February 6, 2024 | Danny McMullen and Ema Marcheska
In commercial leases usually, there are provisions which allow for the landlord to use their right of termination, to end the lease if there is a default on the part of the tenant, only when there notice of default provided to the tenant in the timeframe set out in the agreement. However, the Court has not given clear directions on how detailed a default notice to the tenants should be.
In Art for Everyday Inc. v Canarctic J.F.K Inc, the Court took the opportunity to clarify what constitutes a valid default notice which would allow the landlord to terminate the lease.
In the case, in 2020 Art for Everyday Inc was leasing a commercial property from Canarctic J.F.K Inc for about 16 years. Within the lease agreement, there was an option to extend the term of the lease. With the difficulties of the COVID-19 pandemic, the tenant for the months of April, May and June had only paid partial rent. On July 2, 2020, Art for Everyday had paid the July 2020 rent in full but had still not paid the rent owing from the previous months.
Between May and July, the landlord had sent eight emails to the tenant which noted that rent was owed, the interest which was being accrued on the arrears, and a general statement that they were relying on the rights which were set out in the Lease Agreement, which include the landlord’s right of termination. In the email sent on June 20, 2020, the landlord specifically set out that the tenant was in default but did not say the amount, and also stated that the landlord would rely on the Lease and other legal remedies available to them to ensure compliance with the Lease.
As the tenant had not paid the outstanding arrears, on July 14, 2020, the landlord served the tenant with a notice of termination without any further notice, which was effective as of the date given but it stated that the tenant did not have to leave until September 2020. In response to the termination of the Lease, the tenant brought a court application to invalidate the termination or provide relief from forfeiture. In their application to the court, they had stated that the termination of the lease was invalid and effective because:
- the landlord failed to provide them with a notice of default as required by the Lease;
- the landlord had accepted the July rent they waived their right to terminate for pre-existing arrears; and
- the landlord allowed for an extended occupancy of the premises rending the termination ineffective
The landlord argued that the eight emails combined served as a default notice and were in compliance with the lease notice requirement. The application Judge and the Court of Appeals disagreed with the Landlord.
The application Judge solidified that a default notice is to serve as a warning to the tenant and that the prior communication for the landlord did not fulfill that purpose because the communication did not include the clear date by which the outstanding rent was to be paid and that if not paid the consequence would be termination.
The Court of Appeal, agreed with the decision of the application Judge, that the termination was invalid because there was no proper notice given to the tenant. It set out that the emails did not constitute a valid default notice because they did not specify the amount of arrears and interest owed, the date by which the arrears and interest should be paid, and it did not warn the tenant that if they did not comply, they would terminate the lease.
This case serves to provide some direction on the minimum requirements when providing a default notice in a commercial lease if there are no requirements stipulated in the lease. A landlord should consider how they are to provide the notice of default and ensure it has clearly set out the date for payment, the amount owed and a warning that non-compliance leads to termination.
Having knowledgeable legal counsel to guide you through this process is crucial in its outcome. Here at Northview Law, our lawyers have the needed leasing expertise to assist you and ensure the best possible outcome. If you have any questions or would like to obtain legal advice on any commercial leasing matters, please contact our office.