WHAT ARE THE TENANT’S OBLIGATIONS AT THE END OF A COMMERCIAL LEASE?

Two of the common issues that arise at the end of the lease are 1) the condition of the leased premises and 2) the disposition of leasehold improvements.

Condition of Leased Premises

At the termination of the lease, the tenant is bound to surrender the leased premises in the condition in which they were in at the commencement of the lease, save for ordinary wear and tear (Article 1890 Civil Code of Quebec).

The condition at the commencement of the lease may be established by the lease itself with a clause by which the tenant acknowledges that the premises are in good condition or with some objective evidence, such as photographs.

Even in the absence of a written acknowledgment by the tenant or other convincing evidence, the premises will be presumed by law to have been received in good condition at the commencement of the lease. This makes good sense since it is the landlord’s obligation to deliver the premises in a good state of repair in all respects (Article 1854 Civil Code of Quebec). If he does not, it is logical to presume that the tenant would complain.

If the premises are damaged at the end of the lease, the tenant would be liable to indemnify the landlord, unless he proves that the damages are due to normal aging or wear and tear, force majeure or the act of a third party not under his legal control, such as an employee.

It would be insufficient for the tenant to prove that he maintained the premises in a reasonable manner throughout the lease i.e. that he acted prudently and responsibly. To exonerate himself of liability, he must do more by proving beyond a balance of probability that the damages were caused by someone or something not within his control.

Leasehold Improvements

At the commencement of the lease, the tenant often wishes to adapt the premises to his particular needs. This may entail modifications of partitions, special lighting, plumbing, electricity, etc. Such changes may suit the particular tenant but at the end of the lease, the landlord should determine whether it would be necessary to restore the premises to its original design in order to attract a new tenant and if so, who will pay the cost?

It is recommended that the issue be specifically addressed by a clause in the lease. Moreover, although a landlord may authorize a tenant to make modifications to the premises at the commencement of the lease at the latter’s own cost and expense, the lease should provide that no change may be made that would lessen the market value of the leased premises. Furthermore, details of the modifications that are made should be documented in order to facilitate the responsibility for restoration at the end of the lease. Without sufficient evidence to identify the modifications that were carried out, the landlord will not succeed in requiring the tenant to undertake the restoration or to pay the cost thereof.

The tenant may invest in substantial leasehold improvements at the commencement of or during the lease, including built-in cabinets, furniture, equipment, lighting, flooring, etc. which are physically incorporated in and cannot be removed without damaging the premises. Often the cost may be subsidized by the landlord through an allocation of free rent.

Some leasehold improvements may have little residual value at the end of the lease as a result of depreciation and the cost of removal or restoration may be exorbitant.

The lease should provide that the landlord will have the option of retaining the leasehold improvements without indemnity or may require the tenant to remove them and restore the premises at the latter’s sole cost and expense.

(For an illustration, see Appartements Bonséjours –vs- Soulabaille 2010 QCCQ 4688)