Commercial Tenancies: Notice to Terminate

July 29, 2020

By Brian Babcock

Ontario’s Commercial Tenancies Act requires that a landlord give their tenant written notice to terminate a lease. In particular, section 19(2) states that:

A right of re-entry or forfeiture under any proviso or stipulation in a lease for a breach of any covenant or condition in the lease, other than a proviso in respect of the payment of rent, is not enforceable by action, entry, or otherwise, unless the lessor serves on the lessee a notice specifying the particular breach complained of, and, if the breach is capable of remedy, requiring the lessee to remedy the breach, and, in any case, requiring the lessee to make compensation in money for the breach, and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money to the satisfaction of the lessor for the breach. [Emphasis added.]

The purpose of the notice requirement is to give the tenant a warning that their tenancy is at risk, and an opportunity to remedy the breach, and where necessary, to compensate the landlord.

The Court of Appeal recently had occasion to consider what happens where the landlord gives the notice, but does not include the demand for compensation in money (which is why those words are underlined above).

The facts are not complicated, or unusual. The tenant rented space to operate a barber shop and tattoo parlour. The lease also contained an obligation for the tenant to provide proof of insurance. The rent was late, and the landlord served a demand for the rent and the required proof of insurance. The tenant paid the rent, or most of it – there was a side issue about the amount – but did not provide proof of insurance. So the landlord served a notice to terminate. It did not include a demand for monetary compensation.

The tenant said the notice was invalid because it did not conform to section 19(2), and that a demand for monetary compensation was mandatory. The landlord said that no demand was required since they were not seeking monetary compensation, and in fact, monetary compensation for the absence of proof of insurance was impossible.

The Court of Appeal agreed with the landlord, and went a bit further, stating that the requirement for the demand for monetary compensation is never required, but, instead, may be waived by the landlord. This went further than the prior Court of Appeal case that only had decided that the demand was not required where the breach is not quantifiable

This might seem like a minor change, but by allowing a landlord to waive the demand in all cases, the court opens the door to more evictions (please excuse the pun). Because many landlords do not hire lawyers to draft their notice to terminate, there are frequent cases where the form of the notice is deficient and this gives the tenant another chance. The new decision tilts the balance in favour of landlords.

Of course, if the landlord does want monetary compensation, the demand is still required.

The result of the case also emphasizes to tenants the importance of paying attention to, and complying with, non-monetary terms of the lease, such as proof of insurance. It also leaves open another issue not dealt with in that case, which is when the tenant may benefit from applying to court for relief from forfeiture, a topic dealt with in a separate article.