When is rent “rent”? The Ontario Court of Appeal narrows the definition of “rent” under the Real Property Limitations Act

Background

The dispute arose from a commercial lease requiring the tenant to pay the landlord, as “additional rent”, net profit earned from a sublease. 

The landlord sued the tenant for profit it had allegedly made on a sublease. The tenant maintained that it had made no profit because it paid the landlord more rent for the premises than what it received from its subtenant, and argued that the landlord’s claim was statute-barred because the LA applied.

Majority’s decision

The majority held that the landlord’s claim was governed by the LA because the tenant’s obligation to remit the net profit from the sublease was “not based on an obligation to pay rent as defined by the RPLA and was rather for an alleged breach of a term of the ease that is governed by the [LA]”.[2]

Relying on Mew J. in Pickering Square Inc. v. Trillium College Inc.,[3] the court noted that “rent” under the RPLA refers to a payment due under a lease as compensation for the use of land. It does not matter whether the parties to the lease define a specific item as being “rent”, but rather “the obligation must be interpreted in light of the context, scheme, and object of the RPLA…”,[4] otherwise, any amount payable by a tenant to a landlord under the lease would be treated as rent.[5] Further, the LA should be applied broadly because with its enactment, “the legislature created a single, comprehensive general limitations law that is to apply to all claims for injury, loss or damages except…when the RPLA specifically applies”.[6]

Distinguishing Northwinds Brewery Ltd. V. Caralyse Inc.,[7] the court held that the tenant’s obligation to remit profit was not an “annuity” nor a “periodical sum of money charged upon or payable out of land” – rather, the tenant was required to pay net profit, “which was a variable amount calculated based on a formula allowing it to deduct reasonable expenses such as legal fees and commissions”.[8] Therefore, even though the lease considered the net profit as “additional rent”, that obligation was not to pay “rent” as defined in the RPLA.[9]

Implications of the decision

This decision narrows the scope of what is considered “rent” under the RPLA. As a result, certain alternative rent structures, such as royalty rents, percentage rent, profit-sharing arrangements, and crop-sharing agreements, may now fall under the potentially shorter two-year limitation period of the LA if they involve variable amounts calculated through complex formulas or deductions.

[1] 2024 ONCA 755.

[2] Ibid at para 100. 

[3] 2014 ONSC 2629.

[4] Supra note 1 at para 102. 

[5] Ibid at para 102. 

[6] Ibid at para 103. 

[7] 2023 ONCA 17.

[8] Supra note 1 at para 107.

[9] Ibid at para 107.

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Saghi Khalili focuses on commercial real estate matters, including the acquisition, disposition, financing, and leasing of all types of real property. She regularly assists clients across all industries in drafting and negotiating commercial and real property-related agreements.