One business owner shares her story that highlights the need for more oversight

This is just one of many stories we were told where business landlord and tenant agreements have vastly negative impacts on the tenants. This one we could verify all the facts and it was the most straight forward, so we are confident in telling it.

When one of Muskoka’s most beloved businesses closed shop this summer in Bracebridge, it was not due to a lack of support from the community or customers.

Rather, it was due to commercial rental rules – or perhaps a lack of them – that gave the building owners carte blanche to create unconscionable lease conditions, demand ridiculous amounts of money, and basically force out the long-standing tenants.

Footprints on Muskoka had been renting their Manitoba Street space for several years. Though they still have their flagship store in Gravenhurst and another spot in Orillia, their Bracebridge space was a very successful and popular destination.

And it abruptly closed in the summer when the landlords gave Footprints on Muskoka owner Krista Mansour notice in June that they would not longer be tenants.

The worst part is Mansour was sent scrambling at the beginning of July (high season in Muskoka) to find a spot for all her extra inventory and having to layoff employees just as they were getting ready to bounce back to strong sales after slower years due to the pandemic.

This notice and subsequent closure was the result of months of back-and-forth that started in January when the owners of the building sent Mansour a letter stating that she owed $10,000 in additional rent and that their new monthly additional rent would be $953 on top of their regular rent going forward.

“I called them and asked, ‘what is going on? Where did this come from?’” recalls Mansour. “We were month-to-month at that point, the people had bought the building a year ago, after our lease had ended … they didn’t say anything about a new lease.”

By law, once a lease runs out the terms of the previous lease are followed on monthly basis until a new lease agreement is signed. That’s why the $10,000 bill and subsequent rental increase was so shocking – there were no warnings.

“We had asked, what’s happening and they said don’t worry about it, we’ll figure it out as we go and just pay your old rent,” says Mansour.

Then, the extreme increases came and she wanted answers as to what these funds were going towards. The building owners’ answer was a list that include property tax increase, snow removal, an admin fee, the property insurance, and then “common-ground fees.”

These are the types of items that can be added to “additional rent” and what usually happens is the amount is divided amongst any businesses renting space in a building based on the square footage occupied – in this case there are six business owners.

A COMMON OCCURENCE

Unlike for residential tenants, in Ontario a business’s rent can go up by any amount at the end of a lease or during a month-to-month agreement.  In fact, there are virtually no protections or standards for commercial renters at all.

According to a 2022 Better Way Alliance survey, over 75% of businesses have experienced a one-time rent increase of 10% or more; 20% of businesses have experienced a one-time rent increase of 50% or more; 10% of surveyed businesses have seen a one-time rent increase of 100% or more.

The Better Way Alliance (BWA) is a growing network of Canadian business owners that support ethical employment practices. The group launched Commercialrent.ca to create awareness and urge provincial governments to take the lack of regulation in commercial real estate seriously.

“Often we’ll hear from businesses like Footprints on Muskoka going through massive rent increases or in a deadlock with their landlords over unexpected fees. Unfortunately, they have no real options or leverage. Many tenants stay silent, so they don’t experience even further backlash from their landlord,” says Aaron Binder, BWA Director.

RED FLAGS

In regards to her former Bracebridge location, Mansour pointed out to the landlords that there are residential apartments on the upper level and asked if they were a part of this increase.

“They said, no, we can’t increase their rents because it’s residential,” he says. “I understand that you can’t increase their rents, but that is your business so that percentage should be included in the sharing of common expenses. They gave me a bit of push-back on that one.”

Mansour then asked for a full disclosure of her percentage on each of the items and an explanation of why she was being asked to pay so much. She was told they didn’t have to provide that information.

Those who are operating in good faith and doing business the right way should be providing those breakdowns and percentages … even if it’s not legally required.

“As soon as that happened, it was a red flag,” says Mansour. “The property manager was pushing me, asking, ‘are you agreeing to the terms, are you agreeing to the terms?”

She insisted that she wanted to see a proper lease agreement proposal. Eventually in May, that agreement proposal was sent … in the lease proposal, it had operating costs as common areas.

Operating costs in this case include bricks, roofing, landscaping, driveway, property maintenance, property manager fees and benefits, and much more.

“(The list) was so long it wasn’t even funny,” she says. “Also, in the lease, it was said they would be responsible for all financial obligations regarding the building … if there was a flood, we would be responsible for it.”

These types of leases make more sense for large corporations who take over entire buildings, not small businesses that are in a building with multiple other businesses.

Mansour and her husband spoke to a lawyer and then tried to negotiate a more reasonable agreement that included who was responsible for each item – including renovations and architectural drawings.

In each case, they were told they would be responsible for everything, and the lease named Mansour and her husband personally as well as the business, Footprints on Muskoka Inc.

“You incorporate to protect personal assets,” says Mansour. “I’m a good tenant, I pay my rent, I take care of the building. Why do you need my personal credit? It scared me like crazy.”

Feeling a lot of tension in the situation, Mansour paid her rent early to get through June. This included the additional rent increase due to a notice that was given, but not the $10,000 which eventually was “forgiven” because there was no legal standing for it.

When they wouldn’t sign the new five-year lease with all the “extras,” Footprints was given their notice.

Mansour went looking for a new place to rent to replace the closed Bracebridge location, she found there were many landlords (particularly one in Huntsville and another in Port Carling) who were transparent about what the total costs would be and provided itemized lists of what maintenance and other costs she would be responsible for.

Unfortunately, the rent was a little too high for her budget so they decided to just focus on their Gravenhurst and Orillia locations as well as doing markets throughout the summer.

LETTER TO THE COMMUNITY

“We asked if we could stay through the summer and pay their additional rent, but they said, “no we have plans for the building,” explains Mansour. “I’ve had so many comments from the Muskoka community upset about my store closing on a Facebook post I made explaining what happened to us.”

That Footprints on Muskoka post (from July 2023) is as follows:

It is with great sadness that we announce the closure of our Bracebridge location as of July 26.

Our lease agreement had expired and after many months of trying to negotiate a new lease agreement we were unsuccessful. We were offered a substantial “additional rent” increase and unreasonable terms, which as a small business owner we could not afford. Our store values have always been to have affordable prices which we would not be able to maintain with the rent increase.

We were given notice of July 26th exit and asked for an extension for the month of August to help us with the summer sales. The landlord declined the extension.

We continue to search for a new location in Bracebridge but have not found a location suitable for our store layout. We have a strong, dedicated customer following and we value the relationships we have formed with our customers and business owners on the street.

Our Gravenhurst and Orillia stores will remain open. We will be launching a new website platform for online ordering in the next week which will offer a new selection of Muskoka sweatshirts/tshirts. Please sign up on our website for email information for our new location notification. We hope our loyal customers will continue to shop at our other locations and online until we have a new Bracebridge location.

Our Bracebridge store has dedicated staff who give amazing service to all of our customers. I cannot thank them enough for everything they have done to help grow our business. They are not only friends but family.We will be starting to liquidate our stock starting next week at the Bracebridge location.

Though not having found a new location in Bracebridge due to the short notice provided and huge rent demands of most landlords, support from their loyal customers remains and they have landed on their feet.

Still, this story – and there are many more like it or worse – should serve as a cautionary tale for all businesses looking to enter lease agreements. Beware of the fine print, get legal advice on the nuances of any legally binding rental agreement before signing, and make sure the landlord you are dealing with is up front and transparent about what each party is responsible for.