I am Mark Giavedoni, a commercial real estate and lending lawyer at Gowling WLG.
This video is part of our Real Estate Topics for Lenders Series.
In this video we will be discussing what to review in a commercial lease for a lender.
Depending on who the borrower is, a review of a commercial lease involves different considerations and advice to a lender, because the lender will be advancing funds for different purposes and needs to have sufficient security in place in the lease to protect its investment.
If lending to a landlord, there should be a fulsome subordination and postponement provision requiring the tenant to maintain a subordinate position to the landlord and its lender's security/interests;
restrictions on the tenant to terminate the lease early;
requirement for tenant to provide estoppel certificate;
rent obligations should be sufficient for the landlord's investment purposes and the context of the tenancy to the landlord's business
For a tenant borrower, the lease should have the ability to assign the lease to its own lender or corporate affiliate;
An ability to offer leasehold security;
A subordination of the tenant's leasehold interest in favour of the lender is essential, particularly if the lease exists and is registered on title before the lender's security;
Without this obligation, the tenant does not have to attorn to the lender or the lender's enforcement of its security and would need to get the tenant's consent to exercise certain remedies
A tenant usually wants a lender to provide a non-disturbance agreement in exchange for this subordination, meaning that the tenant can enjoy the premises, as long as it is not in default.
These require the tenant to confirm to a lender the state of the lease, rental payments, deposits and that there are no disputes or defaults under the lease.
Lenders can rely on these as factually correct representations to assist in future enforcement
The lease should be reviewed in light of the context of the landlord's business. Is this the only tenant of the building or for the landlord? Is this one of many in the same building and how does it relate to the other leases? Are there any gaps in the tenant obligations that would require the landlord to have to expend its own funds?
These considerations will impact a lender's decision to lend but also the type of security to require, in order to protect the lender's investment.
This presentation was a high level overview; however, if you find that you have more specific questions about any of the points discussed or their application to a specific fact situation, please reach out to any member of our lending team and I am also available through my email mark.giavedoni@gowlingwlg.com.