Quebec's Treatment of Single Net, Double Net (Net Net) and Triple Net (Net Net Net) Leases

March 17, 2020

A recent judgment of the Superior Court[1] reminds us that, in Quebec, there is no legal distinction between a single net lease, a double net lease and a triple net lease.

For the uninitiated, there are two common categories of commercial leases, namely a gross lease and a net lease. A gross lease is one in which the tenant simply pays a flat rental fee, which may or may not include some utilities. A net lease, on the other hand, will have a base rent component, as well as an additional rent component, by which the tenant is responsible for other costs associated with ownership, such as real estate taxes, insurance, maintenance and administrative costs.

It is common in the real estate industry to refer to either single net, double net (net net), or triple net (net net net) leases to describe the degree to which the tenant is responsible for the costs of ownership. However, there is no universally accepted definition for these terms. A 2001 decision of the Quebec Court of Appeals determined that, “[translation] Even when speaking of ‘net, net net or net net net’ leases, the expenses attributable to the tenant can vary from one lease to the other, wherein the importance of a clear clause”.[2]

The determination as to whether certain expenses are the responsibility of the landlord or the tenant is a common point of disagreement and can lead to litigation.

In the case of 9210-8638 Québec inc c. 9211-0543 Québec inc. referred to above, the parties had signed a “net net lease” and the landlord sought to have its tenant pay its proportional share of renovations to the leased premises, a gas station.

In that decision, Justice Johanne Mainville affirmed that, “[translation] […] in Quebec, the terms ‘net’, ‘net net’ and ‘net net net’ do not have a legal definition and ‘are often deprived of legal bearing’”[3].

She went on to explain that, “[translation] […] the only way to determine ‘the manner in which the risks and operating costs of a building have been apportioned between the parties is to read and analyze all of the terms of the lease.’”[4]

This should serve as a reminder to anyone contemplating entering into a lease (or, for that matter, any contract) to ensure that each party’s responsibilities are sufficiently defined in the text. The use of industry-specific terms should be restricted to cases where their meaning is unambiguous to all of the signing parties.

 

For any questions regarding commercial leasing matters, do not hesitate to contact the author, Michael Schacter, or any member of Kaufman's real estate team.

 


[1] 9210-8638 Québec inc c. 9211-0543 Québec inc., 2019 QCCS 5073 (CanLII), <http://canlii.ca/t/j3rkj>, consulted 2020-01-08

[2] Skyline Holdings Inc. c. Scarves and Allied Arts Inc, 2000 CanLII 9274 (QC CA), para. 27,  <http://canlii.ca/t/1f8w1>, consulted 2020-01-08

[3] Id. Note 1, para. 33 (reference omitted)

[4] Id. Note 1, para. 34 (reference omitted)

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