Commercial Leasing Hints to be Used

Commercial Leasing Hints to be Used

Ontario’s Real Property Limitations Act

In McConnell v Huxtable (2014 O.J. No. 477), the Ontario Court of Appeal held that the ten-year limitation period outlined in Section 4 of Ontario’s Real Property Limitations Act applies to constructive trust claims that seek an interest in real property as they are “action(s) to recover land”.

The ruling also clarifies that the two-year limitation period of the Ontario Limitations Act, 2002 applies in unjust enrichment claims involving interests in assets not made up of real property, as well as for equitable claims generally, unless they are subject to a specific statutory exemption.

The result is that two different limitation periods will now apply to claims for unjust enrichment, depending on the nature of the property sought. Property such as pensions, shares and businesses will be subject to the two-year limitation period.

Good Faith

The Supreme Court of Canada released its landmark decision, Bhasin v Hrynew, 2014 SCC 71, in November of 2014 in which it held that, at common law, there is an organizing principle of “good faith” and an underlying duty of “honesty” in contract performance.

Restrictive Covenants

A tenant leased space in a shopping centre which provided that no other tenants would be authorized to sell, exchange and purchase new and used video games in the shopping centre. The landlord’s representatives informed the tenant that the landlord was about to lease space near the shopping centre to a major video store chain, which intended to operate a boutique specializing in the sale, exchange and purchase of new and used video games. The tenant brought a motion for declaratory judgment and permanent injunction, claiming that the landlord had violated the tenant’s restrictive covenant. The trial judge agreed and held that the landlord had violated the tenant’s restrictive covenant by leasing space in a shopping centre to a direct competitor of the tenant. The trial judge ordered the landlord to take the necessary steps to prevent the other video store chain from operating its boutique in the shopping centre. The landlord appealed; the appeal was dismissed, and the Quebec Court of Appeal agreed that the trial judge’s order should be upheld.

Renewals

While our courts continue to insist on strict adherence to the wording in a renewal provision in a lease, they may be inclined to relax the requirements where the conduct of the parties suggest it would be appropriate to do so.

A recent example is the 2007 case of Towcon Holdings Inc. v Pinnacle Millwork Inc. In it, the tenant had an option to renew its lease upon six months’ written notice provided it was not in default. The court found that the relations between the tenant and the former landlord had been informal, and that the tenant was not required to exercise the renewal option in writing. The court held that the conduct of the parties served to alter the express terms of the lease and the court concluded that the tenant had in fact exercised its option to renew for five years without the necessity of written notice. The landlord’s acceptance of rent amounted to a confirmation that the lease had been renewed.

But beware –the overwhelming amount of cases pertaining to renewal confirms that courts will strictly comply with the wording of the renewal provisions.

Trespass

A surrender clause in a lease required the tenant to deliver vacant possession of the premises at the end of the lease. The tenant, however, did not vacate but remained in possession of the premises despite the landlord’s notice to quit.

The application judge found that the tenant was an overholding tenant under the lease, and was therefore on a month-to-month tenancy and had been wrongfully locked out from the premises by the landlord.

The Ontario Court of Appeal held that although the overholding clause provided that a month-to-month tenancy would arise, the provision did not refer to the consent of the landlord. Without that consent, the tenant was bound by the terms of the surrender clause. The tenant was not unilaterally entitled to remain in the premises and no new tenancy was created. Having refused to deliver vacant possession of the premises at the end of the term of the lease, the tenant therefore became a trespasser.

The Ontario Court of Appeal allowed the landlord’s appeal, set aside the application judge’s order and dismissed the application with costs to the landlord.

Breach of Covenant for Quiet Enjoyment?

The British Columbia Court of Appeal allowed an appeal from a trial judge’s finding that a “creosote-like odour” in leased premises constituted a breach of the covenant of quiet enjoyment, which substantially deprived the tenant of the whole benefit of the lease.

There was no finding by the trial judge that the odour was caused by an act or omission of the landlord or someone acting on behalf of the landlord, the order was not of a “grave and permanent nature” and, in any event, the tenant had agreed the landlord would not be responsible for any defect in the premises, however caused.

The British Columbia Court of Appeal relied upon the 1990 decision of the same court in Furth v B.D. Management Ltd., 1990 Carswell BC 866, 73 D.L.R. (4) 375, [1990] B.C.J. No. 2035(B.C.C.A.) in which the court held that to establish a breach of the covenant of quiet enjoyment the tenant must show that the ordinary and lawful enjoyment of the premises is substantially interfered with by acts of the landlord and, moreover, that the interference is of a “grave and permanent nature”.

Statutorily Implied Covenant

Section 23(1) of the Ontario Conveyancing and Law of Property Act states that in a conveyance (which is defined to include a lease) for valuable consideration (for example, the payment of rent) there is an implied covenant for quiet enjoyment given by the landlord.

Thus, in Ontario and in any province with similar legislation, every lease (for valuable consideration) has implied within it a covenant for quiet enjoyment.

Distrain and Terminate? No!

I was always of the belief that where there was outstanding rent owing by a tenant, the landlord could distrain against the tenant’s goods, chattels and inventory, and if there was a balance left, the landlord could then terminate the lease. No longer! The British Columbia Court of Appeal recently addressed this question and in the case of Delane Insutry Co. Ltd. v PCI Properties Corp., the court held that having elected to distrain for the rent arrears, the landlord permanently and irrevocably waived its right to terminate the lease for those arrears.

The British Columbia Court of Appeal noted that in order to terminate the lease, a fresh default unrelated to the breach that led to the distress would be necessary.