Commercial Lease : ” A Partnership” –

Montreal Real Estate Lawyer discusses commercial lease in Montreal. . .

Commercial lease is a delicate dance between the landlord (owner) and the tenant (lessee). In order for the parties to succeed, they must collaborate with each other, in good faith, enhancing a symbiotic relationship. This involves, among other things, having the right mix of clientele (tenants), ensuring adequate provision of services, marketing and in the final analysis drafting of a proper commercial lease (contract) that embodies not only the above, but many other subjects that govern this important commercial relationship.

Good faith is a legal concept that is mentioned in several passages of the Civil Code. Essentially, every person is bound to exercise his civil rights in good faith. One of our basic rights is the right to enter into a contractual relationship (e.g. commercial lease). Moreover, the law stipulates that the parties (in our context owner / tenant) must act in good faith between the time the obligation arises and when it ends. These concepts should be applied to the basic premise underlining the concept of lease as described in Article 1851 C.C.Q. “The lease is a contract whereby a person, the lessor, undertakes to provide another person, the lessee, in return for rent, quiet enjoyment of furniture or a building for a certain period of time.” We have to look at the different phases of a lease to assess the contractual relationship (training) – promise rent, execution (commercial lease) and its extinction.

PRE-CONTRACT OR PROMISE TO RENT:

In undertaking the negotiations, the two parties must negotiate in good faith in order to come to the signing of the lease. Even if no contract was concluded, the parties may be subject to a demand for extra-contractual damages. For example, during the negotiations, confidential information can not be misused by one or other of the parties. In addition, if the landlord writes the leases such that they contain clauses that are in bad faith, they may be canceled or, if sufficiently serious, lead to the termination of the commercial lease. Each case must be evaluated for its own facts.

IMPLEMENTATION OF COMMERCIAL LEASE:

This is not just a question of the content of the lease, but how the obligations contained therein are executed. The collaboration between the owner and the tenant means watching all existing relationships to determine the legitimate and reasonable objectives of commercial lease.

In one case, the new owner of a commercial building wished to carry out non-urgent renovation. He had a duty to ensure that the work is done so as not to cause harm his tenant. The execution of the work proved chaotic. It did not give the tenant a notice different stages of renovations. The tenant has negotiated with the workers for accommodation to absorb the impact of work affecting its business operations. A fundamental principle was violated by the landlord, in that he must give the tenant the peaceful enjoyment of the premises.

Through the commercial lease between the tenant and the landlord, it is possible that either party may cause damage to a third party (someone other than the tenant or the landlord, such as a sub-lessor or deductible). If this happens, the party that has suffered damage can continue in extra-contractual damages. In considering this question, we find that the duty of good faith may go beyond the two parties to the commercial lease.

TERMINATION OR RENEWAL OF THE COMMERCIAL LEASE:

There is a shared responsibility between the owner and the tenant or a partnership, i.e. a mutual collaboration on termination (breaking) of the lease.

A corollary or extension of the concept of good faith is the obligation of both parties to minimize damages should one of said parties be in default. Article 1855 of the Civil Code stipulates that the lessee is bound to pay the agreed rent and to use the property with prudence and diligence during the term of the lease. While in strict law it means that rent should be paid to use and enjoy the property, it is not absolute. Where a tenant is in default for non-payment of the rent, the landlord must make sufficient efforts to rent out the premises to another tenant, thus mitigating his damages.

Even if the commercial lease gives rise to a right of resiliating (breaking) a commercial lease or asking for a specific execution of an obligation under said lease e.g. payment of complete rent for the duration of the lease, there is still an obligation of good faith i.e. to reduce one’s damages.

In an ongoing case, the landlord is seeking to resiliate the lease between the parties for non-payment of the rent and abandonment of the premises. The landlord according to his interpretation of the lease is seeking to enforce a (12) month penalty clause as well as a clause within the lease giving the landlord the right to appropriate the movables in the premises (which in this case are tanning machines). The tenant in his defence claims that he was ill due to a heart attack and that he was never notified of the landlord’s intentions. Furthermore, he claims not to have understood what he was signing and that the terms and conditions (contract of adhesion) were imposed upon him. In the meantime, the landlord has rented the premises to the former manager of the tanning salon who is using the equipment, thus mitigating his damages. Were there abusive clauses within the lease? Did the parties collaborate in good faith? These are questions that will be decided in a court of law in 2017.

It should be noted that the obligation to negotiate in good faith is not unlimited. In 2014, the Court of Appeal of Quebec, speaking on the extent of the collaboration between the landlord and tenant refused to impose on a commercial landlord an obligation of reviewing the conditions of the lease because of financial problems of the tenant. Good faith only extends so far.

CONCLUSION:

Mutual respect must exist in the negotiation, drafting, execution and / or termination of a commercial lease. What seems clear from a reading of a lease can sometimes be different, in reference to the conduct of the parties, as interpreted by the courts.