This article first appeared in French in the April 2022 issue of the Journal des Parcs industriels of the Corporation des parcs industriels du Québec (the Quebec Industrial Parks Corporation).
For many companies, commercial leases are important contracts that often represent a significant portion of their fixed costs. Quebec’s legislative system provides commercial tenants with an indispensable tool to ensure the survival of a lease despite a change in ownership of the building: the publication of the commercial lease.
1. Publication of rights and enforceability against third parties
Registering a commercial lease in the Land Register offers some protection to the tenant. Indeed, once a lease is properly published, it becomes enforceable against third parties. Publication ensures the continuity of a commercial lease; it preserves the tenant’s rights to the leased premises according to the terms of the lease if, for example, a new buyer or secured creditor decides, in the exercise of its hypothecary rights, to take over the building housing the tenant’s premises.
In the absence of a published lease, the Civil Code of Quebec (“C.C.Q.”) provides that if more than 12 months remain from the date of transfer or extinction of the lessor’s title (for example, in the case of the purchase of the property by a new owner), the new owner may terminate an unpublished lease at the end of the 12 months by giving the lessee 6 months’ written notice.1
To be enforceable against third parties, the lease must have been published in the Land Register before the sale of the property or before the publication by a creditor of a notice of the exercise of a hypothecary right.
The right to publish a notice of lease is a matter of public policy and any provision in your lease preventing such publication is null.2
2. Principles of lease publication
Article 2999.1 of the C.C.Q. governs the registration and publication of a lease.
The lease may be published in its entirety, by summary or simple notice. The procedure to follow depends on the form of publication.
Almost all commercial leases include a clause stating that the lease cannot be published in its entirety and must be published by notice. This helps protect the confidentiality of the financial aspects of a lease. In the absence of such a clause, anyone could visit the Land Register to find out exactly what the rent is for tenants in every building in the province, with devastating consequences for the market.
Leases often include a clause governing the right to publish, including the obligation to comply with the terms of article 2999.1 of the C.C.Q. In particular, a commercial lease may include a requirement to obtain the lessor’s consent to the notice of lease before its publication. The lease may also require that at the end of the lease or its renewals, the lessee undertake to delete the notice at the lessee’s own expense.
The notice of lease must identify the landlord and tenant, and contain a description of the building in which the leased premises are located. It must also specify the lease’s start date, end date and renewal rights. In all cases, the content of the notice must be certified by a notary or lawyer.
It should be noted that the publication of a lease does not guarantee any new rights that may result from an amendment or assignment of the lease. Thus, in the event of an amendment to the lease conferring new rights (change in term, right of first refusal, etc.), it will be necessary to publish an amendment in the Land Register. Otherwise, these new rights will not benefit from the protection conferred by the publication of the lease.
In conclusion, the publication of a lease provides important safeguards to tenants of industrial and commercial spaces. Given the costs a company incurs and the investments it makes to outfit its premises, the consequences of not publishing could be significant. Indeed, the buoyancy of the current real estate market, especially in the industrial sector, increases the risk that the building in which you are renting space will be sold to third parties. The recent transaction of Cominar Real Estate Investment Trust, which resulted in the sale of its 190 industrial buildings to the Blackstone Group, is an excellent example of the appetite of investors and real estate developers for industrial assets in Quebec.
We recommend that you take the time to check if your company’s commercial lease has been published. Please don’t hesitate to contact a real estate lawyer from our firm to help you take the necessary steps, where applicable.
The authors would like to thank Anne-Laure Damhet, lawyer, for her assistance in drafting this article.
1 C.C.Q., article 1887, para. 2.
2 C.C.Q., article 2936.