Difference between revisions of "Commercial Tenancies (19:XIV)"

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{{REVIEWED LSLAP | date= August 2, 2023}}
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{{LSLAP Manual TOC|expanded = landlord}}


As contracts, tenancy agreements constitute commercial relations. The ''Commercial Tenancy Act'', RSBC 1996, c 57, governs that aspect of tenancy. Special laws, rules, and procedures have been established for premises and tenancy agreements characterized as residential. Landlord  and tenant matters not subject to the RTA, or exempted from particular provisions, are covered by the ''Commercial Tenancy Act''. See RTB Policy Guideline 14: Type of Tenancy: Commercial or Residential.  
The ''RTA'' does not cover tenancies that are made for a commercial purpose (i.e., Renting a space to open a store). These tenancies would be covered by the ''Commercial Tenancy Act'', RSBC 1996, c 57. Commercial tenancy law is much more complex than residential tenancy law, and individuals who believe they may have a legal issue related to a commercial tenancy are strongly encouraged to seek legal advice relevant to their individual situation.


== A. Relationship of Landlord and Tenant ==
=== '''A. Commercial or Residential Tenancy?''' ===


=== 1. In General ===
If you are unsure as to whether your tenancy is commercial or residential, and whether it falls within the ''Residential Tenancy Act'', you should seek legal advice. For assistance in determining whether your tenancy is commercial or residential, it may be helpful to refer to Residential Tenancy Branch Policy Guideline no. 14: Type of Tenancy: Commercial or Residential.


Before entering into an agreement, a tenant should find out who owns the property and who rents the property to ensure that the new tenant is  not leasing from a current tenant – see [[{{PAGENAME}}#2. Assignment and Subletting | Section XV.A.2: Assignment and Subletting]], below. A tenant should ensure that he or she does not enter into an agreement with a company that is not yet incorporated –  see [[{{PAGENAME}}#3. Pre-Incorporation Contracts | Section XV.A.3: Pre-Incorporation Contracts]], below. A prospective tenant should perform a company search in order  to determine if the company is incorporated. See [[Foreword to Small Claims (20:I) | Chapter 20 Small Claims  Procedure]] for more information  on how to do a company search. A prospective tenant may also want to do a title search at the Land Title Office to determine whether he or she  is dealing with the registered owner or a tenant looking to sublease.  
=== '''B. Commercial Tenancy Resources''' ===


A new tenant should find out how the property is zoned to ensure lawful use of the property. Also, using the property for a different purpose than that outlined in the lease is a breach of the agreement. To vary the lease, both parties must consent.  
If you encounter an issue related to a commercial tenancy, resources that may be of assistance are listed in the [[Governing Legislation and Resources for Landlord and Tenant Law (19:XIX)|“Resources”]] section at the end of this chapter.


=== 2. Assignment and Subletting ===


When the tenant’s interest is conveyed to a third party for the remainder of the term, the lease is said to have been assigned. The assignee becomes a tenant of the landlord.
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If the premises are to revert to the original tenant before the full term of the lease, a sub-lease is created. Note that a landlord-tenant relationship exists between the landlord and sub-tenant. If both parties live in the unit, payment of rent by a new tenant to the original tenant may also create a sub-tenancy.
 
Most leases require the landlord’s consent before an assignment or sublet is made. Such clauses usually specify that the landlord’s consent  will not be unreasonably withheld. If the landlord does withhold his or her consent unreasonably, the tenant may proceed without consent, with litigation as the likely outcome. Tenants should decide if they want to deal with that or if they want to commence litigation on their own right to obtain an order that they can proceed. A landlord’s wish to charge higher rent or to prevent the tenant from receiving a premium by subletting are not reasonable grounds for withholding consent.
 
The onus is on the tenant to show that the landlord’s refusal is unreasonable. There are no fixed rules governing reasonable or unreasonable withholding of consent. The landlord can charge a fee for the tenant to sublet or assign the rental property, and that does not negate the landlord’s consent. The lease itself and all the circumstances must be considered.
 
=== 3. Pre-Incorporation Contracts ===
 
A company is not bound by contracts it enters into before incorporation. Where a person enters into a contract in the name of a company before that company’s incorporation, that person may be liable for breach of warranty. To avoid difficulty, the lease should be entered into personally with the right to assign the lease to the company once incorporated.
 
=== 4. Partnerships ===
 
A partner enters into contracts on behalf of all partners for any transaction that is in the ordinary course of business. Thus, a lease entered into in the firm’s name is binding on the firm and its partners.
 
== B. The Agreement ==
 
=== 1. Distinction between Lease and License ===
 
A license is a purely contractual relationship. It gives the licensee no interest in the licensor’s real property. Restaurants that operate  in  department stores are usually run as a licensee liquor arrangement, for example.
 
The courts  distinguish  leases  from  licenses  by  examining  whether  the  parties  intended  to grant  exclusive  possession  to  the  occupants,  or  merely  permission  to  occupy  subject  to  the rights of the owner. It is important for a prospective tenant to read the contract to determine what  type of  relationship  they  are entering  into.  Words in  the  agreement  such  as “lease”, “landlord” or “tenant” are, in the absence of a contrary statement, conclusive evidence of an intention  to  create  a  lease.  Exclusive  possession  of  the  tenant  does  not  require  absolute exclusion of the landlord. If the contract refers to a “joint venture,” then it is probably NOT a lease; a joint venture creates liabilities in the tenant and does not grant exclusive possession or an interest in the land.
 
=== 2. Distinction between Lease and Agreement to Lease ===
 
A lease is an immediate conveyance of land (though possession may be postponed) while an agreement for lease requires the parties to execute a lease at a later date. However, where the tenant is in possession, an agreement to lease may be construed as a lease.
 
=== 3. Requirements for a Valid Agreement ===
 
*a) A lease or agreement to lease greater than three years in length must be in writing to satisfy the ''Law and Equity Act'' s 59 3(a);
*b) A lease over three years should be registered (but there is no legal obligation to do so);
*c) While a seal is no longer required for Land Title Office registration, if one of the parties to a lease is a corporation, its seal should be affixed to ensure the agreement is binding on the  corporation, and to avoid any argument that the agreement was made without consideration; and
*d) The agreement must state the tenant’s right to exclusive possession as well as some indication of the premises being leased; the duration of the lease; the parties to the lease; the amount of rent; and covenants, conditions, exceptions or reservations.
 
=== 4. Description of Premises ===
 
To avoid having the lease struck down for uncertainty, there must be a description of the property adequate to identify it. An ambiguous  description may be supplemented by parole evidence.
 
=== 5. Common Areas and Easements ===
 
Driveways, walkways, parking and delivery areas, lawns, lobbies, elevators, corridors, interior mall  space,  and common  washrooms  are  normally common  areas in  which  the  tenant  does not  have  exclusive  possession.  However,  the  tenant  is  often  required  to  pay  a  share  of  the costs  for  the  maintenance  of  these  areas.  The  lease  agreement  may  also  provide  the  tenant with an easement, subject to restrictions on how and when the common areas may be used.
 
=== 6. Fixtures ===
 
A  fixture  is  annexed  or  fastened  to  the  real  property.  They  are  either  tenant’s  fixtures,  and therefore  removable,  or  landlord’s  fixtures,  which  are  permanent.  Tenant’s  fixtures  are annexed  for  the  purposes  of  the  tenant’s  trade,  ornamentation,  or  convenience.  Landlord’s fixtures  are installed  by  the landlord,  previous  tenants, or  by  the  present  tenant.  They  have become part of the realty and their removal would constitute waste: see ''Stack v Eaton'' (1902), 4 OLR 335 (Div Ct).
 
== C. Rent and Security Deposit ==
 
=== 1. Security Deposits ===
 
In  commercial  leases,  security  deposits  are  intended  to  cover  damages  for  breach  of  a covenant or condition or to ensure a tenant will go into possession. The landlord’s covenant to  repay  the  deposit  is  collateral  to  the  lease,  and  personal  to  the  landlord.  Thus,  if  the landlord sells, his or her successor is not bound to repay the deposit.
 
=== 2. Rent ===
 
Technically,  rent is  a contractual  payment  for  the  use of  property.  Commercial  leases  often also  include  additional  rents  such  as  a  percentage  of  the  tenant’s  sales  or  profits,  and  the tenant’s portion of common expenses. By defining additional rents as part of the rent, the landlord gains the right to end the lease for non-payment of these amounts. Unless otherwise provided for, it is the tenant’s duty to seek  out and  pay  the  landlord. The  tenant  also  bears  the  risk of  a late  payment if  he  or  she uses the mail.
 
=== 3. Net Lease Concept ===
 
Most  commercial  leases  operate  on  the  net  lease  concept.  This  means  that  fixed  rent (dollars-per-square  foot  or  dollars-per-month)  is  to  be  net  to  the  landlord,  with  the  tenant paying  for  all  costs  in  operating  the  leased  premises  as  additional  rent.  Thus,  substantial payments  can  be  made  as “additional  rent”  to  cover  the  tenant’s  portion  of  the  landlord’s expenses. This concept is also known as “triple net”.
 
=== 4. Taxes ===
 
Unless the lease provides otherwise, the landlord is liable for all realty taxes. If the lease calls for the tenant to pay the taxes, the landlord may sue the tenant if taxes are in arrears.
 
=== 5. Seizure of Personal Property for Non-Payment of Rent ===
 
A commercial landlord may distrain (seize personal property for non-payment of rent), while a residential landlord may not (regardless of any rental arrears). The personal property being distrained  must  be located in  the  rented  premises  and  the landlord  must  give  notice  before seizing  the  property.  The  tenant  will  suffer  a  penalty  if  he  or  she  removes  the  goods  to prevent  distrainment.  Distrainment  keeps  the  tenancy alive.  Usually  the  month  after distrainment  the  tenant  will  be  evicted  if  there  remain  rent  arrears  or  if  new  rent  arrears accrue.
 
== D. Occupier’s Liability ==
 
'''NOTE:''' For  specific  details,  see  the ''Occupier’s  Liability  Act'', RSBC  1996,  c  337  [OLA].  The OLA, s 6 speaks to sub-tenancies.
 
=== 1. Landlord’s Liability for Injuries in Demised Premises ===
 
The landlord has no statutory or common law duty to maintain the demised premises unless provided  for  in  the  lease  agreement.  Contractual  liability  of  the  landlord  is  to  the  tenant alone,  not  to  his  or  her  family,  guests,  or  customers.  Moreover,  as  the  landlord  is  not  an occupier, he or she is not liable in tort.
 
However, where the landlord is under a duty to maintain the premises, s 6 of the OLA puts the landlord in the same position as the occupier of the premises. Where the landlord fails to maintain  the  premises  and  an  injury  results,  the landlord will be  held  liable.  The  landlord is considered an occupier with regards to common areas. His or her duties are set out in s 3 of the OLA.
 
=== 2. Tenant’s Liability for Injuries in Demised Premises ===
 
The  tenant  is  considered  an  occupier,  and  inherits  all duties  that  go  along  with  that designation.  A  tenant  should  take  reasonable  care  to  inspect,  notify  the  landlord,  and  give warning  to  an  invitee  of  any  unusual  danger  in  the  common  areas.  Where  an  occupier  can foresee  that  a  trespasser  may enter  the  property,  there is  a  duty  to  treat  the  trespasser  with common humanity.
 
== E. Termination of Tenancy ==
 
=== 1. In General ===
 
If  the  landlord  terminates  because  of  the  tenant’s  default,  the  landlord’s  damages  are generally based on the landlord’s anticipated loss for the balance of the lease term. However, landlords  are expected  to  mitigate  their  losses  and  so  they  are  not  always  at  liberty  to claim damages for the remainder of the lease term. See ''Highway Properties Ltd. v Kelly, Douglas & Co. Ltd.'' (above). (There  appears  to  be  no  duty  to  mitigate  where  the  landlord  does  not  accept the  tenant’s  repudiation  of  the  lease,  and  simply  sues  for  rent  as  it  comes  due  under  the principles of property law. Should this situation arise, clients are strongly advised to consult an experienced lawyer.)
 
There  may  also  be  damages available  for  work  done  to  the  property,  the cost  of  re-renting, and  the  like.  In  a  falling  rental  market,  a  tenant  may  be held  responsible  for  the  landlord’s losses  in  acquiring  a  new  tenant  at  a  lower  rent.  The  landlord  must  look  for  another reasonable tenant.
 
=== 2. Rent Acceleration ===
 
An  agreement  may  contain  a  clause  for  rent  acceleration.  Rent  is  usually  accelerated  by  3 months,  meaning  for  example  that  if  you  owe  one  month’s  rent  of  $2,000,  at  the  end  of tenancy that becomes $6,000.
 
=== 3. Bankruptcy and Insolvency ===
 
A  trustee in  bankruptcy can  take  over  for  a  tenant  and  break the  lease  with  fewer  penalties than the tenant.
 
=== 4. Personal Liabilities ===
 
If a personal guarantee is included in the lease agreement, the tenant will be  held personally responsible  for  monies  owed  when  their  company  is  insolvent.  However,  personal guarantees  do  not  necessarily  require  a  determination  of  insolvency  in  order  to  obligate  a tenant.
 
Also,  there  are  issues  for  a  guarantor  and  a  covenantor  regarding  when  liability  accrues. Sometimes the guarantor is made a party to the lease (as one of the tenants), as well.

Latest revision as of 20:20, 8 August 2023

This information applies to British Columbia, Canada. Last reviewed for legal accuracy by the Law Students' Legal Advice Program on August 2, 2023.



The RTA does not cover tenancies that are made for a commercial purpose (i.e., Renting a space to open a store). These tenancies would be covered by the Commercial Tenancy Act, RSBC 1996, c 57. Commercial tenancy law is much more complex than residential tenancy law, and individuals who believe they may have a legal issue related to a commercial tenancy are strongly encouraged to seek legal advice relevant to their individual situation.

A. Commercial or Residential Tenancy?

If you are unsure as to whether your tenancy is commercial or residential, and whether it falls within the Residential Tenancy Act, you should seek legal advice. For assistance in determining whether your tenancy is commercial or residential, it may be helpful to refer to Residential Tenancy Branch Policy Guideline no. 14: Type of Tenancy: Commercial or Residential.

B. Commercial Tenancy Resources

If you encounter an issue related to a commercial tenancy, resources that may be of assistance are listed in the “Resources” section at the end of this chapter.


© Copyright 2023, The Greater Vancouver Law Students' Legal Advice Society.