CANADA – QUÉBEC Law and Practice Contributed by: Eleonora Eusepi, Sabrina Guillot, Janie Chaloux and Nicolas Gosselin, BCF Business Law LLP
Building insurance usually covers physical damage caused by fire, water, vandalism, and other proper - ty‑loss events. However, specific coverage is obtain - able for a wide variety of events including business interruption coverage that applies only when busi - ness activities cease due to physical damage from an insured peril. During the COVID pandemic, tenants generally did not recover rent or clean‑up costs under business inter - ruption insurance, because insurers denied claims on the basis that pandemic closures did not involve the required “direct physical loss or damage”, leading to significant litigation across Canada. 6.13 Restrictions on the Use of Real Estate landlords can restrict how a tenant uses the premises through the lease, typically by specifying a permit - ted use and/or prohibiting certain uses. Tenants must also comply with usage restrictions or permissions in accordance with zoning laws. Furthermore, recent modifications to the Competi - tion Act which now restrict anti‑competitive clauses such as exclusivity or restrictive covenants when they unjustifiably limit competition are an important aspect of consideration in the drafting of commercial leases. 6.14 Tenant’s Ability to Alter and Improve Real Estate A tenant may alter or improve the leased premises only as permitted under the lease. Structural work is generally prohibited or subject to strict conditions, often requiring the landlord’s approval, supervision, or performance. Non‑structural alterations may fol - low a lighter approval process, depending on their nature and value. Improvements typically become the landlord’s property on installation, though leases may require the tenant to remove them and restore the premises at lease end. In all cases, tenants must obtain required permits, secure landlord consent, use approved contractors, comply with building codes, and provide plans before commencing any work. 6.15 Specific Regulations Leases are governed by the Civil Code, but residential leases are subject to statutory regulations that limit what landlords and tenants can agree to, unlike com -
mercial leases which are largely based on contractual freedom. Hotels are generally treated as commercial properties for leasing purposes, even though their operation is also subject to separate regulatory frame - works. During the pandemic, Québec mainly adopted temporary measures affecting residential tenancies, while commercial leases were not subject to asset- class‑specific legislation and, instead, relied on finan - cial relief programmes. 6.16 Effect of the Tenant’s Insolvency Tenant insolvency limits a landlord’s contractual rem - edies because federal insolvency laws override the lease. Under the Bankruptcy and Insolvency Act (BIA), a trustee may disclaim a lease, giving the landlord 15 days to challenge it in court; under the Companies’ Creditors Arrangement Act (CCAA), at least 30 days’ notice is required. The landlord then ranks as a general unsecured creditor for full provable damages – Cana - dian law imposes no statutory cap. The BIA’s automatic stay bars landlords from terminating the lease for insol - vency, and insolvency-triggered default clauses are separately unenforceable. Post-filing rent is treated as a current operating expense and must be paid accord - ing to the ordinary course. Of note is that Section 136 (1)(f) of the BIA grants landlords a preferred claim for up to three months’ arrears of rent that accrued before bankruptcy, ranking ahead of ordinary unsecured credi - tors but behind secured creditors. In practice, landlords and their counsel have internalised the three-month fig - ure as the baseline ask in any insolvency negotiation, knowing it reflects both the statutory preferred claim under the BIA and the customary threshold that courts have accepted in CCAA initial orders. 6.17 Right to Occupy After Termination or Expiry of a Lease In a commercial lease, a tenant has no right to remain within the premises after expiry of the term. How - ever, although a fixed‑term commercial lease ends automatically at the term under Article 1877 of the Civil Code, the only exception is tacit reconduction whereby, if the tenant occupies the premises more than tend days after expiry of the term without the landlord’s opposition, the lease renews automatically under Article 1879 of the Civil Code.
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