REVIEW OF A COMMERCIAL OFFICE LEASE FROM A TENANT'S PERSPECTIVE

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1 CANADIAN BAR ASSOCIATION BUSINESS LAW BOOT CAMP: BASIC TRAINING MARCH 28, 2007 REVIEW OF A COMMERCIAL OFFICE LEASE FROM A TENANT'S PERSPECTIVE BY DEBORAH A. WATKINS OF DAOUST VUKOVICH LLP 20 Queen Street West, Suite 3000, Toronto, Ontario M5H 3R3 Tel: Fax: Web:

2 The following is a checklist of matters to be considered from a Tenant's perspective in reviewing a "net" offer to lease or lease for office premises. This checklist is not exhaustive; however, it covers the critical elements of most office leases. In certain cases, suggested language for amendments that a Tenant might request of its Landlord has been included. 1. BUSINESS TERMS Verify the following: (d) (e) (f) Commencement Date In order for the lease to be enforceable, this date must be clearly ascertainable. Frequently an outside future date that is some significant amount of time in the future is stipulated. Term If possession is delayed through no fault of the Tenant, is there a rent abatement? damages? a cancellation right? Fixturing Period/Rent Free Period the fixturing period should be of specific duration, and ideally should not be shortened simply because the Tenant opens for business. Review the rent or other amounts payable during the fixturing period and note that only utilities should be payable and all other rent should neither accrue nor be payable. Premises (i) The area of the Premises should be certified if rent is paid on a per square foot basis. It should be certified at the Landlord's cost by a qualified professional typically an architect or land surveyor. By what standard is the area determined? BOMA standard (an acronym for Builders, Owners and Managers Association) is recognized by ANSI (American National Standards Institute), and is widely recognized and used in the office sector. (ii) Typically, office lease forms reflect a gross-up (e.g. BOMA method) from Useable to Rentable Area as a percentage. This "gross-up" includes in the calculation of the area of the Premises a portion of only certain common areas (e.g. corridors, washrooms but not elevator shafts). The Tenant pays Basic Rent (and Additional Rent) on the "grossed-up" rentable area of the Premises. BOMA 1980 (a.k.a. BOMA 1989, 1990, 1991) is less financially onerous to a Tenant than BOMA Consider capping the area and/or the gross-up factor, and therefore the rent (more important in the context of "yet to be built" space). Basic Rent - annual amount? Based on an amount per square foot? Frequency of payment (monthly, annually?) Additional Rent in order to get a fix on costs, obtain a cap or at the very least an estimate on a rate per square foot basis. (Ensure the estimate includes operating costs, realty taxes, and utilities). Obtain an estimate for year 1, attempt to incorporate this as a "representation" or, alternatively, include language to the -2-

3 effect that the estimate is provided on a bona fide basis with an acknowledgement that it is being relied on by the Tenant. 2. TAXES Review the definition of Realty Taxes. The following represents exclusions from the definition that are typically acceptable to Landlords: Notwithstanding anything contained herein to the contrary, Realty Taxes shall not include any inheritance, estate, succession, transfer, gift, franchise, business, capital tax, large corporations tax, or any income taxes arising out of or related to ownership and operation of income-producing real estate or other taxes personal to the Landlord or any penalties or interest relating to the late payment by the Landlord of Realty Taxes or other taxes. The exclusion of Capital Tax is often a hotly negotiated item. Note that it is a tax that is scheduled to be phased out. Further, courts have held that it is not a tax in the nature of realty tax and is more in the nature of a personal tax of the Landlord. 3. LANDLORD'S CONTROL OF PROJECT The Landlord should be required to manage the building or project in "first-class manner." Standard lease forms often contain a right on the Landlord's part to relocate Premises. The Tenant should delete this provision or, at the very least, amend it so that the Landlord's right is subject to: obtaining the Tenant's consent; the relocated premises being reasonably similar to the original premises in terms of area; all aspects of the relocation taking place at the Landlord's sole cost; a statement that the Tenant will not be required to close the original premises until it is open and operating in the new premises; compensation to the Tenant for any undepreciated capital costs of any leasehold improvements. Limit the Landlord's rights in dealing with common areas so that Landlord does not unreasonably interfere with Tenant's conduct of business, or interfere with the Premises. Sample language: Notwithstanding anything to the contrary, the Landlord warrants that the changes, additions or alterations made by the Landlord pursuant to this Section or any other sections or provisions of this Lease which give the Landlord similar rights shall not unreasonably interfere with access to the Premises, or unreasonably interfere with the conduct of Tenant's customary business. All of the obligations of the Landlord will be performed in accordance with accepted first- -3-

4 class development practices throughout the Term of this Lease, the Landlord recognizing that all of the Common Areas must be available at all times in first-class order and condition, to serve the Tenant's customers, employees and invitees. There will be no change whatsoever in the location, shape, or dimensions of the Premises. In addition, the Landlord agrees that any entry by it into the Premises to make repairs, or otherwise, or any action or work by the Landlord in the Common Areas will be done expeditiously and in such manner so as not to unreasonably interfere with the conduct of normal business operations by the Tenant. (d) If parking is crucial, specifically address the number of spaces to be for the Tenant's (exclusive) use, the location of the parking spaces (whether interior or exterior surface parking) and the rate per stall. Ensure that the Landlord covenant with the Tenant for quiet enjoyment. 4. OPERATING COSTS Most net leases will contain a specific provision which states that the lease is "net" to the Landlord. This means that the tenants of the building shoulder the entire burden of the costs of operating the project. In order to limit the burden of these costs, the net lease clause should be amended to specify that the lease is net "except as otherwise specified in this Lease". The definition of Operating Costs must be reviewed closely. Most clauses specify that Operating Costs "include but are not limited to" the costs set out in the definition. Ideally the list of Operating Costs should be exhaustive so that the costs the Tenant faces are quantified; however, another way to limit the costs is to amend the definition so that it lists costs "without duplication and without profit to the Landlord". Depending on the size of the space being leased, as well as the relative bargaining power of the Landlord and Tenant, it might be possible to negotiate some or all of the following specific deductions or exclusions from Operating Costs: (i) (ii) (iii) (iv) the amount of proceeds of insurance recoverable by the Landlord in connection with Operating Costs; any recoveries received by the Landlord from other tenants in the Project (other than recoveries of Operating Costs from tenants under the usual net lease clauses) or other persons; any recoveries derived from charges, if any, made for use of the parking facilities of the Project; net proceeds received by the Landlord from warranty claims in respect of any construction of the Project. -4-

5 The Tenant should also attempt to negotiate the exclusion from Operating Costs of the following: (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) (xvi) (xvii) any costs and expenses incurred as a result of faulty construction or design, improper materials or workmanship or structural defects or weaknesses in respect of the Premises or the Project; any costs of maintenance, repairs or replacements to the structural portions or elements, including, without limitation, the outside walls and structural roof deck, of the Premises and the Project; any capital costs (in accordance with generally accepted accounting principles); any costs incurred as a result of the existence or removal of contaminants and hazardous substances from the Project other than as a result of any act or omission of the Tenant or those for whom the Tenant is in law responsible; any ground rentals, and any principal, interest or other carrying charges or mortgage payments or other financing in respect of the Project; costs arising from or occasioned by the acts, omissions, default or negligence of any person other than the Tenant; costs relating to the leasing of space or premises in the Project including leasing commissions and advertising costs; all fines, suits, claims, demands, actions, costs, charges and expenses of any kind for which the Landlord is or may become liable by reason of any breach, violation or non-performance by the Landlord or those for whom the Landlord is in law responsible of any covenants, contained in this Lease or by reason of any negligent act or omission to act on the part of the Landlord or those for whom it is in law responsible; any costs incurred in enforcing or remedying the obligations of other tenants of the Project; all costs which are expressly set out in the Lease as the obligation of the Landlord; any costs incurred by the Landlord in renovating or upgrading the common areas and facilities; the cost of repairing other tenants' premises in the Project; any costs associated with surplus lands retained by the Landlord for the purposes of future development; -5-

6 (xviii) any costs of administration, auditing, insurance and reporting associated with the Landlord's mortgages and/or ground leases; (xix) (xx) (xxi) any consultants' costs, including legal fees; any costs of repairs for which third parties are responsible pursuant to reciprocal easement agreements; and administrative or management costs and expenses in excess of fifteen percent (15%) of Operating Costs. (d) (e) (f) In an office context, the concept of "grossing-up" comes into play in connection with Operating Costs. In order to deal with those situations where an office building is only partially occupied, the lease will usually provide for a gross-up of Operating Costs above actual costs, to the amount that the Landlord estimates would be incurred if the Project were fully occupied. For example, if the Tenant were the only tenant in an otherwise substantially vacant office building such that the only janitorial services needed for the building (other than in respect of the common areas) were those for the Tenant's Premises, it would be unfair for the Tenant to pay only a proportionate share of the janitorial services. The grossingup of the janitorial services to an amount that would equal the total for a fully occupied building (to which the Tenant's Proportionate Share is subsequently applied) is a mathematical means of bringing about a fair result. Some common expenses are inappropriate for grossing-up, such as insurance and, to some extent, the costs of personnel carrying out administrative or property management functions. Attempt to exclude the levy of any administration fee (the fee imposed by the Landlord to cover head office costs of providing administrative services for the project) on realty taxes, insurance premiums, depreciation, interest or the administration fee itself. In an office context, the fee typically amounts to 3% - 5% of gross rentals from the Project. Also, ensure that there is no "double-billing" for an administrative fee and the fees charged to the Landlord by a property management company. The courts will allow both charges to be recovered but only if the Lease so specifies. The Landlord should provide the Tenant with an annual statement setting out (i) all Additional Rent for the project in respect of the fiscal year and (ii) the Tenant's proportionate share of the Additional Rent. Ideally, the statement provided by the Landlord should be audited by an independent accountant or, at the very least, certified by a senior financial officer of the Landlord. Furthermore the statement must be delivered to the Tenant within a reasonable time (i.e., 90 or 120 days) after end of the fiscal year. If the Tenant has sufficient bargaining clout, negotiate a right to examine/inspect, or possibly audit, a Landlord's books and records in order to confirm that all Additional Rent charges are proper. Sample language: -6-

7 Within ninety (90) days after the end of each Lease Year, the Landlord will deliver an audited statement setting out in detail all costs included in and every other item of Additional Rent payable by the Tenant, including without limitation Realty Taxes. The Landlord shall keep all its books and records relating to the Additional Rent including Realty Taxes for a period of three (3) years from the date of delivery of the statement and the Tenant shall be entitled to have access to such records upon reasonable notice to the Landlord, for the purposes of examining them and verifying the actual amount of Operating Costs and other Additional Rent including Realty Taxes items for the period covered by the audited statement. 4A. OTHER COSTS Other costs should also be analyzed. For example, the utilities consumed in Premises should be reviewed to determine how consumption is measured and what costs will be included (e.g. professional consultants/engineers fees and/or administration fees); HVAC costs operating charges, facilities charges (e.g. depreciation), administration/ management fees; plan approval/tenant coordination fees and hoarding charges all represent amounts typically collected by Landlord. At the very least, a Tenant should understand how these charges will be charged. In particular, with regard to utilities, the Tenant should not pay a premium simply because the Tenant receives its utilities through the Landlord. Sample language: The charge for utilities that Tenant will pay will be the amount which Tenant would pay for such utilities if the same were billed directly to Tenant by the local utility company at the utility company's current retail rates. 5. USE CLAUSE AND CONTINUOUS OPERATION CLAUSE The use clause should be as flexible and expansive as possible. A broad use clause contributes to the Tenant's flexibility to transfer its lease. "General office" uses is usually adequate, although any "legal" use provides greater flexibility. Look for the Tenant's obligation to "continuously, actively and diligently" operate its business in the Leased Premises and attempt to delete it. The continuous operating covenant is less of an issue in office leases than in retail leases. 6. INSURANCE Often leases will require the Tenant to name the Landlord as a named or additional insured on all of the Tenant's policies. With respect to the Tenant's property damage insurance policy, there is not always a reason to include the Landlord as an insured. Property owned exclusively by the Tenant (e.g. inventory, furniture and equipment) should be acknowledged as not subject to the additional insured -7-

8 endorsement, since it is not property in respect of which the Landlord has an insurable interest. Landlord's Insurance - include a positive covenant on the part of the Landlord to insure and specify the types and amounts of insurance. This will ensure that the Landlord has funds with which to rebuild and the premiums in the case of a fire or other casualty. Sample language: The Landlord will maintain, at its expense, "all risks" property insurance upon the project, all structures, all installations, alterations and partitions located in the project (excluding leasehold improvements, the Tenant's inventory, furniture and trade fixtures) in an amount equal to the full replacement cost thereof, including loss of rental income insurance (in an amount sufficient to provide coverage for a period of not less than twelve (12) months) and, if applicable, broad form boiler and machinery insurance on a blanket repair and replacement basis with limits for each accident in an amount not less than the full replacement cost of all boilers, pressure vessels, air-conditioning equipment and other electrical apparatus serving all or any part of the project. The Landlord shall also maintain comprehensive general liability insurance, including contractual liability coverage insuring the Landlord's obligations under this Lease. Such liability insurance shall have inclusive limits of not less than $5,000,000 per occurrence (or such higher limits as would be reasonable in relation to the nature of the project and Landlord's activities therein). The typical allocation of risk system in a net lease completely releases the Landlord. Usually the Landlord is also indemnified by the Tenant with respect to any occurrences at the Premises. The Tenant should ask the Landlord to release the Tenant for claims against the Tenant if the Landlord has insurance regardless of negligence. Sample language: The Landlord covenants that all insurance policies taken out by the Landlord hereunder or otherwise, will be endorsed with a waiver of any subrogation rights that its insurers may have against the Tenant and those for whom the Tenant is in law responsible, and will contain an acknowledgment that notice of any release or waiver by the Landlord of any right of recovery against the Tenant and those for whom the Tenant is in law responsible is received and accepted by the Landlord's insurers. The Landlord releases and waives any and all claims against the Tenant and those for whom the Tenant is in law responsible with respect to occurrences required to be insured against by the Landlord hereunder or otherwise insured against by the Landlord, whether any such claims arise as a result of the acts, omissions or negligence of the Tenant or those for whom the Tenant is in law responsible. The parties acknowledge -8-

9 and agree that the Tenant is deemed to be acting as agent or trustee on behalf of and for the benefit of any and all parties for whom the Tenant is in law responsible and that each and every covenant, agreement, acknowledgment, waiver or release contained herein is for the benefit of and is available to any and all parties for whom the Tenant is now or may hereafter be in law responsible. 7. MAINTENANCE AND REPAIRS Review the Tenant's repair obligations relating to the Premises and exclude from the Tenant's responsibility the following: (i) (ii) (iii) (iv) (v) (vi) reasonable wear and tear; casualties required to be insured against by the Landlord; structural repairs and repairs resulting from structural defects or weaknesses or improper materials or workmanship or faulty construction; repairs or maintenance that the Landlord is obligated to effect under the Lease; repairs or maintenance resulting from the negligence or wilful acts or omissions of the Landlord; and capital repairs or replacements. Consider the necessity of warranties being assigned to the benefit of the Tenant, i.e. if Landlord performs pre-term work as an inducement or if the Tenant inherits the benefit of existing improvements but the lease assigns the responsibility for the repair and maintenance of them to the Tenant. Most leases contain onerous restoration obligations. Typically, the Tenant is to remove all of its trade fixtures and leasehold improvements from the Premises at the end of the Term. This obligation can represent a very significant cost item. Ideally the Tenant should delete any obligation to restore Premises at end of Term, or consider limiting the restoration obligation. Sample language: The Landlord acknowledges that this Lease does not contain any obligation on the part of the Tenant to restore the Premises to the condition that the Premises were in prior to the Tenant's Work, if any, being performed. (d) Landlord's repair obligation Often leases are silent with respect to covenants on the Landlord's part to maintain the project. Leases should be amended so that the Landlord covenants to maintain the project and the Premises to a first-class -9-

10 standard and to make all structural repairs or those repairs that are specifically excluded from the Tenant's obligation to repair in above. Also, the Landlord's repair obligation on damage and destruction should be specified. In situations where the Tenant has concerns about the Landlord's ability or willingness to carry out the repairs or replacements, the Tenant should consider a self-help right if and when the Landlord fails to make the repairs or replacements. Sample language: Except for repairs and replacements that Tenant must make under this Lease, Landlord shall make all other repairs and replacements to the Premises, Common Areas and the project (including building fixtures and equipment). Landlord shall make the repairs and replacements to maintain the project in a condition comparable to other first class buildings in the area. This maintenance will include, but not be limited to, the roof, foundation, exterior walls, interior structural walls, all structural components and all systems, such as mechanical, electrical, HVAC, and plumbing. If Landlord fails to make repairs within fifteen (15) days after the receipt of Tenant's written notice unless the nature of Landlord's obligation is such that more than fifteen (15) days are required for its performance and Landlord commences performance within the fifteen (15) day period and thereafter diligently pursues the cure to completion, the Tenant may, at its option, make such repair or replacement and deduct the costs thereof from the installments of rent next falling due, seek the remedy of specific performance, and/or money damages for any loss or damages arising from Landlord's failure to discharge its obligations under this Section. Any such undertaking by the Landlord under this Section will not in any way materially or unreasonably affect or interrupt Tenant's use, business or operations on or decrease access or visibility of the Premises. 8. DAMAGE AND DESTRUCTION Rent (both Minimum and Additional) should abate if Premises is rendered untenantable. The rationale for abatement is that the Landlord has proceeds of insurance available to it to cover the rent that would otherwise be payable and the Tenant has paid for the benefit of this insurance through its contribution to Operating Costs. Termination rights should be available to the Tenant. Sample language: Notwithstanding anything to the contrary, if there is damage or destruction to the Premises or the project, Tenant will have the right to terminate this Lease under the following conditions: the damage renders the Premises insufficient for Tenant's use in Tenant's reasonable business judgment; the damage is such that the Premises cannot be (or are not) restored within one hundred and sixty (160) days from the date of damage; damage -10-

11 or destruction is caused by a peril not required to be insured against hereunder; or (d) the damage or destruction occurs during the last two (2) years of the Term (or any Renewal Term) and Tenant has not previously exercised any option rights it may for succeeding renewal terms. However, if the termination rights are not reciprocal and thus only available to the Landlord, the lease should provide that the Landlord will not terminate the Tenant's lease unless a certain percentage of all other tenants of the project are also terminated, so as to guard against arbitrary termination of the Lease by the Landlord. Sample language: The Landlord will exercise its right set out in this Section acting reasonably and bona fide and not in a manner discriminating against the Tenant and not solely for the purpose of depriving the Tenant of its rights under this Lease. The Landlord's right to terminate this Lease is only exercisable if the Landlord shall concurrently with the cancellation or termination of this Lease, also terminate 85% of the leases and occupancies, as the case may be, of all of the other tenants in the Project. 9. TRANSFER Is the Tenant prohibited from assigning the Lease or subletting the Premises without the prior written consent of the Landlord? At the very least, the lease should clarify that Landlord's consent may not to be unreasonably withheld, conditioned or unduly delayed. Standard form leases should be amended so that the Landlord's consent is not required for certain types of transfers. For example, Landlords often agree to permit a Tenant to assign the Lease or sublet the Premises without the Landlord's consent in the case of certain inter-corporate transfers and other typical transfers. Sample language: Notwithstanding anything to the contrary, the Tenant will be entitled to assign this Lease or sublet the whole or any part of the Premises, without the Landlord's consent, to (1) a subsidiary, parent or affiliated corporation of the Tenant (within the meaning of the Business Corporation Act of Ontario); (2) a corporation formed as a result of a merger or amalgamation of the Tenant (within the meaning of the Business Corporations Act of Ontario) with another corporation; (3) a bona fide lender pursuant to any financing in connection with the Tenant's general business operation; and (4) a business entity to which the Tenant may sell all or substantially all of its assets or shares. -11-

12 (d) (e) (f) Change of corporate control restrictions should not apply if the Tenant is a publicly traded corporation or a subsidiary of a publicly traded corporation. Frequently, office leases permit a Landlord to terminate the Lease if the Tenant submits a request for consent to a transfer. Consider deleting the Landlord's option to terminate the Lease rather than consent to a transfer. (The competing position here is that the Tenant will be released from the covenant if the Landlord elects to terminate the Lease which may be more desirable to the Tenant.) Review all conditions of granting consent. If the conditions include the Landlord's right to take for itself any excess in rent negotiated by the Tenant with a transferee over the contract rents, attempt to delete this, or, consider settling for a sharing on a basis (or other share), but only after deducting the Tenant's out of pocket costs of re-letting, including any advertising costs, real estate commission, legal fees, bona fide rent free periods, tenant allowances and remodelling costs. Payment of the Landlord's legal fees and/or administration fees in connection with consenting to any transfer should be deleted or, at least, capped. Typically, legal costs will be capped in the range of $ to $1,000.00, and to no more than $ to $ for a Landlord's administrative fees. 10. DEFAULT The Lease must be amended so that the Tenant receives written notice from the Landlord before the Landlord may enforce any of its remedies. Most Landlords will agree to provide the Tenant with ten (10) days' written notice of the Tenant's failure to pay rent and fifteen (15) days' written notice for failure to perform other covenants. If the Tenant has bona fide commenced to remedy the default during the notice period and thereafter, the Landlord should not be entitled to terminate the Lease. In situations where there is concern that the Landlord may not perform its obligations under the Lease, consider a Tenant self-help provision. (This is after a difficult provision to negotiate successfully). Sample language: Notwithstanding anything to the contrary, if the Landlord fails to observe or perform any of its covenants, obligations, warranties, representations or undertakings contained in this Lease, and the breach continues for thirty (30) days after the Tenant gives the Landlord written notice thereof, the Landlord will be in default (the "Landlord Default") under this Lease. If there is a Landlord Default, the Tenant may perform or satisfy the obligation, covenant, undertaking, warranty or representation on behalf of and at the expense of the Landlord, and the Landlord will reimburse the Tenant for all costs incurred by the Tenant incurring the Landlord -12-

13 Default, together with interest, within fifteen (15) days of receipt of any request for payment. The aforesaid unpaid amount shall bear interest from the due date to the date of payment at an annual rate of three (3) percentage points above the prime rate, calculated and compounded monthly. [Need to insert the following if the Lease does not contain the concept of prime rate: The "prime rate" shall mean the annual commercial lending rate of interest that the Bank of Nova Scotia [or any other named bank] quotes from time to time at is principal office in Canada as the basis upon which effective rates of interest are calculated for Canadian dollar loans made in Canada to its commercial customers.] If the Landlord fails to reimburse the Tenant within such time period, the Tenant may deduct such sums from Rent until the Tenant has been fully reimbursed. 11. OTHER General consent clause the Landlord should be reasonable in its actions in relation to all decisions, consents, opinions, allocations, estimations. Sample language: Wherever in this Lease the consent or approval is required of the Landlord, its architects, engineers, auditors or any other similar person, such consent or approval will not be unreasonable withheld or unduly delayed, and shall be deemed to be given unless within fifteen (15) days after the request for consent or approval is made the person whose consent or approval is sought notifies the Tenant in writing of its refusal and its reasons therefor. The Landlord, and each person acting for the Landlord, in making a determination, decision, designation, calculation, estimate, conversion, or allocation under the Lease, will act reasonably, bona fide and in good faith and each accountant, architect, engineer, or surveyor, or other professional person employed or retained by the Landlord, will act in accordance with the applicable principles and standards to the person's profession. (d) Resist giving any form of indemnity or guarantee. If it cannot be avoided, consider limiting its application to a period of time, for example, the first year of the Term. Limit or delete the amount of any security deposit. Ensure there is both a right to register a notice of lease and an obligation on the part of the Landlord to obtain a written non-disturbance agreement from any encumbrancer. Sample language for the non-disturbance provision: The Landlord will obtain a written non-disturbance agreement under seal from any mortgagee, ground lessor or other encumbrancer of -13-

14 the project who has, or may in the future have, priority to the Tenant's leasehold interest in the project. Such non-disturbance agreement will provide that notwithstanding the exercise of any rights by any such mortgagee or other encumbrancer, so long as the Tenant is not then in default, the Tenant will be entitled to remain undisturbed in its possession of the Premises, on the terms and conditions of this Lease. The Tenant will not be required to subordinate or postpone the Lease nor to attorn to any mortgagee, ground lessor or encumbrancer unless the Landlord has obtained such non-disturbance agreement. (e) Rules and regulations that the Landlord incorporates into the lease should not conflict with the express terms of the Lease nor should they require payment of extra amounts. Sample language: All rules and regulations will be equally applicable to all tenants. The Lease provisions will control and supersede any contradictory or inconsistent provisions contained in the rules and regulations. Landlord will provide reasonable advance notice of any modifications or additions to the rules and regulations, and such modifications or additions will not materially, or unreasonably interfere with the Tenant's conduct of its business or the Tenant's use or enjoyment of the Premises, and will not require payment of additional rent or the incurring of any other costs and expenses. (f) The Tenant should obtain a covenant from the Landlord to ensure that all hazardous substances are dealt with appropriately: Except in full compliance with applicable environmental laws and Applicable Laws, the Landlord agrees not to cause or permit any Hazardous Materials to be brought onto, created in, released or discharged from, placed or disposed of, at or near the Premises, the project and the lands forming part of the project. The Landlord will be responsible, at its sole cost and expense for all costs of cleanup, removal, spill, discharge or seepage of any Hazardous Materials not in compliance with Applicable Laws (i) arising out of or in any way connected with any deposit, spill, discharge or other release of Hazardous Materials in the project (other than those deposited, spilled, discharged or released by the Tenant); and (ii) existing in the Premises, the project and the lands forming part of the project on the commencement of the Fixturing Period. -14-

15 The Landlord will indemnify and save harmless the Tenant from all claims, actions, costs, losses, damages and expenses incurred, arising out of or in any way connected with any deposit, spill, discharge or other release of any Hazardous Materials to the extent caused by the act, omission or negligence of the Landlord or those for whom it is in law responsible. -15-