Even if the tenant's activity does not deviate from the intended use of the premises as specified in the lease, the landlord may demand that the tenant reimburse any increase in insurance premiums due to the nature of the tenant's business.
Interpretation of certain contractual clauses can sometimes appear clear to some but how ambiguous for others.
A landlord rents a space, formerly occupied by a butcher shop, to a tenant wishing to operate a bar. Two years after signing the lease, the landlord demands that the tenant reimburse the substantial increase in insurance premiums resulting from the tenant's activities in the leased premises. In support of his request, he invokes a clause in the lease stating that "if the landlord's insurance premiums increase, as a result of any breach of the lease by the tenant or due to the nature of the tenant's business," the tenant must reimburse this amount to the landlord without delay. "
The trial judge rejects the increase request, concluding that the tenant was not required to bear the increase in insurance premiums "because he had not violated the lease and the intended use of the building" was the same as that accepted at the time of contracting.
The case is appealed and the Court* overturns the decision rendered at first instance, stating that the clause is both "clear and coherent." Thus, even if the tenant's activity does not deviate from the intended use of the premises specified in the lease, the landlord can demand that the tenant reimburse the premium increase due to the nature of the tenant's business.
This clause, which may seem clear or obscure depending on the interpretation one wishes to give it and the interests of the parties, is included in most commercial leases. The presence of such clauses in commercial leases makes them a dream contract for lawyers since, subject to public policy considerations, it allows for great drafting freedom.
Whether clear or obscure, coherent or ambiguous; careful drafting of your commercial lease will allow you to conduct your business openly and not in the shadow of the courthouse.
*CA 500-22-103216-043, 2007-03-16
