You are starting a business and need a place to set it up. One of the first steps in your approach will probably be to find this space and negotiate, with its owner, the conditions under which it will be rented to you. A commercial real estate lease is the contract between you, as a “tenant”, and the “landlord”, who is generally the owner of the building. It is often distinguished from a residential lease, since the latter has much stricter rules 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 referred to as the “C.C.Q.”). However, Articles 1851 to 1891, which apply to commercial leases, are qualified as supplementary. 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 deviates from the rules of the CCQ. 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 articles of the C.C.Q. are only used to complete the lease for a situation that is not provided for in it.

The lease negotiation stage is therefore decisive for the tenant. If he is not careful, or if he has not had the lease analyzed by a professional before signing it, he could have accepted a lease that overrides all the protections granted to him by law.

It is frequent that during the lease, the tenant finds an unfair clause and asks himself the question: does the landlord have the right to do so? In most cases, the answer is in the lease; if the clause in question allows him to do something, it will often be impossible to prevent him from doing so. That’s why you shouldn’t accept just anything when you sign!

This article will present the main obligations that the C.C.Q. grants to the tenant. Keep in mind that a landlord can modify almost all of them in a lease, and add new ones. It can be a good exercise to visit several locations and compare the different leases.

1. OBTAIN THE USE OF THE BUILDING AND PAY THE RENT IN RETURN

A real estate lease arises when both parties undertake to fulfil their basic obligations, also known as essential contractual obligations. For the landlord, it is a matter of delivering the building to the tenant and ensuring that the tenant can have normal enjoyment of the building and its accessories[1]. In return, the tenant must undertake to pay rent to the landlord[2]. Unlike almost all other rights and obligations, these essential obligations cannot be avoided by the lease.

However, the clause that defines the rent payable by the tenant may pose difficulties that can lead to conflicts, and it is important to understand all the elements before accepting it. It is common to see a clause that contains a base rent to which additional charges are added that the tenant must pay. In order to avoid a dispute or conflict with the landlord, the tenant should ensure that all expenses incurred are clearly defined in the lease.

For example, the lease may transfer the burden of major work to the lessee as additional expenses, but the work on the structure may still be the responsibility of the lessor. In such a case, is the repair of the roof included in the work on the structure? This will depend on how the clause is drafted and it is therefore in the parties’ interest to write in plain language who is responsible for repairs to the roof[3].

Another major issue in the rent clauses arises when the actual size of the leased building is not the one mentioned in the lease. The tenant then tends to want to obtain a rent reduction, which may seem logical. The lease should then be consulted to see if the rent has been expressed in terms of area. If this is the case, for example, if the rent is expressed in dollars per square foot, the rule is that the rent should follow the actual area. If the building is smaller than what is provided for in the lease, the rent should therefore be reduced.

The opposite is also true. If the size of the building is included somewhere in the lease, but is not related to the rent, there will be no need to reduce the rent if it is discovered that the actual size of the building is smaller[4].

2. NOT TO CHANGE THE FORM OR DESTINATION OF THE BUILDING

Article 1856 of the C.C.Q. states that the two parties, both the landlord and the tenant, may not change the form or destination of the building during the lease. The prohibited change may be a direct modification to the building or its accessories, or a change in the terms of the lease.

For example, a landlord who builds a shaded wall on a restaurant terrace is a change in the shape of the building that harms the tenant operating that restaurant[5], as is the installation of a fence that harms the tenant’s traffic[6].

The demolition by the landlord of a storage space on the grounds that it is not part of the leased premises is also a change of form prohibited by this section[7]. As mentioned, all accessories to the rented building are also affected by the obligation not to change the form.

It is interesting to note that even when the landlord makes improvements to the building, it can be seen as a change in the shape of the building that affects 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 the rented premises. A landlord cannot change the purpose of a building. For a building that was entirely leased for commercial purposes, for example, the landlord could not convert it all into housing by retaining only one commercial floor[8]. A tenant whose commercial space remains untouched may suffer damage because there is less traffic. This is a change of destination of the building that is not permitted by the C.C.Q.

3. ASSUME RESPONSIBILITY FOR MINOR MAINTENANCE REPAIRS REQUIRED FOR THE BUILDING

Article 1864 of the C.C.Q. establishes the distribution of the work required for the building between the tenant and the landlord. In principle, the tenant is responsible for only minor repairs related to the maintenance of the building, and this does not include repairs resulting from the aging of the building, which are the responsibility of the landlord.

Don’t be surprised to find that the commercial lease proposed by a building owner establishes a different distribution of work. In practice, in most cases, almost all maintenance and repair work must be done at the expense of the tenant. Major work and work on the building structure generally remains the responsibility of the landlord, but in some cases, all work is transferred to the tenant.

The work allocation clause must be clearly understood by the tenant before signing the lease since it is essential to estimate the expenses that will have to be incurred for the maintenance of the building.

4. OBLIGATION TO UNDERGO URGENT AND NECESSARY REPAIRS

Article 1865 of the C.C.Q. completes the distribution of work by describing the process to be followed when the landlord must carry out work in the premises rented by the tenant. Indeed, this article imposes an obligation on the tenant to undergo urgent and necessary repairs to ensure the conservation or enjoyment of the building. The term “suffer” means that the tenant must accept the normal inconveniences resulting from the work, which may include the possibility of being temporarily evacuated, for example.

For this section to apply, the work must be necessary for the conservation or enjoyment of the building. Work done to improve the building does not fall into this category. Decontamination work will generally be considered necessary, but not urgent for the conservation of the building[9].

There is indeed a distinction to be made between the two criteria. If the repairs are not urgent, the landlord must seek the court’s authorization before subjecting the tenant to them, whereas he does not need this authorization if the repairs are urgent for conservation.

The good news for the tenant is that whether or not the landlord had to apply to the court for authorization, he or she can be compensated if he or she had to leave the premises temporarily or if he or she suffered significant inconvenience, such as a loss of leased space during the work[10]. Depending on the case, it may be a reduction in rent during the work, compensation for damages, or in very serious cases, termination of the lease.

5. NOTIFY THE LANDLORD OF A SUBSTANTIAL DEFECT OR DETERIORATION

It is article 1866 of the C.C.Q. that imposes this obligation on the tenant. Since he is the one occupying the premises, he is responsible for informing the landlord when the building has a major defect that could get worse. Minor defects do not have to be reported to the landlord.

The tenant is advised to provide this notice in writing, even if the article does not specify that it is mandatory. This will make it easier to keep and prove the written notice in the event of a conflict.

In addition, the tenant should forward this notice as soon as possible after discovering the defect. There is no specific time limit in the law, but the tenant has several advantages to notify the landlord quickly. First, he cannot be accused of having delayed too long if the building is damaged. Second, if the landlord is too late in making the necessary repairs and the tenant suffers damage as a result, the notice to the landlord will be the starting point for his claim[11].

6. THE TENANT MUST REPORT TO THE LANDLORD ON THE WORK HE HAS DONE

It may happen that the landlord delays too long in carrying out the work necessary to preserve the building and in these cases, the tenant is authorized to do it for him[12]. When the tenant carries out such work, article 1869 C.C.Q. requires him to report it to the landlord. He must then describe the repairs made and the expenses incurred, and provide him with supporting documents for these expenses.

The information provided to the landlord must be as complete as possible so that the tenant can be fully reimbursed. Indeed, since these works are supposed to be the responsibility of the landlord, the tenant is authorized to recover the money invested to do them. Moreover, if he is not reimbursed by the landlord, he may deduct these amounts from his rent.

7. OBLIGATIONS RELATING TO THE ASSIGNMENT OR SUBLEASE OF THE LEASE

Article 1870 of the C.C.Q. grants the lessee the right to assign or sublease his lease. This right comes with the obligation to inform the landlord, to inform him of the name and address of the person to whom the lease will be assigned or subleased, and to obtain the authorization of the landlord.

It should be noted, however, that the landlord cannot refuse the assignment or sublease without serious reason[13]. The lessee, in principle, must simply complete the formalities of Article 1870 to fulfil his obligation.

The assignment of the lease and its sublease are very different from each other. When a tenant assigns his lease to another person, he releases himself from all his responsibilities and the new tenant becomes bound to the landlord by the lease.

In the case of a sublease, the tenant remains liable to the landlord and is therefore always the main tenant. By a new contract, it grants certain rights to another person, who becomes the sub-lessee. The tenant may not give more advantages to the sub-lessee than he himself has under the main lease.

A tenant considering assigning or subletting his or her lease should consult a lawyer for full details of the consequences. It is common to think that a sublease relieves the tenant of his responsibilities when this is not the case!

8. RESTORE THE BUILDING TO ITS ORIGINAL CONDITION

When the lease ends, article 1890 of the C.C.Q. requires the tenant to return the building to the landlord in the condition in which it was received. The article also specifies that the tenant is not responsible for changes due to aging or normal wear and tear of the building.

To avoid being accused of a breach of this obligation at the end of the lease, it is advisable for the tenant to take photographs of any defect when taking possession of the building. If nothing is done to establish the initial condition, article 1890 states that the tenant is presumed to have taken the building in good condition, which could harm him.

On the same subject, the tenant is also obliged to remove the constructions, works and plantations that have been made there[14]. These terms include any form of modification or addition made to the building, except of course for repairs that the tenant must make under the lease. This can range from laying a carpet to building an adjacent building to the main building[15].

If the addition cannot be removed without damaging the building, or if the initial restoration is impossible, different consequences are imposed by article 1891 of the C.C.Q. In the worst case, the landlord could keep them without compensating the tenant. It is therefore in the best interest of the tenant to plan for this when making major modifications to the building.

This concludes the review of the tenant’s main commercial lease obligations.