Lease Agreements

I have some terribly unwelcome news for many business owners in Canada.

There has been a steady and strategic squeeze on commercial leases over the last number of years, which has left many exceptional practices in a less-than-exceptional tenant security scenario. It feels like I have been screaming into a void these last few years; but again;

PLEASE LISTEN – Holding such a lease will severely undermine an otherwise highly saleable asset!

Operationally, if you have a lease, it may contain severe impairment and derogatory clauses which could prevent continued operation on short notice. The demolition clause is typically the one to watch for, but there are many other stipulations in premise leases that could impair your ability to operate, and severely impact the value of your business. A relocation clause is a comparable situation that could cause crippling business disruption.

The clients who are unfortunate enough to be in this situation are best served to address this issue head-on, and not bury their heads in the sand. Unfortunately, many do not, and they eliminate their best options in an end-of-career sale situation.

At ROI Corporation, we specialize in healthcare practice valuations. We are professionals. Come talk to us. The clients that engage us long before a sale have the best outcomes.

New policies are being initiated by banks, accounting firms and appraisers (like our firm) and it is not good news. The market has shifted.

This Shift will Impact Your Retirement

Impairment charges are immediately affecting the value of practices. Classification of leases into satisfactory, poor, and absolute derogatory will severely impact values for leasehold improvements and general operational values, such as goodwill.

This will impact retirement plans. Banks never liked distressed leases, but now, I have it on good authority that they will no longer offer long-term financing, even with mitigating terms on distressed leases.  They are likely to start restricting the financing term to the remaining unfettered term of the premise lease.

Purchasers will be asked to put up substantial down payments or cross-collateralize their own assets to the tune of many hundreds of thousands of dollars. Most of the purchasers in the market do not have the stomach for that, nor do they have that kind of liquidity available.

The result? The dissolution of the demand side of the equation, which has currently been persistent for well over a decade.

The fundamental law of supply and demand has kept values high all along.

Low interest rates helped, but they are not what caused values to skyrocket in the last decade. That was demand. Demand to own an asset where one could build equity and make an extraordinary living.

Interest rates are higher lately, but that is all part of the business cycle. Current interest rates is merely one input into a larger equation. The purposely hyperbolic title of this piece is a descriptor for a fundamental shift in capital access to the single largest buying group. It has the potential to hollow out the market and have a radical impact on the practice values of those who do not plan. Inversely and furthermore, it could increase the value of the practices that own their building or have secure tenure.

When the volume of purchasers is severely reduced due to a lack of access to capital caused by a fundamental shift in lender policy, a portion of the market will suffer from deflated valuations. It could be very substantial for many on the sell side. I am not involved in policy, but I am aware of a broad tightening of our Schedule A lenders and a desire to see buyers share the risk in practice purchases that are deemed a little less safe. These are great practices and there are strategies to deploy that can rectify any situation.

I strongly encourage any practice owner to immediately obtain a full and complete assessment of their premise lease. Our firm can help. If you’d like a private conversation about this very pressing and urgent matter, I can be reached by text at 416.520.7420.

Timothy A. Brown

Timothy A. Brown is the CEO and Broker of Record for ROI Corporation and has served the professions since 1979.  He can be reached at or 416.520.7420.


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The right of first refusal in a lease agreement

The first time the value of a lease is considered is should be when it is being signed. Understandably, the tenant looks at key items such as rent, additional costs, terms, renewals and any other clauses that may be inserted. After much negotiation, the lease is signed, and the owner begins running the practice.

If only things were truly that simple.
When the lease is first signed, many might not be thinking about the eventual sale. Agreeing to things like demolition and relocation clauses may be required but owners must know how these affect the value of the practice and its potential sale.

Obviously not all clauses are created equal. A demolition clause in a building of 30 stories is very different to one in a stand alone building at the corner of a major intersection. While a sale may not be on the horizon for many years down the road, it is important to pay attention to the finer points of the lease so that when the time does come, the assignment from one owner to the next is as smooth as it can possibly be.

An Interesting Case Study
Recently, we encountered a very interesting and frustrating situation. We successfully found a purchaser for our client. It was a very good fit and all parties were working in good faith towards a successful close.

In the course of a sale, the landlord is almost always notified after due diligence and financing are waived. An owner does not want to prematurely alert a landlord and risk the word getting out that they are selling.

Our situation was following this process nicely. When the time came to seek the landlord’s assignment of the lease it was declined. Even though the lease, and most do, stated that the landlord could not unreasonably withhold the assignment, in this case, it was withheld.

My lawyer friends will always agree that the definition of “unreasonably” is up for debate. However, the landlord was willing to provide clear rationale as to why the assignment was declined. Despite the bank providing an approval for 100% financing, the landlord was not confident in the new owner’s ability to run a successful business.

Many landlords will take a personal net worth statement from the applicant and most applicants withhold information for fear of being overcharged.

Unfortunately, not only did this particular purchaser not complete this exercise properly, the resumé provided did not give the landlord confidence that the purchaser could run a successful business.

The landlord felt this office was a key anchor in his plaza and did not want to risk the future success. The other factors that may have influenced the decision of the landlord lay with the vendor.

In the lease, it was clearly written that the practice could not be sold within two years of the lease being signed. It also required the vendor to notify the landlord prior to listing the office for sale. In this case, both of these requirements were not fulfilled.

A Good Lease Does Impact Value
Owners must be strategic when it comes to the sale of their practices. As a tenant, if you have been difficult or challenging, then it is possible these actions can influence the landlord down the road.

Many owners thought the pandemic, (particularly for those with practices located in retail shopping centres), gave them the opportunity to renegotiate lesser rent or remove such clauses. Unfortunately, this was often not the case. In fact, those seeking a rent reduction often found themselves with additional clauses that were not in the original lease.

Remember, in negotiations, everyone has to give something up in order to get something. Also, it seems that the pandemic made landlords even more cautious than before.

With multiple tenants unable to pay rent due to restrictions and limitations, landlords had added expenses that needed to be covered.

The Federal government may have provided some relief but in the end, the pandemic has certainly taught all of us valuable lessons.

A lease definitely affects the value and sale of a business.

The more carefully the lease is crafted, the better the odds that the practice will sell at a higher price, which helps facilitate an exit strategy for the owner.

By understanding the lease and its contents, the owner stands a greater chance of being more profitable while reducing the inherent risks and exposures that are typical with all commercial lease contracts.

It is very common for things to be left out or misconstrued, whether intentional or not. It is always best to have your lawyer or a qualified expert review the documentation process before a lease is signed.

A final word – make sure renewals are also reviewed carefully. Sometimes in the rush of taking care of this “one or two pager”, items can be included that were not in the original lease.

Practice owners have worked extremely hard to build and operate a successful practice. This practice is an asset that must be protected.

Therefore, regardless of what stage a practice is in, long-term planning and attention to detail are paramount when it comes to leasing commercial space.

Jackie Joachim, COO ROI Corp


Jackie has 30 years of experience in the industry as a former banker and now the Chief Operating Officer of ROI Corporation. Please contact her at or 1-844-764-2020.


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Negotiating a lease is not something that you’ll do very often. Prepare for the discussion and take heed of the following seven tips for success:

  1. Initially offer about 20% less than asking net rents
  2. Know that net rent is the negotiable portion of the deal. The additional rent or taxes, maintenance and insurance (TMI) are actual costs that are passed directly to the tenants and are not negotiable.
  3. If you are a new practice go for a shorter initial term, such as three or five years, with a couple of five year renewal options. This provides an escape if things don’t work out.
  4. If you are an established practice or very confident of success, a longer initial term (ten years) will enable you to fix the rents for a longer time and get a tenant improvement allowance (TI) from the landlord.
  5. Go for as much free rent as possible….try to get three months totally rent free (no net rent or TMI) for your practice buildout, plus three more months net rent free to get established up and running.
  6. Make sure your lease is assignable so you have the option of selling your practice in that location.
  7. Insist on an exclusivity for all optometric, optical and ophthalmic activities.


Tom Bollum is a former retail optical executive and now a commercial real estate broker with Avison Young. He has sourced and negotiated locations for many optical stores across Canada.


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