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.
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.
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 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.
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.