Introduction
In Fontaine v. B2GD Société immobilière Inc. (2025 QCCS 1023), the Superior Court issued an innovative ruling on the effect of a clause in a deed of sale requiring the purchaser to honour existing leases that are not published in the registry office. This decision confirms the validity of an exception to article 1887 C.C.Q. for this type of clause, which is often used in contracts involving real property.
The state of the law
In theory, under article 1887 C.C.Q., for a lease to be enforceable against a third party and for the purchaser of the property subject to the lease to be required to honour it, it must be published in the registry office prior to the acquisition. If it is not published, the purchaser can resiliate the lease upon 6 months’ notice. Some purchasers will take advantage of the lack of registration to force the lessees to agree to changes to the lease terms, under threat of having their lease resiliated.
To prevent such threats, it is common for the person selling the property to include a clause in the deed of sale requiring that the purchaser honour the existing leases.
The facts
The plaintiff lessee, Ms. Fontaine, rented premises under a 60-month commercial lease, the term of which was to end on June 30, 2025.
On March 22, 2021, a real estate company purchased the building in which Ms. Fontaine’s premises were located for the purpose of carrying out an “optimization project”. The purchaser explicitly committed at two places in the deed of sale to honour the existing leases. One of the clauses related to the financing the vendor granted the purchaser, which is very common.
It is interesting to note that the judge went to the trouble of mentioning that, rather than talking about “renoviction”, the purchaser used the term “optimization project”, which might possibly have affected the outcome of the case.
To make the building more profitable, the purchaser tried to reduce the surface area of the lessee’s premises. It threatened to resiliate the lease if she did not consent to the change, contrary to its commitment in the deed of sale in favour of the lessees. Given the only options presented to her and without being aware of the purchaser’s obligations, the lessee signed the change to her lease. The next day, she said she wanted to withdraw her consent. Following the lessee’s refusal to sign and, according to the purchaser, her failure to pay the rent, the purchaser attempted to resiliate the lease. On October 18, 2021, the purchaser carried out an extrajudicial eviction by padlocking the lessee’s premises. The lessee brought legal proceedings to have the change to the lease she signed at the purchaser’s request and the resiliation notices sent by the purchaser declared null and void and to obtain an injunction to ensure she had free access to her premises, plus damages. Note that the purchaser also resiliated all the residential leases in the building as part of its “optimization project”.
Superior Court’s decision
In its judgement, the Superior Court answered the following question: could the purchaser amend the lessee’s lease?
The Superior Court held that the change to the lease and the attempt to resiliate it are incompatible with the obligation in the deed of sale to honour the leases. The lessee could invoke that obligation since the clauses setting it out are interpreted as stipulations for another for her benefit. Although the clauses were intended in part to protect the former owner’s claim, the wording used also protected the lessee. Furthermore, that specific clause in a commercial lease was interpreted as a form of stipulation for another in Hajjar v. 9184-9919 Québec inc. (2012 QCCS 879). That obligation of the purchaser is thus an exception to article 1887 C.C.Q. since the new purchaser cannot resiliate the lease even though it is not registered in the registry office.
In its reasons, the Court set out the four conditions of the stipulation for another, the existence of all of which were proven by the facts. First, the contract between the stipulator and the promisor must be valid. Second, the stipulator must have an interest to be stipulated, whether pecuniary or moral. Third, the beneficiary of the stipulation must be determined and exist at the time the promisor is required to fulfil its obligation and fourth, the beneficiary must accept the stipulation by informing the promisor. With respect to accepting the stipulation, the Court held that the lessee did so in her demand letter and legal proceedings.
The Court pointed out that the stipulation for another is an exception to the privity of contract rule, refuting the purchaser’s argument that the lessee could not rely on the breach of an obligation in a contract to which she was not a party.
The new purchaser therefore could not invoke article 1887 C.C.Q. respecting the resiliation of leases not registered in the registry office since its commitment to honour the leases prevented it from exercising its right.
Conclusion
This decision confirms an exception to article 1887 C.C.Q. and points out the importance for purchasers of real property of conducting an in-depth analysis of the rights and obligations in a deed of sale in order to ensure they are not an obstacle to the projects for which they acquired the property. However, for the exception to be valid and a lessee to be able to take advantage of the obligation to honour the leases, the clause must fulfil the conditions of the stipulation for another. It is quite clear that the Court was of the opinion that the purchaser had acted in bad faith in this case, which certainly influenced the judge’s decision. It is also surprising that the judge found that the purchaser’s commitment to the vendor, in its role as creditor, was also a stipulation that benefited the lessee. One thing is sure, this decision is likely to lead to discussions between vendors and purchasers of rental properties concerning the undertakings to be made involving existing leases.
The author would like to acknowledge the support and assistance of Delphine Beauchemin, student at law.
[View source.]
