Indexation and sliding scale (escalator)
The purpose of an indexation clause is essentially to allow the rent to be adjusted according to the cost of living index. A sliding scale clause, on the other hand, covers increases in maintenance costs, heating, insurance and property taxes. This clause makes it possible to index the cost of rent to the cost of living and to counteract inflation. It is important for the broker to be aware of the data for the reference year, and to ensure that a rate of increase is not added on top of the cost of living index.
The renewal clause is negotiated to provide advance notice of the rent that will be payable if the renewal option is exercised.
In order to exercise this clause, the lessee normally has to give notice to the lessor. This notice varies from one lease to another, but the period is often several months in order to allow the lessor to re-lease the space in the event that the lessee does not exercise the option. This clause allows the lessee to avoid being evicted at the end of the lease, as well having the lessor impose a significant rent increase.
► DUTIES AND OBLIGATIONS OF THE BROKER
As mentioned, a statement to the effect that remuneration will be due to the broker or agency in case of lease renewal is often included in the brokerage contract and may lead to a dispute.
Be careful of your role in such a situation, as exercising the renewal option for your client could involve your personal liability. This action is part of a private agreement, and not of the brokerage contract.
Consequently, if you overstep the bounds of your contract, you involve your liability, and your real estate brokerage professional liability insurance (FARCIQ) will not cover your actions. In other words, it is not up to you to advise the lessor that your client wishes to exercise his option to renew. Your client must exercise this option himself, and this entitles you to remuneration if the brokerage contract provides for such an eventuality.
Exclusivity and non-competition
The purpose of the exclusivity clause is to allow the lessee to ensure that there will not someone else working in the same field in the same immovable (e.g.: a lawyer will not necessarily want another lawyer to be present in the same building in order to have the exclusivity of his profession). These clauses are most often found in leases concerning properties with several retail or service businesses.
A distinction must be made between an exclusivity clause and a non-competition clause. The non-competition clause is intended to prevent a business from competing within a defined radius. For example, the lessor undertakes not to operate a similar business within a radius of 10 kilometres. This type of clause is often found in leases that provide for a portion of the rent to be based on a percentage of the lessor’s sales.