Stick to the Terms of Your Commercial Lease When Exercising Renewal Rights

Keeping communications formal could save you money when renewing a commercial lease.

When relations are good between landlord and tenant, I can understand the temptation for the parties to slip into informality — for example, by agreeing to extensions verbally or departing from the strict terms of the lease when making changes or exercising rights. That’s especially true in the commercial context, where it’s easy to become distracted by the day-to-day challenges associated with running a business.

But ultimately, failing to abide by the terms of a commercial lease could leave you in a vulnerable position. If the relationship between the parties sours, you can bet that one side will seize on the lack of technical compliance, ensuring a legal dispute quickly spirals out of control.

That’s exactly what happened in the case of 1380882 B.C. Ltd. v. Aztec Properties Company Ltd., when the B.C. Supreme Court was asked to settle the future of a Vancouver pub at war with its landlord.

The numbered company at the heart of the case ran a pub and restaurant in Aztec’s building since January 2023, when it took over a previous tenant’s lease by way of assignment. At that time, there were just nine months remaining on the lease, but the agreement provided an option to renew for a further five years “at the Tenant’s written request” between six and 12 months from the end of the original term.

Both parties agreed that a written request was never forthcoming, but the pub operators claimed that their intention to stay was obvious after they invested $250,000 in the property and that the landlord had accepted their verbal renewal offer.

As the lease approached its expiry, the landlord objected to the renewal and the parties agreed to a series of short-term leases before the landlord finally took possession in May 2024. That prompted the numbered company to apply, on an ex parte basis, for an injunction allowing them to stay in place until the legal dispute was settled. One of the documents produced supporting the application was a copy of the tenant’s lease assignment agreement, which it used to argue that the lease had already been extended until 2028.

At a fresh hearing before Justice Kevin Loo, Aztec moved to have the injunction order set aside, arguing that the tenant had failed to provide the “full and fair” disclosure required when moving on an ex parte basis.

After the landlord produced their own copy of the assignment agreement, which was missing key elements referred to in the tenant’s original ex parte application, the tenant accepted that the landlord’s version was correct.

The judge wrote that the evidence regarding the document was “somewhat troubling,” but he was not prepared to find that the tenant had fabricated the assignment agreement, as alleged by the landlord and denied by the numbered company.

Still, it was enough for Justice Koo to side with the landlord, finding that the submission of the incorrect document amounted to “material non-disclosure.” As a result, he set aside the injunction and conducted his own assessment of the case for an injunction.

This time, the judge found that the tenant had fallen short of meeting the test for an injunction since any harm it had suffered as a result of the landlord’s action was “mostly financial.” If the pub operators were ultimately successful at trial, monetary damages from the landlord would adequately compensate their losses, Justice Koo concluded.

If you are unsure of your rights or obligations under a commercial lease agreement, feel free to get in touch with me or our team of experienced Real-estate lawyers so that we can help you.

*This post is not intended to be legal advice and should not be taken as such. Please contact McConnan Bion O’Connor & Peterson if you have any questions regarding this post or require assistance or legal advice regarding real estate purchases.