<b><i>In the Spotlight:</i></b> How to Break a Commercial Lease

The Tenant's Lawyer Should:

• Read the Lease from start to finish.
• Examine each Rider, if any, very carefully.
• Look for conflicts between the terms of the Lease and the terms of any Rider.
• Determine whether there are any provisions in the Lease or in any Rider that give the Tenant the right to terminate its Lease.
• Confirm whether the zoning laws permit the intended use. It has been held (in Canada) that the Tenant was permitted to treat the Lease as terminated where a Tenant relied on its Landlord's assurance that the zoning by-laws would permit a used car business on the Premises, and the zoning by-laws had been amended so as not to permit a used car business on the Premises, and the Landlord was aware that the Tenant relied on its assurance. ( Chung v. Merrikhi [2004] O.J. No. 1676 (Ontario Superior Court of Justice ' Small Claims).
• Ask who prepared the Lease; it makes a difference.
• Make sure the essential elements in a Lease are set out: 1) the Premises ' they must be clearly defined and ascertainable; 2) the Parties ' they must be correctly named; 3) the Rent ' all types of rent, minimum (or basic or net), percentage and additional must be clearly expressed; 4) the Term ' the commencement and expiry dates must both be clear or readily ascertainable; and 5) all other material terms of the contract not incidental to the Landlord and Tenant relationship, including any covenants, conditions, exceptions or reservations must be clearly stated.
• Ask if an attorney's advice was obtained to negotiate the Lease.
• Ask if there are any deletions or cross-outs in the Lease.
• Ascertain if the Landlord failed to meet any conditions precedent.
• Determine if there was an Offer to Lease. If so, was it made subject to such terms as are mutually agreed to between the Landlord and the Tenant? Is it possible to argue that it was merely an agreement to agree and therefore unenforceable?
• Ask if there has been a fundamental breach of the Lease by the Landlord permitting the Tenant to terminate.
• If the Tenant is described as “X, as a trustee without personal liability, on behalf of a company to be incorporated,” and if the Tenant does not incorporate, the Landlord has nothing.
• If the Tenant is merely a shell company, with no assets, the Tenant can simply walk away from the Lease.
• If the Tenant is declared a bankrupt, and has no assets whatsoever, the Landlord is left with nothing because its preferred claim under the Bankruptcy Act is valueless.
• Talk to the Landlord to try and get out of the Lease, or to assign or sublet.

From a Landlord's Viewpoint: