When you buy a commercial property with tenants already in place, you are not just buying a building — you are buying a set of legal relationships. Every lease in that building transfers to you at closing. The rent, the term, the tenant’s rights, the landlord’s obligations, and every clause the previous owner agreed to becomes yours, whether you read it before closing or not.
This is one of the most important distinctions between commercial and residential property acquisition in BC. Unlike buying a vacant building where you set the terms, buying a tenanted property means the leases define your income, your obligations, and in many cases your exit options for years to come.
This guide walks through what to look for in the leases before you commit, what clauses have the most impact on the property’s value and your management experience, and what to do in the first weeks after you take ownership.
In this guide:
- Why lease review is the most important due diligence item — not the building inspection
- How to build a lease abstract for every tenancy before you finalize your purchase price
- The eight lease clauses that have the most impact on what you’re actually buying
- The red flags that should change what you pay — or whether you buy at all
- What to do in the first weeks as the new landlord to set up the tenancy relationships properly
This article is provided for general informational purposes only and does not constitute legal or financial advice. Commercial lease review and property acquisition in BC involve complex legal and financial considerations. Always engage a qualified BC commercial real estate lawyer and appropriate professional advisors before completing a property acquisition. Read our full Editorial Disclaimer.
Why Lease Review Is Due Diligence, Not an Afterthought
Many buyers of tenanted commercial properties focus their due diligence on the physical building — environmental reports, building inspections, roof assessments — and treat the leases as administrative documents to skim. That is a costly approach.
The leases are the asset. The building is the container. What you are actually buying is the right to receive rent under specific terms, for a specific period, from specific tenants. A building in excellent physical condition with poorly structured leases can be worth materially less than it appears. And a building with one lease containing a problematic clause — a co-tenancy requirement, a demolition right, a below-market renewal option — can represent a liability that doesn’t show up in any inspection report.
In BC, the Commercial Tenancy Act provides minimal default protections in the commercial context. Unlike residential tenancies, commercial leases are largely governed by their own terms. What the lease says is what you get.
The leases are the asset. The building is the container.
Request all leases, all lease amendments, all side letters, and any estoppel certificates available as early as possible in your due diligence period. Review them in full — not just the summary your agent provides.
The Lease Abstract: Building Your Master Reference
Before you can evaluate the leases, you need to extract and organize the key information from each one. This is called a lease abstract — a structured summary of the critical terms of every lease in the building.
For each lease, a basic abstract should capture:
- Tenant name and any guarantors
- Premises description and square footage
- Lease commencement date and expiry date
- Any renewal options (number, term length, rent determination method, notice deadline)
- Current base rent and rent escalation schedule (fixed steps, CPI, or market review)
- Operating cost recovery structure (gross, net, NNN, modified gross)
- CAM cap provisions (if any)
- Security deposit amount and current holder
- Permitted use clause
- Assignment and subletting rights
- Tenant’s rights to expand, contract, or terminate early
- Right of first refusal or right of first offer provisions
- Any landlord consent requirements
- Outstanding tenant improvement allowances owed
- Any outstanding landlord obligations not yet completed
Building this abstract before you finalize your purchase price gives you a clear picture of what you are buying and flags anything that requires negotiation with the vendor or additional legal review.
For more on lease abstracts as an ongoing management tool, see our companion article: Lease Abstracts for Commercial Landlords: What They Are and Why You Need One for Every Tenancy.
Key Lease Clauses to Scrutinize as a Buyer
1. Lease Term and Expiry Dates
The most fundamental question: how long do these tenants have left?
A building where all leases expire within 12 months of your acquisition is a very different investment from one with five-year terms remaining across all units. Lease expiry concentration — multiple leases expiring at the same time — creates vacancy risk and leasing cost exposure that should be reflected in your purchase price.
Look also for holdover provisions. If a tenant remains after their lease expires without a signed renewal, what happens? Under section 15 of the BC Commercial Tenancy Act, where a tenant wilfully holds over after the landlord has given written notice demanding possession, the statutory default is that the tenant must pay double the yearly value of the premises for the period of holdover. In practice, most modern commercial leases override this default with a contractual holdover clause — commonly providing for a month-to-month tenancy at 125–150% of the last monthly rent. Always check what your specific lease says, because the contractual term will govern over the statutory default.
2. Renewal Options — Terms, Notice Deadlines, and Rent Setting
Renewal options are valuable to tenants and create obligations for landlords. As a buyer, you need to understand exactly what renewal rights each tenant holds.
What to check:
- How many renewal options does the tenant have, and for what term each?
- What rent applies during the renewal period? Fixed step-up, CPI increase, or “market rent as mutually agreed”?
- When must the tenant give notice to exercise the option? A typical commercial lease in BC requires 6 to 12 months’ notice before lease expiry
- Is the option personal to the named tenant, or does it run with an assignment?
- Is the option conditional on the tenant not being in default at the time of exercise?
The rent-setting mechanism for renewal periods is where buyers most often find hidden value erosion. “Market rent as mutually agreed” sounds reasonable until you realize that if the parties can’t agree, the tenant may have a right to arbitration or to walk — or in a poorly drafted lease, to renew at the last agreed rent. A below-market renewal option on a long-term tenant can significantly reduce the property’s income over the holding period.
The notice deadline risk: If a tenant’s renewal notice deadline passes without proper exercise, the option lapses — and you may have a tenant expecting to stay and a landlord with the right to enforce expiry. This is genuinely litigated in BC. Know every notice deadline in your leases and put them in a calendar from day one.
3. CAM Recovery Structure and Caps
How operating costs are recovered from tenants has a direct impact on your net operating income and your exposure to cost increases.
What to check:
- Is the lease gross, modified gross, net, or NNN? This determines how much of your operating cost increases flow to the tenant vs. stay with you
- What specific costs are included in and excluded from the operating cost recovery?
- Does the lease include a CAM cap? A CAM cap limits how much the tenant’s operating cost contribution can increase year-over-year (e.g., capped at 5% annual increase on controllable expenses). In a building with rising insurance costs, strata fees, or maintenance expenses, a hard CAM cap means the landlord absorbs everything above the cap
- What is the base year? Some older gross leases recover only increases above a base year amount — if costs have risen substantially since that base year was set, the tenant pays the increase, but if costs drop and then rise again, the calculation resets in ways that may not favour the landlord
- Audit rights: Many commercial leases give tenants the right to audit the landlord’s CAM reconciliation within a specified period (often 12–18 months after the year-end statement is issued). Understand what obligations this creates for your record-keeping
For a detailed breakdown of CAM structures, see: CAM Charges in BC Commercial Leases — A Complete Guide for Landlords.
4. Right of First Refusal and Right of First Offer
These clauses give existing tenants preferential rights over adjacent or additional space — or in some cases, over the sale of the building itself.
Right of First Refusal (ROFR): If you want to lease a vacant unit to a new tenant, the tenant holding a ROFR on that space must first be offered the space on the same terms as the proposed new tenant. If they decline, you proceed with the new tenant. If they accept, the expansion is on those terms.
Right of First Offer (ROFO): When space becomes available, you must offer it to the ROFO holder first, before marketing it. The terms of the offer are negotiated between you and the tenant before you go to market.
ROFR on the building itself: Some commercial leases include a right of first refusal on the sale of the entire property. If you decide to sell, the tenant holding this right must be offered the property at the same price and terms as any bona fide third-party offer before you can complete the sale. This can complicate and delay a future sale significantly.
Identify every ROFR and ROFO in the building before you buy. These are not hypothetical — they affect your ability to lease vacant space quickly and your ability to sell the property in the future.
5. Assignment and Subletting Provisions
What happens if a tenant wants to assign their lease to a new business or sublet their space?
In most BC commercial leases, assignment and subletting requires the landlord’s consent, not to be unreasonably withheld. But the specific lease language varies considerably. Some leases:
- Allow the landlord to recapture the space rather than consent to an assignment (effectively terminating the lease and re-leasing on new terms — which could be good or bad depending on market conditions)
- Require the landlord to share any profit the tenant makes on a sublease above their base rent
- Make assignment rights personal to the original tenant and non-transferable
Understanding these provisions matters because tenant business changes — ownership succession, corporate restructuring, business sales — are common over the life of a commercial lease. A tenant who wants to sell their business needs to assign their lease. How that process works under your lease determines whether it’s smooth or contentious.
6. Personal Guarantees and Their Expiry
In BC commercial leases, particularly for smaller tenants, the landlord typically requires a personal guarantee from the individual owner(s) of the tenant business. The guarantee means that if the corporate tenant defaults, the individual guarantor is personally liable for the rent and obligations.
As a buyer, check:
- Does each lease have a personal guarantee, and from whom?
- Does the guarantee have a sunset clause — a date or event after which the guarantee expires? A guarantee that expires after the first three years of a ten-year lease leaves you exposed for the last seven
- Does the guarantee transfer to you as the new landlord, or does it expire on assignment of the landlord’s interest? This is a specific legal question that your lawyer should confirm
A lease with a creditworthy corporate tenant and no personal guarantee is a different risk profile from a lease with a financially marginal tenant where the personal guarantee of the owner is the only real security. Know what you have.
7. Demolition, Redevelopment, and Relocation Clauses
Some commercial leases — particularly in older buildings or properties where redevelopment is foreseeable — contain clauses that give the landlord the right to terminate the lease early for demolition or redevelopment. These clauses are generally landlord-friendly.
But some leases contain the opposite: tenant termination rights triggered by redevelopment plans or by a change in building ownership. If the new landlord triggers a clause by announcing redevelopment intentions, or if ownership change itself triggers a tenant’s right to exit, you could lose income unexpectedly.
Read every termination right in every lease carefully — both your rights and the tenant’s.
8. Tenant Improvement Obligations Still Outstanding
Did the previous landlord commit to completing tenant improvements, paying a tenant improvement allowance, or delivering the space in a specific condition — and not finish that work?
Outstanding TI obligations transfer to you as the new landlord. If the vendor promised a tenant $80,000 in TI allowance and paid $30,000 before you closed, you owe the remaining $50,000. This should be reflected in your purchase price or addressed through a vendor credit or escrow holdback at closing.
Ask specifically about any outstanding TI obligations before you close. Review lease commencement letters and correspondence between the vendor and tenants, not just the lease documents.
Red Flags That Should Change What You Pay
Some lease provisions don’t just create operational complexity — they materially affect the property’s value. Here are the situations that warrant a price renegotiation or at minimum a very clear-eyed assessment:
- Below-market rents with no escalation mechanism. A tenant paying $18/sf in a market where comparable space leases at $28/sf, with a fixed rent for the remaining four years and a renewal option at “market rent as mutually agreed,” is a real income limitation. The gap between in-place rent and market rent — sometimes called the “mark-to-market” opportunity — only materializes if the lease expires and the tenant either renews at market or vacates
- Hard CAM caps combined with aging building systems. A building where HVAC units are 15 years old, operating cost caps prevent meaningful recovery from tenants, and the leases still have five years to run is a property where you are likely to absorb significant unrecovered cost increases
- Concentration risk. One tenant representing 70% or more of the building’s income is a single-point-of-failure risk. Their financial health, renewal decision, and lease terms dominate the entire property’s performance. This is not necessarily a deal-breaker, but it should be reflected in the price
- Weak or expired personal guarantees on marginal tenants. A tenant whose business is financially fragile, with a guarantee that expires in 12 months, with four years left on their lease, represents income at risk
- Co-tenancy clauses. Retail leases sometimes include co-tenancy provisions that allow a tenant to reduce their rent or terminate if a key anchor tenant leaves the building or complex. These are most common in shopping centre leases but appear occasionally in smaller multi-tenant retail properties. If one tenant’s departure triggers another’s exit, vacancy risk compounds
- Rights of first refusal on the building itself. As noted above — a ROFR on the property in favour of a tenant complicates any future sale and may affect your financing options too
Your First Weeks as the New Landlord
Once you close, the transition matters. Tenants want to know who their new landlord is, how to pay rent, and whether anything is changing. Getting this right from day one sets the tone for the tenancy relationship.
- Notify tenants in writing immediately. Send a formal letter to each tenant advising them of the change of ownership, providing contact details for you or your property manager, and giving them updated rent payment instructions. Do this before the first rent payment falls due under your ownership
- Confirm security deposit transfers. Ensure every security deposit held by the previous owner has been transferred to you at closing, with proper documentation. These are tenant funds held in trust — they are not income, and you are responsible for them
- Audit the maintenance status. Walk the property with a fresh eye. Are there maintenance issues the previous owner deferred? Outstanding repair requests from tenants? Any work in progress? Document the condition of the property at the date of your acquisition
- Review and calendar all critical dates. From your lease abstracts, build a master calendar of every renewal notice deadline, rent escalation date, lease expiry, and CAM reconciliation deadline across all tenants. Missing a notice deadline — particularly a landlord notice deadline for rent setting on renewal — can have real financial consequences
- Engage a property manager before closing if possible. The transition to new ownership is the highest-risk period for tenant relationships and administrative continuity. Having a property manager in place who can handle the day-one communications, set up rent collection, and begin tracking the lease calendar from the outset is significantly smoother than onboarding a manager weeks after you’ve already been fumbling the transition yourself
For guidance on the management agreement itself, see: Questions to Ask Before Hiring a Commercial Property Manager in Greater Vancouver.
How RC-PM Works with New Commercial Property Buyers
We work with BC landlords at every stage of ownership — including buyers who are still in due diligence and want a property manager’s perspective on the leases they’re about to inherit.
Before closing, we can review lease abstracts with you, flag operational considerations that affect manageability, and help you understand what the day-one management picture looks like for a specific property.
After closing, we handle the full transition: tenant notification, security deposit documentation, rent collection setup, maintenance baseline assessment, and critical-date calendaring — so that the transition from the previous owner is professional and nothing falls through the cracks.
If you are considering a commercial property acquisition in Greater Vancouver and want a property manager’s view of what you’re buying, we’re happy to have that conversation. Book a consultation.
Have a Question Not Covered Here?
Have a question about buying a tenanted commercial property in BC that this guide didn’t answer?
Browse our FAQ for more details, or contact RC-PM directly — we’re happy to walk through the lease structure of a specific property you’re evaluating and what it means for your day-one management.
This article is provided for general informational purposes only and does not constitute legal or financial advice. Commercial lease review and property acquisition in BC involve complex legal and financial considerations, and the BC Commercial Tenancy Act applies alongside the specific terms of each lease. Always engage a qualified BC commercial real estate lawyer and appropriate professional advisors before completing a property acquisition. Read our full Editorial Disclaimer.
