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Commercial Real Estate

The Essential Terms of a Commercial Lease in Ontario

photo of woman signing a contract to represent a commercial lease in ontario

Commercial leasing is unique compared to other types of leases. It occupies the intersection between property law and contract law. For example, in property law, the lease must deal with the rights that run with the land, such as the right of the tenant to quiet enjoyment and rights of assignment and sublease in favour of the tenant. In contract law, there could be unique covenants that are included as a result of negotiation between the parties, such as expansion rights and rights to parking. It is important to have a basic understanding of the requirements of the law in Ontario and the resulting obligations of the parties when agreeing to a commercial lease.

Commercial Tenancies Act and the Certainty of Five Terms in a Valid Lease

Ontario’s Commercial Tenancies Act is one of the most important statutes to consider in commercial leasing. It outlines tenants’ and landlords’ rights, responsibilities, and obligations, covering essential aspects such as rent, lease terms, security deposits, maintenance, repairs, and dispute resolution. The Commercial Tenancies Act also addresses issues related to eviction, lease termination, and lease assignment. Many of the below obligations derive from the Commercial Tenancies Act, and the common law has developed a rich caselaw to supplement its provisions.

For there to be a valid lease, there must be certainty as to several important terms, including:

  • the parties (the landlord and tenant);
  • the exact premises to be leased;
  • the commencement date;
  • the duration of the term; and
  • the amount of rent being paid.

The contract may be void or voidable without sufficient certainty about these five terms.

Inclusion of Terms That are Material to One Party

There is also a “sixth” term that may be included depending on the circumstances. In certain situations, parties can raise terms that they communicate are important to them and to the operation of the relationship. This principle was created by Ossory Canada Inc. v. Wendy’s Restaurants of Canada, where matters of garbage disposal and pylon sign were important to Wendy’s in order for the company to lease the premises. This importance was communicated to the landlord and upon review, the Court of Appeal found no concluded contract between the parties as an agreement was not reached regarding these terms.

This case demonstrates the importance of having sufficient certainty of terms in the lease, not only for the five important terms but also for any term that is material to one party and has been communicated to the other.

The Statute of Frauds and Part Performance

The Statute of Frauds is also highly relevant to commercial leasing as it imposes a number of obligations on the parties. It generally requires that a lease be in writing; however, unlike the Residential Tenancies Act, there is no standard form. The lease can consist of various documents, correspondence, or letters at the parties’ discretion (as long as the above conditions are satisfied). As an exception, a lease not exceeding a term of three years, where the rent during the term is at least two-thirds of the full improved value of the premises being leased, is not subject to the requirement to be in writing.

Even where a commercial lease is not made in writing, it can still be saved under the doctrine of part performance. This doctrine refers to a legal principle that recognizes certain actions or conduct as evidence of an enforceable contract, even if the contract is not in writing. It applies to parties partially performing their obligations under an oral or informal agreement.

The doctrine was reviewed in Erie Sand and Gravel Ltd. v. Seres’ Farms Ltd. The case involved an agreement to purchase farmland, where the plaintiff brought an action for specific performance for the purchase. The defendants argued that although there was an agreement on certain terms, there was only an “agreement to agree,” which is generally unenforceable. The plaintiffs argued that the deal was enforceable due to part performance, partially because they had paid the money. The Court agreed, demonstrating the availability of the doctrine for agreements that are not completed in writing.Nevertheless, it is important to ensure that the agreement to lease complies with the Statute and that relying on the doctrine can result in costly legal action.

Contact the Property Lawyers at Bader Law for Commercial Real Estate Transaction Advice

Commercial real estate transactions represent some of the most complicated financial transactions in the life of any individual or company. As such, it is important to retain a law firm with the experience and skill necessary to ensure the lease is drafted to protect your interests. At Bader Law, our trusted business law team and real estate lawyers regularly advise our individual and corporate clients on various real estate matters and disputes. We represent clients in Mississauga and throughout the Greater Toronto Area. To schedule a consultation, contact us online or call us at (289) 652-9092.

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Commercial Real Estate

Court of Appeal Extends Lease as a Result of Force Majeure Clause

The COVID-19 pandemic continues to have a broad range of effects on the commercial real estate market, particularly for commercial renters. Some leases include a “force majeure” clause, and depending on its specific wording, the clause can have ramifications for the parties’ obligations.

The Court of Appeal for Ontario recently considered a situation between a landlord and a commercial tenant where the clause had a significant impact on the operability of the lease as a result of mandated lockdowns.

Force Majeure: Intended Effect

A force majeure clause is a contractual provision that appropriates the risk of unforeseen events that may prevent or delay the performance of a contract. In essence, the clause can relieve one or both parties from the performance of the contract and the consequence that flows from the breach as long as the breach results from unforeseen events that are outside the parties’ control. It can also delay the performance of the contract.

The critical decision, which is often cited on the applicability and operation of force majeure clauses, is Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp and Paper Company Limited. In this case, the Supreme Court of Canada established the fundamental principle that for a force majeure clause to apply, the event in question must be explicitly mentioned in the clause.

Supreme Court of Canada finds that parties cannot rely on general catch-all language

In Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp and Paper Company Limited, the plaintiff, Atlantic Paper Stock, had entered into a contract with the defendant, St. Anne-Nackawic Pulp & Paper, to supply waste paper. However, the defendant could not fulfil its obligations due to unforeseen circumstances. The defendant argued that the force majeure clause, which referred to “an act of God, the Queen’s or public enemies, war, the authority of the law, labour unrest or strikes, the destruction of or damage to production facilities, or the non-availability of markets for pulp or corrugating medium” excused its non-performance. The key consideration on appeal from the Court of Appeal was whether the non-availability of markets for pulp or corrugating medium had discharged the defendant from their obligations.

The Supreme Court of Canada rejected the defendant’s argument, emphasizing that the force majeure clause discharges a party’s obligations when “a supervening, sometimes supernatural, event, beyond the control of either party, making performance impossible.” The event preventing performance must be outside the control of both parties, otherwise it cannot be invoked to excuse non-performance. Allowing the defendant to rely on this clause would enable it to prevent performance if it could not profit. This decision established that parties cannot rely on general catch-all language in force majeure clauses.

Force Majeure Clause in a Commercial Lease

In the recent case of Niagara Falls Shopping Centre Inc. v. LAF Canada Company, the operability of force majeure clauses were considered in the context of commercial lease agreements. The case involved the consideration of the rights and obligations of LAF Canada Company (the “Tenant”) to Niagara Falls Shopping Centre Inc. (the “Landlord”) in light of the mandatory closures of their fitness centres during the COVID-19 pandemic.

The Tenant had entered into a lease with a prior owner of the premises, and upon purchase in 2019, the lease was assigned to the Landlord. The lease included a force majeure clause, which stated:

“If either party is delayed or hindered in or prevented from the performance of any act required hereunder because of… restrictive laws… or other reason of a similar or dissimilar nature beyond the reasonable control of the party delayed, financial inability excepted (each, a “Force Majeure Event”), subject to any limitations expressly set forth elsewhere in this Lease, performance of such act shall be excused for the period of delay caused by the Force Majeure Event and the period for the performance of such act shall be extended for an equivalent period (including delays caused by damage and destruction caused by such Force Majeure Event). Delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events.”

Tenant Refuses to Pay Rent During Government-Mandated Closures

Not long after, the COVID-19 pandemic began and the government mandated the closure of all non-essential workplaces, including the fitness centre run by the Tenant. Eventually, the Tenant refused to continue paying rent, after which the Landlord brought an action for all unpaid rent. The Tenant counterclaimed.

Both parties sought to rely on the force majeure clause. The Tenant claimed that the Landlord breached the lease by failing to provide the Tenant with the quiet enjoyment of the premises, while the Landlord claimed breach for failure to pay the rent under the lease. The Tenant also submitted that the force majeure clause could extend the lease for a period equivalent to the mandatory closures.

Force Majeure Clause Did Not Preclude Obligation to Pay Rent

The motion judge held that the force majeure clause excused the Landlord from providing the premises to the Tenant, but not that the Tenant was excused from their obligation to pay rent. The judge noted that the force majeure clause contained a curative provision and that, in this case, the failure to pay rent could be cured by the payment of monies. She also did not accept the argument that the lease term would be extended, reasoning that such a result would be “commercially absurd.”

The Tenants appealed, claiming the motion judge erred in her interpretation of the force majeure clause, asking the Court to clarify the obligations owed by both parties.

Appeal Allowed; Commercial Lease Extended

The Court found that the motion judge erred in her interpretation of the force majeure clause as it related to the Landlord’s obligations to provide the Tenant with the premises. The Court noted that the wording of the clause included the stipulation that “the period for the performance of such act shall be extended for an equivalent period.” On this strict interpretation, the lease was allowed to be extended for the duration equivalent to the duration of the mandatory closures.

Concerning the Tenant’s obligations, the Court agreed that the Tenant was still required to pay rent during the closures. Considering the wording of the clause, it noted the Tenant was hindered in its ability to pay rent, but not because of the “Force Majeure Event.” Instead, the Tenant chose not to charge membership fees.

As such, the Tenant could not rely on the clause to exclude its obligations to pay rent. However, the Court held that since it had already paid rent during the closures and the lease was to be extended, the Tenant was not required to pay rent during the extension.

Contact Bader Law for Advice on Commercial Real Estate Disputes

At Bader Law, we have an extensively experienced business law team and regularly represent our corporate clients in various real estate matters in Mississauga and throughout the Greater Toronto Area. Our skilled real estate lawyers work with our clients to provide comprehensive advice and strategic representation on all commercial real estate transactions, including commercial leasing issues affecting landlords and tenants.

Bader Law prides itself on tending to real estate disputes in a timely and professional manner. To schedule a consultation with one of our lawyers, contact us online or call us at 289-652-9092.

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Court of Appeal Allows Appeal Involving Oppression in the Commercial Real Estate Context

The commercial real estate market continues to experience economic challenges following the COVID-19 pandemic. According to the Financial Post, stricter financing conditions and increasing vacancy rates will lend toward an uncertain future for commercial lenders and landlords in Ontario. This outlook could signal conditions ripe for tenants to breach their obligations and shelter from liability through their corporation.

A similar fact scenario was presented to the Court of Appeal in the context of an appeal by commercial landlords regarding a lower court’s decision to strike their action against a tenant under Rule 21.01(1)(b) of the Rules of Civil Procedure. In doing so, the Court considered whether a personal remedy could be sought under the oppression doctrine.

Shareholder Oppression in Ontario

In Ontario, oppression refers to a legal concept outlined in the Business Corporations Act (Ontario) (“OBCA”) and the Canada Business Corporations Act (“CBCA”). The provisions in this legislation relating to oppression are intended to protect shareholders, directors, and other stakeholders of a corporation against oppressive or unfairly prejudicial conduct by the corporation or its management.

The leading authority on oppression in Canada is the Supreme Court of Canada decision in BCE Inc. v. 1976 Debentureholders, which established the fundamental principles of oppression, including determining the shareholders’ reasonable expectations and balancing the interests of all stakeholders. The Supreme Court of Canada emphasized that the oppression remedy should be flexible and adaptable to different factual scenarios, which is demonstrated in the case below.

Owners of Commercial Premises Commence Claim Against Corporate Director

The case of FNF Enterprises Inc. v. Wag and Train Inc. involved a commercial lease between FNF Enterprises Inc. and 2378007 Ontario Inc. (the “Appellants”) to Wag and Train Inc. (the “Respondent”), a corporate entity running a pet care business. The Respondent allegedly vacated the premises approximately one year before the lease term ended, stopped paying rent, and left the premises in a condition that breached the lease.

The Appellants served a statement of claim that alleged several causes of action, including two key allegations that:

  1. the sole director, officer, and shareholder of the Respondent corporation, Ms. Ross, had pierced the corporate veil through her improper conduct, which involved “stripping value” from the Respondent; and
  2. as creditors under s. 248 of the OBCA, her conduct was unfairly prejudicial to and unfairly disregarded the interests of the Appellants.

Pleadings Struck by Motion Judge Under Rule 21

The motion judge found that it was “plain and obvious” that the action could not succeed.

When considering the facts, the motion judge found no evidence of conduct that could amount to fraud or improper conduct on the part of Ms. Ross, which is a key consideration in the relevant test set out in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (“Transamerica”), regarding piercing the corporate veil.

Similarly, the motion judge found a lack of particulars relating to the oppression claim, reasoning that if a matter concerns a breach of contract by the corporate entity, an action against that entity is the remedy. In doing so, the motion judge declined leave to amend the statement of claim, which the Appellants appealed.

The Court of Appeal partially allowed the appeal, enabling the Appellants to amend the statement of claim for the oppression claim against Ms. Ross personally.

The “Missing Link” in the Corporate Veil

The Court agreed with the result reached by the motion judge in denying the corporate veil claim but did not agree with the reasoning. The Court considered the two-part test of Transamerica, which required complete domination and control of the corporate entity, as well as fraudulent or improper conduct. In this case, the second limb of the test was at issue.

The Appellants alleged that Ms. Ross deciding on behalf of the Respondent to breach the lease and strip value from the Respondent, despite knowledge of its liabilities under the lease, was fraudulent or improper conduct. The motion judge found that this conduct “does not rise to such a level that application of the logic of Salomon would lead to a result that is flagrantly opposed to justice.”

The Court of Appeal, however, was more influenced by the “nexus between the liability the plaintiff sought to recover by piercing the corporate veil and the wrongful conduct directed by the individual in control of the corporation that gave rise to that very liability.” It distinguished this case from Shoppers Drug Mart Inc. v. 6470360 Canada Inc., where there was a “clear link” between the liability for the misappropriated funds and the wrongdoing.

In the Court of Appeal’s opinion, this link was missing, as it was not alleged in the statement of claim that the stripping of value constituted the misappropriation of funds, only that this conduct was fraudulent and improper. The Court of Appeal ultimately found that this conduct was more appropriately considered under the reasonable expectations of shareholders as part of the oppression remedy analysis.

Oppression: Maneuvers Against the Creditor

The Court considered the case of BCE Inc. v. 1976 Debentureholders to lay the oppression groundwork and further applied Wilson v. Alharayeri, which sets out the test for determining the personal liability of a director. In doing so, the Court of Appeal dismissed the motion judge’s reasoning that a breach of contract against the corporation should be the remedy in this case.

The Court of Appeal applied the logic from J.S.M. Corporation (Ontario) Ltd. v. The Brick Furniture Warehouse Ltd., which noted the difference between a creditor who failed to protect itself from risk and a creditor who finds its interest “compromised by unlawful and internal corporate manoeuvres against which the creditor cannot effectively protect itself.” The Court found that in this case, the Appellants fell within the second situation, where Ms. Ross had allegedly manoeuvred assets to prevent repayment, and the Appellants had no way to protect themselves as creditors. In other words, the Appellants had a reasonable expectation that this conduct would not occur. It is also noted that even though the Appellants did not specifically allege this reasonable expectation, it can be objectively derived.

Therefore, in the Court of Appeal’s eyes, the alleged stripping of value and misuse of corporate powers to her benefit enabled the Appellants to seek a personal remedy against Ms. Ross under oppression. The Court allowed the Appellants to amend this claim.

Contact the Commercial Lawyers Bader Law for Effective Commercial Real Estate Advice

The experienced lawyers at Bader Law help businesses navigate the complexities of commercial real estate and corporate law in Ontario. Our skilled team works to create unique legal solutions to ensure our client’s interests are protected in matters such as corporate financing, real estate, and corporate transactions. Located in Mississauga, our firm serves clients throughout the province of Ontario. To schedule a confidential consultation, call us at 289-652-9092 or complete our online form.

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When Will a Court Order Specific Performance of an Agreement of Purchase and Sale?

When parties have a dispute about a contract, and specifically, whether a party is bound by the contract, a court may order specific performance as a remedy. These issues can arise, for instance, where one party asserts that the contract has been terminated or materially breached, and the other party asserts that it is binding. If a court orders specific performance, the party claiming that the contract has been terminated or breached will be required to follow through on their contractual obligations.

The remedy of specific performance is not automatically awarded when the court finds that one party has failed to live up to their contractual obligations. Instead, the court will look at and analyze three factors to determine if specific performance is the appropriate remedy.

This blog post will review the recent case of Sarai et al. v Singh et al., which examined whether specific performance would be awarded in the context of an agreement of purchase and sale pertaining to a real estate dispute.

Seller Tried to Resile from an Agreement to Sell a 14-Acre Property

The applicants in this case entered into an agreement of purchase and sale to buy a 14-acre property from the respondents for $3 million. The applicants were interested in the property because they were searching for a large property conducive to expanding their trucking business.

One of the three respondents tried to resile from the agreement, claiming that the applicants provided their deposit too late. The agreement of purchase and sale stated that the applicants would provide their deposit to the respondents’ lawyer within 48 hours of the agreement’s execution. However, the respondents did not provide the name of their lawyer to the applicants until four days after the agreement was signed. Upon receipt of this information, the applicants provided their deposit 24 hours later. The deposit was accepted by the lawyer and the respondents raised no issue at this time.

Months later, the day before the closing date, one of the respondents notified the applicants in writing that the deal would not close. The correspondence stated that the applicants had provided the deposit late and therefore the agreement was nullified because the applicants breached a fundamental term.

Buyer Asked the Court to Declare the Agreement of Purchase and Sale Binding

The applicants applied to the Court to declare that the agreement of purchase and sale was binding and sought an order for specific performance.

First, the Court considered whether the agreement was binding and whether the applicants breached a fundamental term of the contract in delivering the deposit late. The Court held that the applicants did not fundamentally breach the contract such that the respondents could consider the agreement nullified.

The respondents had made it impossible for the applicants to deliver the deposit on time, as stipulated in the agreement, as they had not disclosed their lawyer’s name within 48 hours. Further, their lawyer accepted the deposit, waiving strict compliance with that deadline.

Court Found a Valid Contract; Buyer Sought Order for Specific Performance

Once the Court had determined that the contract was binding, it needed to determine the appropriate remedy. In this case, the applicants sought an order for specific performance.

A court will consider three factors to determine whether an order for specific performance of an agreement of purchase and sale is appropriate, namely:

  1. the nature of the property involved;
  2. the inadequacy of damages as a remedy; and
  3. the behaviour of the parties.

A court does not need to find that all of these factors weigh in favour of specific performance. The court will balance the factors and determine if any merit has more weight than others in making its determination.

The Nature of the Property Involved

The more unique a property is (and therefore more difficult to replace), the more likely it will be that a court orders specific performance. Uniqueness is assessed from the buyer’s perspective at the time the contract was signed. It does not mean that the property is incomparable but that “the property has a quality (or qualities) making it especially suitable for the proposed use.”

In this instance, the applicants provided evidence that the property was unique for their needs of running a trucking business as it included almost 14 acres of rural property with a residence; easy highway access; truck parking; gravel yard; truck repair shop; and municipal water.

Inadequacy of Damages

Whether damages will be adequate is also related to the property’s uniqueness. The first factor looks at the “subject and objective qualities of the property itself,” whereas this factor looks at “whether damages would be an adequate remedy for the plaintiffs in light of their propose[d] use.” The court will assess the risk that translating the impact of the breach into financial damages may not be accurate.

In this case, the Court found that damages were inadequate because a calculation of monetary damages would risk inaccurately assessing the impact of the breach on the applicants and further, it would be a time consuming and expensive exercise. It would be made more difficult because there is a lack of similar properties and because the applicants required the property to accommodate their growing business.

The Behaviour of the Parties

In this case, the Court focused on the behaviour of the respondent. The Court noted that there was evidence that the respondent had acted in bad faith, or at the very least, unreasonably. This was because the respondent had “manufactured” a reason after the fact not to close the transaction and did not notify the applicants of his view until the day before the closing. Further, the other two respondents did not oppose the sale and were willing to close the transaction.

All Factors Weighed in Favour of Specific Performance

Since all three factors favoured the granting of specific performance, there was no need for the Court to weigh the factors. The Court ordered that the respondents were required to fulfill their contractual obligations and transfer the property in accordance with the agreement.

Mississauga Real Estate Lawyers at Bader Law Help Individuals Navigate Residential and Corporate Real Estate Transactions

Real estate transactions are often the largest financial transaction a person or company will be involved in, which is why it is important to ensure that your transaction closes smoothly. At Bader Law, our trusted team of real estate lawyers help clients navigate each step of the process and ensure that they understand their rights and responsibilities in the event that a dispute arises.

Bader Law represents both individual and corporate buyers and sellers in residential and commercial real estate transactions throughout the Greater Toronto Area. Whether you are looking to purchase your first home or acquire new space for your growing business, contact us online or at (289) 652-9092 to learn how we can help you.

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New Changes To The Real Estate Industry In Ontario: Part 2

In March 2020, the Ontario government passed the Trust in Real Estate Services Act (also called “TRESA”). A previous blog post provides an overview of the background to the Trust in Real Estate Services Act and the Real Estate and Business Brokers Act (also called “REBBA”), which the TRESA amends. It also provides an overview of the three-phase approach to implementing the Trust in Real Estate Services Act, including Phase 1, which was completed in October 2020. Phase 1 focused on permitting salespersons and brokers to incorporate and be paid through personal real estate corporations and also to prescribe more recognizable terms such as “real estate agent” and “REALTOR” to describe themselves in advertising and marketing.

A recent blog post focused on Phase 2 of the implementation of the Trust in Real Estate Services Act, 2020, which includes a new code of ethics, open bidding, and new powers for the Real Estate Council of Ontario (also called RECO), which administers and enforces the Act. These changes came into force on April 1, 2023.

As many changes are happening as part of Phase 2, this blog is the second of two blogs to explain these changes. This blog post will focus on new rules with respect to multiple representation in real estate transactions; the removal of barriers to open offers; mandatory provision of standard information guides to consumers; and changes to the Real Estate Council of Ontario’s disciplinary powers and enforcement mechanisms.

Clarity About Multiple Representation in a Real Estate Transaction

Ontario Regulation 567/05 provides that, as of April 1, 2023, a brokerage shall not represent more than one client in the same trade unless certain criteria are met. While there is already a regulation addressing multiple representation and further prohibiting it unless all clients consent in writing, the new language provides greater clarity and specificity.

To represent more than one client in the same transaction, the broker shall disclose the following information to each client/prospective client involved:

  • the fact that the brokerage proposes to represent more than one client in respect of the same trade in real estate; and
  • the differences between the obligations the brokerage would have if it represented only one client in respect of the trade and the obligations the brokerage would have if it represented more than one client in respect of the trade, including any differences relating to,
    • the obligations and duties the brokerage would owe,
    • the services the brokerage would provide, and
    • the remuneration arrangements the brokerage would have.

After receiving the information referred to above, each client or prospective client must provide written consent to be represented by the registrant in the transaction.

Further, if the registrant represents a seller and a prospective buyer, they must disclose this to every buyer who makes an offer, if their client’s offer is accepted.

Removal of Barriers to Open Offers

Currently, the system used for real estate transactions is blind bidding. This means that a potential homebuyer submits their offer to the seller but does not know what other offers look like. The only requirement is that real estate brokerages representing clients must disclose the number of written bids but not the bid amount.

As of April 1, 2023, property sellers now have the option to make the bidding process open and transparent. If a seller elects for an open offer process, the seller’s real estate brokerage will disclose the details of competing bids, as directed by the seller.

Publication of Standard Information Guide for Consumers

Ontario Regulation 567/05 now requires that real estate agents and brokers provide and explain the Information Guide published by the Real Estate Council of Ontario to potential clients before providing any services or entering into a representation agreement with that client. A separate information guide must be provided and explained to a self-represented party before any assistance is provided to that party.

Changes to Real Estate Council of Ontario’s Disciplinary and Enforcement Powers and Procedures

The Real Estate Council of Ontario is tasked with enforcing the Trust in Real Estate Services Act and its associated regulation. Under Ontario Regulation 367/22, new powers will be provided to a Discipline Committee to address all contraventions of this Act. This is an expansion of its previous powers, which only allowed it to address Code of Ethics violations. This regulation also includes evidentiary and hearing procedures, including publication of final decisions and appeal rights.

The new Discipline Committee will consist of at least five members. When a matter is referred to the Discipline Committee, the chair of the Committee will assign a panel to hear and determine the matter. The panel will be composed of at least three members, two of which must be registrants. The make-up of the panel will depend on the matter being heard. For instance, if a brokerage is the subject of the proceeding, at least one of the registrants on the panel must be a broker of record. If a salesperson is the subject of the proceeding, at least one of the registrants must be a salesperson. No matter what the hearing is about, at least one of the panel members must never have been a registrant or a shareholder, officer, director, or employee of a registrant.

The new powers of the Disciplinary Committee include the application of conditions to a registration, the suspension of a registration, or the revocation of a registration.

Mississauga Real Estate Lawyers at Bader Law Help Individuals with Residential and Corporate Real Estate Transactions

Buying and selling real estate is often one of the largest financial transactions a person or company will make in their lifetime. To ensure that you feel confident that your interests are protected and your transaction runs smoothly it is important to hire a law firm with adequate experience, skills, and resources.

At Bader Law, our trusted real estate lawyers represent individual and corporate parties in both residential and commercial real estate transactions in Mississauga and throughout the Greater Toronto Area. Our team will advise you on your options, help secure your interests, and work to protect your financial investments. To learn more about how we can ensure your real estate needs are met, contact us online or at (289) 652-9092.

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New Changes to the Real Estate Industry in Ontario: Part 1

In March 2020, the Ontario government passed the Trust in Real Estate Services Act (also referred to as “TRESA”). The Trust in Real Estate Services Act sets out a phased approach to implement changes to make Ontario’s real estate industry stronger, more transparent, and better protect consumers.

A previous Bader Law blog provides the background to the Trust in Real Estate Services Act and the governing legislation, the Real Estate and Business Brokers Act (also called the “REBBA”), that it amends. It also provides an overview of the three-phase approach to implementing the Trust in Real Estate Services Act, including Phase 1, which was completed in October 2020. Phase 1 focused on permitting salespersons and brokers to incorporate and be paid through personal real estate corporations and also to prescribe more recognizable terms such as “real estate agent” and “REALTOR” to describe themselves in advertising and marketing.

This blog will focus on Phase 2 of the implementation of the Trust in Real Estate Services Act, which includes a new code of ethics, open bidding, and new powers for the Real Estate Council of Ontario (“RECO”), which administers and enforces the Act. These changes will all come into force in Ontario on April 1, 2023.

As many changes are happening in 2023 as part of the implementation of Phase 2, this is part one of a two-part series which will explain these changes. This blog post will discuss the renaming of the Real Estate and Business Brokers Act, the new Code of Ethics for registrants under the Act, and enhanced disclosure during real estate transactions.

The Legal Regime for Real Estate Professionals in Ontario

The Real Estate and Business Brokers Act governs real estate brokers, brokerages, and real estate salespeople in Ontario. It is administered and enforced by the Real Estate Council of Ontario (“RECO”). RECO is also tasked with protecting the public interest and providing educational resources to the public and real estate professionals.

Renaming of the Real Estate and Business Brokers Act

As of April 1, 2023, the Real Estate and Business Brokers Act will be renamed the Trust in Real Estate Services Act.

New Code of Ethics

A new Code of Ethics, contained in Ontario Regulation 365/22, will come into effect on April 1, 2023. This will replace the current Code of Ethics found in Ontario Regulation 580/05. The Ontario Government wrote that the current Code would be confusing due to its mix of ethical duties (such as honesty) with technical or procedural obligations (such as details to be included in agreements). Many of the more technical requirements of the current Code have been transferred to other regulations.

The Code of Ethics applies to “registrants” under the Real Estate and Business Brokers Act. A “registrant” is a brokerage registered under the Act or a broker or salesperson who is registered under the Act.

The Code of Ethics regulation provides for the following primary matters, related to integrity, competence, and conflicts of interest:

Integrity

  • All registrants have an obligation to act with courtesy, honesty, good faith, and integrity towards all people that the registrant deals with in the course of their business;
  • All registrants will refrain from any disgraceful, dishonourable, or unprofessional conduct;
  • No registrant shall advise or knowingly assist another person to contravene the Trust in Real Estate Services Act or any other law that is applicable to real estate or relevant to the registrant’s business;
  • No registrant shall engage in or be a party to fraud;
  • All registrants shall make their best efforts to ensure that any representations are accurate and not misleading, nor be a party to misrepresentation; and
  • No registrant shall contravene the Human Rights Code, nor engage in conduct that is intimidating, coercive, or abusive.

Competence

  • Registrants are obligated to promote and protect the best interests of their clients. If a registrant believes that a client’s ability to understand information or make decisions could be impaired, the registrant will make reasonable efforts to ensure that the client understands the information and appreciates the consequences;
  • Registrants will provide conscientious and responsive service and demonstrate reasonable knowledge, skill, judgment, and competence;
  • Registrants shall not provide services, opinions, or advice to self-represented parties with respect to a trade in real estate;
  • Registrants will advise an individual to obtain services from someone else if the registrant cannot provide the services competently or is not legally authorized to provide the circumstances; and
  • Registrants shall keep all confidential information about their client unless authorized or required by law to disclose it, or with the client’s consent.

Conflicts of Interest

  • Registrants shall not provide any services, or continue to provide services, to a client where the interests of the registrant conflict or may conflict with those of the client. There is an exception to this when all of the following as been met:
    • The registrant has disclosed the conflict of interest or potential conflict of interest;
    • The registrant has advised the client to seek independent legal advice about the conflict/potential conflict;
    • The registrant has taken all reasonable steps to ensure the client has demonstrated a reasonable understanding of the conflict/ potential conflict; and
    • Obtained consent in writing from the client to provide services despite the conflict/ potential conflict.

Enhanced disclosure to assist real estate purchasers make informed decisions

Beginning on April 1, 2023, new requirements apply to “disclosures” in real estate transactions. “Disclosures” refer to the process of the seller answering written questions about the property in question. Disclosures must be in plain language and presented in a manner that brings to the recipient’s attention the information being conveyed. These new requirements are found in amendments to Ontario Regulation 467/05.

Mississauga Real Estate Lawyers Help Individuals with Residential and Corporate Real Estate Transactions

Real estate transactions are often one of the largest financial transactions any individual or company will engage in. Therefore, retaining a law firm with the requisite experience, skills and resources is important to ensure your interests are protected and the transaction closes without issue.

At Bader Law, our trusted real estate lawyers represent both individual and corporate buyers and sellers in residential and commercial real estate transactions. We work with clients located in Mississauga and throughout the Greater Toronto Area. Our real estate team will advise you on your options, help secure your interests, and protect your financial investments. To speak with one of our lawyers regarding your upcoming real estate transaction, reach out to us online or call us at (289) 652-9092.

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When Is It Unreasonable For A Landlord To Withhold Consent To A Lease Assignment?

Most commercial leases contain a provision that prohibits a tenant from completing a lease assignment without the landlord’s consent. A lease assignment occurs when a tenant transfers all of their rights to a lease to another party, however, the original tenant remains liable to the landlord for rent payments. In many instances, landlords are agreeable to lease assignments. However, there are limited grounds on which a landlord may withhold consent.

In the recent case from the Ontario Court of Appeal, the Court considered whether a commercial landlord’s decision to withhold consent to a tenant’s request to assign the lease was unreasonable.

Tenant sought landlord’s consent to assign lease as part of dental practice sale

In the case of Rabin v. 2490918 Ontario Inc., the appellant Dr. Rabin (the “Tenant”) was a dentist who had been running his dental practice from the leased premises since 1977. The Tenant’s lease was set to expire on December 31, 2025, with a five-year option to renew.

The Tenant sought to retire and sell his practice to two younger dentists. As part of that sale, the Tenant requested the consent of the defendant and respondent, 2490918 Ontario Inc., (the “Landlord”).

Article 11.1(a) of the lease agreement provided that the Tenant could not assign the lease without the prior consent of the Landlord. It also stated that the Landlord shall not “unreasonably withhold” their consent. Article 11.1(a) also set out a procedure for the assignment consent process, which required the Tenant to provide the Landlord with written notice of a request to assign the lease. In this request, the Tenant was required to provide the Landlord with information about the proposed transferee. Further, the Landlord was required to notify the Tenant in writing whether it consented to the proposed assignment within 15 days.

Landlord fails to respond to tenant’s written request

On December 3, 2020, the Tenant sent a text message to the Landlord, advising that he intended to sell his practice and wanted to assign the lease, and offered to provide further information on the proposed transferor. On December 10, 2020, the Tenant sent another email to the Landlord, stating that “time was of the essence” in relation to the sale and assignment of the lease. Then, on February 2, 2021, the Landlord, through his real estate lawyer, provided formal written notice of the requested lease assignment and included the names of the proposed transferees. Follow-ups were sent on February 18 and February 19, 2021.

Landlord sought to include a demolition clause in the lease in return for consent

On February 24, 2021, 22 days after the Tenant’s initial request, the Landlord responded to the Tenant. However, the Landlord’s response time exceeded the 15-day response time specified in the lease.

In their response, the Landlord stated that it would consent to the lease assignment as long as the lease was modified to include a demolition clause upon 24 months’ notice. The Landlord had purchased the property in 2017 with the intent to demolish the existing building and redevelop the property, but had not yet done so at the time of the lease assignment request.

Tenant did not accept the addition of a demolition clause

Through his lawyer, the Tenant responded to the Landlord on March 1, 2021, stating that adding the demolition clause to the lease would lead to significant damages for the Tenant, and again requested the Landlord’s consent to the assignment.

Further correspondence was exchanged between the parties and the Tenant repeatedly requested the Landlord’s consent to the lease assignment. The Tenant also provided relevant information regarding the proposed transferees, including a standard credit application and the share purchase agreement which had previously been provided to the Landlord.

The Landlord responded to the Tenant stating that it was unsatisfied with the credit application and again declined the lease assignment. The Landlord then sought numerous additional documents from the Tenant regarding the proposed transferees.

On March 19, 2021, the Tenant commenced an application.

Application dismissed by the Ontario Superior Court of Justice

The application judge criticized both sides of the argument and stated that applying the law under the present circumstances was challenging.

The application judge found that the Tenant had waived the 15-day requirement under Article 11.1(a), but also noted that the Landlord’s requests for additional information were “overreaching and unreasonable.”

Ultimately, the application judge determined that the Tenant was unable to establish that the Landlord unreasonably withheld consent to the assignment and dismissed the application.

The Tenant appealed this decision to the Ontario Court of Appeal.

Application judge erred in finding tenant waived 15-day response requirement

The Ontario Court of Appeal reviewed the waiver doctrine, explaining that waiver occurs when the waiving party has a full knowledge of their rights and an “unequivocal and conscious intention to abandon them.” The Court of Appeal found that the application judge had not referenced this doctrine properly, nor that these two criteria are applied as a “stringent test.”

The Ontario Court of Appeal determined that the attempts made by the Tenant’s lawyer to resolve the Landlord’s failure to respond was not a waiver of the Tenant’s rights under the lease.

The Ontario Court of Appeal further noted that neither party had expressly raised the waiver doctrine. Therefore, it was not open to the application judge to decide on that basis.

Analysis of lease provisions in the context of the Commercial Tenancies Act

Section 23(1) of the Commercial Tenancies Act provides that a landlord’s consent to an assignment of a lease cannot be unreasonably withheld unless the lease expressly provides for the contrary. Article 11.1(a) of the lease in this case does not expressly provide to the contrary, as it includes a requirement that the Landlord not unreasonably withhold consent to a lease assignment.

The Commercial Tenancies Act does not define what amounts to an unreasonable withholding of consent to a lease assignment. However, the applicable principles are summarized in the case of 1455202 Ontario Inc. v Welbow Holdings Ltd as follows:

  1. The tenant bears the onus of proving that the refusal was unreasonable;
  2. The information available to the landlord at the time of the refusal is the material information for making the determination of unreasonableness;
  3. The determination of unreasonableness is considered in the context of the specific lease agreement and its provisions regarding assignment;
  4. The likelihood of the proposed assignee to default on the lease obligations may be a reasonable ground to withhold consent to an assignment;
  5. The financial position of the assignee may be a reasonable ground to withhold consent to an assignment; and
  6. The question of reasonableness is a question of fact that will be determined in the circumstances of the specific case, which will include the “commercial realities of the marketplace and the economic impact of an assignment on the landlord.”

These principles are to be considered in the context of the “reasonable person” standard, which means that the court will consider whether a reasonable person would have withheld consent in the circumstances.

Court of Appeal finds that Landlord unreasonably withheld consent

The Ontario Court of Appeal applied the principles set out in 1455202 Ontario Inc. v. Elbow Holdings Ltd., and held that the Tenant had met his burden to demonstrate that the Landlord unreasonably withheld consent to the lease assignment request for several reasons.

Landlord’s failure to respond and additional requests deemed unreasonable

The Court found that the Landlord’s failure to respond within the 15-day period set out in the lease was an unreasonable withholding of consent.

The Landlord failed to provide any reasonable excuse for this failure and did not ask for any additional information about the proposed transferees at that time. Relevant to this finding was the fact that the Landlord had prior notice of the request for assignment two months before, therefore, the formal request would not have been a surprise.

The Landlord failed to request additional information about the proposed transferees until early March, which was well outside the 15-day deadline, despite the parties’ correspondence throughout the month of February.

Landlord’s request for demolition clause was unreasonable

The Court also found the Landlord’s request to insert a demolition clause into the lease as a condition of consent to be unreasonable. Inserting this clause would have resulted in a material change to the lease and would have threatened the sale of the Tenant’s practice.

The Ontario Court of Appeal declared that the Landlord had unreasonably withheld consent to the assignment and ordered that the assignment be made. The Court also granted the Tenant his costs of the appeal in the amount of $10,000.

Contact the Real Estate Lawyers at Bader Law for Help Interpreting and Drafting Commercial Lease Agreements

The trusted commercial real estate lawyers at Bader Law represent individual and corporate buyers in various real estate transactions. Our experienced team takes strategic action to reduce risk, protect clients’ interests, and help manage their financial investments. Our team reviews Agreements of Purchase and Sale, handles title insurance matters, and assists with mortgages and refinancing.

Bader Law is located in Mississauga and represents clients throughout the Greater Toronto Area. We ensure that your real estate disputes are tended to promptly and professionally. To schedule your consultation, contact us online or call us at 289-652-9092.

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Ontario Court of Appeal Upholds Narrow Interpretation Of “Entire Agreement” Clause In Lease

In Spot Coffee Park Place Inc. v Concord Ades Investments Limited, the Ontario Court of Appeal dismissed a landlord’s appeal of a decision relating to a claim for misrepresentation. This commercial leasing dispute centred on the wording of the “entire agreement” clause in the lease and whether that wording barred a claim from the Tenant, Spot Coffee Park Place Inc., with respect to representations made by the Landlord, Concord Ades Investments Limited, in pre-contract negotiations which were not contained in the lease.

Tenant leases commercial premises to operate a coffee shop in a condominium development

The Tenant is a coffee chain based in the United States of America. The Landlord is a residential condominium developer who had built a development called Concord Park Place in North York, Ontario.

The parties executed an offer to lease in September 2010, followed by a formal lease in October 2010, for a ten-year term. The Tenant extensively renovated the premises and then began operations.

Tenant abandons premises and sues Landlord for negligent misrepresentation

The Tenant abandoned the premises in May 2013 with over seven years left in its lease and only a year after the coffee shop had opened. The Tenant claimed it had suffered losses because customers did not have free or accessible parking. The Tenant alleged that because finding a parking spot was so tricky, customers often had to park at a different building and walk over to the coffee shop. Further, the Tenant claimed that it was challenging to access the coffee shop as customers had to gain access to the building and, therefore the coffee shop, by registering with the condo’s concierge.

The Landlord terminated the lease in June 2013.

Tenant claimed that the Landlord provided brochure with misinformation about premises

The Tenant alleged that the Landlord’s agent had promised easily accessible and plentiful customer parking. This information was also contained in a brochure which was provided to the Tenant before the lease was signed. In addition, Coffee Spot representatives were taken on a site tour where they were shown an underground parking garage. The Landlord’s representatives admitted at trial that this was done to assure the Tenant that ample and convenient parking would be available.

The Tenant sued the Landlord for negligent misrepresentation and damages, arguing that it had reasonably relied on the Landlord’s pre-contractual representations about the availability of parking for customers. Neither the offer to lease, nor the lease, explicitly included any provision related to parking for customers, only parking for employees, for which the Tenant paid rent, and which were located in an area separate from the retail customer parking.

Special relationship between Landlord and Tenant created duty of care

The Landlord denied making any negligent misrepresentations, but the trial judge found in favour of the Tenant.

The Court referred to the five-part test for negligent misrepresentation from the Supreme Court of Canada’s decision in Queen v Cognos, Inc.:

  1. Is there a duty of care based on a “special relationship” between the representor and the representee?
  2. Was the representation untrue, inaccurate, or misleading?
  3. Did the representor act negligently in making the alleged misrepresentation?
  4. Did the representee rely on the negligent misrepresentation and was that reliance reasonable?
  5. Was the reliance detrimental to the representee in the sense that damages have resulted?

The trial judge noted that the relationship between a landlord and a tenant, even a prospective tenant, is already recognized in law to meet the “special relationship” required to give rise to a duty of care.

Trial judge found that negligent misrepresentations made by the Landlord had been reasonably relied on by the Tenant

The trial judge subsequently considered the representations made by the Landlord to the Tenant and whether they were inaccurate or misleading. The trial judge found that inaccurate representations were made by the Landlord, specifically:

  • The Tenant’s customers would have access to free customer retail parking without restrictions in P1 of the complex’s parking garage (with 150 parking spots for all retail customers); and
  • The Tenant’s customers would be able to access the coffee shop from the P1 retail parking using an elevator that provided direct access to the retail lobby next to the Tenant’s premises.

For these inaccurate statements to also be negligent, the Landlord must not have exercised due diligence or reasonable care in making the representations. The trial judge held that the Landlord knew at the time that it was making the representations that a concierge would control entry into P1. Additionally, the Landlord knew it would have no control over how the concierge carried out their duties. The Landlord was negligent in not disclosing that the condominium corporation would exercise control over access to P1 and to the elevator leading to the retail lobby.

The trial judge found that the Tenant had reasonably relied on these misrepresentations, and they helped induce the Tenant to enter into the 10-year lease at a very early stage of the condominium development. This reliance also caused a detriment to the Tenant, because the Tenant undertook the complete building of the premises, including installing a ceiling, floors, tiles, two washrooms, fixtures, furniture, as well as incurring ongoing operating costs of staff and inventory among other things.

The “entire agreement” clause did not shield the Landlord from liability for pre-contractual negligent misrepresentations

Tort liability, such as negligent misrepresentation, can be excluded or limited by the terms of a contract such as an exclusion or “entire agreement” clause. In this case, the Landlord argued that the “entire agreement” clause in the lease precluded the Tenant’s negligent misrepresentation claim.

The lease’s entire agreement clause read as follows:

“This Lease contains all of the terms and conditions of the agreement between the parties relating to the matters herein provided and supersedes all previous agreements or representations of any kind, written or verbal, made by anyone in reference thereto, with the exception of any written and executed offer to lease or agreement to lease (“Offer to Lease”) which may exist between the parties and pursuant to which this lease has been entered into. There are no covenants, representations, agreements, warranties or conditions in any way relating to the subject matter of this Agreement expressed or implied, collateral or otherwise, except as expressly set out herein …” [emphasis added by the Court]

The trial judge identified the key language of the entire agreement clause as “there are no … representations … in any way relating to the subject matter of this Agreement, expressed or implied, collateral or otherwise except as expressly set out here.”

Due to the lease’s silence on customer parking, the representations made by the Landlord did not relate “in any way” to the “subject matter” of the lease agreement. Therefore, the Tenant’s claim was not precluded by the entire agreement clause because it did not fall under the ambit of that clause.

Tenant entitled to significant damages

When a claimant is successful in a claim for negligent misrepresentation, they are entitled to be put back in the position they would have been in, but for the misrepresentation. A successful claimant is not entitled to receive future damages for anticipated future profits.

In this case, the trial judge held that the Tenant was entitled to its operating cost losses of $269,296 as well as the $757,755.34 that it spent building out the premises.

Ontario Court of Appeal dismissed the Landlord’s appeal

The Landlord appealed the decision to the Ontario Court of Appeal on the basis that the trial judge failed to consider the lease agreement as a whole when analyzing the entire agreement clause.

The Court of Appeal dismissed the appeal and ordered that the Landlord pay the Tenant $20,000 for costs of the appeal.

The Real Estate Lawyers at Bader Law Help Clients Draft and Interpret Commercial Lease Agreements

The real estate lawyers at Bader Law represent and advise individual and corporate buyers in real estate transactions in Mississauga and throughout the Greater Toronto Area. Our real estate team works efficiently to reduce risk, protect clients’ interests and preserve their financial investments. Our team assists with the review of Agreements of Purchase and Sale, handles title insurance matters, and assists with mortgages and refinancing.

Bader Law ensures that your real estate disputes are resolved in a timely and professional manner. Contact us online or call us at 289-652-9092 to schedule a consultation with a member of our real estate team.

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Court Orders Commercial Landlord to Appoint Expert Regarding Operating Costs Dispute

In some commercial real estate matters, a lease agreement may not adequately consider the full nature of a dispute in electing certain forms of alternative dispute resolution mechanisms. This situation arose in the recent case of KMH Cardiology Centres Incorporated v Lambardar Inc. where the Ontario Superior Court of Justice awarded an order allowing specific types of disputes to be heard before an independent professional consultant, instead of an arbitrator.

A disagreement arose between commercial landlord and tenant about the amount operating costs

KMH provides nuclear cardiology services in Canada and three of its locations were the subject of this proceeding. Lambardar owns the office properties that KMH leases for its Toronto and Mississauga locations. KMH and Lambardar were under the same ownership until KMH was sold several years ago. In the same transaction, the three leases were negotiated and finalized.

A disagreement arose regarding the tenant’s share of operating costs between 2017 and 2020 regarding three key issues:

  1. whether the basements in two of the properties were considered part of the “gross leaseable office area”;
  2. whether the landlord could charge a 15% administration fee on taxes; and
  3. whether the landlord could charge the tenant for its site supervisor’s services.

The total value incurred by the tenant in relation to these issues was approximately $900,000.

The relevant terms of the lease

Generally, a lease requires a landlord to provide the tenant with an estimate of their approximate portion of operating costs at the beginning of each year. Of that portion, the tenant is required to pay one-twelfth of the total estimated amount each month. After the end of the year, the landlord must provide the tenant with a written statement of the actual costs paid, at which point the tenant is required to pay the landlord to make up for any shortage, or the landlord must repay any excess paid back to the tenant.

In this case, section 4.7(c) of the Lease Agreement stated the following regarding the accuracy of the written statement:

“If Tenant disputes the accuracy of any Statement, Tenant shall nevertheless make payment in accordance with the Statement, pending resolution of the dispute, but, subject to Section 4.8, the disagreement shall be referred by Landlord for prompt decision to an independent professional consultant approved by the Tenant, acting reasonably, who is qualified by education and experience to make such decision and who shall be deemed to be acting as an expert and not an arbitrator…”

The above provision was subject to section 4.8 of the Lease Agreement, which outlined various steps and conditions the tenant could take to audit the landlord’s Operating Costs. These conditions included an agreement “to contract with the Tenant’s accountant/auditor in a manner other than on a commission basis or on a basis where compensation is based upon a percentage of the recoveries obtained.” If a disagreement was not resolved within 15 days after the audit, only then could the parties rely on section 4.7(c).

The landlord felt an expert was not qualified to assess matters that contain a question of law

Despite the tenant’s request, the landlord refused to appoint an expert to resolve the dispute regarding Operating Costs. The landlord’s refusal to work towards resolution had cost the tenant $900,000 more than required in Operating Costs payments.

The landlord’s refusal was predicated on the fact that in the Lease Agreement, the “expert” was not intended to operate as an arbitrator or judge. Neither arbitrators nor judges are supposed to bring their personal knowledge into their assessment of the facts. Instead, they can only make a decision based on the evidence presented to them by each party. Parties may include expert evidence. Unlike in court proceedings or arbitration, relying on an expert assessment does not provide the same opportunities for appeal.

The landlord submitted that appointing an expert decision-maker was inappropriate in the circumstances because the issues went beyond simple mathematical problems and required contractual interpretation.

The Court finds that the parties intended this exact issue to be resolved by an expert, not the civil justice system

The Court disagreed with the landlord’s position that an expert could not be a decision-maker when questions of law arise. The Court pointed to how, in contract law, expert determinations are sometimes necessary.

In this case, the Court outlined various reasons as to why it was clear that the parties, through their Lease Agreement, intended for their disputes to be assessed by an expert, including:

  1. The expert’s knowledge was limited only to the calculation of operating costs in the context of this particular commercial lease;
  2. The clause itself does not appoint anyone with specifically defined expertise. Instead, it states that the parties would need to agree on an appointee who is “qualified by education and experience to make such [a] decision”;
  3. Before the parties appoint an expert, the Lease Agreement provides for the tenant’s unilateral right to request supporting documentation relating to the landlord’s estimated operating costs and subsequently request an audit. If the tenant disagrees with the audit results, the expert’s role extends beyond adding up numbers and they will instead provide an assessment to “resolve any disagreements relating to the payment by Tenant of Tenant’s Proportionate Share of Operating Costs”; and
  4. Each of the parties were sophisticated and appreciated the amount of money which was spent on operating costs each year.

Court orders landlord to appoint expert to resolve dispute

With the above reasons in mind, Justice Myers held that the landlord’s interpretation of the limitation on section 4.7(c) could not stand. Because each of the issues in this case were contemplated by section 4.7(c), the Court ordered the landlord to appoint an expert to promptly resolve the dispute.

Contact the Real Estate Lawyers at Bader Law for Help Interpreting Commercial Lease Agreements

Bader Law represents individual and corporate buyers in real estate transactions in Mississauga and throughout the Greater Toronto Area. Our experienced real estate lawyers take strategic action to reduce risk, secure clients’ interests, and protect their financial investments. Our team reviews Agreements of Purchase and Sale, handles title insurance matters, and assists with mortgages and refinancing.

Bader Law ensures that your real estate matters are tended to in a timely and professional manner. To schedule a consultation, contact us online or call us at 289-652-9092.

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Innocent Tenants Maintain Interest After Mortgage Default

What happens when two innocent parties are implicated in the default of a mortgage? This was the issue in a recent case before the Ontario Superior Court of Justice. When a mortgagee defaults, but has tenants living on the property, the mortgagor cannot simply repossess the property. The tenants’ interests must be taken into consideration as well. 

The borrower defaulted on the loan so the lender sought to possess the property

The case of Canadian Imperial Bank of Commerce v. Pena concerned an application for the possession of property. The applicant was Canadian Imperial Bank of Commerce (“CIBC”), which was the respondent’s lender in a Line of Credit and Mortgage Loan Agreement. The Agreement was dated February 15, 2017. In November 2021, the respondent defaulted on the repayment of the loans.

Under the terms of each of the loans, if the borrower was to fall in default, the entire balance of the loans would become payable. On March 30, 2022, the bank demanded full payment for a total of $331,341.05. The respondent had given the applicant a Charge/Mortgage of Land on the property in question as collateral security for the loans. Under the terms of the Charge, it was provided that:

“THE Chargee, on default of payment by the Chargor for at least fifteen (15) days, may, on at least thirty-five (35) days’ notice enter on and lease the land or on default of payment by the Chargor for at least fifteen (15) days, may, on at least thirty-five (35) days’ notice enter on and sell the land. The Chargee may lease or sell the land without entering into possession thereof.”

The respondent had brought tenants onto the property after enforcement proceedings had commenced

The respondent was served a Notice of Sale Under Mortgage and a Notice of Intention to Enforce Security on April 12, 2022. In response, the respondent threatened to call the police. He claimed, by email, that he was out of the country and that his family resided in the property. As it turned out, however, the respondent was renting the property out to individuals who were not his family.

The tenants had paid $30,000 in advance to secure the property as residence for the year. They had obtained their lease in July 2022. They were unaware of the circumstances that had arisen in relation to their home. 

In this case, there were two innocent parties who had been defrauded by the respondent, which sometimes calls for equitable relief.

The defence against an application for possession of property

Generally, courts will not take property from a purchaser who has made a purchase with considerable money upfront without notice. This is a defence to an application for possession of property. In i Trade Finance Inc v Bank of Montreal, the Supreme Court of Canada explained:

“The effect of the defence is to allow the defendant to hold its legal proprietary rights unencumbered by the pre-existing equitable proprietary rights. In other terms, where the defence operates, the pre-existing equitable proprietary rights are stripped away and lost in the transaction by which the defendant acquires its legal proprietary rights.”

To analyze a case under the doctrine, a court must compare each of the innocent parties’ equities. 

The applicant and the tenants’ interests both had to be weighed

In this case, the lease had been entered into after the enforcement proceeding had commenced. The tenants had done everything they reasonably could have done to obtain the property, as there was no record on the title that indicated the default on the mortgage or enforcement efforts. However, the applicant was slow to take action in its enforcement proceedings after the respondent defaulted. So, the Court decided that the tenants were the slightly more innocent parties between them and the applicant bank.

The bank relied on section 52(1) of the Mortgages Act, which allows a court to set aside a tenancy agreement on default of the mortgage. However, it ignored in its argument section 52(2) which reads: “In considering the application, the judge shall have regard to the interests of the tenant and the mortgagee.”

The Court held that, because of section 52(2), both the tenants and the lender’s interests must be taken into account. The tenants had approximately half of their lease term remaining and risked losing their home.

Court grants possession of property to applicant

In contrast, if the tenants were allowed to stay in the property until the end of their lease, the lender would be able to collect interest on the respondent’s default to recoup its loss. The applicant, having the property itself as security, has a remedy for the losses it faced. The tenants do not. 

The Court decided that the tenants were allowed to stay in the property until the term of the lease expired. The Court also allowed the applicant to add the $30,000 collected in rent by the respondent to the debt owed in addition to any other delinquent expenses on the property. 

The applicant was given possession of the property. It would become the effective landlord at the end of the lease agreement, and could obtain possession of the unit in accordance with the Residential Tenancies Act.

Contact the Real Estate Lawyers at Bader Law for Help with Legal Disputes

Bader Law represents individual and corporate buyers in real estate transactions in Mississauga and throughout the Greater Toronto Area. Our experienced real estate lawyers take strategic action to reduce risk, secure clients’ interests, and protect their financial investments. Our team reviews Agreements of Purchase and Sale, handles title insurance matters, and assists with mortgages and refinancing.

Bader Law ensures your real estate matters are tended to in a timely and professional manner. To schedule a consultation, contact us online or call 289-652-9092.