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 several key ways.
Legislation and jurisdiction
- First, commercial and residential tenancies are governed by the Commercial Tenancies Act and Residential Tenancies Act. 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 the Landlord and Tenant Board typically hear residential tenancy disputes, commercial tenancy disputes do not come before any specialized body. So they often make their way to the Small Claims Court.
Types of commercial tenancy disputes in Small Claims Court
The two types of commercial tenancy issues that we encounter most often in Small Claims Court are when:
- The tenant breaks (abandon) the lease before it expires, or
- The tenant stops paying rent or associated expenses.
When a commercial tenant breaks the lease (abandons the unit)
As a commercial landlord, 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
Prepare and serve a letter to the tenant that she or he has breached the lease. The letter must confirm the following
- 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 the tenant would pay had she or he not left the unit.
Minimize damages
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 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 you should look for a new tenant in the same way that you looked for the former one. For example, if you found you previous defaulting tenant 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 damages
Calculate the actual amount of damages and prepare and file a plaintiff’s claim to recover this amount through the Small Claims Court. The commercial landlord can seek the following basic damages:
- 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 was 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 provides 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 remained unpaid 15 days after the date when it became due.
- Before the tenant is 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 landlord may terminate the commercial lease. 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 more complicated 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.
