Commercial Tenants: What can you do if your landlord has breached a term of your lease?
You've been a good commercial tenant. You’re always on time with your rent payments, you take care of your property and you only use it to run your business … You've held up your end of the bargain, but you don't believe your commercial landlord has held up theirs. What should you do?
Don't jump to conclusions. Read your lease agreement carefully to confirm that your landlord has in fact breached a term.
Don't assume something is your landlord’s obligation without first reading your lease. Most commercial lease agreements impose very few obligations on landlords. Usually, they are not required to do much more than to allow their tenants to use the leased premises, without unnecessary interference or interruption (also known as "quiet enjoyment"). Sometimes, a lease does impose other obligations on landlords, such as a requirement to provide utilities or maintain common areas. In such cases, the nature and scope of the obligation will be set out in the lease.
Determine whether the breach is a fundamental breach (different remedies will be available to you depending on the type of breach that's occurred)
A fundamental breach is a contract breach that deprives the innocent party of substantially the whole benefit of the agreement. It's a breach that goes to the core of the agreement. An example of this might be where your landlord fails to fix a boiler and as a result, it's too cold to operate your business for an extended period. Or, where you own a business that has significant health and safety requirements, like a grocery store, and your landlord fails to repair repeated dangerous leaks to the property. In both of these cases, the fundamental covenant of quiet enjoyment has been breached as a result of your landlord's failure to take action. A landlord's unreasonable refusal to consent to an assignment or to sublet a premise has also been held to be a fundamental breach.
Whether or not there has been a fundamental breach will depend on the specific facts of the case. Importantly, a breach may be considered fundamental in one context, but not in another. The relative significance of the breached term in the context of the entire agreement is crucial. When determining whether a fundamental breach has occurred, the following factors will be considered:
the ratio of the party’s obligations not performed to that party’s obligations as a whole;
the seriousness of the breach to the innocent party;
the likelihood of repetition of such breach;
the seriousness of the consequences of the breach; and
the relationship of the part of the obligation performed to the whole obligation.
Constructive eviction is one type of fundamental breach. It occurs when the tenant justifiably vacates the premises as a result of the landlord's action (or failure to act), which interferes substantially with the tenant's use and enjoyment of the premises. It occurs where:
the breach is intentional or the probable consequence of intentional conduct;
the interference has the character of permanence or wrongfulness; and
the inference is so substantial or intolerable that it’s reasonable for the tenant to vacate.
Some examples of cases where constructive eviction have been found include where a landlord:
fails to pay utilities and the water or heat in the building is turned off for prolonged periods of time;
refuses to repair a malfunctioning heating unit;
deliberately creates and fosters an atmosphere of verbal, physical and/or sexual intimidation, such that the tenant is afraid of him or her; or
repeatedly blocks the tenant's access to the property, without a valid reason.
A breach that results in material consequences but doesn't deprive a party of substantially the whole benefit of the contract is a non-fundamental breach. An example might be where your occupancy date is delayed by a month or two in the context of a five-year lease. Another might be where your landlord fails to adequately address issues with mice or spiders that haven't interfered with your business operations in a significant way. Although such breaches may result in material consequences, they likely won't be considered fundamental breaches.
Choose your remedy
The remedies available to you will depend on the type of breach that's occurred. Only a fundamental breach will allow you to terminate your lease, vacate the premises and stop paying rent. If you believe your landlord has breached a fundamental term of your lease and you want to stop paying rent, you should speak to a lawyer first. If you're wrong about the nature of the breach (or if it turns out there was no breach at all), you may be held liable for a fundamental breach for improperly terminating your lease or non-payment of rent.
A fundamental breach will also entitle you to bring an action for damages arising from the breach (including loss of profits, cost of repairs, moving expenses, damages to growth of business etc.). This remedy is available to you regardless of whether you decide to terminate your lease and stop paying rent.
For all other non-fundamental breaches, you can bring an action for damages or you can seek an order from a judge requiring the landlord to fulfill the breached term, but you can't terminate your lease or stop paying rent.
Summary of Remedies
Bring an action in Small Claims Court (if damages are $25,000 or less) or the Superior Court of Justice (if damages are over $25,000) for damages suffered as a result of the breach. This remedy is available for all breaches.
Bring an action in the Superior Court of Justice seeking an order requiring the landlord to fulfill the conditions of the lease. This remedy is available for all breaches (but, may not be as useful in cases of a fundamental breach).
Treat the lease as at an end, stop paying rent and vacate the property. This is an extreme remedy and only available for fundamental breaches.
This article is not intended to replace actual legal advice. If you are a commercial tenant and you believe your landlord has breached a term of your lease agreement, you should talk to a lawyer about your options. This is particularly important if you are thinking about terminating your lease or if you want to stop paying rent based on a fundamental breach.