — ideally before things become a crisis — gives you the most options.

The Succession Connection

Commercial leases are directly relevant to business succession. If you intend to sell your business, a prospective buyer will review the lease carefully. They want to know:

• Is the lease long enough to justify the purchase price?
• Can it be assigned to them?
• Are there renewal options available?
• Is there a personal guarantee that they will need to replace?

A lease that cannot be assigned, has no renewal options remaining, or contains a demolition clause that could see the business evicted is a material problem in any business sale. Addressing these issues while you still have negotiating leverage — years before a planned sale — is part of sound succession planning.

At Sea to Sky Law, Andrew Liggett works with BC business owners on the full range of commercial leasing matters — from reviewing and negotiating leases before signing to advising on lease assignments, disputes, and exit strategies. With 35 years of BC business law experience, he understands both the legal landscape and the practical realities of running a business in this province.

If you are about to sign a commercial lease — or have one coming up for renewal — getting legal advice first is one of the most cost-effective steps you can take.

This article is general information, not legal or tax advice. Meetings are by appointment only, by phone or secure video.