In most commercial leases the gross rent payable by a tenant to
a landlord has a number of components including the basic rent, a
share of realty taxes and a share of operating costs (sometimes
called common area maintenance (or CAM) costs).
The Ontario case of C.C. Tatham & Associates Ltd. v
2057870 Ontario Inc. is another reminder that for an item to
be payable by a tenant it must be specifically listed in the lease
and that the usual general words describing the nature of the lease
as being a net or carefree lease may not be enough to allow the
landlord pass through the costs to the Tenant.
C.C. Tatham & Associates Ltd. (the "Tenant") was
the tenant of 205787 Ontario Inc. (the "Landlord") of a
second floor in a commercial building in Collingwood, Ontario. It
was a 10 year lease that commenced in 2006. In 2009 the Tenant
brought an application to the court disputing various items.
Included in the application was a request that the court declare
that no administration fees, mark-up or management fees can be
charged as additional rent to the Tenant under the terms of the
The lease provided that the Tenant would be charged its share of
the total of all reasonable and proper expenses, costs, fees,
rentals, disbursements and outlays of every kind pertaining to the
property and building of which the premises formed a part, computed
in accordance with generally accepted accounting principles and
incurred in the complete maintenance, repair and operation of the
The lease also contained a provision that expressed that it was
the intention of the parties that the lease be a completely
carefree lease, that the base rent would be net to the Landlord and
that the Tenant would pay as additional rent its share of all
charges, impositions and expenses relating to the subject
However, in the list of all of the charges and expenses that
could be passed through to the Tenant there was no specific
inclusion of any management fees or admistrative charges.
The Landlord claimed management fees on the basis of a wide
variety of property management services that were described in the
materials before the court. These included activities generally
undertaken by a landlord or a manager on its behalf, such as
arranging property insurance, negotiating and entering into service
and maintenance contracts (such as snow removal, waste, HVAC),
attending to building security, retaining consultants in matters
such as realty tax and buying equipment, supplies and materials
necessary to the building.
The Tenant argued that such management fees were not payable
under the terms of the lease.
The court agreed with the Tenant. Various case law was
considered and the court held that there was no specific provision
for management or administration fees and that such a provision is
required for a landlord to claim such fess. Simply agreeing that
the lease was a completely carefree net lease does not infer an
agreement to include management or administration fees.
The court pointed out that it followed other cases in the past
where, among other things, courts have held that charges for the
performance of landlord's duties (such as management items)
cannot be passed on simply because the lease is described as
"absolutely net", "net net" or "net"
or any other words of similar implication.
Most sophisticated commercial net leases contain a specific
obligation that the tenant pay its share of the third party
management fees or an equivalent fee (often 15% of operating costs
or a percentage (such as 3% or 4%) of the gross income for the
building). The Tatham & Associates case is a reminder
to landlords to ensure that their lease forms specifically provide
for this charge (and any other charges intended to be passed on)
and a suggestion that tenants may want to review their leases
against the landlord's annual statements to ensure that costs
being charged are specifically mentioned in the lease.
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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