Legal services provided by P.J. Richer Law Corp

Articles

What You Need To Know About “Offers To Lease” Before Signing One
Author: 
Philippe Richer
June 28, 2022
Close up of a pen and glasses on a lease agreement

Rental Application vs. Offer to Lease

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. 

What is an Offer to Lease? 

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. 

Top Tips for Offers to Lease

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:

  1. Negotiating to pay the security deposit upon signing the Lease Agreement, not at the time of Offer to Lease execution. If you decide to walk away from an Offer to Lease, even if you are entitled to return your security deposit, it can be an uphill battle to collect your security deposit back.
  2. Asking for tenant-friendly terms such as:
  • Fixturing Period: A rent-free period during which you can renovate the leased premises before opening for business. 
  • Right of Renewal: Your option to extend the lease term for one or two more rental periods beyond the initial lease term.
  • Exclusivity: If you are leasing in a multi-tenant complex, an exclusivity clause will prevent the landlord from renting any nearby units to your competitors.
  • Tenant Allowance: The landlord’s contribution to your tenant improvements. If asked, many landlords are open to contributing to your tenant improvements, provided that your work is completed in a workmanlike manner and subject to their approval of your plans.

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:

  1. Ask a lot of questions. Talk to the former tenant and other tenants who currently lease from the landlord. Ask your lawyer to do some basic searches on the property and landlord (such as a title search).
  2. Engage the landlord in negotiations in the early stages before you sign the Offer to Lease. This will give you some insight (albeit limited) into your landlord’s management style. Will they be fair, reasonable and accommodating? For example, if your landlord is not willing to budge on any key tenant rights or they are being unresponsive, these are red flags. 
  3. Give yourself time and do not feel pressured. While you may need to move fairly quickly if you are competing with other potential tenants, do not rashly enter into a contract. In our experience, when clients feel pressured to sign an agreement, they end up regretting it later. If it is not the right fit, walk away. There is always another leased premises.

The Key Take-Away

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.