Canadian Lawyer

w w w . C A N A D I A N L a w y e r m a g . c o m J U N E 2 0 1 6 23 he growth of online sales is having an impact on how commercial landlords and tenants are looking at new leases while it introduces some creative re-examination of existing long-term leases. Turnover or percentage rent allows the landlord and the ten- ant to share the risk or the success of the business. Instead of paying a flat rent, a minimum rent could be negotiated in addition to a portion of the gross sales of the business after a pre-determined break-even point. It is an attractive model on many levels, allowing tenants and landlords to ride high and low waves together. For commercial spaces in malls or areas undergoing renovations, percent- age rent could help the tenant mitigate any lost traffic caused by the renos. And an uncertain tenant may be attracted if the risk is shared through a percentage- rent relationship. But as many of these businesses achieve offsite sales through the assistance of the Internet, landlords have been asking for a cut of non-traditional sales. How that is defined, calculated, and achieved is subject to interpretation and negotiation. And some wonder if the model can be sustained as e-commerce continues to build steam. Christene Hirschfeld, a Halifax busi- ness lawyer with Boyneclarke LLP, first experienced this shift about a decade ago while negotiating retail space for a client who also had a warehouse in a different, unrelated location. Customers would go to the retail store, but some orders would be packaged and shipped from the ware- house. The landlord included a clause to capture orders placed at the store that were shipped from the warehouse as part of the gross rent calculations for the retail space. "With the shift for consumers moving more and more to online shopping and the increased use of mobile technology, I think that this issue is just going to keep increasing in importance. If the landlords don't get it right, they run the risk of decreasing the returns they're get- ting on the buildings so their rents are decreasing. That means, in turn, that the valuation of their properties are decreas- ing," observes Hirschfeld. That co-dependency between the online orders and bricks-and-mortar presence resulting from changes in technology and consumer behaviour is showing up on commercial lease agree- ments with increased complexity. And it's not expected to ease up, at least in the short term. According to Statistics Canada, e-commerce sales for 2013, the latest available, totalled $9.8 billion, or 1.8 per cent of retail operating revenue, up from 1.5 per cent the previous year. Forrester Research anticipates e-commerce sales in Canada to reach 8.8 per cent by 2019. But because of this gradual transition R E A L E S TAT E By Marg. Bruineman JEANNIE PHAN Making online sales count Revenue from the web can add a complex wrinkle to commercial leases based on business sales. T

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