If you have ever rented an apartment, you have likely filled in a rental application form. This application form allows the landlord to gather information about you and determine whether you are a suitable tenant. An application form is not a binding contract.
However, in commercial leasing, application forms are less common. Instead, before signing a formal lease agreement, most landlords and tenants will sign an ‘Offer to Lease.’ Offers to Lease are distinct from a rental application.
An Offer to Lease is typically a binding agreement (unless expressly stated otherwise) whereby the potential tenant agrees to lease premises from the landlord. It includes the key terms of a lease agreement such as the Lease Term, Basic and Additional Rent and Description of Leased Premises. The Offer to Lease will usually include a clause whereby the parties will execute the landlord’s standard form of lease agreement within a certain period of time after the Offer is accepted. The landlord will often require that you pay a security deposit upon signing the Offer to Lease. Remember: the Offer to Lease is usually a binding contract, so if you fail to meet your obligations under the Offer to Lease, you risk losing your security deposit and you could be sued.
Pay close attention to the terms of the Offer to Lease before signing. Here are a few top tips for you to consider when signing an Offer to Lease:
Always give yourself an ‘out.’ Your Offer to Lease should be conditional for a specified time. At the end of the specified time, you notify the landlord on whether your conditions are satisfied (thereby locking you into the lease) or not satisfied (allowing you to walk away with a refund of the full security deposit, if paid). For example, make the Offer to Lease and/or the Lease Agreement subject to your lawyer’s review and subject to a due diligence period during which you can determine if the premises are suitable for your business needs and budget. You may need as many as 30 to 60 days to conduct your due diligence.
Negotiate with your landlord in the early stages. This is when you have some strength in the negotiation process. While commercial leases are typically landlord-friendly, you can often successfully negotiate some terms to your advantage. For example, we recommend:
Vet your landlord: Once you are locked in, commercial leases create long-term relationships (a standard lease term can range between 3 and 12 years) that are tipped heavily in favor of the landlord. We recommend you do the following:
At first glance, an Offer to Lease may seem to be a ‘low risk’ way to express your interest in a leased premises. However, you may find yourself locked into a binding agreement with potentially serious consequences if you have second thoughts. We recommend you always consult with your lawyer and review carefully before signing an Offer to Lease.
This article is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor-client relationship (this means that I am not your lawyer until we both agree that I am). If you are seeking advice on specific matters, please contact Philippe Richer TLR law at 204.925.1900. We cannot consider any unsolicited information sent to the author as solicitor-client privileged (this means confidential).
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