January 2017
PFD | Business

Can a lessor be required to guarantee to a tenant that the intended use of a rented property complies with zoning bylaws?

By Jessica Schmitt Lawyer

In a recent ruling (Tadros c. 9164-1852 Québec inc., 2016 QCCA 1477), the Court of Appeal was tasked with deciding the issue. The context was simple.  

Tadros, the tenant, sought to lease the property in dispute to operate a wholesale deli meats business. The lessor was aware of the project even before the lease was signed. However, there was no clause in the lease that guaranteed that the activity was in compliance with zoning bylaws. The tenant had clearly assumed that there were no regulatory obstacles to the project.

Once the parties had concluded the lease agreement, the tenant began to apply for the permits needed to operate the business. He was then informed that zoning bylaws prohibited him from operating a deli meats wholesaler. Since he could not run his business, the tenant abandoned the property he had leased and even refused to pay some of the rent for the period he had occupied the premises.

As a result, the lessor took action against the tenant for rent due for the entire period of the lease. The lessee asked for the lease to be terminated. But who was right?

It is important to note that article 1858 of the Civil Code of Québec stipulates that "the lessor is bound to warrant the lessee against legal disturbances to the enjoyment of the leased property" and must therefore guarantee to the tenant that the intended use is authorized under all applicable laws, including municipal bylaws.

Because the zoning bylaw prohibited the operation of a deli meats wholesaler?the only activity the tenant had planned to carry out on the premises?the Court ruled that there had been a legal disturbance to the enjoyment of the property that justified the termination of the lease.

What precautions could the lessor have taken to avoid this type of situation? In light of the recent judgment, a clause in the lease indicating which party had the obligation to ensure that the intended use of the leased premises complied with applicable laws would have sufficed.

The PFD Business team is available to guide you as you negotiate and draft your lease agreements to ensure that the documents accurately reflect the parties' intentions.