Canadian Lawyer

20 A P R I L 2 0 1 7 w w w . C A N A D I A N L a w y e r m a g . c o m fluctuating and evolving com- mercial real estate market that has seen high vacancy rates in some areas and changing needs across the country is resulting in more detailed and complex leases. And while many prefer the predictability of long- term leases, both the length of the lease and the terms they contain are undergoing greater scrutiny. The certainty of continuous cash flow for a fixed period through a long- term lease is increasingly important to the landlord as leases largely determine both how the building is financed as well as its overall market value. Long- term leases also bring cost predictabil- ity and stability for many tenants seek- ing to establish their businesses with an eye to selling in the future. But in an uncertain world, flexibility is key, says Natalka Falcomer, who sees the retail sector as the most vulnerable. Her Toronto-based Groundworks Real- ty Services law firm represents mostly tenants whom she says are often look- ing at leases differently. And she sees traditional retailers, who are taking the hit from online sales, search for alterna- tive ways of doing business. "The nature of retail leases will be changing," says Falcomer, who often recommends her clients seek shorter terms when locking into a lease. "What we're seeing for the first time is a real flip in the power between the landlord and the retail tenant. "The big factor is that when a lot of these tenants sign long-term leases, it isn't taking into effect the Internet and how people buy, which affects revenue, which reflects how much the landlord makes as well as how much the store makes." In retail, a percentage of the sales is usually paid to landlords in addi- tion to the rent. Landlords have been struggling to come up with ways to capture some of the online sales as store sales drop. Some stores, acknowledg- ing the trend for online sales, are using retail locations as "experience" centres where there is more of a focus on dis- playing and demonstrating products to encourage online sales, following Apple's model. In reaction to increased online sales, some retailers are looking to reduce the amount of physical store space they rent. In the uncertainty and ever-changing retail world, Falcomer suggests the retail tenant seek co-tenancy agreements that allow them to lower their rent or get out of the lease if another particular tenant, such as the anchor store in a mall, disappears. She also tries to include a go-dark provision so that the tenant is R E A L E S TAT E By Marg. Bruineman MAT DALEY Commercial leases Agreements between landlords and businesses are becoming increasingly complex as retail and other business needs evolve A

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