Business Law / Real Estate Law

Ambiguous Terms and Commercial Real Estate Leases

When it comes to a commercial lease, it is important that the terms of the lease are clear and defined, in order to ensure that all parties are aware of their rights and obligations under the lease. When terms are vague or ill-defined, this leaves the contract open to interpretation and will possibly allow a party to escape their intended responsibilities. A recent Ontario Court of Appeal decision had to make a determination as to whether the terms of a lease were too ambiguous to enforce against the tenants, who had abandoned the lease early in the term.

The Commercial Lease is Abandoned

The plaintiff in the matter was a family-run corporation that owned a commercial space in the City of Vaughan. In 2011, the plaintiff entered into a 10-year commercial lease for the property with the defendants. The defendants were two individuals, a married couple, and their business, a children’s daycare. The lease was executed by each individual in their personal capacity as well as in their capacity as the principals of the business. The lease indicated that the property was to be used solely for the purpose of operating a daycare and for administrative space.

The defendants took possession of the property in January 2011, and then abandoned the property and stopped making rent payments in September 2012. At that time, there were 8 years and 4 months remaining in the lease term. The plaintiff landlord brought an action against the defendants for approximately $1.2 million, covering the loss of rent as well as repair costs and interest.

At trial, the plaintiff was awarded just under $800,000 in damages for the abandonment of the lease as well as cleanup and repair costs, and interest. The defendants appealed.

Did the Principles of the Corporate Party Sign in Their Personal Capacity?

The first ground of the appeal was that the male defendant claimed that he had signed the lease in his capacity as the president of the business and not personally. Therefore, he could not be deemed to be a “tenant” under the lease or be held personally liable for the damages. However, the Court of Appeal found that he had testified in court to the fact that he had signed in his personal capacity, and so there was no ambiguity as to his personal liability for the damages.

Was the Use of the Property Under the Terms of the Lease Ambiguous?

In addition to running the daycare out of the property, the defendants had also begun to store large items belonging to the husband on the premises. This included an antique fire truck and several vintage cars. These items were stored outside, in public view. Approximately a year and a half into the lease, the City of Vaughan issued a letter to the defendants stating that the storage of these items was in contravention of the City’s by-laws regarding open storage, and said that the items had to be removed. The defendants abandoned the property shortly afterward, claiming that this amounted to a breach of the lease. They testified that they had always intended to use the property for such storage, and since the storage was not permitted by the municipality, they were entitled to repudiate the lease. Further, they claimed that the storage was an implied term of the lease.

The Court examined the relevant terms of the lease, which stated:

“During the Term of this Lease the Premises shall not be used for any purpose other than DAY CARE CHILDREN’S CENTRE AND COMPANY’S ADMINISTRATION OFFICE without the express consent of the Landlord given in writing.”

and

“The Tenant shall not do or permit to be done at the Premises anything which may: […] (e) constitute a breach of any by-law, statute, order or regulation of any municipal, provincial or other competent authority relating to the Premises.”

At trial, the judge found that there had been no ambiguity to the terms relating to the use of the property and that it was not reasonable to interpret that there was an implied term relating to the storage of vehicles on the lot. On appeal, the Court found that the trial judge was reasonable in this determination, and was unable to find any palpable or overriding error in the trial judge’s reasons. As such, the original order remained.

This case clearly demonstrates the need for all parties to a commercial lease to ensure that the terms are clear and properly set out the expectations, rights and obligations of everyone involved. Before signing a commercial lease, have it reviewed, or drafted, by an experienced real estate and/or business lawyer who will ensure that your interests are protected.

Contact GLG LLP in downtown Toronto for assistance with finalizing or renewing a commercial lease agreement. Their real estate and business lawyers have extensive experience drafting and reviewing commercial lease agreements of various sizes and across multiple industries. The firm also represents clients in litigation should that become necessary. To schedule a confidential consultation, call 416-272-7557 or fill out the online form.