When parties enter into a commercial lease, the intention is to enter into a mutually successful endeavour favourable to both parties. However, this does not always work out as intended. What are a commercial landlord’s options when a tenant is in breach of the lease? How can a landlord secure possession of the premises so that they can either dispose of the property or find a new tenant? Similar to a residential lease, the landlord must obtain a writ of possession.
What is a Writ of Possession?
The laws around a writ of possession are set out under ss. 18-21 of the Commercial Tenancy Act. When a tenant refuses to comply with a reasonable request to vacate the premises, a commercial landlord may apply to the Supreme Court of British Columbia to force the tenant to vacate. If the Court finds that there is a sufficient basis for the landlord’s request, it will set a time and place to further inquire as to whether the tenant should be ordered to leave. From there, the landlord must serve the tenant with notice of the date and time of the hearing at least five days in advance.
At the hearing, the court will hear from both parties and make a determination as to possession of the property in question. If the court decides in favour of the landlord (or if the tenant fails to appear), the court will issue a writ of possession to the sheriff, commanding the sheriff to place the landlord in possession of the premises.
A Tenant Fails to Pay Rent for Over Two Years
In a recent decision of the BCCA, a commercial tenancy ended in court, when the tenant failed to pay rent for the first two and a half years of the tenancy and the landlord sought a writ of possession to remove the tenant from the premises.
The tenancy began when the owner of the appellant business, a medical marijuana producer, approached the respondent, a realtor, about locating a property in order to set up a production facility for its enterprise. The realtor agreed to purchase a property for $350,000, and the owner set about incorporating and developing his business. The owner was also a director of a construction company, and the two parties agreed that the construction business would build a facility on the property for use by the appellant.
The appellant and respondent entered into a commercial lease commencing January of 2014 for a period of five years. They agreed that the appellant would pay rent to the respondent in the amount of $7,500 per month for the first year, and increasing by $1,000 each in year 2 and year 4. The lease contained a renewal clause stating that the appellant reserved the right to renew upon four months’ notice if they were not habitually in default of the lease. However, the lease did not define the term ‘habitually in default’. Neither party had the lease reviewed by a lawyer prior to signing. Construction commenced shortly after the purchase of the property. While the lease said that the initial term was for five years, it noted that the last day of that period would be December 31, 2019.
The lease also contained a term stating that the rent was abated until the property was “available for occupancy”, however the lease did not define that term.
The appellant was unable to secure a licence from Health Canada to produce marijuana until March of 2017. Until that time, it did not pay rent under the lease. As of November 2016, the respondent had calculated that the rent in arrears, including interest, totalled $293,372.55. In December of 2016, the respondent demanded in writing that the appellant pay the outstanding rent and interest. The notice included a termination of the lease on the grounds that the appellant was in default.
In February of 2017, the respondent provided notice to the appellant demanding that the appellant vacate the property. The appellant refused on the basis that the respondent owned the appellant money for the costs of construction. The appellant further stated that the rent should be offset against the construction costs, which totalled over $1 million. The respondent disagreed, despite having already paid over $750,000 to the appellant in construction costs. He claimed that he had paid said amount because the buildings would remain on the land and he would derive that benefit as the property owner, but he disputed that there had been a collateral agreement with respect to the costs of construction, or any agreement to defer the rent payments.
The Landlord Seeks Writ of Possession
The respondent brought his first petition for a writ of possession in February of 2017 on the basis that the tenant had not paid rent. At the hearing in August 2017, the judge determined that, based on the occupancy term in the lease, the appellant was not required to pay rent until construction was completed on the buildings, which had occurred in March of that year. The judge dismissed the petition. The respondent appealed, but the appeal was dismissed.
In December 2018, the respondent served the appellant with a notice of default and advised that it had 15 days to cure the default or he would terminate the lease and take possession. In January 2019, the appellant filed a second petition for a writ of possession, claiming that the appellant was in wrongful possession because the lease had terminated as of December 31, 2018. The appellant responded that the lease expired on December 31, 2019. The appellant further argued that this second petition was tantamount to an abuse of process.
Errors in the Lease
The judge concluded that the lease had in fact expired as of December 2018. While the date was listed as December 2019, it was clear from the language that the parties had only intended for the lease to be for a period of five years, and that the date was a mistake. The judge found that the appellant was not entitled to possession and ordered a writ of possession in favour of the respondent. The appellant then appealed. The appeal court found that there was no basis to interfere with the finding that the lease had ended on December 31, 2018, stating:
I am also satisfied that the judge squarely grounded his finding of fact on the expiry date of the lease in the wording and structure of the lease, not extraneous factors. This is most apparent from para. 74 of his reasons, where he stated his conclusion that “the references to a five year term starting January 1, 2014, with an option to renew for another five year term, amply support[ed] Mr. Illingworth’s position”. Here, the judge plainly focused on the language of the lease, including the stated commencement date (which is not in dispute), and the description of the lease as five years in length.
This case is a clear demonstration of the need for sound legal advice and guidance when drafting and reviewing the terms of a complex commercial lease. When terms are vague or contain errors, this can cause major headaches for the parties in the future. It is best to have an experienced commercial real estate lawyer prepare the lease to reflect the desires of the parties from the start so there is no room for misunderstanding down the line.
The lawyers at Cherkowski Marsden LLP have over 50 years of combined experience assisting clients with real estate transactions, including both residential and commercial properties. They will carefully review any Contract of Purchase and Sale as well as advise on and draft commercial lease agreements in order to ensure that your rights and concerns are properly addressed. To arrange a consultation with an experienced lawyer, please contact their office online or by phone at 250-308-0338.