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Commercial law, real estate law, commercial lease: the signing of a commercial lease is not a required formality for the validity of a rental agreement

Commercial law and commercial lease. The Québec civil law is to the effect that a contract is formed by the sole exchange of consent between the parties, unless the law requires them to perform certain formalities to ensure the validity of the contract. The Superior Court deals with this ground rule in a recent case, in which it rules on whether a commercial lease not signed by the parties is nevertheless valid in binding them. (2630-8064 Québec inc. (Placements CDS) v. 3188744 Canada inc., 2012 QCCS 3281).

THE FACTS

Towards the beginning of 2009, the defendant and the plaintiff (Placements CDS) agree that the plaintiff can operate a restaurant on the premises belonging to the defendant. Having failed to agree on all the terms of the lease, the parties only manage to produce a document entitled "Projet de bail" (draft lease) in which they sign their initials. The draft lease stipulates that the tenant must sign the lease within a period of 30 days and that the lease will remain identical to the lease that existed between the defendant and his former tenant. Seeing as the actual lease is never signed by either party, the plaintiff argues that the contract is verbal by nature, will last only for a month and can be terminated at any time.

In October 2010, the plaintiff, suffering a financial loss, chooses to close its business. In consequence, a letter, accompanied by a cheque representing October’s rent, is sent to the defendant confirming that the lease will only last a month, but that it remains subject to monthly renewal. The letter also indicates that the premises will be vacated by October 31, 2010. In February 2011, the defendant takes note of the plaintiff's failure to pay the rent and advises it that it intends to regain possession of the premises and notably, of the furniture and equipment that were left there. Following an injunction filed by the plaintiff to recover its furniture and equipment, a claim that is rejected by the court, the latter files a motion to introduce proceedings for damages allegedly caused by the defendant who refuses to let the plaintiff retrieve its furniture and equipment. In this motion, the plaintiff alleges that the defendant cannot invoke the non-payment of rent, as the lease terminated on October 31, 2010.

THE SUPERIOR COURT’S DECISION

To decide the fate of this request, the Superior Court is asked to rule on the nature of the obligations of the parties, as no lease was ever signed. The Court notes, firstly, that the evidence clearly demonstrates that the plaintiff wished to occupy the defendant’s premises in order to run its business. The Court also recognizes that all evidence presented is to the effect that the parties did in fact, discuss and negotiate the terms of a lease. However, the document produced as the "Projet de bail" (draft lease), although it does contain the initials of the parties’ representatives, cannot be considered as a complete and final agreement, given the absence of the parties’ signatures.

The Court then recalls that, according to the general theory of obligations, a contract is formed by the sole exchange of consents between persons, unless the law requires that the parties respect further conditions necessary for the contract’s formation or unless the parties require that the contract take the form of a solemn agreement.

When it comes to the lease however, no particular formalities are required by the law. A lease is therefore validly formed when the parties express consent regarding all significant elements of a lease: the property concerned, the term of the lease, the rent to be paid, etc. The Court dismisses the plaintiff's argument stating that a lease must be signed by the parties in order to be recognized by the law. Furthermore, there is nothing in the evidence that supports the claim that the both parties’ signatures were a necessary condition for the formation of the agreement.

In order to justify its reasoning, the Superior Court creates an analogy using the concepts of offer and acceptance as they are defined by the Civil Code of Québec. By sending the plaintiff a draft lease it had already signed, the defendant formulated an offer to rent in accordance with the terms and conditions set out in the draft lease. The plaintiff, by returning to the defendant the document that it had amended and initialed, expressed its consent to the elements contained in the document. Even if the plaintiff added a provision stipulating that the lease needed to be signed within a period of 30 days, the evidence is to the effect that the parties, having discussed all the significant elements necessary to the conclusion of a lease and having initialed the document, had already succeeded in forming the contract.

THE CONCLUSION

The Superior Court therefore concludes that the proposed lease constitues a lease between the parties, as it contains all the essential elements to the specific contract. In such a case, the signature of the lease is a formality which, if not met, cannot invalidate the agreement between the parties. Dubé Légal inc., Montréal commercial law and real estate law lawyers.