McMillan's Commercial Leasing Group’s national scope and depth of expertise sets them apart

McMillan LLP’s Christina Kobi, chair of the firm’s Commercial Leasing Group, gives the lay of the land including legislative changes, common challenges, and how McMillan’s approach makes them a stand-out in the space.

Q: Can you tell me about the firm’s scope when it comes to commercial leasing? What does your practice, specifically, involve?

A: McMillan’s Commercial Leasing Group has national scope. We have eight people in Toronto, two in Montreal, three in the Western provinces, and three clerks with expertise in commercial leasing, and several of those people practice exclusively in this area — I’m one of them.

We act for both landlords and tenants, as opposed to focusing on one group or the other. We structure, prepare, and negotiate a full range of commercial lease documents across the sectors of industrial, retail, and office. 

The fantastic thing about having a large leasing group is that it makes it possible to draft and negotiate multiple leases for multiple clients concurrently and expeditiously, rather than firms who may have one or two lawyers who do leasing and there’s a queue. We can do everything at the same time, which is great for clients. There’s a lot of diversity, depth, and breadth in the group which makes it easy to allocate work at a cost-effective and desirable level.

I am Chair of McMillan's Leasing Practice Group, and over the past 27 years, I have specialized in all aspects of commercial leasing. My clients include developers, landlords, tenants, and property managers throughout Canada. I have expertise in sophisticated lease negotiation for landlords and developments of all sizes. I have expertise in drafting and negotiating all types of commercial lease documentation for various properties including retail, office, industrial, and multi-use. I’m based in Toronto, but I regularly assist with leasing matters in all Canadian provinces. Although, when it comes to Quebec, I seek assistance from our Montreal experts.

I am frequently called upon for lease interpretations and opinions, as well as strategic guidance on landlord-tenant disputes. I am a frequent contributor to industry and legal conferences and publications. In fact, I just spoke yesterday at The Eight-Minute Commercial Leasing Lawyer 2024 Conference series hosted by the Law Society of Ontario

For most of my career I have been heavily involved with ICSC (International Council of Shopping Centers) and have been on the law conference planning committee for approx. 12 years. In fact, this year I am Chair of the 2024 ICSC+Canadian Law Conference after serving as Vice-Chair last year. In the past I was quite involved with CREW (Commercial Real Estate Women), including a few years on the Toronto CREW Board of Directors.

Over the past 27 years, I have established strong connections with, and the respect of, other in-house and external lawyers in the Canadian leasing industry. These strong and long-standing peer relationships often help expedite lease negotiations and settlement disputes for my clients. I’m proud to be recognized in the 2024 Lexpert/ALM 500 Guide, Best Lawyers in Canada, and The Canadian Lexpert® Directory as one of the leading Property Leasing lawyers in Canada.

Q: What’s the “lay of the land” when it comes to commercial leasing in Canada?

Real estate has been quite volatile, especially the last three years, largely due to COVID and its impact on the labour force and supply chain as well as market uncertainty with inflation and interest rate hikes.

There have been notable changes and developments, for instance a significant uptick in office lease subleasing, which shouldn’t come as a surprise given the dramatic impact COVID had on the office sector. Resulting vacancies were experienced across the board, in all larger Canadian cities, but most obvious in Calgary where the vacancy rate was sitting at over 30% in 2020. Post-pandemic, company footprints have continued to drop due to hybrid work arrangements. These companies who are locked into lengthy commercial leases, understandably and not surprisingly, see subleasing as a viable option to help mitigate their losses.

Another example is during COVID, when office and retail leasing sectors were hurting, industrial leasing was white hot. Rents were going through the roof and it was an exciting time, but I’ve noticed certainly in the latter part of 2023 the industrial market slowed down somewhat, partly due to those inflation and interest rate issues.

Over the last five to ten years, redevelopment clauses in leases have been a hot topic and they continue to be one. They’re in most standard landlord lease forms and over the past decade, landlords started refusing to delete them when that used to be an easy give in negotiations. They’re reluctant to delete them because owners want flexibility so they’re able, and a future purchaser is able, to maximize the value of the property. They may want to expand the existing centre or increase density by adding residential towers, for example, but when a landlord is party to a lengthy lease without a redevelopment clause, their hands are tied and that has a negative impact on property value.

Another interesting trend is artificial intelligence as it’s a hot topic everywhere including the commercial real estate industry and the legal sector. Companies and law firms are always looking for new and exciting ways to create efficiencies in their business and their practice.

Most recently, recent legislative changes to the federal Competition Act are top-of-mind as we anticipate they will impact the leasing industry in a few ways. There’s growing anxiety about these changes as they pertain to anti-competitive agreements. This is concerning to commercial landlords and tenants, and though the conversation around this has mainly been about grocery stores — and that was presumably the impetus for the government to make these changes — it isn’t limited to that space.  We have prepared a bulletin to be followed up by a March webinar that will feature both the McMillan leasing and competition groups where we’ll do a deeper dive into the consequences and considerations for interpreting, negotiating, and drafting regarding these legislative changes.

Q: When acting for tenants, what are the top concerns you’re facing?

A: Canada has an interesting leasing landscape. When acting for tenants, the key challenge is the common power disparity between major landlords in Canada like Cadillac Fairview, OMERS and Oxford, Ivanhoé Cambridge, RioCan, and SmartCentres. Unless a tenant is an international retailer or a brand new, hot commodity that all the landlords are clamoring to get into their complex or the tenant has a huge financial covenant, it often feels like a David and Goliath negotiation.

These powerful Canadian landlords have many properties across the country and often resist changes to avoid setting a precedent not only with a single retailer or tenant, but so that it doesn’t get into the marketplace in the public domain and see future tenants asking for changes. Most US tenants and their counsel are shocked when they enter the Canadian market because the power dynamic is very different due to this landlord oligopoly. American tenants are used to a much more balanced negotiation and are often the ones with more bargaining clout and the landlords are willing to bend. Here, landlords usually reject US tenant demands for heavy-handed, contractual tenant protections like self-help rights, set-off rights, and tenant termination rights that the American tenants are used to getting.

That David and Goliath analogy spills over to various areas in the leases. For example, sometimes landlords demand very one-sided clauses like landlord termination rights on a demolition or redevelopment scenario or relocation clauses without the usual tenant protections many tenants would like to see. The even resist any sort of tenant reimbursement concept. Generally speaking, US landlords appear to be more willing to negotiate things like mutual, reciprocal releases and indemnities. Landlords here resist them. Whether you’re an American tenant or a Canadian tenant, you feel that power dynamic.

Q: How do you/McMillan manage these issues and what sets your approach apart?

We pride ourselves on finding creative solutions — and that’s critical in this environment, where you’ve got landlords resistant to change. You need to be practical and leave your ego at the door. Obviously, our job involves looking out for our clients’ best interest, but too many lawyers get caught up in getting the perfect lease or posturing for their client and in so doing actually jeopardize the deal which absolutely isn’t in their client’s best interest.

My approach as a mentor, in terms of coaching my team, is get the deal done expeditiously. To achieve that, you can’t just jump in without understanding the client, their business, and their hot buttons. When you understand what’s important for them — what’s critical about the timing of the deal, for example, and their plans for growth — you can make the judgment call and help educate the client on the difference between amendments that are nice to have versus need to have. That makes a big difference if a client needs to finalize a lease quickly to get possession and open by a certain date, you don’t ask for the world. You have to be selective and focus on the most critical issues.

For any amendments, which we have to drop to get the deal done or are refused by the landlord, we explain the risk to our client so they’re entering into the lease with their eyes wide open. But you can’t push for everything because it could jeopardize the deal or take too long. That’s the general approach I’ve imparted on my team.

Q: Looking forward, do you see these common challenges changing? Anything on the horizon that you’re keeping an eye on?

There’s no question that the influx of strong US tenants who have crossed the border over the last 20 years like Starbucks, TJX, and Amazon, have forced Canadian landlords to be more flexible in their lease negotiations and to an extent, that has somewhat trickled down to the smaller tenants. It’s taken a while but some of those changes they’ve agreed to are in the public domain and it’s harder to resist when we ask for them for a smaller tenant. It has made a difference, it has helped.

We are of course we’re keeping an eye on the Competition Act changes I mentioned and as for the rise of AI, in McMillan’s quest to remain competitive and at the cutting edge of technology, we’ve been actively exploring and assessing AI tools over the last year or so. I hear there are some exciting things happening internally — we’ll see how that plays out.