Canada: Avoid A Flood Of Uncertainty: Draft To Include Costs That Aren’t Maintenance, Repair, Or Replacement In A Commercial Lease

Last Updated: July 9 2014
Article by Sonja K. Homenuck and James Harvey

The flooding experienced by many parts of the country over the last year may be partly behind changes to the Ontario Building Code, changes designed to prevent the contamination of Ontario's water supply system. The costs of complying with the new provisions have once again raised an issue of importance to landlords and tenants in commercial leases; who bears the responsibility and cost of an installation, change or upgrade to a property that does not fall into the category of maintenance, repair or replacement?

Buildings are increasingly subject to regulations requiring installation of new features, alterations or upgrades on the grounds of health and safety or public policy. When a new or revised legal requirement necessitates a new installation or a change or upgrade to a building, who should be responsible for paying the costs of complying with such regulations? Many leases are silent on the point, leaving the parties in limbo as to the responsibility and cost of compliance and at the risk of being in breach of the relevant law unless the issue is addressed. In some cases, on widely-known issues, like the introduction of the Ontarians With Disabilities Act, the parties often negotiate responsibility for new costs that may arise, but typically fail to negotiate the subject generally rather than to address one known issue, which leaves uncertainty when other issues arise.

Regulation 332/12, of the Ontario Building Code Act came into force on January 1, 2014. The provisions significantly expand the regulation of plumbing systems with the aim of preventing contamination of potable water supplies. Flooding increases the possibility of "backflow", which is the reversal of the flow of potable water through a pipe, often taking contaminants or non-treated water with it. Backflow is far more likely where there are large amounts of standing surface water. The regulations aim to combat this problem by requiring the installation of backflow prevention devices in all buildings in Ontario that have been rated as being at "moderate" or "severe" risk of water contamination. Many municipalities have also enacted by-laws requiring buildings to be surveyed, permits to be obtained and plumbing systems to be inspected periodically, all with the aim of preventing contamination and requiring installation of backflow prevention devices where appropriate.

In many single tenant buildings, the tenant bears the responsibility for maintenance, repair and some or all replacements to the property. Rarely does a commercial lease allocate to a tenant the responsibility to perform any installations, changes or upgrades necessary as a result of any new or changing legislation, regulations or building codes. Leases often require the tenant to comply with all applicable laws, but the general clause is of course trumped by the specific requirements in a lease and maintenance, repair and replacement obligations will be more specific. So unless the tenant's obligations are drafted to include the requirement to perform any installations, changes or upgrades required by law, regulation or code, (depending on the wording of the lease) a tenant may have no responsibility to do so. 

In multi-tenant buildings where the landlord is performing the operating obligations or repairs, additional rent provisions in a net lease are usually drafted to allow a landlord to pass the costs of maintaining, repairing, and replacing parts of the building, building systems and commons areas on to the tenants. But it is questionable whether a new installation such as a backflow prevention device would be included in the list of items known as operating costs, which are recoverable from tenants. Some leases will include an operating costs definition broad enough to include "upgrades" to a building, or upgrades or installations required to keep the building up to the requirements of applicable laws. That is usually the exception as a tenant will traditionally negotiate to exclude the cost of any upgrades when the tenant has the bargaining power to do so.   

Case law has made clear that labeling a lease "net" (or any derivation of that wording) is not necessarily sufficient on its own to require the tenant to pay for costs that are not specifically addressed in the lease. It is in the interests of both the landlord and the tenant to make the lease clear on what items can be recovered from the tenant as an operating cost. If the landlord expects to be able to recover the cost of items that are not traditionally seen as within the scope of maintenance, repair or replacement, then this should be expressly provided for in the lease.

In Riocan Holdings Inc. v. Metro Ontario Real Estate Ltd., the court considered whether resurfacing a parking lot was either a repair or a replacement and a capital item and the court concluded that "the dividing line between a capital expense/betterment and a repair/maintenance expense is not black and white. Indeed it is decidedly grey". This just further shows the need to set out specifically in a commercial lease, the responsibilities of each party in order to avoid ambiguity or non-allocation.  

The parties and their counsel should firstly seek agreement in principle on which party should be responsible for complying with new or changed governmental requirements regarding the property and secondly, reflect that understanding with clear and unambiguous language in the lease. Riocan and other cases have shown that reliance on general phrases such as "capital expenditure" to demarcate responsibility for costs between the landlord and tenant is inexact and can potentially lead to expensive litigation. Ideally, the lease should specify which classes of expenditure are to be recoverable from the tenant.

If the tenant is to be responsible for paying a portion of the cost of an item that would normally be considered a capital expense, a well advised tenant would ensure the landlord has the requirement to amortize such cost over the useful life of the item and charge through only the amortized portion each year of the lease term. This is best practice whether the capital expenditure relates to costs incurred in repair, maintenance or replacement, as well as installations and upgrades (whether the work is required by law or not).

While the new regulations regarding backflow prevention devices may not represent the biggest potential for unwanted costs for landlords and tenants, they do act as a reminder of the importance of clear drafting in order to manage future unforeseen expenditure.

About Dentons

Dentons is a global firm driven to provide you with the competitive edge in an increasingly complex and interconnected marketplace. We were formed by the March 2013 combination of international law firm Salans LLP, Canadian law firm Fraser Milner Casgrain LLP (FMC) and international law firm SNR Denton.

Dentons is built on the solid foundations of three highly regarded law firms. Each built its outstanding reputation and valued clientele by responding to the local, regional and national needs of a broad spectrum of clients of all sizes – individuals; entrepreneurs; small businesses and start-ups; local, regional and national governments and government agencies; and mid-sized and larger private and public corporations, including international and global entities.

Now clients benefit from more than 2,500 lawyers and professionals in 79 locations in 52 countries across Africa, Asia Pacific, Canada, Central Asia, Europe, the Middle East, Russia and the CIS, the UK and the US who are committed to challenging the status quo to offer creative, actionable business and legal solutions.

Learn more at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
25 Nov 2016, Seminar, Toronto, Canada

On Thursday, September 22, 2016, Dentons hosted a panel discussion about the management of liabilities and risks associated with environmental crises, including potential liabilities for directors and officers and provided insight into risk and liability techniques associated with environmental crisis management.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.