Pushing The Limits Of Limitation Periods – Landlord & Tenant – Leases

Under a typical net lease, flow-through amounts of additional
rent are paid in provisional instalments, based on estimates that
are reconciled at the end of the fiscal period. Similar
reconciliation payments can arise under percentage rent regimes and
following measurement of rentable areas. Sometimes the tenant is
entitled to a refund or credit, and sometimes it owes a top-up
amount.

Whenever amounts are payable under a lease, the parties ought to
be mindful of the applicable “limitation period”.

Limitation Periods

A limitation period is a statutory deadline by which, if an
amount is unpaid, the party seeking to collect must initiate court
proceedings. Otherwise, it loses the right to collect.

The general limitation period in most provinces is 2 years (3
years in Quebec). However, in Ontario, section 17(1) of the
Real Property Limitations Act (“RPLA“)
specifies a 6-year limitation period for rent claims. All Canadian
territories and most Atlantic provinces have a similar 6-year
limitation period for rent claims.

What is “Rent”?

In Pickering Square Inc. v Trillium College Inc.
(“Trillium”), the Ontario Superior Court held
that not all amounts payable by a tenant under a lease are
“rent” for purposes of the RPLA. The court
stated that rent means “the payment due under a lease between
a tenant and landlord as compensation for the use of land or
premises”. In Trillium, the landlord’s claim for
liquidated damages (for the tenant’s failure to continuously
operate in the premises) fell outside the meaning of
“rent” in the RPLA, despite the definition of
“Additional Rent” in the Lease. The landlord’s claim
was therefore subject to the general 2-year limitation period.

Conventionally, “rent” is perceived as capturing only
payments from a tenant to its
landlord. Refunds owed to the tenant are not generally considered
to qualify as “rent”. On that basis, the 6-year
limitation period would not be available to a tenant claiming a
refund. In fact, the Ontario Superior Court held in 914068
Ontario Inc v 713949 Ontario Inc. that the tenant’s claim
for an adjustment of utility charges in its favour was subject to
the 2-year limitation period.

Can a tenant claim back 6 years?

A theory is circulating, to the effect that the recent decision
of the Ontario Superior Court of Justice in Rexall Pharmacies
Ltd. v 1178860 Ontario Limited (“Rexall“)
supports the availability of the 6-year period under the
RPLA to a tenant claim for an adjustment refund.

In Rexall, the lease called for calculation of the
tenant’s share of taxes based on area (proportionate share).
Since the beginning of the lease, however, the landlord calculated
the tenant’s share of taxes based on valuation notes provided
by the assessor. This method did not comply with the lease.
Nevertheless, for a period of 17 years, the tenant paid in
accordance with the landlord’s calculation. In 2017, the tenant
started underpaying the taxes charged, and in 2023 it brought an
action for: (1) a declaration that the tenant’s share
of taxes was its proportionate share; and (2) an
accounting going back to commencement to the lease. The
landlord defended the tenant’s claim on the basis that the
tenant’s payment history amounted to an acceptance of the
landlord’s methodology, and in any case, if that defence
failed, the tenant’s right to an accounting was
limited to only the 2 years prior to the initiation of the court
proceedings.

The court granted the tenant’s request for a
declaration. It ordered the landlord to calculate the
tenant’s share of taxes in accordance with the proportionate
share method set out in the lease. The court accepted the
tenant’s position that this part of its claim was not subject
to any limitation period, as it fell within section 16(1)(a) of
Ontario’s Limitations Act (which provides that there
is no limitation period “if no consequential relief is
sought”).

The court then considered whether the applicable limitation
period for the accounting was the general 2-year period or
the 6-year period under the RPLA. Relying on the decision
in Trillium, the court held that taxes constitute
“rent” within the meaning of the RPLA. Thus, it
held that “the claims for determination of the realty
taxes” can go back 6 years. On its own, this wording suggests
that it is immaterial whether the adjustment to be made is in
favour of the landlord or the tenant. However, in the conclusion of
the ruling, the court granted the landlord the right to
collect unpaid property taxes from the tenant (calculated based on
the correct method) going back 6 years. The court dismissed the
tenant’s claim for an accounting.

Starting the Clock

When dealing with limitation periods, once it is determined
whether the 2-year or 6-year period applies, it’s critical that
the parties turn their mind to the question of: “starting
when?”. In Ontario and most other Canadian jurisdictions, the
general 2-year limitation period starts when the party with the
claim “first knew” or “ought to have known”
that they had a claim against the other party. For the 6-year
RPLA period, the clock starts when the amount had
“become due”. (This is logically connected to the notion
that rent is due on fixed dates.)

Interestingly, on a claim for additional rent adjustments, it
may be difficult to ascertain when the limitation period clock
began to run. Often, year-end adjustments are carried out very late
or over a span of months, as landlords and tenants exchange
information in furtherance of the true-up exercise.

The topic gets even more complex when the adjustment yields a
“credit” (vs. a refund that is due within a set period of
time). Is a credit “taken” by the tenant? Or is it issued
by the landlord? When can a credit be taken by the tenant? By when
must it be issued by the landlord? Whose job is it to apply the
credit? If the lease expresses no set time or is vague as to the
mechanism of applying the credit, the limitation period may have an
unknown commencement, yielding an unknown expiry.

Bottom line

It is well established that in certain Canadian jurisdictions,
landlords enjoy a 6-year limitation period on claims against their
tenants for unpaid rent. Tenants should not assume that they have
reciprocal entitlement for refund claims, but they might have a
better shot at stretching out the claim period if their lease
entitles them to a “credit”.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.