Blog Bite: Overholding Clauses vs Surrender Clauses in a Commercial Lease

September 26, 2016

In *AIM Health Group Inc. v 40 Finchgate Limited Partnership *(2012) ONCA 795, the landlord (“Finchgate”), entered into a 5 year lease agreement with the tenant (“AIM”).

Several months prior to the expiry of the commercial lease, AIM informed Finchgate of their intention to not renew the lease but to stay for an extended period of time due to a delay in a medical facilities inspection test required prior to moving into a new premises. Two weeks prior to the notice, Finchgate enforced a surrender clause within the lease which required AIM to vacate the premises at the end of the lease term.

The tenant filed an emergency application and claimed they were entitled to re-entering the premises since the overholding clause in the lease agreement did not state that it was only enforceable subject to the payment of rent and the landlord’s consent. The Court of Appeal reversed the trial judge’s decision and held that an overholding tenancy can arise only if the landlord agrees to a month-to-month tenancy which is normally evidenced through the landlord’s acceptance of rent or by waiving a tenant’s obligation to vacate as stipulated by a surrender clause within a lease agreement.

This interpretation was justified on the basis that clauses typically found in standard form contracts such as a lease agreement should be consistently interpreted in order to foster certainty and predictability in the law.

Key Take-Aways

The Court stated, in obiter, that surrender clauses within lease agreements are not necessary since there is an implied obligation on the tenant to not only give up possession upon expiration or termination of a tenancy, but to also restore absolute possession to the landlord in the same condition that the premises was found to be in prior to the execution of a lease agreement.

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