Commercial Lease – The Demolition Clause

Commercial Lease - The Demolition Clause

The demolition clause is appearing more frequently in long-term leases. It is found most commonly in commercial leases in Ontario and Vancouver in high traffic downtown areas. This clause can be surprising for buyers residing outside of these provinces. You may be tempted to think “My landlord would not, could not, and cannot legally get away with this,” but this is incorrect. This clause permits your landlord to relocate your business or terminate your lease if they decide to demolish, renovate, or redevelop the building or center where you are located. Often the definitions of “redevelop,” “demolish,” or “alter” in the lease are highly ambiguous. While this clause is inserted to favour the landlord should they wish to sell to a developer or develop the lot themselves, it isn’t always a complete deal breaker. There are some additional elements to pay attention to that can assist in evaluating the risk in moving forward. For example:

  • Is the area heavily developed, or being developed?
  • Does the landlord own a block of buildings or just one stand-alone property?
  • When is the demo clause in place? i.e., 1st year of the lease.. 7th year of the lease, etc.

There are a ton of other factors, but those are a few to consider. As a remedy, you can always check with the city to see if an application has been submitted for development. These historically take approx. Three years to process and even then a few more years to break ground if at all. If no application is in place, it may provide enough time for a business to move in and see a reasonable ROI while establishing their brand in the desired area before having to relocate eventually.

It’s always important to seek independent legal advice and counsel to determine what is best for your business as far as commercial real estate is concerned.┬á Your friends at CHI Real Estate Group can help!

Call us on today on 647.347.9723 or view our latest listings here.