You will often find them under the headings: “Miscellaneous” or “General” articles in a lease. They are not usually given the attention they deserve when negotiating an offer to lease, lease or other contract but they should be and here is why. These clauses can and do affect each party’s legal rights and obligations in everyday dealings as well as on default and numerous court cases arise from them. Let us examine a few of those clauses to see why:
1. Entire Agreement: A typical clause reads like this: “This Lease is the entire agreement between the parties and there are no covenants, representations, warranties, agreements or other conditions expressed or implied, save as expressly set out herein.”
When using an entire agreement clause, review your ‘extrinsic’ or ‘preliminary’ documents carefully to determine whether they should be included as part of the agreement – e.g. letter agreements, marketing material, offers to lease,
appendices, schedules, plans, etc. If anything needs to be addressed in the lease, it can be dealt with by referencing the document or adding the applicable clauses/representations to the lease.
If the parties have a long-standing relationship, are they assuming that their previous dealings will dictate matters within the new contract? If so, they must consider whether an “entire agreement” clause is wholly appropriate or exactly
how it should be limited.
2. Notice: Notice provisions can be a source of litigation if ignored. They should address:
a. What method of service is acceptable/not acceptable? Email/fax/registered mail/certified mail/personal delivery/courier;
b. What type of communication is captured by the notice provisions – can defaults/option exercises be done by email and if so to whom?
c. Under Ontario’s Electronic Commerce Act, 2000, S.O. 2000, c. 17, electronic documents can satisfy the requirement to provide a written document as long as then parties accept the use of electronic documents.
If you don’t want email notice, then exclude it;
d. Specifying when notice is deemed to have been received (e.g. for mailed notices, fax or e-mail) is important when calculating the expiry date for exercising remedies. An error here can be costly if a lease is wrongfully terminated or remedies enforced prematurely;
e. The persons that must be notified (parties to the lease, counsel, corporate officers, indemnifier, mortgagee);
f. Consider different office time zones/geographical distances and how they impact notice. Especially with foreign parties;
g. Do ‘originals’ need to follow faxes or e-mails; and
h. Prohibited service dates such as religious holidays;
3. Governing Law: Here is a typical example: ”This Lease will be governed by and construed in accordance with the laws of Canada and the Province of Ontario.”:
What the parties to a lease should concern themselves with at the time of entering the lease are the following regarding the governing laws section:
a. the choice of law that will govern the parties if a dispute arises – i.e. which jurisdiction’s law will apply;
b. the choice of venue – i.e. the geographic location where proceedings will be held; and
c. the choice of forum to which the parties attorn for settlement of the dispute such as mediation, arbitration and/or the courts.
These are three different legal issues and the lease clause should address each and be understood by landlords, tenants and, if applicable, indemnifiers, especially when contracting with out-of-province/foreign parties.
4. Severability: Also a possible minefield for litigation: Here is an example:”If any provision of this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease shall not be affected thereby and shall be separately valid and enforceable to the fullest extent permitted by law.”
While there are cases where a party may want a lease to continue or end if a particular clause is rendered invalid, in many situations that may defeat the overall intentions. For example, If McDonald’s had an exclusive for hamburgers
in a plaza and its exclusive was found invalid allowing for competitors in the plaza, would McDonald’s always want to be bound to continue with such a lease? In the alternative, a well-drafted clause permits the parties to re-draft the offending clause to make it enforceable rather than merely having it deleted and remaining bound by the remaining terms. This allows the lease to survive and reflect the business intention of the parties.
The Lessons: Give proper attention to reviewing and negotiating the “Miscellaneous” or “General Section” of a lease. The clauses may seem harmless but can and often do come forward with a vengeance when a lease dispute arises. Obviously there is a need to be practical in terms of time and cost, but if you know your client well and understand the other parties’ business and manner of operation, you should know which clauses need to get some special attention. I will address a few other “boilerplate” clauses in a future edition of “The Legal Corner”.
Disclaimer: This article is for general information purposes only and not intended as or to be relied upon for legal advice. Consult with a lawyer for your unique situation.
[*If there is a general real estate or leasing related question you would like to see addressed in a future article in “The Legal Corner”, please contact me directly by e-mail at [email protected]
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