Ownership of Leasehold Improvements

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Many commercial leases provide that other than a tenant’s own trade fixtures and merchandise, pretty well everything else that the tenant installs in the premises is considered to be a leasehold improvement. Moreover, all leasehold improvements become property of the landlord immediately upon affixation without the landlord being obliged to pay for them.

A tenant should seek to amend the lease to provide that leasehold improvements belong to the landlord only at the end of the lease on the basis that the tenant can depreciate its interest in the leasehold improvements for tax purposes and so the tenant can control the leasehold improvements. Attaining such amendments may be difficult to acquire.

What is the difference between a trade fixture and a leasehold improvement?

In every case it is a question of fact. The first question is whether an article is so affixed to the premises as to become a fixture and, if it is, the second question is whether this fixture can be said to be a trade fixture of the tenant. If it is a trade fixture, then the tenant is entitled to remove it subject to any restrictions in the lease.

The courts have provided the following guidance in answering the above questions:

  • articles which are not attached to the premises other than by their own weight are not to be considered as part of the premises and are to continue as chattels, meaning they are removable by the tenant;
  • articles which are affixed to the premises even slightly are to be considered part of the premises and are considered fixtures, meaning they are not to be removed by the tenant; and
  • articles affixed to the premises by the tenant in such a manner that they become fixtures but are put in for the purposes of the tenant’s trade are considered tenant’s trade fixtures, meaning they are removable by the tenant.

A landlord and a tenant should both be aware that they can vary the general law as to what constitutes a leasehold improvement or a tenant’s trade fixture by making express stipulations in the lease. Negotiation of what falls under these two categories can be a drawn out process, however, the extra time spent on these details will avoid the uncertainty of litigation. The law on trade fixtures is murky. If there is an item that can be clarified as a trade fixture or leasehold improvement, do so in the lease.

For more information on the above please contact Lerners LLP.

Lerners is one of the largest firms in Southwestern Ontario, with offices in London and Toronto. Our 80-plus years of successful representation are a result of our commitment to providing all our clients with the legal services they need in a client-focused environment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Blog #7

EVICTION FOR LANDLORD’S OWN USE / PURCHASER’S USE

Under sections 48 and 49 of the Residential Tenancies Act, a landlord may terminate a residential tenancy if the landlord, or a purchaser, in good faith requires possession of the rental unit for the purpose of residential occupation by:

  • the landlord/purchaser;
  • the landlord/purchaser’s spouse;
  • a child or parent of the landlord/purchaser or the landlord/purchaser’s spouse; or
  • a person who provides or will provide care services to the landlord/purchaser, landlord/purchaser’s spouse, or a child or parent of the landlord/purchaser or the landlord/purchaser’s spouse, if the person receiving the care services lives in the same or a related group of buildings.

Section 48 and 49 are no fault grounds upon which a landlord may terminate a tenancy. Where a landlord proposes to terminate a tenancy in order to permit occupation by one of the specified relatives, the landlord must comply with sections 48, 49, 69 and 72 of the Act:

  •  Sections 48 and 49 require 60 days’ notice be given at the end of the month, terminating the tenancy at the end of the period or term of the tenancy agreement;
  •  If a tenant does not vacate the unit by the notice period, section 69 requires that an application to have the tenancy terminated must be commenced within 30 days of the termination date specified in the notice; and
  •  Section 72 requires that the person moving into the unit swear an affidavit that he or she is actually going to occupy the unit.

When terminating a tenancy under the Act it is important to observe the formalities as a failure to do so will void an application. Moreover, the purpose for terminating the tenancy must be for the residential occupancy of one of the specified individuals; the Landlord’s reasons for terminating the tenancy are irrelevant.

For more information on the above please contact Lerners LLP.

Lerners is one of the largest firms in Southwestern Ontario, with offices in London and Toronto. Our 80-plus years of successful representation are a result of our commitment to providing all our clients with the legal services they need in a client-focused environment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

 

Topics:  Commercial Leases, Fixtures, Landlords, Property Improvements, Tenants

Published In: General Business Updates, Commercial Real Estate Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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