Canada: Registration Of The Rights Resulting From A Commercial Lease

Both before and after the coming into force of the new Civil Code of Québec in 1994, it has always been in a lessee's interest to publish his lease to ensure he would remain in the leased premises for the entire term of the lease and to prevent a prospective purchaser of the building in which the leased premises are located from terminating the lease before its expiry.

On January 1, 1994, the date of the coming into force of the new Code, the former principles of law regarding the possible resiliation of the lease of an immoveable by a third-party purchaser in the absence of publication of the lease were restated in article 1887 of the Civil Code of Québec.

However, with the coming into force of the new Code, major changes were made to the formalities of publishing acts in the registry office. Under article 2982 C.C.Q., an application for registration is made by presenting the act itself, an extract or summary thereof, or, where the law so provides, by means of a notice. Because of this article, the greatest difficulty in registering a lease was preserving for the lessor the confidential nature of certain clauses, such as the rental or business terms, if the application was made by presenting the lease itself. The same problem arose when presenting what was essentially a summary of the lease. The summary had to be accompanied by a copy of the original lease. Both documents were kept at the registry office, allowing consultation of the lease and disclosure of the information it contained, which would otherwise be confidential.

As for applications for registration in the form of an authentic extract, that could only be made before a notary, that is, the lease itself had to be received before a notary en minute, which is no longer common practice. And finally, before November 5, 1999, publication of the rights resulting from a lease by notice was not possible.

Because of the difficulty of preserving the confidentiality of certain aspects of a lease, some lawyers attempted to develop a new mode of publication by creating the "mini-lease", which circumvented the formalities of registration prescribed by article 2982 C.C.Q.

To avoid publishing the main lease, which was the master agreement between the lessor and lessee and contained, among other things, rental and other monetary terms, some lawyers had the parties sign a mini-lease which looked like a lease so it would be acceptable for publication by the registrar. The mini-lease contained certain elements of the main lease such as a reference to the leased premises, the legal description of the immoveable, the term, renewal options and any exclusivity clause, with the exception of the rental. It also provided that in the event of a conflict between the mini-lease and the main lease, the latter would prevail. This way, the mini-lease was published at the registry office without the main lease being deposited along with it.

This new practice was highly criticized. It essentially introduced a new mode of publication which was not provided for in article 2982 of the Civil Code of Québec because the lease itself was not published. The validity of the mini-lease was called into question by the decision of Mr. Justice Kevin Downs of the Superior Court of Québec in Banque de développement du Canada v. 2945-7077 Québec Inc. That case held that, in the absence of any mention of the rent, an essential element of the definition of a lease in article 1851 C.C.Q., it could not be a lease and, accordingly, the registrar was ordered to cancel the registration of the mini-lease.

Following the uncertainty surrounding the validity of the mini-lease, the Quebec National Assembly adopted Bill 38 on November 2, 1999, which was assented to on November 5, 1999. That Bill brought into force article 2999.1 of the Civil Code of Québec, which henceforth allows the registration of the rights resulting from a commercial lease, as well as the assignment of such a lease, by presenting a notice at the registry office of the registration division in question.

The notice can be given by any interested person and must contain the following information: a reference to the lease, the identity of the lessor and lessee and the description of the immoveable in which the leased premises are situated. It must also indicate, in particular, the term of the lease as well as any rights existing in respect of the renewal of the lease. It should be noted that because of the words "in particular", article 2999.1 C.C.Q. should not be interpreted restrictively. Any clause involving exclusivity, a right of first refusal and an option to purchase which are found in the main lease may also be mentioned in the notice. The accuracy of the content of the notice must be verified by a notary or advocate.

In order to eliminate the uncertainty involving mini-leases, the Quebec National Assembly also retroactively validated mini-leases published since January 1, 1994, provided they contain the information required by the above-mentioned notice.

With the adoption of these two articles of the Civil Code of Québec, the confusion over the manner of applying for registration of a lease has been resolved. The right of a lessee to remain in the leased premises throughout the term of the lease is protected by the publication of a notice, while preserving the confidentiality of certain provisions of the main lease which are important to the lessor. And finally, by making the law retroactive for mini-leases published between January 1, 1994 and November 4, 1999, the legislator has eliminated any doubts which may remain in that regard.