Business Law, Litigation, Real Estate Law

Beware of an Option to Purchase a Building Contained in a Commercial Lease

Jan 10th, 2019

By Laurent Debrun

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On December 14, 2018, in Attorney General of Canada v. 555 Carrière Holdings Inc. et al., the Court of Appeal (Doyon, Morissette and Marcotte, C.A.J.) dismissed the Government of Canada’s appeal from a judgment of Madam justice Bedard rendered earlier in 2018 (Decision and Judgment).

The judgment held that an option to purchase the building, rented by the crown pursuant to a quadruple net lease for a term of 25 years, lease duly published with the Land Registry Office, did not survive the sale of the building, sale which took place a few years before the end of the lease. The tenant’s right to exercise the option to purchase the building could be exercised only near the end of the term of the lease.

Contrary to options to renew the lease, the rent etc., which are true accessories to the lease and which, when published with the lease, are binding on the acquirer of the building, the option to purchase is a personal right which does not benefit from the effect of publication so as to be binding on the purchaser of the building, before the tenant has validly exercised the option.

Commercial tenants who have an option to purchase the building in their lease, even the lease is published, would be advised to look into the need to take positive steps to protect the future enforceability of their option to purchase failing which they could lose the benefit of the option if the building is sold, even to a party who is aware of the option, before the time has come for the tenant to exercise the option to purchase.

 

This publication is of a general nature, is as of the date indicated and is not intended to constitute an opinion or legal advice.  The facts and circumstances of your particular situation should be specifically identified and addressed before appropriate legal advice may be given.