As more business is done online, and as traditional brick-and-mortar retail stores decrease in popularity, shopping malls and retail shopping landlords are looking for more creative methods to maximize rental income.
It is not uncommon for a shopping mall lease to require the tenant to pay a percentage of their sales as part of the additional rent. Many stores, however, also do a significant amount of business online. While tenants usually consider such sales to be separate from sales at their physical storefront, landlords may consider those sales as attributable to the storefront and subject to additional rent.
It is important for any commercial lease to be clear how additional rent is calculated, and if additional rent includes a percentage of revenues, it should be clear to all parties what revenue is included and what revenue is excluded. Where a lease is unclear, the court will often rely on the principle of contra proferentum and interpret the contract against the party who drafted the clause. In the case of commercial leases, that is often the landlord.
Of course, whether the lease is clear or not, if a tenant is seen to manipulate its sales protocols to make brick-and-mortar customers appear as online sales in an effort to reduce their rent, the landlord may claim that missing rent from the tenant under a breach of contract claim or a breach of fair dealing claim, as described by the Supreme Court of Canada in Bhasin v. Hrynew (2014 SCC 71).
In either case, it is important for tenants and landlords to fully understand their obligations under the lease, and if a dispute arises, to seek prompt legal advice.
If you have a commercial lease dispute, contact us for an initial consultation.
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