Insights

Negotiate Free Rent While You Improve Your Newly Leased Premises! The Importance of negotiating an adequate Fixturing Period.

Published: July 25, 2024

Category: Real Estate

The last few years have been challenging for property owners and tenants alike. Downtown landlords have struggled with high office vacancy rates as people continue to work from home, while decreased foot traffic in office districts means fewer customers for restaurants and retailers.

The silver lining, of course, is that businesses have enjoyed more choice in respect of the properties available for lease and the ability to leverage higher vacancy rates into more favourable lease terms. As a result, commercial properties have seen a fair amount of tenant turnover in the last few years as well as the renovations that go along with new tenants taking possession of vacant spaces. 

A new tenant seeking to renovate will typically want access to the premises prior to the start of the lease term. To address this issue, commercial leases commonly include a fixturing clause defining the period of time during which the tenant may access and improve the space, and setting out the rights and obligations of the parties during this time. Fixturing clauses thus typically address such issues as: (i) the fixturing period, being the time during which the tenant may access the space for the purpose of undertaking construction or renovations; (ii) whether the tenant will be liable for rent during the fixturing period; (iii) whether the landlord will contribute to the costs of leasehold improvements and, if so, the amount of the contribution; and (iv) whether the tenant has other rights or obligations during the fixturing period, such as with respect to the cost of utilities, the obligation to maintain insurance coverage, or the right to operate its business during the fixturing period.

As the tenant’s improvements will likely add value to the landlord’s property, a tenant may be able to negotiate a relatively favourable fixturing clause that provides the tenant with a lengthy window of time for renovations, a discount or waiver of rent during the fixturing period, as well as contribution from the landlord towards the cost of the improvements. In other cases, a landlord may insist on a more restrictive clause that imposes on the tenant greater obligations in terms of rent or the need to assume the costs of utilities or insurance. As is the case with all commercial lease provisions, however, the particulars of a specific fixturing clause will ultimately depend on negotiations between the parties and the circumstances of the case.