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COVID-19 Impact: A Tenant's Perspective – Re-Evaluating Your Company's Real Estate Needs During The Pandemic – Real Estate and Construction – Canada – Mondaq News Alerts

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The pandemic will have a significant long-term impact on the
commercial leasing market as companies re-evaluate the ways they do
business and their real estate needs. For example, many companies
are considering doing away with, or reducing the size of, retail
locations in favour of online operations, having employees work
from home, or maintaining a physical location in urban centres but
with inventory and storage facilities located in lower-cost
suburbs.

This article sets out some of the key considerations in weighing
a tenant’s lease options going forward. Specifically, this
article discusses lease renewals and extensions as well as
subleasing space.

One factor to note is that the demand for a type of space
affects the leverage between the landlord and tenant in lease
negotiations. Generally speaking, industrial space has been the
least-affected by the pandemic, as many industrial operations were
deemed essential services by the government. The most immediate
effects of the pandemic have been on retail space, particularly
enclosed malls given mandatory closure orders, the increase in
online shopping and the rash of retailer bankruptcies.

We anticipate that new office space will continue to become
available, given the insolvency of some companies as well as others
making strategic decisions to reduce the size of their
space.1

Lease Renewals and Extensions

With a lease approaching the end of its term, some tenants may
decide that remaining in their current space makes the most sense
for their business and will exercise their option to renew or
extend their lease. Key factors that tenants should take into
consideration include (i) customer convenience, (ii) reputation in
the area, (iii) access to transportation and supply chains, (iv)
the market for the particular type of space and (v) availability of
alternative spaces.

Focusing on factors (iv) and (v) above, tenants may be able to
leverage the higher vacancy rates for commercial spaces,
particularly as it relates to retail and office spaces, to
renegotiate rents at lower rates than what is currently being paid
under their lease. While most renewal and extension provisions
generally provide that the base rent for a renewal or extension
term cannot be lower than the base rent of the immediately
preceding term, the uncertainty resulting from the pandemic has
created a unique environment for negotiation.

Tenants should remain cognizant of the deadlines provided in
their lease by which they must provide landlords with notice of
their intent to exercise their options to renew or extend. Tenants
should not wait until the last minute to engage landlords in
renegotiations and to begin conducting their due diligence on
alternative options. Instead, tenants should proactively
communicate with their current landlords, and explore alternative
options far in advance of any notice deadlines in order to put
themselves in the best position to make the most prudent business
decision in the context of leasing space.

While there may be room for renegotiating rent for retail and
office spaces, the same likely cannot be said for industrial
spaces. So far, industrial lease rates throughout Metro Vancouver
remain largely unchanged from those negotiated in the first quarter
of 2020 and there has been virtually no discounting or rate
reductions at renewal for deals completed after the end of the
first quarter of 2020.2

Subleasing Space

For tenants with multiple years left in their lease term who are
occupying a footprint larger than they require, subletting excess
space should be considered. Alternatively, tenants should consider
negotiating an early termination of their lease and subletting
space from another tenant. Patterns concerning the subletting of
space already appear to be emerging as the amount of office space
being subleased in downtown Vancouver is at twice the historical
average.

From a subtenant’s perspective there are many benefits with
subleasing space, including shorter, and likely better, terms. From
a sublandlord’s perspective, there are potential networking
opportunities if the subtenant operates a business that is
complimentary with that of the tenant’s as well as retaining an
option to reclaim the subleased space once the long term affects of
the pandemic on businesses patterns become known (i.e. keeping open
the possibility of moving back into the subleased space once the
sublease term expires and information is available regarding long
term economic outlooks).

Along with the potential benefits, tenants will also need to
turn their attention to potential costs associated with dividing
the space, obtaining the landlord’s consent (the terms of the
lease should be reviewed), preparing sublease documentation and the
business reality of being in the space for a shorter term.
Depending on the amount of time remaining on the existing lease
term, the costs associated with subletting the space may be modest
compared to the costs that may be incurred by a tenant for
retaining space that is not being used.

Conclusion

There is a significant amount of uncertainty surrounding what
the post-COVID-19 world will look like. While there are many
companies which have already determined that they will not require
the physical space they currently occupy, and are thus thinking of
exit strategies with respect to their leases, there are many other
tenants who will be looking for short-term flexible solutions to
assist with navigating these uncertain times.

Regardless of what side of the equation businesses fall on, it
is always possible to find creative and practical solutions which
benefit both tenants and landlords. Speak with one of our
Firm’s commercial leasing experts to understand what options
are available to you.

The authors of this article gratefully acknowledge
the contributions of summer student Mac Hayden.

Footnotes

1 For example, Vancouver’s downtown office vacancy
rate rose to 3.3% this quarter, up from 2.2% a quarter earlier and
Toronto’s downtown office vacancy rose to 2.7% in the second
quarter, up from 2.0% in the first quarter. Additionally, rents for
office spaces also fell in each city, with Vancouver seeing a drop
of $1.62 for Class A office space and Toronto seeing a drop of
$1.53 for such space
(www.cbre.ca/en/about/media-center/cbres-second-quarter-statistics-show-covid-19s-impact-on-canadian-commercial-real-estate)

2 Ibid.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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Calgary real estate sales improve despite ongoing pandemic – CTV Toronto

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CALGARY —
Calgary realtor Shaukat Hayat had his busiest summer ever, during the COVID-19 pandemic.

“During the pandemic people realize the value of a property, value of a house while they were staying inside,” said Hayat, who has been in the industry since 2006. 

Hayat said homes in the $300,000 to $500,000 price range are the ones moving, with homes selling within 30 to 45 days. 

“Whoever is going out, they are a very determined buyer, and whoever has listed the property, very determined seller,” said Hayat.

“Summer 2019 and summer 2020, there is an increase in the price and increase in the number of the units sold all over the city.”

Hayat points to a number of factors, including inventory levels and low interest rates on monthly mortgage payments.

The Canada Mortgage and Housing Corporation says sales started to pick up toward the end of June, but were soft in April, May and June. 

CMHC released its latest Housing Market Assessment on Monday, looking at the health of the market during the second quarter of 2020.

“We had a huge economic shock in labor markets, in the oil markets which Calgary is a centre of,” said Michael Mak, senior analyst, economics with CMHC. 

“This shock basically gave consumers a level of uncertainty and both sellers and buyers didn’t really have a certain outlook on the future. It may be that they decided to wait and see how the government responded how the pandemic responded before making any sales or buys.”

April to June 2020, Mak said approximately 3,400 homes sold in Calgary, compared to 5,200 during the same time period in 2019.

“The MLS average price was $423,311, in the second quarter of 2020, down four per cent from the same period in 2019,” reads the report. 

Mak said the report also found there is increased supply in new homes being built in the city compared to demand. 

Final sales numbers for the summer aren’t available yet, but Mak says sales are slightly higher and prices are about 10 per cent higher also.

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Don’t be a stranger! Sooke real estate agent won’t shy away from your questions – Sooke News Mirror

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When you’re buying your first house, you’re likely to have a thousand questions. You may even ask the same questions more than once. The same goes for selling — whether it’s your first sale or your fifth, you’ll likely ask the same questions over and over.

Most real estate agents can answer your questions the first time you ask, but it takes a special kind of ‘people person’ to treat you with genuine compassion the fourth time you ask.

“I want my clients to feel comfortable reaching out to me for anything, even if they’ve asked me before,” says Paula Wensley, a real estate agent with Macdonald Realty Ltd. “My goal is to reduce stress for my clients so they don’t lose sleep — they’ll probably lose sleep anyway, but I can do my best to make the process easier.”

Find the right fit

Paula is relatively new to Sooke but she’s no stranger to southern Vancouver Island, having lived in many Island communities over the years. That local knowledge comes in handy when helping clients find their forever-home.

“I’ve had some amazing experiences with clients who weren’t happy with where they lived, but didn’t know where to move,” she says.

They’d describe their personalities, lifestyles and goals, and ask Paula ‘Where can you see us? What community would suit us?’ Using her knowledge of local communities and her talents for connecting with clients, she’d make a recommendation.

“One client reached out a year after they’d moved in just to say thanks. She said ‘we wouldn’t have found this community without you.’ It’s amazing to have that kind of impact.”

3rd generation in real estate

Paula comes from a family of real estate agents including her grandpa, dad, uncles and cousins, so she draws from a wealth of experience beyond her years. Before real estate she worked as a property manager and commercial sales assistant, so she’s seen the industry from all sides.

“I try to offer a fresh approach — I’m up to date on new negotiating techniques and other strategies,” she says.

Paula finds she connects well with clients who prefer a bit more time and attention to their individual needs. If you have a unique situation or just want a little extra help with your listing, Paula will give you her full attention.

“I don’t see myself in sales, I see it as a service. It’s not just a conveyor belt of clients.”

Follow Paula Wensley on Facebook for her latest insights on the tight real estate market, and visit paulawensley.com to browse current listings from Mill Bay to Sidney to Sooke. Get in touch by calling 250-388-5882 or at pwensley@macrealty.com.

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Real Estate Transactions: Exclusive Use Servitudes Deemed Invalid – Real Estate and Construction – Canada – Mondaq News Alerts

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While exclusive use clauses remain common in leases, they can no
longer be drafted in the form of servitude agreements in
transactions.

In April 2020, in the case of Société
immobilière Duguay Inc.
v. 547264 Ontario
Limited
1, the Court of Appeal of Quebec
ruled in favour of dismissing a Superior Court
judgment2, thereby granting an application for
declaratory judgment and striking off “exclusive
use
” clauses drafted in the form of servitude agreements
restricting the types of business that could be carried out on a
property. As a result, this case puts an end, in commercial
transactions, to the use of servitude agreements to protect certain
exclusive businesses or commercial uses from third parties in a
given location.

Exclusive use clauses have long been included in leasing
agreements, such as those in shopping centers, to define the
permitted uses of the leased property and prohibit or limit one
tenant from carrying on the same type of business or
principal use” as another tenant. The bottom
line is to protect the market within a property and ensure the
commercial success of all tenants. The Civil Code of Quebec
(C.C.Q.) does not currently define or regulate such clauses
directly; these are usually the result of negotiations between the
landlord and the tenants. Exclusive use clauses have also been used
in commercial real estate transactions, in the form of servitude
agreements. Under Quebec civil law, Article 1177 C.C.Q. defines a
servitude as “a charge imposed on an immovable, the
servient land, in favour of another immovable, the dominant land,
belonging to a different owner
.”

The Duguay matter is the most recent case in which the
Quebec courts had to determine whether exclusive use agreements in
commercial real estate transactions were valid in civil law. In
this case, the Respondents owned a shopping centre and various
contiguous or nearby lots, which they leased for commercial
purposes. In 1998 and 2000, the Respondents sold two of those lots
to a third party for the purpose of opening a clothing store. The
notarized deed of sale included a servitude agreement stipulating
that the buildings of the shopping centre owned by the Respondents
could not be used to carry on business activities that would
compete with those of the buyer (i.e. a family clothing store),
while the properties acquired by the buyer could not, for their
part, be used for the principal business activities then taking
place at the Respondents’ shopping centre and on the
neighbouring lots they owned (i.e. a grocery store, drugstore,
movie theatre and department store). In 2012, the two properties
were sold by the initial buyer to the Appellant, with the new deed
of sale providing that both properties remain subject to the
exclusive use servitudes set out in 1998 and 2000. Following this
subsequent sale, the Appellant asked the Superior Court to declare
that the “servitude agreement” was not enforceable and to
order its striking out on the grounds that it did not constitute
servitudes, but rather, personal obligations.

The Court of Appeal found that, since the purpose that the
Respondents claimed to be pursuing through these exclusive use
agreements, namely to promote the commercial diversity of their
shopping centre, served largely to ensure that the businesses in
the shopping centre they owned were not subject to commercial
competition, they could not be construed as constituting valid
servitudes under the C.C.Q. The Court of Appeal found that the
rights flowing from these agreements do not relate to the
Respondents’ real estate property, but rather to the
Respondents’ financial and commercial interests.

As a result, although the exclusive use servitude agreements
could be deemed creative in commercial real estate transactions,
the Court of Appeal of Quebec ruled in favour of the Appellant,
finding that such agreements restricting commercial use do not
constitute valid servitudes, as they do not encumber the dominant
land as required by Article 1177 C.C.Q., but only apply to the
servient land. According to the Court of Appeal, these stipulations
must be characterized as personal obligations binding on the first
buyer and the Respondent but not the Appellant as the subsequent
buyer. Moreover, the Court of Appeal found that the Respondents had
not demonstrated that the Appellant agreed to undertake these
agreements as personal obligations when purchasing the
properties.

Footnotes

1 Société immobilière Duguay inc. v.
547264 Ontario Limited, 2020 QCCA 571

2 Société immobilière Duguay inc. v.
547264 Ontario Limited, 2018 QCCS 2099 (CanLII)

Originally published by August-September 2020 issue of
Canadian Lawyer InHouse magazine

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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