If a gross lease does not contain a requirement for a tenant to pay for utilities, would any payments made by the tenant to an energy distributor be a qualifying rent expense under the s. 125.7(1) definition?
- CRA indicated that where the lease is “other than a net lease, only the gross rent paid by the tenant may be a qualifying rent expense,” so that “any payments made by the tenant for utilities will not be a qualifying rent expense,” even where the lease “contains a requirement for [the] tenant to pay for utilities.”
If a net lease requires a tenant to make payments for utilities directly to an energy distributor, are those payments qualifying rent expense?
- After noting that this definition can include an amount required to be paid under a net lease to a third party, such as an energy distributor, CRA indicated that “where a lease states only that a tenant is responsible for a certain cost … this would generally not constitute a qualifying rent expense.”
- For example, if the tenant under a net lease of premises in a shopping mall is required under the lease to pay its proportionate share of the HVAC, electricity, water, property taxes and insurance costs for the shopping centre initially borne by the landlord, such tenant payments would qualify. However, “if the net lease stated that the tenants were responsible for their own electricity, the amount paid by Tenant for electricity would not be a qualifying rent expense, whether it is paid to Landlord or to a third party, such as an energy distributor.”