The question that often confronts a Tenant is whether or not to register their commercial lease at the Titles Office. The Land Title Act allows all leases (in the correct format) to be registered. Usually any lease for 3 years or more is registered.
It is usual practice for a Tenant to pay the costs of registration of the Lease. This can include surveyor’s costs, registration fees and lodging agent’s fees. There is no stamp duty payable on the lease.
The question then really is whether the benefit of registration of the Lease outweighs the cost of registration. The Tenant has the most to gain from having a Lease registered. From a Landlord’s aspect registration of a Tenant’s lease on title may add value to the property for sale purposes.
Any party having a registered interest against a title on a property can claim on that interest. An example of this is where a Landlord defaults on a Bank’s mortgage registered on the title to the property. The Bank can exercise it’s power under the registered mortgage to sell the property. That normally will not affect a Tenant. If a Lease is registered then the Tenant becomes the “Tenant by default” of the Bank.
If the Lease is not registered on the Landlord’s title deed, then a Bank exercising its powers in the event of default under a registered mortgage does not have to recognize the Lease unless it has specifically consented to the Lease.
An exception to the rule is if the lease is for a tem of 3 years or less (including Options to renew). If the Tenant has a lease for 3 years plus an option then the Tenant has no protection unless the Lease is registered.
If a Tenant wants protection, the Tenant must have the lease registered before the Bank exercises it’s power of sale.
Failure to register a Lease will not affect its validity as between Landlord and Tenant.
A common practice in commercial leases is for the Lease to contain provision that if the Landlord sells the freehold of the property being leased that the Landlord will obtain a Deed from the Buyer agreeing to be bound by the terms of any lease over the subject property.
That may be reassuring to many Tenants but the only real protection of the Lease term and Option is registration.
This is a general overview. For more detailed information please contact our office.