Are you a commercial property owner with assets in Quebec? Have you ever wondered what your rights and remedies are when faced with a tenant that has defaulted under its lease with you?
Can I terminate the tenant lease? Can I change the locks? Can I evict the tenant? Can I do all of these things without incurring the cost of judicial proceedings, but relying simply on the provision of my lease? It would appear that the answer to all of these questions is "YES".
On February 10, 2017, the Superior Court of Quebec rendered an interesting decision for commercial landlords and tenants in Quebec, in the matter of: Yu Jie Liu (the "Tenant") v. Le 350, société en commandite (the "Landlord") and Alain F. Paquette1, in which the Court confirmed the right for a landlord to evict a defaulting tenant without the requirement of a writ of eviction from the Court.
- The Tenant had been operating a convenience store in the Premises for about five years, when in 2010, the Landlord acquired the Property, along with some adjacent lots, for the purpose of redeveloping them into one big office complex.
- Shortly after the purchase, the Landlord and its professionals conducted an inspection at the premises that revealed a number of anomalies and problems, many of which were the Tenant's responsibility under the Lease. A Notice of Deficiencies delivered to the parties by a City inspector later confirmed them.
- May 7, 2010: The Landlord served a demand letter upon the Tenant, wherein he required the former to remedy the noted defaults under the lease, including, conducting several items of repair noted in the City's deficiency notice, cleaning the premises and restocking the shelves of the store with adequate inventory, the whole within five days from receipt of the Landlord's notice.
- May 11, 2010: The Tenant had remedied only some of the noted defaults, but refuted others.
- May 14, 2010: The Landlord served a notice of termination of lease upon the Tenant, demanding that the latter cease its operations and vacate the premises within eight days from receipt of same, failing which, steps would be taken by the Landlord to re-possess the premises and remove the Tenant's inventory and chattels.
- May 21, 2010: The Landlord advised the Tenant that the building was set to be demolished. On the same date, the Tenant served upon the Landlord a motion for injunction to, inter alia, halt the demolition. That motion would be postponed and rescheduled for a hearing on July 8, 2010.
- In the interim, the Landlord proceeded to evict the Tenant and the building was demolished.
- Two days after demolition of the building, the Tenant amended its introductory motion to convert it into a motion for damages and interest.
Several questions were analysed by the Court, but we will focus solely on the Court's conclusions related to the question of whether the Landlord was entitled to terminate the lease AND evict of the Tenant, by simple notice, without legal proceedings.
After hearing both versions of the story, the Court cast aside the Tenant's contention that the Landlord's conduct was in bad faith and motivated by an underlying desire to terminate the lease so that it could demolish the property and redevelop it.
The Court also concluded that, despite the Tenant having cured some of its defaults, others remained unanswered by the Tenant, even as the Landlord proceeded to evict the Tenant. Of particular interest, was the fact that the furnace had not been operated, maintained or repaired by Tenant for several years and was no longer functional, despite the Tenant's clear obligation to operate and maintain same pursuant to the Lease. In fact, the facts revealed that, instead of operating the furnace during winter months, the Tenant had been using portable heating units, plugged into wall outlets with old extension cords. The Landlord's electrician even noted that the haphazard use of these manual heating units, combined with the lack of fire extinguishers in the premises, increased the risk of a fire. Moreover, inadequate heating of the Premises was concluded to have been the cause of the presence of mold in some areas.
The Court then turned its attention to the Landlord's available remedies under the Lease. Aside from disputing the actual defaults themselves, not much appears to have been made by the Tenant's counsel of the Landlord's notice of termination itself. However, the Tenant did argue that the Landlord was not allowed to evict the Tenant without a Court ordered writ of eviction.
After reviewing the case law, the Court disagreed with the Tenant's contention and concluded that the same legal principles that apply to ipso facto termination of lease should also apply to ipso facto eviction of the Tenant.
More specifically, the Honourable Micheline Perrault recalled the underlying principles derived from the matter of 9051-5909 Quebec Inc. v. 9067-8665 Quebec Inc.2, where the Court of Appeal of Quebec accepted the notion that a landlord is entitled to terminate the tenant's lease by way of a simple written notice where the facts of the case and provisions of the lease allow for it, but also warned that the tenant is entitled to contest the validity of such ipso facto termination after the fact. In such cases, if the Court concludes that the Landlord had no right to terminate the lease (ex. because the Tenant was not actually in material default under the lease), or if the Landlord abused of its right to terminate the lease, then, by way of a posteriori judicial review, the Court can find the Landlord liable for such error or abuse3.
In light of the foregoing and the clear and unequivocal remedy provisions found in the Lease, the Court concluded that the Landlord was in its right, in this instance, to both terminate the Lease AND evict the Tenant by simple notice, without judicial proceedings.
There is no question that the state of the law in Quebec in respect of the Landlord's termination and eviction remedies has evolved over the past twenty years. During that time, the clear tendency has been to move away from a legal regime where the Courts are the sole custodians of landlord remedies against a defaulting tenant, to one that affords the landlord greater ipso facto latitude in the enforcement of its rights under the lease. In that vein, one could say that the decision in Liu v. Le 350 does nothing more than consolidate this trend by confirming the Landlord's right to not only terminate the lease ipso facto, but also to evict the tenant by simple notice, where such remedy is clearly set out in the lease.
By extension, with ipso facto termination and eviction clauses being incorporated into most commercial leases today, Courts have since been relegated to more of a post-facto reviewing role. More specifically, the Court's role now, is to determine whether the Landlord acted properly and within its rights in the exercise of its ipso facto termination and evictions rights. Where it has been determined that the landlord acted abusively, or without right, such a posteriori review by the Court can be sanctioned by way of damages and interest and in some cases, by nullity of the notice of termination and an injunction compelling the Landlord to return possession of the premises to the tenant. For this reason, we caution you to tread carefully when contemplating your ipso facto remedies.
1 2017 QCCS 447
2 2003 CanLII 8587 (QCCA)
3 The consequence of such liability can be an award of damages in favour of the tenant and, in cases which admit of it, even the return of possession of the Premises to the Tenant. To the latter end, see : Société du Vieux-Port de Montréal Inc. v. 9196-0898 Quebec Inc., 2013 QCCA 380.