Categories
Corporate & Commercial Law

Obtaining B Corp Certification: The Process and Benefits for Ontario Businesses

These days, many Ontarians want to “put their money where their mouth is” and support businesses that not only provide the products and services they want, but also represent high environmental and social responsibility standards. As a result, many businesses who align with these values seek out B Corp certification. BCorp certification is a designation indicating that a business meets the highest standards of social and environmental performance, public transparency, and legal accountability. This certification helps businesses differentiate themselves from the competition and communicate their ethos to potential consumers.

As of 2023, there were 149 B Corps headquartered in Ontario, ranging from agricultural support to legal services. With environmental and social responsibility becoming an increasingly important topic, it is anticipated that more and more Ontario businesses will seek out B Corp certification to differentiate themselves from their competitors.

Below, we’ll explain what B Corp certification is, its benefits, and what the certification process entails.

What is B Corp Certification?

B Corp certification is a certification obtained by companies following a rigorous assessment of their social and environmental performance, transparency, and accountability. This designation communicates that the business meets high standards in these areas, and is awarded to qualifying businesses by B Lab, which is a global nonprofit organization.

What are the Benefits of B Corp Certification?

Depending on your business, services, and the types of clients you serve, obtaining B Corp certification can be a critical differentiator, allowing you to attract potential clients and develop trust with them from the outset.

Some of the benefits of obtaining B Corp certification include:

  • Assessing your company’s performance: For many businesses, simply participating in the B Corp certification process can provide a current status assessment. It helps the company better understand where they are at in their performance, including how well the business is being run and what it could be doing better.
  • Differentiating your services in a competitive market: Obtaining B Corp certification can provide your business with a competitive advantage in more crowded service markets where clients are looking for businesses that stand apart from the rest.
  • Establishing credibility and trust with clients: B Corp certification provides clients with a neutral third-party validation of your commitment to social and environmental responsibility. In this sense, obtaining B Corp certification can help establish credibility and show that you truly “walk the walk” when it comes to your stated values.
  • Shaping your business to align with your values: In the same way that B Corp certification can help you attract new clients, it can also help you attract the “right” clients, particularly if working with like-minded clients or consumers who support environmental and social initiatives and value transparency and accountability is important to you.
  • Attracting and retaining talent: If you want to attract employees who live and breathe your company’s ethos, obtaining B Corp certification can be a great stepping stone to find your ideal talent. This certification demonstrates your company’s commitment to creating a positive impact, which can attract like-minded employees and foster a sense of ongoing pride and engagement among staff members.
  • Obtaining investments and capital: Some B Corps find that it is easier to raise funds because of their certification, as it indicates to potential investors that the company is well-managed and adheres to high ethical standards (and thus, lower risk to invest in).

As the above list demonstrates, there are a variety of benefits to obtaining B Corp status, ranging from attracting clients to raising capital, that could potentially appeal to a wide variety of businesses.

How Does a Business Obtain (and Maintain) B Corp Certification?

According to BLab, a business seeking B Corp certification must establish that they:

  • demonstrate high social and environmental performance;
  • will make a legal commitment by changing their corporate governance structure to be accountable to all stakeholders (and not just shareholders) and achieve benefit corporation status if it is available in their jurisdiction; and
  • exhibit transparency by allowing information about their performance to be publicly available on their B Corp profile.

Below is a high-level overview of the steps involved in obtaining B Corp certification, keeping in mind that the specific requirements can vary based on your business’s revenue and company size. For further information on the process, or to determine whether B Corp certification is right for you, be sure to speak with an experienced corporate lawyer for guidance.

Steps For Obtaining B Corp Certification

B Corp certification is not a certification that applies to everyone. Before starting your application, consider whether you are eligible for B Corp certification. If B Corp certification is right for you, you can begin the process by registering for the B Impact Assessment, which measures your business’s performance by reviewing your answers to a series of questions about your governance, worker, community, environment, and customer performance.

Following the B Impact Assessment, you will receive a score. Businesses seeking B Corp certification must obtain at least 80 points to continue on the certification path. Even if your business does not obtain 80 points, the B Impact Assessment can provide important guidance on improving your business’s environmental and social practices.

If you scored 80 points or above, you can then submit your results to B Lab for further consideration. Following B Lab’s review, and assuming no further information is required, you will be eligible for B Corp certification and your business will be registered in the B Corp Directory (along with your B Impact Assessment score and report).

Remember that B Corp certification is only the beginning. To maintain your certification, businesses must update their B Impact Assessment and verify their score every three years.

Final Thoughts on B Corp Certification

While B Corp certification is by no means a requirement, it can, in some cases, be a great differentiating factor for Ontario businesses. Obtaining B Corp certification demonstrates your business’s commitment to broad environmental and social goals, and even initiating the B Corp certification process can help provide great insights into your business’s performance through the B Impact Assessment.

Baker & Company’s Experienced Corporate Lawyers Provide Comprehensive Business Solutions

At Baker & Company, our trusted corporate lawyers provide personalized services for businesses of all sizes. Our business law team provides trusted legal advice and a full range of tailored business solutions to help clients build, structure, and manage their corporate affairs. From our office in Toronto’s financial district, our corporate law team provides clients with practical and proactive legal advice to mitigate risk and resolve issues before they escalate into larger disputes. To learn how we can help you with your business needs, contact us online or call us at 416-777-0100 to speak with a member of our team.

Categories
Employment Law

New Considerations When Drafting Termination Clauses

Termination clauses in Ontario employment contracts are crucial in defining the conditions under which an employment relationship can end. Although aiming to provide clarity, these clauses are also fraught with difficulties.

The law surrounding termination clauses has undergone another change in a recent case before the Superior Court of Justice. This blog will discuss the case and its potential effect on how termination clauses must be drafted to avoid being struck down by the courts.

Termination Clauses in Ontario

Termination clauses are provisions in employment contracts that outline the conditions under which the employment relationship may be ended. These clauses specify the rights and obligations of both the employer and the employee in the event of termination and typically address essential aspects such as notice periods, termination pay, and other entitlements that may apply when the employment relationship ends.

In Ontario, termination clauses must comply with the Employment Standards Act, which sets out minimum standards for termination pay and notice periods. The Court of Appeal has previously ruled that a termination clause was unenforceable where its “for cause” provisions violated the Employment Standards Act. The “without cause” provision was also void, meaning the employee was entitled to common law notice of payment in lieu.

Employee Brings Claim for Wrongful Dismissal

In Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, the Superior Court of Justice went further and found that an employer’s discretion to terminate an employee for cause is not unfettered, and drafting a termination clause that gives an employer such discretion is not enforceable.

The plaintiff was an employee of the defendant since October 2021. She signed a fixed-term employment agreement in November 2022, slated to end in December 2024. The fixed-term employment contract included a Waksdale-esque termination clause, where the employer could terminate the contract on a with-cause or without-cause basis. Specifically, the language of the without cause provisions was:

“The Township may at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon giving to the Employee written notice as follows…”

In January 2023, she was terminated without cause. She was paid termination pay, and her benefits were continued for the applicable notice period. She then brought a claim for wrongful dismissal and moved for summary judgment.

Plaintiff Argues Termination Clause Violates Employment Standards Act

The plaintiff argued that the termination clause in her employment contract was illegal and could not be enforced because:

  1. The clause allowed the employer to withhold termination and severance pay if the plaintiff is terminated for cause, which goes against the Employment Standards Act;
  2. The clause let the employer withhold statutory termination and severance pay if they terminate for cause, using a common law standard lower than the Employment Standards Act;
  3. The contract included employee conduct that was not covered in the Employment Standards Act, such as a “for cause” dismissal;
  4. The clause excluded payment of all “regular wages” and only mentions base salary, which violated the Employment Standards Act; and
  5. The clause stated the employer had “sole discretion” to terminate at any time, but the Employment Standards Act restricts termination in certain circumstances.

Conversely, the defendant employer argued that the contract did not violate the Employment Standards Act and that it is unambiguous.

Court Finds Clause Violates Employment Standards Act

The judge first examined the law on the interpretation of employment contracts, which requires courts to interpret it “as a whole and not on a piecemeal basis.” In this sense, the judge confirmed that once a portion of the termination clause violates the Employment Standards Act, the rest of the clause does, too. It is also irrelevant to the interpretation of whether the employer relied on the termination for cause provision for ruling that it would be unenforceable.

Ultimately, the judge found that this case’s fixed-term employment contract violated the Employment Standards Act. The judge noted that the Employment Standards Act did not define for cause, only the situations where an employee would not have the right to termination pay, such as being guilty of willful misconduct. The contract gave the employer the right to withhold termination pay and severance pay in case of dismissal for cause, contravening the Employment Standards Act.

Employer Does Not Have “Sole Discretion”

The judge also agreed with the employee’s arguments regarding the payment of wages and the employer’s discretion. On the latter, the judge noted that the Employment Standards Act prohibited the employer from terminating an employee after an employee’s leave or in reprisal for attempting to exercise a right under the Employment Standards Act. The judge found that the employer’s right to dismiss “is not absolute.”

Prior to this case, employers were required to draft termination provisions carefully so that they did not contravene the Employment Standards Act, specifically as they dealt with for-cause termination. However, with this judgment, employers must be careful in defining their discretion when terminating employees without cause.

Contact the Employment Lawyers at Baker & Company in Toronto for Advice on Employment Agreements and Terminations

At Baker & Company, our trusted employment lawyers help our clients navigate various aspects of employment relationships and workplace disputes, including severance pay, wrongful terminations, contract negotiations and Employment Standards Act compliance. Whether you are an employee seeking assistance with a termination claim, or an employer looking to mitigate risk before taking action, our lawyers are ready to help. To speak with a member of our employment law team, contact us online or call our office at 416-777-0100.

Categories
Administrative Law Commercial Litigation

Everything You Need to Know About Business Licenses in Ontario

Whether you are a long-term business owner or planning to launch a startup, understanding business licenses and how they work in Ontario is critical for staying on top of your business’s obligations. The requirements for obtaining business licenses in Ontario can vary depending on the type of license and your location, so it is important to determine what types of business licenses you will need from the outset and identify the steps you need to take to obtain them.

This blog will provide a high-level overview of various types of business licenses in Ontario, as well as how to obtain them. It will also explore the potential consequences your business may face if you operate without a required license.

Why Do I Need a Business License?

Business licenses are typically required in Ontario to ensure that businesses are operating in compliance with regulations, to protect consumers, to generate revenue for the government (whether municipal, provincial, or federal), and to ensure businesses are on a level playing field.

Depending on the type of business, additional business licenses may be required to further regulate the business’s activities, as explained in further detail below.

Types of Business Licenses in Ontario

There are several types of business licenses that businesses may need to obtain in Ontario, and, depending on the sector of work your business operates under, you may need more than one.

Some of the most common types of business licenses include:

  • Municipal Business Licenses: These licenses are typically required for businesses operating within a specific municipality, though exceptions can apply. The requirements for municipal business licenses can vary between municipalities, so be sure to contact your local municipality for further information.
  • Provincial Business Licenses: Some businesses require a provincial business license. For example, if your business sells liquor, you will need to obtain a liquor sale license from the Alcohol and Gaming Commission of Ontario.
  • Federal Business Licenses: Some businesses require a federal business license and you may need a federal permit to import or export goods.

Obtaining a Municipal Business License in Ontario

Most businesses will require a municipal business license, however, there are specific steps required in order to obtain and renew a municipal business license in Ontario. Entrepreneurs should note that BizPal is a helpful resource to consult with if you are having trouble determining what types of business permits or licenses your business needs, or does not need. This free service, provided by the federal, provincial/territorial, and municipal governments, can generally help you determine the appropriate permits and licenses for your business.

Requirements for Obtaining a Business License

The requirements for obtaining a municipal business license vary by municipality, so it is important to first check with your local municipality to ensure you obtain the appropriate municipal license.

Typically, you will need to provide your contact information, along with basic business information pertaining to your business. Depending on the application, you may need to make other declarations, such as confirming whether you or any partner, officer, or director of your business has been charged with a criminal offence or that you have appropriate insurance.

How Much Does a Business License Cost?

The cost of obtaining a business license can vary based on your municipality, depending on the number of business licenses in the municipality and the number and types of licenses used. For example, of several Ontario cities assessed in the 2021 MBN Canada Performance Report, business licensing costs ranged from $50.00 to $760.00 per year. For current information, it is important to consult your local municipality.

When Do I Have to Renew My Business License?

Business licenses in Ontario are typically valid for one year, so you will need to remember to renew your license annually. While the requirements for renewing a business license can vary, you will likely need to pay a renewal fee and may also be required to submit updated information or declarations.

Obtaining a Provincial or Federal Business License

Beyond municipal business licenses, you may also need to obtain a provincial or federal business license (or obtain one instead of a municipal license). As the requirements for obtaining these types of licenses can vary wildly based on your industry, consulting with BizPal and an experienced business lawyer can ensure that you purchase the appropriate license(s).

What Happens if I Operate Without a Business License?

Operating a business without the appropriate business license(s) can have a significant impact on your business and may result in personal consequences. Additionally, business licensees must ensure that they are complying with any regulations set out in relation to their business licenses.

At a minimum, businesses who fail to obtain or renew a business license, or otherwise fail to comply with the terms of their license, will likely face a fine. The amount of the fine will depend on a variety of factors, including your location, type of business, and the circumstances of your case. Beyond a fine, you may face regulatory penalties – such as having to shut down your business for a period – or, in extreme cases, jail time.

While not a legal consequence per se, keep in mind that being caught without the proper business licenses, or failing to comply with appropriate regulations, may also lead to a loss of reputation for your business. In a world where image is paramount, it is best to ensure your business remains compliant.

Final Thoughts on Business Licenses in Ontario

If you are operating a business in Ontario, you will need to at least consider whether you require a business license (or licenses). That is why it is critical to conduct thorough research when starting a business. Having all the information you need – including the types of business licenses or permits you might need – before getting your business off the ground will help you stay compliant from the start and avoid the consequences of operating without a business license.

However, it is not always easy to get a business going. Deciding on the structure of your business, filing the appropriate paperwork for your business, and managing the appropriate permits can be an extremely stressful and complex process which can be made less overwhelming with the assistance of a trusted corporate lawyer.

Toronto Corporate Business Lawyers at Baker & Company Advising Clients on Business Compliance

The seasoned corporate and commercial lawyers at Baker & Company regularly guide clients through various business-related matters, including proactive corporate compliance and commercial lease review, in addition to strategic succession planning and trust establishment. We help our clients develop comprehensive and practical business strategies to address their ongoing needs and advise them on issues that arise on a day-to-day basis. Contact us at 416-777-0100 or reach out to us online to schedule a consultation to learn how we can help you meet your business needs.

Categories
Trusts Wills & Estates

Why Testamentary Capacity Matters for Will-Makers

The importance of estate planning cannot be overstated. Preparing a will and other estate planning documents is the single best way to ensure that your assets are distributed following your wishes after you are gone. Unfortunately, far too many Ontarians wait too long to prepare their estate planning documents. At best, waiting too long might cause unneeded stress as you rush to prepare your will. At worst, you may miss out on the opportunity to get your estate plan in place.

One issue that can threaten an individual’s ability to create an estate plan is testamentary capacity is their mental capacity to understand and appreciate the effects and consequences of making their will. Without testamentary capacity, a will is invalid. This blog will explore what testamentary capacity is, and how to determine whether someone has it at the time their will is executed.

What is Testamentary Capacity?

As alluded to above, testamentary capacity refers to an individual’s mental capacity to create a valid will. “Incapacity” may arise from a variety of health conditions, including dementia, learning disabilities, mental health issues, or medical events such as strokes.

Confirming that an individual has testamentary capacity ensures that wills and other estate planning documents accurately reflect the will-maker’s intentions and that they were not unduly influenced or coerced into making decisions that go against their interests.

If an individual creates a will and another party later claims that the will-maker did not have the capacity to create the will, a court may find that the will was invalid, rendering their estate plan unenforceable. Thus, it is critical to ensure that a will-maker has the necessary capacity to create a will when they are making it.

Assessing Testamentary Capacity

The courts have held that a will-maker must have “a sound disposing mind” to create a valid will. But what does “sound disposing mind” mean? Typically, the courts have found that a will-maker must:

  • Understand the nature and effect of the will;
  • Know the nature and extent of their property;
  • Understand the extent of what they are giving under the will;
  • Remember the people whom they might be expected to provide for under the will (for example, children); and
  • Where applicable, understand the nature of the claims being made by parties they are excluding from the will (for example, when a direct family member is left out of the will).

Who Determines Testamentary Capacity?

Different parties might be interested in the testamentary capacity of the will-maker, depending on the timing and circumstances. Wills and estate lawyers must ask their clients questions when working on their estate planning documents to confirm whether, from the lawyer’s perspective, they have the necessary capacity to create the documents. Despite taking these steps, however, challenges to the will or other issues can still arise.

After a will has been created, testamentary capacity may become relevant if another individual challenges the will in court on the basis that the will-maker lacked testamentary capacity. In these cases, the capacity of the will-maker will be determined by the court based on the evidence provided by the parties involved in the dispute.

How is Testamentary Capacity Determined in Wills Challenges?

Where a will is challenged for lack of testamentary capacity, it is not enough to simply say that the will-maker had testamentary capacity. Rather, the party who wants to prove that the will is valid will need to prove that the will-maker was capable. This exercise can become especially complicated because, often, the will-maker will invariably have passed away before the will is challenged.

As a result, the courts will often rely on medical evidence, expert opinions, or even testimony from friends, family members, or the lawyer who helped prepare the will regarding the will-maker’s mental capacity at the time they created their will.

Estate Planning and Issues Relating to Testamentary Capacity

In addition to testamentary capacity, will-makers should be aware of the other challenges that come when preparing an estate plan with reduced capacity, which are outlined in detail below:

Testamentary Incapacity Can Leave Will-Makers Vulnerable

Creating an estate plan is a necessary, but sometimes challenging experience. After all, will-makers often need to make difficult decisions regarding how their assets will be distributed, and to whom. When prospective will-makers experience diminished testamentary capacity, they are left vulnerable to influence from potential beneficiaries. In turn, this influence – or even the perception of influence – can lead to disputes between beneficiaries down the line, resulting in a challenge to the will.

Perceived Testamentary Incapacity Can Raise Suspicion Regarding a Will

Suppose, for example, a will-maker was suffering from diminished capacity yet executed a will that was reasonable and adequately provided for the beneficiaries that the will-maker wanted to care for. In these circumstances, another beneficiary could still challenge the validity of the will and, if successful, have the will deemed invalid. Ultimately, it does not matter what the will says. If a will-maker creates an estate plan yet is later found to have lacked testamentary capacity, the will could be found to be invalid. Creating an otherwise reasonable will in circumstances where others may suspect you to be of diminished capacity can create significant challenges for your estate plan.

Testamentary Incapacity Can Prevent Will-Makers from Creating Their Estate Plan

It is also important to consider situations where an individual becomes incapacitated before creating an estate plan and is prevented from executing their estate documents. In these situations, the individual will be unable to create a valid will and their estate will be distributed by the intestate succession rules under the Succession Law Reform Act.

Avoiding Capacity Issues in Estate Planning

The single best way to avoid capacity issues in estate planning is to create your estate plan before capacity issues arise! To that end, if you haven’t already created your estate plan, now is the perfect time to speak with an experienced wills and estates lawyer.

Remember, too, that incapacity planning should be included as part of your estate plan. Like outlining how you want your estate to be distributed in your will, you can also appoint individuals to make decisions (like financial or health care decisions) on your behalf if you become incapable of making those decisions yourself.

Contact the Wills and Estates Lawyers at Baker & Company for Assistance With Estate Planning

At Baker & Company, our estate planning lawyers regularly review and update existing wills, and prepare new wills and trusts for clients with estates of all sizes. Whether you are looking to prepare your first estate plan, revise an existing testamentary document, or have questions about estate administration, our team can help. Call us at 416-777-0100 or contact us online to schedule a consultation.

Categories
Franchise & License Agreements

A Primer on Hotel Franchising in Ontario

Hotel franchising allows new and experienced entrepreneurs and hoteliers to jump into a competitive market. The demand for quality accommodations is rising as the province continues to attract a diverse range of travellers, from business professionals to adventure seekers. This is particularly true given the increase in alternative accommodations and vacation rentals. In this thriving environment, hotel franchising has proven to be a strategic avenue for both seasoned hoteliers and aspiring entrepreneurs to establish and grow their businesses.

This blog will provide an overview of the intricacies of hotel franchising in Ontario, with a particular focus on franchise and license agreements.

The Rise of Hotel Franchising in Ontario

Ontario’s vibrant cities and picturesque landscapes have positioned it as a prime destination for travellers worldwide. As the tourism industry continues to grow exponentially, so does the growth of hotel franchises. These franchises offer a unique blend of brand recognition, operational support, and a proven business model, making them an attractive proposition for individuals looking to enter the hospitality sector. By opting to franchise a hotel, entrepreneurs can gain an opportunity to enter the industry with the support and benefit of the existing brand.

Like any business, entrepreneurs aim to be successful, and having a long-term license or franchise agreement can bring stability and comfort. However, prospective franchisees need to have a thorough understanding of their agreement before executing any document. Obtaining legal advice from a trusted corporate/commercial lawyer can help demystify ambiguities and ensure you understand your rights, responsibilities, risks and liability under the contract in case of a challenge or dispute. By mitigating and addressing concerns proactively, you can feel at ease knowing your rights and investments are sufficiently protected.

Decoding Franchise Agreements

At the heart of every successful hotel franchise is a well-crafted franchise agreement that serves as the blueprint for the relationship between the franchisor and the franchisee. These contracts outline the parties’ rights, responsibilities, and expectations throughout the relationship. From brand standards and marketing support to financial considerations and operational guidelines, franchise agreements are pivotal in establishing a mutually beneficial partnership. However, even seasoned entrepreneurs require additional insight to truly appreciate these unique terms and elements.

Most hotel franchise or license agreements use specific and extensive language to detail the terms that reflect the substantial investments made by both the Licensee (franchisee) and the Licensor (the brand). Accordingly, when it comes to franchise agreements, general documents may contain complex terms that require additional insight and explanation, such as:

  • Ownership transfers;
  • Royalty fees;
  • Termination and renewals;
  • Area of protection clauses;
  • Capital investments; and
  • Territory and exclusivity clauses.

A trusted lawyer with experience in hotel franchising can break down these nuanced terms to ensure you understand the potential risks and liabilities you may face in conjunction with Ontario’s laws in case of a future challenge.

Navigating Franchise Negotiations

Working with a large, multi-national hotel brand can be an exciting thought. However, while hotel franchise agreements may appear to be comprehensive, non-negotiable contracts, they are, in fact, often negotiable, at least to some degree.

Contract negotiations must be taken seriously, and franchisees are strongly encouraged to retain the assistance of an experienced lawyer to help them navigate the negotiation process. Thorough negotiations can make all the difference in ensuring you receive adequate protection and gain necessary concessions that work in your favour.

Understanding Ontario Franchise Law

Ontario’s franchise law, known as the Arthur Wishart Act (Franchise Disclosure), ensures franchise owners provide potential franchisees with crucial information about the franchise before the prospective entrepreneur enters into a franchise agreement. Therefore, a franchise owner must provide a “franchise disclosure document” containing “all material facts” relevant to the franchise relationship, including information about the franchise agreement, financial statements, and other information to help the prospective franchisee make important investment decisions. If a franchise disclosure document is not provided, or an incomplete or misleading document is provided instead, the franchise owner may face serious consequences, including fines or legal action.

Franchise owners are also obligated to advise the prospective franchisee about any “material change” that occurs after they provide the franchise disclosure document. Such a change could harm the franchise’s value or impact the franchisee’s decision to purchase the franchise. Further, if a franchisee suffers a loss due to the franchise owner’s failure to comply with any obligations under the Act, the franchisee may be entitled to bring legal action against them.

Key Takeaways for First-Time and Seasoned Hotel Franchisees

Regardless of your entrepreneurial background, entering into the hotel industry involves a significant investment of time, resources, and finances. Given the extensive investments and nuanced complexities involved, navigating the legal landscape alone can be overwhelming and may result in inadequate protection or liability exposure down the line. For these reasons, it is imperative that those looking to franchise a hotel obtain trusted legal guidance from a lawyer who can raise and explain essential considerations before you sign any contract. This knowledge, combined with an understanding of the applicable provincial and federal laws, will allow you to make informed decisions and maximize the potential for a successful business.

Contact the Corporate Lawyers at Baker & Company for Trusted Legal Advice on Hotel Franchising in Toronto and Across Ontario

At Baker & Company, our talented team of franchise lawyers takes the time to work closely with clients and understand their unique needs and goals. From proactive advice to dispute resolution, we can help ensure you are positioned for success in your new hotel business. Whether you are a seasoned franchisee or have recently considered entering into your first franchise agreement, contact us at 416-777-0100 or reach out to us online to schedule a consultation and learn how we can assist you.

Categories
Business Succession Planning

Ontario Business Succession Planning Essentials

Succession planning is a crucial aspect of any business owner’s life. As entrepreneurs forge ahead, planning for a seamless transition of their enterprise to the next generation or a chosen successor is vital to ensuring the business’s longevity. Business succession planning is not merely a contingency plan but a strategic imperative that requires thoughtful consideration, meticulous preparation, and a comprehensive understanding of the legal and financial implications.

Why Is Succession Planning Important?

Business succession planning involves transferring ownership and management of a business to a new owner, such as an immediate family member or another chosen entity. When planning to leave behind such a legacy, business owners should take adequate time and care in preparing their succession plans. By doing so, they can maximize the ongoing value of the business, minimize disruptions, and be confident, knowing they provided their successors with the resources and knowledge required to help the company continue to grow and succeed.

Some critical considerations for business succession planning are set out below.

A Clear Exit Strategy

When any entrepreneur begins to consider their future within their business, it is essential for them to identify the needs and goals of both themselves and the business well in advance of any transition in leadership. While the planning process may be abstract and non-linear, it is vital to formally identify key elements of the transition as early as possible. While there are numerous considerations to think about, it is important to be forward-thinking in any approach and consider any trends and factors that may impact the daily operations and financial stability of the business to minimize as many unknowns as possible. Addressing potential issues before they arise, such as tax planning, economic trends and the impact of a change in leadership on employees and clients, aids with a seamless transition.

Identify Likely Successors

A business owner should take extensive care and consideration when considering who will take over their business and lead in their footsteps. Sometimes, the business might pass on to the owner’s children or other family members. However, in other circumstances, owners may wish for a key existing management-level employee to take the reins. Alternatively, an owner may want to value and sell their business to an unrelated third party.

Whatever the case, clearly identifying successors is an essential component in succession planning, as it can dictate what direction the succession strategy will go. For example, a child taking over the business may already have the necessary knowledge and training to step in at any time, while an existing management-level employee may require additional training and preparation to step into such a role.

Proactive Financial Planning

In the business world, financial planning is a crucial and ongoing consideration for any business owner. When it comes to succession planning, an entrepreneur must first consider what they must do to ensure the business remains financially stable. Next, they should identify what financial involvement they will have, if any, after stepping away. If an existing owner wishes to remain invested in the business, it is crucial to determine what this arrangement will look like.

Address Estate Planning Concerns

Once a business owner has completed a retirement analysis and has identified likely successors to take over, it is vital to prepare (or update) an estate plan. This is particularly important if the ownership of the business remains within the family, as fair consideration has been given to those individuals through the estate plan, and if the business valuation represents a substantial portion of the estate. Owners may also want to consider an “estate freeze” to help transition the business to a family member. Additional tax and trust options may also be explored to ensure the estate plan adequately considers all involved.

Prepare a “Plan B”

Although preparing a comprehensive business succession plan with the help of an experienced business lawyer is critical, entrepreneurs need to have a “Plan B”. Life can change quickly, and having some type of contingency set in place can make all the difference. This is particularly the case if an accident occurs, rendering an owner unable to make such decisions at a later date, such as a permanent disability or sudden death. By having a backup plan, owners can ensure that new management of the business will be implemented immediately to mitigate any impact on customers, clients, and employees.

Consequences of Poor Planning

Failing to prepare an adequate business succession plan can result in several issues, as set out below.

Operations Disruptions

Without a clear transition plan, a business can be subjected to several interruptions in operations to workflow, employee training, and project timelines. Furthermore, if accounts payable and accounts receivables are not properly maintained throughout the transition, the business may experience deficits and missed payments. All of these disruptions can ultimately impact customer experience and service quality.

Employee Challenges

Without a clear succession plan, business owners may face challenges in retaining employees and maintaining morale. Employees may look for alternative opportunities if they perceive a lack of stability or advancement opportunities within the business. As such, companies risk losing not only key talent but also their institutional knowledge and corporate memory of day-to-day operations. Further, employees may have reduced motivation and accountability when a structural change is poorly planned.

Shareholder and Customer Concerns

Shareholders, clients, and customers may express concerns or lose confidence in the business if they perceive instability during a leadership transition or corporate restructuring. Such a loss of trust and confidence can be difficult to rebuild, ultimately impacting the business’s reputation and bottom line. Uncertainty surrounding the departure of a critical figurehead may also cause stakeholders to revoke their support for the company.

Family Disputes

Poor succession planning can result in family disputes if a business is family-owned or involves several family members. Without a clear plan, disagreements may arise relating to asset distribution, leadership roles, and overall management decisions.

How a Corporate Lawyer Can Help You Prepare Your Succession Plan

If you are starting to think about business succession planning but do not know where to start, an experienced corporate lawyer can help ensure you cover all of your bases and have a sound succession plan in place for when you choose to step away from your enterprise. Not only can a knowledgeable business lawyer help you identify your retirement goals and develop a practical exit strategy, but they can also help you work through the more intricate parts of succession planning. These considerations include transitioning the business to a successor, obtaining a business valuation, and mitigating conflicts that may arise throughout the process.

Once a business succession plan has been prepared, it is essential for any business owner to continue to document any relevant information successors or professionals may need and communicate the future transition plans to everyone involved as early as possible to allow adequate time for preparation.

Contact the Corporate Lawyers at Baker & Company for Trusted Guidance on Business Succession Planning in Toronto

At Baker & Company, our Toronto business succession planning lawyers can help you establish a business succession plan tailored to your needs. We have extensive experience and expertise in providing clients with advice on corporate law and estate law. We can guide you in implementing the plan that works best for you and ensures your business’s future success. Call us at 416-777-0100 or contact us online to schedule an initial consultation with a member of our business law team.

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Commercial Real Estate

Court of Appeal Rules on “Unreasonably Withholding” Consent for the Assignment of a Lease

In the intricate world of commercial tenancies, landlord and tenant relationships can often be fraught with back-and-forth negotiations. One such scenario recently came to light before the Court of Appeal for Ontario when a dentist, seeking to assign his lease to two other dentists who were set to purchase his practice, found himself entangled in a complex battle for consent. What followed was a series of events that underscored the importance of understanding lease agreements and the boundaries of consent in the context of lease assignments.

What is an Assignment of a Lease?

A lease assignment refers to the transfer of a lease agreement from one tenant to another. When a tenant wishes to assign their lease, they essentially transfer their rights and obligations under the lease to a new individual or entity, known as the assignee.

In Ontario, the Commercial Tenancies Act imposes some restrictions on tenants and landlords when assigning a commercial lease. Specifically, section 23 states that the landlord is subject to the obligation that any license of consent to an assignment is not to be “unreasonably withheld.” Section 23(2) allows a tenant to apply to the Superior Court of Justice where such licence or consent has been unreasonably withheld.

What is the Doctrine of Waiver?

The doctrine of waiver is a legal principle whereby an individual intentionally relinquishes or abandons their right, claim, or privilege afforded in a contract. Under this doctrine, if a party fails to enforce or assert a right or benefit they are entitled to under the contract terms, they may be deemed to have waived that right. In other words, by knowingly and voluntarily choosing not to exercise a certain right, the party loses the ability to claim that right later.

The elements of the doctrine were best described in Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co. as “full knowledge of the deficiency which might be relied upon and the unequivocal intention to relinquish the right to rely on it.” Since then, case law in Ontario has developed to clarify the situations in which the doctrine can be applied.

Retiring Dentist Sells Practice

The scope of unreasonable withholding and the applicability of the waiver doctrine were recently considered by the Court of Appeal in Rabin v. 2490918 Ontario Inc. At the time of the dispute, the appellant was a retiring dentist who had practiced for several decades. His practice was a tenant of a building that the respondent acquired to demolish and redevelop in the future. Through the purchase, the respondent became the landlord at the property.

The appellant had agreed to sell his practice to two younger dentists and sought the landlord’s consent to assign the lease as part of the business sale. The provision addressing lease assignments in the commercial lease required the appellant to give “prior written notice” to the landlord of his intent to transfer, and within 15 days of such notice, the landlord would notify of its consent or lack thereof.

Dentist Attempts to Assign Lease

The appellant sent the requisite notice to the landlord, but the respondent did not reply within the 15-day specified timeframe. It was not until 22 days after the notice was delivered that the landlord consented, subject to the addition of a demolition clause. The appellant refused, and the respondent withheld its consent. The parties continued their correspondence with several more requests for the landlord’s consent in the negotiations.

The application judge found that the appellant had waived the requirement under the lease for the respondent to provide consent within 15 days. In arriving at this decision, the judge was swayed by numerous emails sent by the appellant’s counsel renewing the request for consent. The judge dismissed the application.

Court of Appeal Overturns Ruling Based on Legal Errors

On appeal, the Court of Appeal found that the application judge had applied the doctrine of waiver where neither party had raised it as an issue, and the judge had erred in its application.

First, the Court noted that it is well established as a matter of natural justice that “it is not open to a judge to dispose of a material issue in a proceeding on the basis that has not been raised or argued by the parties.” The application judge had applied the doctrine of waiver on his initiative, preventing the parties from making submissions on this point.

Second, the application judge did not reference the test as set out above. He made no determination on whether the appellant had the “unequivocal and conscious intention” to waive his rights in any of the correspondence. In fact, the appellant had continuously insisted on compliance with the lease. The evidence pointed to the stringent test not being met, and thus, applying the waiver doctrine was a legal error.

Lease Assignment Ordered to Proceed

The Court went on to note that the application judge’s analysis should have focused on whether the consent by the landlord was “unreasonably withheld.” In doing so, the Court stated that it would look at “the information available to, and the reasons given by, the landlord at the time the landlord neglected or refused consent.” In light of the facts of the case, this burden was met. The landlord failed to respond within the necessary timeframe, no reasonable excuse was provided for its failure to respond, and attempted to trade consent for a clause for its benefit.

The Court allowed the appeal, set aside the application judge’s order, and granted the appellant’s application. The Court found that the landlord unreasonably withheld its consent to the lease assignment and ordered that the assignment be made.

Contact the Toronto Property Lawyers at Baker & Company for Effective Commercial Real Estate Advice

There are several standard terms within a commercial lease, which often includes provisions pertaining to a lease assignment. However, if a party to the lease does not uphold their obligations to the other party, disputes can quickly arise. The trusted real estate lawyers at Baker & Company have extensive experience drafting, reviewing and negotiating commercial leases. Our lawyers will help you review documentation and ensure that you understand your legal obligations before you sign any contract. Contact us online or by phone at 416-777-0100 to schedule a consultation with a member of our property law team and learn how we can help you.

Categories
Commercial Real Estate

Off-Title Searches in Commercial Real Estate Transactions

Commercial real estate transactions involve countless complexities and considerations that require careful attention. Whether buying, selling, or leasing commercial property, understanding the key factors impacting the transaction’s success is crucial. This is why off-title searches are so important, as they reveal factors that could affect the buyer’s intended use of the premises. This blog will provide a high-level overview of some of the most commonly completed off-title searches in commercial real estate.

Off-title Searches

Although title searches are a feature of residential and commercial real estate transactions, the nature of the commercial property may necessitate comprehensive off-title searches. An off-title search aims to uncover potential issues, risks, or considerations that may impact the property’s value or future use that may not be evident from the title alone.

By conducting an off-title search, prospective buyers or investors can make more informed decisions and assess the potential risks of a commercial property transaction.

The following searches are commonly completed for various commercial real estate transactions.

Electrical Searches

Ensuring a property is properly maintained for electrical supply is paramount, especially in the commercial context. In order to properly run many types of businesses, large amounts of power must be delivered to the premises. Section 113(11) of the Electricity Act empowers the Electrical Safety Authority to issue orders for a broad range of work that the Authority considers “necessary or advisable for the safety of persons or the protection of property.” The Authority may be able to provide key information on whether the premises have been subject to problematic electric issues in the past.

Similarly, to complete the work mandated above, section 46(1) of the Electricity Act also codifies unregistered hydro easements that could exist over the property. Uncovering the existence of these easements is important to ensure legal compliance and prevent potential disputes or liabilities. Therefore, off-title searches involving the Electricity Act are essential in determining the property’s compliance with the legislation and could reveal important legal considerations before purchase.

Municipal Compliance

Unlike residential properties, which are specifically zoned for residential use, commercial properties can be permitted to be used in many ways. For example, within a commercial building, many different businesses often operate under the same roof. Despite the wide range of uses permitted within a commercial building, an off-title search can reveal whether the intended use would violate any by-laws and codes, specifically concerning setbacks, density, parking ratios, outside storage, and siting of garbage containers. This information can be valuable with respect to mitigating future liability.

Environmental

Whether or not the property has been used for any activity that could cause contamination, some type of environmental due diligence should always be completed. At any property, it is possible that the property could be contaminated by nearby businesses or industrial complexes, which could expose the buyer to liabilities under the applicable legislation. Although bringing a claim for damages based for fraudulent misrepresentation is possible, an environmental off-title search could help the buyer avoid this cost. For example, a search could be completed via the Environmental Site Registry under O. Reg. 153/04, which can provide information as to whether a record of site condition had been previously filed. If so, this record would include information, including a contamination assessment.

Safety Inspections

Due to their nature, many commercial properties also require particular attention for fire and health concerns. For example, a commercial kitchen is subject to the requirements contained within the Health Protection and Promotion Act, the Ontario Food Premises Regulation, and section 6.2.2.6 of the Ontario Building Code. When purchasing a property that includes a kitchen, ensuring that the premises comply with this legislation is prudent. The same goes for many types of businesses. In this context, off-title searches can ensure that the buyer can use the premises for the intended purpose and that any associated fire or health liabilities are exposed before purchase.

Corporate Existence Searches

A corporate existence search is an important due diligence check when purchasing a property from a corporation. It ensures that the entity is properly registered, active, and in good standing with the relevant regulatory authorities, the absence of which could complicate the legal validity of the transaction. Further, completing this check can uncover pending lawsuits, legal claims, or outstanding judgments against the corporation. This information helps uncover the potential liabilities that may affect the corporation’s ability to fulfill its obligations or impact the property transaction.

Overall, a corporate existence search provides valuable insights into a corporation’s legal status, potential liabilities, ownership, and compliance. This information is crucial for assessing the corporation’s ability to enter a real estate transaction and mitigating risks associated with its involvement.

Contact the Property Lawyers at Baker & Company in Toronto for Advice on Commercial Real Estate Transactions

At Baker & Company, our experienced real estate lawyers regularly advise our corporate clients on various real estate matters, including commercial real estate transactions, property disputes, and title searches. We help our clients with their business needs, ranging from small family businesses to large corporate enterprises. Our trusted lawyers will take the time to explain the law that applies to your situation and advise you of your options in order to obtain the best possible outcome. To speak with a member of our team regarding your real estate concerns, contact us at 416-777-0100 or contact us online to schedule an initial consultation.

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Corporate & Commercial Law

Considerations for Buying or Selling a Business: Asset vs. Share Sale

There are many moving parts to buying or selling a business. Some key considerations are whether to conduct an asset or share sale, which can direct the process and what kind of due diligence should be conducted. It is important to know the difference between each type before negotiations begin so that you can properly assess the next step in your purchase or sale.

There are advantages and disadvantages to an asset sale compared to a share sale of a business. This blog post will discuss the advantages and disadvantages of an asset or share sale from the perspectives of both the buyer and seller, which can assist in negotiations of buying or selling a business.

What is an Asset Sale or Purchase?

For an asset sale or purchase, the buyer and seller can choose which assets to transfer. Assets can include those that are tangible or intangible. For example, tangible assets can include real property, inventory, and equipment. Intangible assets can include trade names or other intellectual property, goodwill, contracts, permits, and leases.

Asset Sale: Benefits for the Buyer

An asset sale can benefit the buyer as the buyer does not need to assume all of the business’s liabilities as they would for a share sale. This is a primary draw for a buyer to consider an asset purchase over a share sale.

In an asset sale, the buyer is generally not required to keep all of the employees. However, a seller may require the buyer to retain the existing employees or sign new contracts with the employees to avoid liability arising from wrongful dismissal claims.

There are also some tax benefits to the buyer in an asset sale. The buyer is able to increase the tax cost of depreciable assets up to the current market value, which can reduce the buyer’s tax obligations in the future because they can obtain greater deductions in capital cost allowance.

Asset Sale: Disadvantages for the Buyer

Due to the increased taxes that a seller may have to pay in an asset sale, the purchase price may be raised as well.

Asset Sale: Benefits for the Seller

A seller may be able to increase the purchase price in an asset sale, as they may be more complex, or the seller may need to pay more taxes as a result. The seller would maintain some of the liabilities, which may be reflected as an increased purchase price.

Asset Sale: Disadvantages for the Seller

Generally, asset sales can be more complex than a share sale, as it involves transferring individual assets, which can involve a substantial amount of paperwork and documentation to ensure that they are transferred properly. In some cases, obtaining authorization from third parties may be necessary to transfer an asset, which can be costly and time-consuming.

Some of the liabilities would remain with the seller rather than being transferred fully to the buyer.

What is a Share Sale or Purchase?

A share sale involves selling the corporate shares of the business to the buyer. Unlike an asset sale, the assets remain within the company in a share sale.

Share Sale: Benefits for the Buyer

If the company being purchased has significant goodwill associated, it may be beneficial to a buyer to continue operating under the seller’s company name.

The price in a share sale may also be lower since the buyer assumes all of the liabilities.

The seller may need to provide warranties and indemnities to the buyer to cover some of the liabilities that the buyer would otherwise assume in a share sale.

Share Sale: Disadvantages for the Buyer

A key disadvantage for a buyer in a share sale is that they will obtain all of the liabilities associated with the company being purchased. As a result, it is important to ensure that due diligence is properly conducted in order to assess the risks and liabilities that a buyer is taking on. Depending on the liabilities, a buyer may seek to be indemnified by the seller or another party before finalizing the purchase.

In a share sale, the company’s employees generally remain as existing employees after the sale is complete. However, some of the existing employment contracts may allow some employees to exercise certain rights upon the new ownership. As a result, severance obligations may arise, and the buyer would be liable for satisfying these requirements.

Also, in a share sale, the buyer may have a less desirable tax outcome, as it may limit the depreciation that they can claim in the future.

Share Sale: Benefits for the Seller

A share sale may be a more straightforward process for the seller as it involves transferring the shares only. However, in some cases, it may be required to obtain third-party consent before transferring the shares, such as with leases or loan agreements. Depending on the contracts involved, it may also be a straightforward process if there are terms in the contracts to address any third-party consents that may be required.

The seller in a share sale may be able to reduce taxable capital gains and pay fewer taxes overall. The seller may also be able to reduce taxes involved in transferring specific assets, as in an asset sale.

Share Sale: Disadvantages for the Seller

As there are ways to reduce taxes upon a share sale, the buyer may negotiate to buy the company for a lower price.

A seller may have to reduce their price due to the buyer taking on more risk of liabilities upon a share purchase. Also, due to the possibility of significant liabilities that the buyer is taking on, the buyer may require the seller to provide comprehensive warranties and indemnities to cover some of that risk.

Key Takeaways

For an asset sale, the parties can choose which assets to transfer. Generally, a buyer will prefer an asset sale as they do not automatically assume all of the liabilities associated with the company being purchased. An asset sale is also more beneficial tax-wise for the buyer.

A seller may generally prefer a share sale as the liabilities would automatically transfer to the buyer. In a share sale, the seller would have more tax benefits as compared to an asset sale.

The purchase price may fluctuate to reflect each party’s advantages and disadvantages in a sale of a business.

Baker & Company Lawyers in Toronto Can Assist With Buying and Selling Businesses

Choosing how to buy or sell a business through an asset sale or share sale is a significant decision that involves many considerations. There are various advantages and disadvantages to how a business is sold, which depend on the specific circumstances involved. Our trusted corporate lawyers at Baker & Company are experienced with mergers and acquisitions and can assist you with the buying and selling of businesses. Our team is dedicated to providing quality service for all of your unique business needs.

To book a consultation, please contact us online or by phone at 416-777-0100.

Categories
Commercial Leases Commercial Real Estate

Third-Party Indemnifiers Liable Despite New Commercial Tenant

Indemnity agreements are often included for commercial leases. These agreements allow the landlord to have their losses covered by a third party if the commercial tenant defaults. Indemnities are valuable to landlords as they act as security to ensure that the tenant fulfills their obligations, including paying rent that is due. 

In a recent case from the Ontario Superior Court of Justice, FCP (BOPC) Ltd. v. Callian Capital Partners Inc., the Court examined a scenario involving two indemnity agreements for a commercial lease. The Court provided valuable insight for commercial landlords and tenants on how indemnity agreements can impact a finding of damages for defaulting on a commercial lease. 

What Is An Indemnity Agreement?

An indemnity agreement in a commercial lease often involves a third party who agrees to cover any losses incurred by the tenant. The third party may be liable to pay the landlord for any losses upon default by the tenant, for example, in the event that the tenant fails to pay rent, unless the indemnifier has a contractual defense. 

Commercial Tenant Unable to Pay Ongoing Rent and Arrears

In the case of FCP (BOPC) Ltd. v. Callian Capital Partners Inc., the parties entered into a commercial lease agreement in 2017. When the COVID-19 pandemic began in March 2020, the tenant, Callian Capital Partners, defaulted on their rent payment and the landlord then took steps to take possession of the leased premises. 

After negotiations between the landlord and tenant, the parties signed an agreement that the tenant could remain at the premises if they fulfilled certain terms to pay their rent. Under the agreement, the tenant was to accept and acknowledge that the landlord could pursue further remedies if they could not pay their rent. Pursuant the agreement, the tenant was required to pay the landlord approximately $484,000 in unpaid rent. 

At the time of the hearing, the tenant had failed to pay approximately $366,000 in rent arrears. 

Tenant Continued to Use Premises Despite Not Paying Rent

The tenant claimed that, despite signing the agreement with the landlord, they could not be evicted, as they were approved for the Canada Emergency Rent Subsidy. However, the agreement between the parties contemplated that a stay of eviction would not prejudice the landlord if the tenant applied for the rent subsidy. 

Despite the tenant’s inability to pay rent, they continued using the premises daily. Also, the amount of rent subsidy collected by the tenant was never paid to the landlord. 

At the hearing, Justice Stewart held that neither the tenant nor the third-party indemnifiers had a defense to the landlord’s claim. Therefore, it was determined that the parties were jointly and severally liable for the tenant’s unpaid rent. Her Honour ordered that the parties pay the landlord $467,156.13 reflecting unpaid rent, in addition to costs and interest up to the date of the judgment. The landlord was also granted costs in the amount of $50,000. 

Indemnifiers Claim Lesser Amount Owed Due to New Tenant 

Following the decision, the landlord rented the premises to a new commercial tenant. The rent under the new lease was higher than that of the original lease. 

One year after the new tenant entered into the lease, the landlord commenced a separate action against the indemnifiers, which were two companies associated with the tenant. The landlord claimed that the third-party indemnifiers should be required to pay the tenant’s unpaid rent of over $400,000, plus unpaid rent for the 12 months during which the new tenant entered into the lease, which totalled approximately $506,000. The landlord claimed that despite the new tenant entering the premises with a new lease, the indemnifiers remained liable for the original monthly rent based on their indemnity agreements. 

Funds Seized From Indemnifier’s Bank Account

Approximately $478,000 was seized from one of the indemnifier’s bank accounts and the funds were held to the landlord’s credit. 

One indemnifier sought to set aside the judgment and prohibit the sheriff from paying out the judgment funds to the landlord. The indemnifier claimed that if the new tenant continued paying rent until the previous lease had expired, the landlord would have received approximately $727,000 more in rent than if the tenant never defaulted due to the increased rent amount. 

Landlord Incurred $500,000 in Expenses Due to Tenant’s Default

The Court noted that the landlord had incurred expenses over $500,000 to address the previous tenant’s default and arrange to lease the premises to a new tenant. These additional costs included:

  • costs of arranging for the sheriff and others, etc. to enforce the original judgment;
  • commission payable on the new lease;
  • improvements made to the premises to accommodate the new tenant; and
  • a 5-month abatement in base rent given to the new tenant as an inducement to enter the lease. 

One of the indemnifiers claimed that the rent received from the new lease was a mitigation of damages and, therefore, an order for damages must consider this. 

Landlord Not Required to Mitigate Losses 

The Court recognized that an increase in rent received from a subsequent lease would be deducted from a landlord’s claim. However, this principle would only apply to a landlord’s action against the tenant. 

Here, the landlord claimed damages against the indemnifiers under the indemnity agreements, which included stricter terms than those in the lease. In particular, the indemnity agreements did not require the landlord to mitigate damages. Further, if the landlord had mitigated their losses, it would not have reduced the indemnifiers’ obligations. 

Court Confirms Indemnifiers Liable to Pay Over $505,000 in Unpaid Rent

In arriving at its decision, the Court first highlighted the strong language used in the indemnity agreements. The Court determined that the indemnifiers remained liable to pay the amount of unpaid rent from the date of the judgment to the date on which the new lease commenced, which was close to $505,000. This amount was not reduced despite the landlord entering into a new lease with the new commercial tenant. 

The Court also ordered the funds, which were collected by the sheriff, were to be paid out to the landlord. 

The landlord was instructed to provide an annual reconciliation from 2023 through until 2028 when the lease ends, describing the difference between the rent collected from the new tenant and the rent payable under the original lease. If the difference between the amounts exceeds the rent, interest, or other costs incurred that are owed to the landlord, that amount would be reimbursed to the indemnifiers. 

The Commercial Real Estate Lawyers at Baker & Company in Toronto Regularly Advise Clients on Indemnity Agreements and Commercial Leases

Despite being a standard clause in commercial leases, indemnity agreements can significantly impact those involved. The skilled real estate lawyers at Baker & Company have extensive experience drafting, reviewing and negotiating commercial leases and can assist you in understanding your legal obligations before you sign any agreement. To schedule a confidential consultation with a real estate team member, please contact us online or by phone at 416-777-0100.