The legal framework governing commercial tenancies – leases of offices, warehouses, production facilities and other business premises – is different from the framework that governs residential tenancies in a number of key ways.
First, commercial and residential tenancies are governed by the Commercial Tenancies Act and Residential Tenancies Act, respectively, and the two acts vary in the level of regulation: the Commercial Tenancies Act provides the landlord with more rights and regulates fewer aspects of the tenancy. Second, while residential tenancy disputes are typically heard by the Landlord and Tenant Board, commercial tenancy disputes do not come before any specialized body, and so they often make their way to the Small Claims Court.
The two types of commercial tenancy issues that we encounter most often in Small Claims Court are when:
- The tenant breaks the lease before it expires, or
- The tenant stops paying rent or associated expenses.
When a commercial tenant breaks the lease
As a commercial landlord, in order to position yourself for success in Small Claims Court if a tenant breaks a lease, there are three key steps to take:
- Prepare and serve a letter on the tenant that the lease has been breached. The letter must confirm the day when the tenant broke his or her lease; the time still remaining before the end of the lease and a statement that the landlord will seek damages in the amount of rent that would have been paid had the lease not been breached.
- Minimize your damages by making efforts to find a new tenant, who could enter a lease agreement for the same premises and start paying rent. This is important to do because if you don’t show the Small Claims Court that you tried to replace the tenant, it’s unlikely that you would win any damages. There are two things to keep in mind when it comes to looking for a new tenant:
- Your search for a new tenant must be adequate. In practice, this means that a you should look for a new tenant in the same way that you looked for the former one. For example, if the defaulting tenant was found through a real estate agent, it is not enough just to publish a newspaper ad to get a new tenant.
- The amount of new rent does not necessarily have to be the same as the previous tenant paid. It can be lower, but it should be reasonable given the market conditions.
- Calculate the actual amount of damages and prepare and file a plaintiff’s claim to recover this amount through the Small Claims Court. The following basic damages can be sought:
- Any amount that remains unpaid by the tenant who walked away as of the time it breached the lease
- The amount of lease that you would have received for the period of time when the premises were unoccupied (before the new tenant moved in)
- If the new lease provides for lower rent than that paid by the previous tenant, you can claim the difference between these lease payments, up to the day when the broken lease were to expire.
When a commercial tenant stops paying rent
If the tenant has not left, but the lease payments are not made in time, the Commercial Tenancies Act provide the landlord with certain rights which are not available in any residential tenancy. Unlike a residential landlord, a commercial landlord can lock out his tenant if the lease remains unpaid 15 days after the date when it became due. With the tenant locked out, the landlord must provide the tenant with a notice and a reasonable opportunity to pay the amounts owing. If the tenant does not make payment even after being locked out, the commercial lease may be terminated by the landlord. In this case, the landlord can seek damages as described above.
Although commercial landlords have more rights and powers than residential ones, claiming damages by suing in Small Claims Court can be a more complicated process than doing so through the Landlord and Tenant Board in a residential context.
Please do not hesitate to contact us for a free assessment of your commercial tenancy case.