A commercial lease often constitutes a significant asset for a commercial tenant and is typically negotiated with a view to supporting the long-term viability of the tenant’s business. In this context, it is essential that the lease be promptly published in the Land Register to prevent its termination in the event of a change in ownership of the leased property. The right to publication is a matter of public order and may be exercised by registering a notice of the lease in the Land Register, certified by a notary or a lawyer.
What Are the Practical Effects of Publishing a Lease?
When a commercial lease is published in the Land Register prior to the alienation of the leased property (for example, by way of sale) prevents the new owner may from terminating[1] the lease and requires the new owner to honour its terms.
Although the sale of a property does not automatically terminate a lease, where a fixed-term lease has not been published prior to the sale and more than twelve (12) months remain on the term at the time of the sale, the new owner may terminate the lease upon expiry of that twelve-month period by giving the tenant six (6) months’ prior written notice.
It should also be noted that the fact that a new owner had knowledge of the existence of an unpublished lease at the time of acquiring the property does not grant the tenant the protection that would have resulted from the prior publication of the lease[2].
The Right to Publish
A lease constitutes a personal right rather than a real right; however, its publication in the Land Register is expressly permitted[3]. As this right is a matter of public order, any clause in a commercial lease prohibiting its publication would be considered null and of no effect[4]. However, it is not contrary to public order to require that a specific method be used for the publication.
Available Methods of Publication and the Preferred Approach
A lease may be registered in the Land Register in several ways: by filing the full lease, by filing a summary accompanied by the full lease, by submitting an authenticated extract in the case of a notarized lease, or by registering a notice[5]. The preferred method is registration by notice[6], as it avoids making the entire lease and its financial terms, such as the rent, publicly available, thereby preserving confidentiality. For this reason, leases often require tenants to use this method of publication. Regardless of the method used, all forms of publication achieve the same legal effect: a lease published in the Land Register prior to the registration of a transfer of ownership of the leased property cannot be terminated by the new owner.
Timing of Publication
A lease may be published at any time following its execution. To maximize the protection it affords the tenant, publication should be carried out as soon as possible and, in any event, prior to any transfer of ownership of the property.
Notice of Lease: Essential Information
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Content
A notice of lease must be certified by a notary or a lawyer and must, in particular, specify, the date and place of execution of the lease, the names and addresses of the landlord and tenant, the commencement and expiry dates, the cadastral designation of the property where the lease premises are located, as well as any renewal or extension rights, if applicable. The notice may also include other specific rights provided for in the lease that the tenant wishes to make public, such as a right of first refusalover the leased property or exclusivity rights.
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Leases Exceeding 40 Years
If the total term of the lease, including any extensions or renewals, exceeds forty (40) years, the information required under the Act respecting duties on transfers of immovables must also be included in the notice. Such a lease is considered transfer of immovable property, and the tenant is responsible for paying the applicable transfer duties[7].
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Amendments and Assignment of the Lease
Amendments to a lease – such as extensions of the term or the addition of renewal options – as well as assignments to a new tenant, may also be published in the Land Register. Publication is recommended to ensure ensure protection for the tenant.
What About Third-Party Beneficiary Clauses?
Publication of a lease in the Land Register provides commercial tenants with an accessible and secure means of preventing premature termination by a new owner of the property. However, if the property is sold before the tenant has had the opportunity to publish the lease, an explicit undertaking included in the deed of sale may require the new owner to honour the unpublished lease. Indeed, case law has recognized that a clause in which a purchaser undertakes to respect existing leases can constitute a third party beneficiary stipulation in favour of the tenant[8]. Such a stipulation may, however, be revoked under certain conditions.
The specific facts and circumstances of each case, as well as the exact wording of the relevant clause, must be examined to determine its actual effect on the new owner with respect to an unpublished lease. Accordingly, the safest approach for tenants remains to publish their lease in the Land Register prior to any transfer of ownership of the leased property.
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[1] Code civil du Québec, RLRQ, c. C-90-1., art. 1887. It should be noted that this provision also applies in the event of the extinction of the lessor’s title, which may result, for example, from the exercise of a hypothecary creditor’s remedy of taking in payment.
[2] Id., art. 2963.
[3] Id, art. 1852 et 2938 al. 3.
[4] Id., art. 2936.
[5] Id. art. 2982.
[6] Id., art. 2999.1.
[7] Act respecting duties on transfers of immovables, RLRQ, c. D-15.1, art. 1.
[8] Société Générale (Canada) c. Consumers Distributing Company, 1995 CanLII 4916 (QC CA).
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