When dealing with commercial leases, we are often asked whether or not the lease needs to be registered on the title of the property at Titles Office. The Land Titles Act allows any lease to be registered, provided it meets the formal requirements of the Act and associated Regulations. The question is – why register?
Generally, any lease for a term exceeding 3 years (including options to renew) must be registered. From a landlord’s perspective, having the lease registered on their title has little effect and serves little purpose. In some circumstances, it can add value to the property, as potential investors often like to see that the lease has been registered when they are looking to purchase. Generally speaking, it will be the tenant that has the most to gain from having the lease registered.
Any party that has a registered interest recorded on the title of a property can claim on that interest. This includes mortgagees. Often a bank will have a mortgage registered on the title of a commercial property. This gives the bank the right to exercise its power of sale in the event that the landlord defaults under their loan agreement. The landlord’s financial affairs do not usually affect the tenant unless the landlord suffers financial difficulty and the bank moves in to take possession of the property. At this point the tenant’s possession becomes an issue for the bank (in its capacity as mortgagee).
If the tenant’s lease is not registered on the title, the bank/mortgagee does not have to recognise the tenant’s right to occupy the property unless it has specifically consented to the lease. There is however, an important exception to this rule. The Land Titles Act gives tenants statutory protection if their lease is for 3 years or less (this includes any options to renew). Therefore, if a tenant enters into a lease for 3 years with no option to renew, the tenant will have automatic protection under the Act, as if they had registered the lease. If the tenant has entered into a 3 year lease with say a 3 year option, they do not have statutory protection. If such a tenant wants protection, they must have the lease registered on the title at Titles Office to protect their interest in the lease before the mortgagee exercises its power of sale.
It is important to note that failure to register a lease (regardless of the length of the term) does not invalidate the document. Provided the lease is properly made and executed, the document will bind all parties to it regardless of whether it is registered.
Before registering any lease, it is important to ensure that it complies with the formal requirements of the Titles Office. If the lease is for part of a lot or part of a building, a lease plan must be attached to the lease. The Titles Office has very specific requirements for lease plans and these will usually need to be drawn up by a registered surveyor to ensure compliance. This could add significant additional expense for the tenant (if the lease provides, as it usually does, that the tenant pay for the surveying expenses).
The landlord or landlord’s lawyer will often control the registration of the lease and most commercial and retail shop leases provide that the tenant must pay the costs of registration. At the present time, registration costs are generally less than $200 plus professional fees, and from a tenant’s perspective, is often well worth the cost.
Whether you are a landlord or a tenant, lease registration is something you should seek legal advice on. Smith & Stanton has a number of lawyers that are experienced in commercial and retail shop leasing – please call us if you require advice on any leasing matter.