Legal insight and perspective from the Steinbergs Team
Published: April 29, 2024
Category: Real Estate
While a lease will generally set out the party’s rights and obligations in respect of each other, the tenant’s rights may not be adequately protected where a third party such as a mortgagee/lender subsequently acquires an interest in the property.
Under Ontario’s Land Titles Act (“LTA”), leases with remaining terms of up to three years are essentially treated as encumbrances on the property. However, in respect of leases exceeding three years, a tenant is not similarly protected. As a result, a tenant may seek to protect its rights by registering the lease on title.
Registration provides tenants with a couple of very crucial benefits. First, the tenant’s interest will appear on title, meaning that anyone conducting a title search (due to, say, a proposed sale or mortgage of the property) will become aware of the lease. Second, and perhaps more importantly, registration will give the tenant a priority interest over anyone that acquires a subsequent interest in the property (i.e. landlord’s lender).
Specifically, pursuant to the LTA, except for limited exemptions, interests in property are ranked based on the order in which registration occurred. Thus, a tenant that registers the lease will have priority over subsequent interests, such as in respect of a financial institution that enters into a mortgage agreement with the landlord. If the tenant’s lease is not registered on title, and the landlord’s mortgagee does not have actual notice of the tenancy, a mortgagee in possession (i.e. if the landlord defaults under its mortgage) whose interest appears on title prior to the tenant’s lease or notice thereof may evict the tenant, unless the tenant has entered into a non-disturbance agreement with the said mortgagee.
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Tenants should thus consider registering their leases in order to best protect their interests. Conversely, landlord should maintain control over any information that the tenant is permitted to register on title to the landlord’s property. As such, landlords and tenantsshould pay close attention to registration when negotiating their lease and think about whether including provisions in the lease addressing registration would be appropriate.
Ignoring this important aspect of commercial tenancies can have unintended consequences for both landlords and tenants, and each party should thus give the issue proper consideration and seek out legal advice to ensure their rights are fully protected.
