A commercial real estate lease is the contract between the “lessor”, who is generally the owner of the building, and the “lessee”, who rents the building for commercial purposes. A distinction is often made between commercial and residential leases, since the latter are subject to much more restrictive rules intended to protect tenants’ housing rights.

It must be understood that both types of leases are subject to the rules of the Civil Code of Québec (hereinafter the “CCQ”). However, Sections 1851 to 1891, which apply to commercial leases, are qualified as suppletive. In other words, the parties to the contract are not required to comply with these rules, with a few exceptions, and it is therefore possible to draft a commercial lease that derogates from the CCQ rules. This is why it is not uncommon to see a commercial lease of almost 100 pages; it is the main tool for managing the relationship between the landlord and the tenant, and the sections of the CCQ are only used to complete the lease for a situation that is not provided for in the lease.

From the perspective of a building owner who leases commercial premises, the lease is of paramount importance because the CCQ generally favours the tenant. This article will be used to explain the various obligations that the CCQ imposes on the landlord. Here are the main ones, but keep in mind that in practice, commercial leases transfer most of these obligations to the tenant.

1. Deliver the building in a good state of repair

The landlord has the obligation to deliver the leased premises to the tenant[1]. This is the most obvious obligation and the landlord cannot transfer it because it is the very basis of the contract. This involves, for example, handing over the keys to the tenant on the date specified in the contract so that the tenant can have access to the premises.

This obligation also applies to the parts accessory to the rented premises. Parking spaces are often included in the lease of a commercial space, and these spaces are referred to as accessories. The landlord must then make them available on the date specified in the contract, as must the premises itself.

The landlord must also deliver the building in good repair condition. Although the notion of latent defect is mainly associated with the sale of a building, the courts have established that there is an equivalent in terms of leases. Indeed, the obligation to deliver the building in a good state of repair implies that the landlord is responsible for any defect in the building, whether hidden or visible when the contract is concluded. The landlord would be responsible for water infiltration, for example. In practice, however, commercial leases almost always exclude this liability and transfer it to the tenant. As a building owner, to avoid assuming this responsibility, it is important to remember to clearly indicate this in the lease.

2. Provide the tenant with peaceful enjoyment of the leased premises

This obligation attributed to the landlord is very broad and involves several situations. The general idea is that the tenant can use the rented premises with confidence, peace of mind and without fear of accident risk[2]. One of the interesting aspects is the landlord’s obligation to ensure the minimum security of the building.

In Riocan Holdings Inc. v. 4381882 Canada Inc., the Superior Court clearly established the limits of the landlord’s obligation with respect to theft[3]. The latter must ensure that access to the premises is not too easy for a third party, and that doors and windows must therefore be equipped with a sufficient locking system. However, its obligation does not go so far as to guarantee the tenant that no intruders will enter the rented premises. In this case, the tenant was the victim of three robberies in a short period of time, and the court concluded that it was its own responsibility to increase security measures since the landlord had already taken the basic measures.

3. Do not change the form or destination of the building

The CCQ mentions that both parties, the landlord and the tenant, cannot change the form or destination of the building during the lease[4]. The prohibited change may be a direct modification to the building or its accessories, or a change in the initial terms and conditions of the lease.

For example, a landlord who builds a wall that blocks the sunlight on a restaurant terrace is a change in the form of the building that affects the tenant operating that restaurant[5], as is the installation of a fence that affects the tenant’s circulation[6].

It is interesting to note that even when the landlord makes improvements to the building, it can be seen as a change in the form of the building that is detrimental to the tenant. This is the case when the landlord pays the property taxes according to the lease, and the improvements made result in an increase in these property taxes. The landlord cannot then charge this increase to the tenant if he had not first obtained his consent to the improvement.

It may also be decided that the building has changed its destination even if there has been no material change. In a building with several premises, a tenant will often give importance to the activity of other tenants when negotiating the lease. A landlord should take steps to ensure that they keep the same type of tenants to avoid being blamed for changing the destination of the building. In this sense, it should also include a clause in the lease of all its tenants to specify the activities they are authorized to operate.

4. Warrant the lessee about legal disturbances and disturbances by the act of other lessees

Legal disturbances generally come from municipal by-laws, regarding zoning or urbanism, which impose all kinds of standards to be met in order to operate a business. This may involve property standards for operating a restaurant, for instance, or a minimum number of parking spaces available to operate a retail business. The impossibility for a tenant to obtain a certain permit is also a legal disturbance.

The CCQ requires the landlord to guarantee the tenant that he can operate in his building in compliance with the regulations. Like practically all commercial lease obligations, it can be avoided by the lease and the landlord can therefore discharge himself from any liability for legal disturbances. On the other hand, the courts have established that a clause must be very clear for the landlord to avoid liability. A clause simply stating that the tenant must comply with the laws and regulations in force is not sufficient[7].

Factual disturbances, on the other hand, are the inconveniences that a tenant may suffer as a result of someone else’s actions. These can include noise, odours, construction work, intruders or even fires. The CCQ provides that the landlord does not have to compensate the tenant for a disturbance caused by a third party[8]. However, the landlord is liable for the factual disturbance caused by another tenant or by a person to whom that other tenant authorizes access to the building, such as an employee.

Again, even if the landlord can provide a clause in the lease that excludes liability in the event of a problem with another tenant, the courts tend to penalize a landlord who does not take any reasonable means to prevent a problem despite the existence of such a clause[9].

5. Make all necessary repairs to the leased premises

The principle established by the CCQ is that the landlord must make all necessary repairs to the building and assume the expenses of such repairs, except for minor maintenance repairs, which must be carried out by the tenant[10].

In practice, the commercial lease refers to the reparation work as building maintenance costs and is divided into several categories such as repair, replacement, major repair or work on the building structure. Most leases transfer the responsibility for part of this work to the tenant, sometimes even all the work. The typical case is when the tenant assumes all maintenance and repair work, except for the building structure, which is generally the most important.

The cost of the work can therefore be seen as an additional portion of the base rent. A widespread practice between the parties to a commercial lease is to qualify the contract as a “net”, “net-net” or “absolutely net” lease. These expressions are multiple and are used to determine the expenses that are transferred to the tenant. Although they are often used in practice, their legal meaning is not always clear and it is preferable to clearly define which party should assume each type of repair.

This concludes the review of the landlord’s main commercial lease obligations. As you have already understood, the most important thing to remember is that these obligations can be transferred to the tenant to a certain extent. That’s why a good commercial lease is essential, and we strongly recommend that you have your lease written or analyzed by a legal professional.