When a tenant sends a draft lease to a landlord, does it automatically constitute a binding offer to rent? That is the question that the Quebec Superior Court ruled on in a case involving 2412-8779 Quebec Inc. vs. 9303-4338 Quebec Inc.1
In summary, the lessor was contacted in August 2018 by a potential tenant. The latter wished to lease a space for a fibre optics business that would improve Internet services in Chibougamau. The parameters of the premises required, however, were quite specific. It had be a 20' x 20' space, a stand-alone building with a flat roof. The landlord, not having a space like that in his portfolio, agreed to build one if the two parties came to an agreement.
On September 26, 2018, the tenant sent an undated and unsigned draft lease to the landlord, with no date indicated as to when the rental agreement was to take effect. Despite those details, the landlord began construction a few weeks later.
On April 2, 2019, the landlord learned through a press release that the tenant had not been selected as a beneficiary of government subsidies for his fibre optics project. Instead, his direct competitor was selected. That news effectively killed the tenant’s project, and he was no longer interested in the premises and refused to move in to the building.
In light of his withdrawal, the landlord instigated legal proceedings. He argued that the draft lease he had received from the potential tenant in September 2018 constituted an offer, given that it contained all the essential elements of the proposed rental contract. His decision to go ahead and build the premises was, in his opinion, a clear indication that the tenant’s offer had been accepted and that the latter’s signature was not required.
In such circumstances, the tenant's decision to withdraw constitutes a unilateral termination, allowing the landlord to claim rent for the next 25 years. Consequently, he was seeking $207,953 in damages from the tenant to compensate for the construction costs of premises built unnecessarily.
Unfortunately for the landlord, the Court was of the opinion that the landlord had not been able to clearly demonstrate that an unequivocal agreement had been reached between the parties. Given that the draft lease was neither signed nor dated, nor did it settle on certain necessary elements, the Court concluded that it was not binding on the parties.
Furthermore, the Court was of the opinion that the lessor had been imprudent in embarking on construction, when he knew that only one fibre optics project would be carried out in Chibougamau. He also knew that the lessee was facing a competitor well established in the region. The landlord took a risk by starting construction work too quickly, at a time when he did not know if the fibre optics project would actually come to pass.
On the other hand, should those arguments be deemed insufficient, the Court also noted that the lessor ultimately built an 800 square foot space (instead of 400), attached to an existing building (instead of being a stand-alone structure), premises that had a sloped roof instead of a flat one. In short, he built the exact opposite of what was initially requested by the tenant. Thus, it was with an implacable tone that the Court rejected all of the landlord's claims.
It should be noted from this decision that a draft lease can only be considered a formal offer to lease if it contains all the essential elements of the proposed contract, which was not the case here. A good way of avoiding such a situation would be to add a "Provisional Agreement" or "Draft Lease" watermark to the document, indicating that it is being sent "for negotiation and discussion purposes only".
François Nantel
Associated Lawyer
Kenza Chaoui
Law student
[1]2022 QCCS 1406.