Lawyers in Real Estate and Commercial Leases Litigation

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Litigation and Actions Related to Commercial Lease

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A commercial lease is typically entered into between tenants who wish to operate their businesses and landlords/owners who want to rent out premises in their commercial buildings. A commercial lease is often signed for several years, ranging between three (3) and ten (10) years, and sometimes includes options for renewal. The expenses borne by the tenant can vary from one lease to another.

For instance, in a triple net lease, the tenant will assume not only the rent but also their share of the taxes, insurance, maintenance expenses (HVAC i.e., electricity, heating, ventilation, and air conditioning), and property taxes. Conversely, in gross commercial leases, the tenant only has to pay a monthly rent according to the conditions and terms stipulated in the contract.

Unlike residential housing leases, in a commercial lease, the owner and tenant have much greater freedom regarding the formulation of the clauses provided in the lease. Legally, Articles 1851 and following of the Civil Code of Quebec indicate that commercial leases, unlike residential leases, do not benefit from the protections provided in Articles 1892 and following C.c.Q., which are of public order (they cannot be waived).

The commercial lease must at least guarantee the enjoyment of the rented premises, which will vary according to the tenant's business activities. It should be noted that the commercial tenant is often responsible for customizing the premises to suit their needs and must, therefore, budget for the costs of tenant improvements.

In other words, it is possible, in commercial leases, to include numerous clauses that would have been considered invalid if they had been written in a residential lease. For example, in a residential lease, there are protections against excessive rent increases, tenants have the right to continue occupying the premises, and the landlord cannot, in principle, refuse a lease assignment (to be modified by Bill 31). However, in the case of a commercial lease, these protections do not exist. It is therefore important for the tenant and landlord to consult a lawyer specializing in commercial real estate and lease litigation before signing to ensure that their rights are well protected.

The parties to a commercial lease thus enjoy contractual freedom, especially regarding the clauses that can be added or omitted.

That being said, since commercial leases are considered contracts, the general rules of the Civil Code of Quebec also apply (i.e., capacity, consent, object, cause, and form).

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Classification of Commercial Leases

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It’s not uncommon in commercial leases for the obligations of tenants and landlords to be not very detailed. Indeed, we usually find a classification of the type of commercial lease which indicates, indirectly, the obligations of each party. It is therefore very important to fully understand each type of lease.

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« GROSS » Commercial Leases

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In the case of a « gross » lease, the rent is fixed and covers all expenses related to the building. The tenant, therefore, does not have to pay more than the base rent.

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« NET » Commercial Leases

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If the lease specifies that it is a « net » lease, the tenant will be responsible for certain charges related to the building. The landlord will then have to bear the major repairs (i.e., foundations, structure, and roof).

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« NET-NET » Commercial Leases

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When we refer to a « net-net » lease, the tenant is responsible for paying the charges related to the building, but must also assume the major repairs, which was not the case in the « net » lease. The landlord thus has only the obligation to defend their title of ownership and the tenant's right to occupy the premises.

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« NET-NET-NET » Commercial Leases

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For the « triple net » or « net-net-net » lease, all charges are borne by the tenant (taxes, insurance, maintenance expenses, etc.) in proportion to the area of the leased premises. As a result, the landlord incurs no responsibility or obligation regarding the leased premises. This type of lease is sometimes used in cases where the tenant constructs the building at their expense but must return it to the landlord at the end of the lease.

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« NET-NET-NET-NET » Commercial Leases

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The « net-net-net-net » lease is an unconventional lease. It can be, for example, a lease used in the case where the owner sells their building but remains a tenant of it. In this case, the tenant (who is the former owner) assumes all charges and repairs of the building.

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Landlord’s Obligations in Commercial Leasing

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Once the lease is signed, the landlord has several obligations. First, they must deliver the rented property on the agreed date. In other words, they must allow the tenant to take possession of the property mentioned in the lease. It is therefore important for the parties to describe as precisely as possible the leased property and the accessories included or excluded. This will limit many misunderstandings about the type of property to be delivered by the landlord.

Furthermore, throughout the duration of the lease, the landlord must allow the tenant to peacefully enjoy the leased premises. If the landlord does not respect this obligation, the tenant may exercise certain remedies.

The landlord must also guarantee the tenant against legal disturbances. In other words, the tenant’s enjoyment of the leased premises should not be hindered if a third party asserts rights over the building. If the tenant's enjoyment is disturbed by the exercise of a third party's rights, they must report the disturbance to the landlord to allow them to act accordingly.

The landlord must also guarantee against actual disturbances. However, it should be noted that the landlord will not be required to repair the damage in all cases. Indeed, if a third party interferes with the enjoyment of the property without right, the landlord will be required to repair the damage only if the third party in question is also a tenant or someone to whom they allow the use.

Finally, the landlord has a duty of safety. The duty of safety means the landlord's obligation to ensure that the building is safe. Therefore, the landlord may be held responsible for any damage caused by the autonomous act of the building (for example, a tile that falls from the ceiling and injures a person).

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Tenant’s Obligations in Commercial Leasing

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The tenant also has several obligations to fulfill, failing which the landlord may also exercise remedies against them.

First, the tenant's first obligation is, of course, to pay the agreed rent. They must also use the property prudently and diligently. The law also provides that the tenant must not disturb the enjoyment of the other tenants. If the tenant does not respect this last obligation, both the affected tenant and the landlord may sue the defaulting tenant for damages. The tenant also has the obligation to repair the damage suffered by the landlord due to losses occurred to the property.

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Remedies for the Owner or Tenant

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It is interesting to note that, in the case of commercial leases, the Rental Board is not competent to hear disputes between the landlord and tenant. Therefore, it will be necessary to resort to the common law courts, namely the Quebec Court or the Superior Court.

The non-performance of an obligation by either party may give rise to one or more of the remedies provided for in Article 1863 of the Civil Code of Quebec, namely:

1. DAMAGES

If one of the parties to the lease contract does not respect one or more of their obligations without justification, the other party may sue their co-contracting party for damages.

It is interesting to note that in contractual matters, the only damages claimed are those provided for or that were foreseeable at the time the obligation was contracted, unless the non-performance of the obligation results from the gross or intentional fault of the debtor. In this regard, we refer you to Article 1613 of the annotated Civil Code of Quebec: https://elois.caij.qc.ca/CCQ-1991/article1613

However, even if a party has not performed its obligations, they can oppose certain justifications for their non-performance, which is in legal jargon « the exception of non-performance. » For example, unless provided otherwise in the lease, the tenant could in some cases withhold rent if the landlord does not make urgent repairs despite the tenant having made several requests to this effect. For additional examples, we suggest the following link: https://elois.caij.qc.ca/CCQ-1991/article1591#_Toc8'

2. SPECIFIC PERFORMANCE

Specific performance simply means that the tenant or landlord will have to perform the obligation to which they have committed.

In the event of a default by the tenant or landlord to perform their obligation, the other party may execute or have the obligation executed at the debtor's expense (the one who has not fulfilled their obligation).

However, to use this alternative, the creditor (the one who wants to have the obligation executed) must, beforehand, notify the debtor and demand that they perform the obligation.

3. TERMINATION

If the non-performance of the obligation causes serious harm to the other party, they may request the termination of the lease. To do this, it will be necessary to resort to the courts.

However, the parties may provide in the lease agreement a clause stating that in the event of non-performance of one of the lease obligations by either party, the other party may terminate the contract. It will therefore not be necessary to resort to the courts to obtain the termination of the lease. Indeed, this will result in automatic termination by operation of law.

The clause for extrajudicial termination may seem simple, however, its drafting is complex and is subject to vast caselaw in constant evolution. To ensure its effectiveness so that there is no doubt as to its interpretation, contact us to discuss your options.

4. REDUCTION OF RENT

The last remedy, but not least, is the reduction of rent. As you may have noticed, this option is only available to the tenant. Indeed, the landlord would have no advantage in requesting a rent reduction.

The tenant may in the following cases, request a rent reduction:

• Non-performance of an obligation by the landlord
• The tenant is disturbed by another tenant or a person to whom use or access has been allowed (however, the disturbance must persist after the tenant has reported the situation to the landlord)
• Certain disturbances of enjoyment that the tenant may suffer during repairs to be carried out.

CSince every case is unique, please contact us to inquire further about how the law applies to your specific situation.

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Safeguard Order

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In the case of a legal action regarding unpaid commercial rent, it is possible to request a safeguard order in which we ask that the tenant be required to pay their rent during the proceedings. This request is very advantageous because it is possible to obtain a default judgment against the tenant if they do not comply with said order.

It is also possible to obtain a safeguard order to evict a tenant who does not pay their rent, even before a trial on the merits of the case.

As each case is unique, we suggest that you consult us so that we can discuss with you the best possible strategy and represent you throughout proceedings.