A question which often arises in commercial leasing is “what is the difference between a Commercial Tenancy Agreement (“CTA”) and a Commercial Lease?”. Both Landlords and Tenants query why they should go to the expense of having a solicitor drafted commercial lease, in place of a CTA which can be prepared by an agent at a lesser cost.
There are certainly some circumstances where a CTA will be the appropriate choice, but more often than not, we recommend both Landlords and Tenants opt for a Commercial Lease.
A Commercial Lease contains more detailed provisions around most items. This is invaluable if disputes arise between Landlord and Tenant. In essence, a CTA lacks substance when it comes to properly protecting the Landlord’s rights and ensuring the Tenant complies with its obligations.
The two biggest differences are cost and registrability. A lease for 3 years or more is required by law to be registered on Title. A CTA is not registrable. Where a lease for 3 years or more is not registered, the tenant is not offered the protection of having its options honoured. So if the property changes hands, the new owner may not be under an obligation to honour any options left on the Lease. Personal guarantees provided under Leases which are required to be registered, can be found unenforceable where the Lease is not registered. This is problematic for Landlord’s in recovery proceedings.
Below is a summary of some points of difference between CTA’s and Commercial Leases:
|Commercial Tenancy Agreement||Commercial Lease|
|Cost effective.||More expensive, however , the costs of commercial leases are generally paid by the tenant (with exception of retail tenancies).|
|Cannot be registered at the Titles Office. However, registration is not required for leases under 3 years.||Can be registered at the Titles Office. Note that leases for 3 years or more must be registered at the Titles Office to offer the tentant protection against any options. If the property is sold with an unregistered lease, the new owner is not obligated to honour the options.|
|No provisions for bond.||Detailed provisions around bond, method of payment and when the bond can be called on.|
|No provisions for personal/directors guarantees.||Detailed provisions around personal guarantees and when they can be called on.|
|The outgoings that can be charged to the tenant are limited and no requirement on the tenant to pay for water, gas, telephone and electrical usage.||Detailed outgoings provisions.|
|Lack of detail can prove problematic (and expensive) if disputes arise.||Contains provisions around most issues which may arise in a leasing situation and how such issues are to be dealt with.|
|Limited make good provisions and insurance provisions.||Detailed make good provisions and insurance provisions.|
|There are no terms covering specific issues/matters concerning the property such as car parking, licenced areas, leases for part of a building/lot, storage spaces etc.||Can be drafted to cover any agreement made between the parties.|
For more information on CTA’s and Commercial Leases to find out which option is appropriate in your circumstance, or to prepare a Commercial Lease, please contact us.