What makes a successful business? While there are a number of factors, for some businesses, location plays a key role. This is certainly the case for Mr. Chef, who fulfilled his dream of opening a restaurant and signed a ten-year lease for a prime spot in downtown Montréal with a very reasonable rent.
Two years into the lease, Mr. Chef receives a notice advising him that the building where his restaurant is located was sold three months earlier and that the new landlord will be terminating his lease in nine months. Having to relocate will have a financial impact on his business because he will have to choose between staying in the downtown core and incurring higher rent costs or moving outside the downtown core and losing his established local clientele and the benefit of foot traffic from neighbouring businesses.
When Mr. Chef consults his lawyer to see if there is any way to force the new landlord to honour the terms of the lease, the first question the lawyer asks is whether the lease was registered on the land registry. The answer is fundamental to determining Mr. Chef’s rights because article 1887 of the Civil Code of Québec differentiates between registered and unregistered leases when dealing with the right to terminate when a building is sold.
The general rule is that if there are more than twelve months remaining in the term of the lease when the building is sold, the purchaser of the building can terminate the lease twelve months after the sale, as long as they give a notice of at least six months to the tenant. To illustrate, if a building was sold on January 1, 2021, the new landlord could terminate the lease on January 1, 2022 as long as notice was given to the tenant no later than June 30, 2021.
However, the same article creates an exception to the general rule for leases registered on land registry. As long as the lease is registered prior to the sale of the building, the new landlord cannot terminate it and must continue to respect its provisions until the end of its term.
Since Mr. Chef’s lease is not registered, he has no recourse against the new landlord.
Tenants, protect yourselves and avoid the negative financial impact of having to relocate your business by registering your lease today. The process is simple and inexpensive and can be done either right after signing your lease or at any time thereafter (so long as it is before the sale of the building). Usually, all your lawyer will need to complete the registration is a copy of your lease.
Do you have questions about the registration process or a lease that you would like to register? We’re here to help. Contact us to schedule a consultation with one of our lawyers.