"In Occupancy": "Here Today, Gone Tomorrow"

DID YOU KNOW that a lease clause requiring a tenant to be “in occupancy” as a pre-condition to its exercise of a right to terminate its lease, does not necessarily mean physical occupation of the premises is required in order to excerise the right?

The decision of the Ontario Superior Court of Justice in Nortel Networks Ltd. v. Kanata Research Park Corp. (2004) 73 O.R. (3d) 594), dealt with the issue of what constitutes “occupancy” by a tenant for the purpose of the tenant exercising a right to terminate its lease.

Facts

In 1999 Nortel Networks Ltd. (“Nortel”) leased 8 floors of office space in a building owned by Kanata Research Park Corp. (“Kanata”) pursuant to a lease with Kanata. The lease provided Nortel with the right to cancel the lease for up to 50% of the leased premises in consideration of payment by Nortel of certain liquidated damages and subject to the requirements that: (a) Nortel provide Kanata with at least 10 months’ notice, (b) there were no outstanding defaults under the lease and (c) Nortel or a subsidiary of Nortel was “in occupancy” of the leased premises at the time.

Subsequently, Nortel reduced its work force and consolidated its offi ce space in response to factors including the changing economic climate affecting the telecommunications sector.

By April 27, 2004, there were no longer any employees of Nortel working in the leased premises. Accordingly, Nortel notified Kanata of its exercise of Nortel’s cancellation right under the lease for a part of the leased premises.

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