Tenant Audits: What Landlords, Tenants and Property Managers Need to Know

Imagine the following scenario: You own a retail plaza in Toronto. The Plaza contains a few anchor tenants as well as some “smaller” tenants. You just issued your annual reconciliation statement for additional rent for 2011. Thirty days later, you receive a written request from one of your anchor tenants for all backup invoices supporting the additional rent calculated in accordance with that tenant’s lease and charged for the prior year. The lease with that tenant contains no requirement for your statements to be audited nor does it provide the tenant with an express right to demand the backup invoices for your calculations of the additional rent components. You fail to provide the information requested and the Tenant decides to pay a lesser amount each month based on its calculations of its share of the Plaza’s operating costs. You note the tenant in default for doing this and then terminate the lease when the tenant refuses to pay the amount claimed by you. So, what is a landlord required to do in these circumstances?

According to current Ontario case law (Nguyen v. 792267 Ontario Ltd. 2006 CarswellOnt 7595 Ontario Superior Court of Justice,  2006): “Principle, and indeed precedent (though sparse), clearly demonstrate that a landlord, having ownership and control of the premises and knowledge of the expenses associated therewith, has the obligation to provide the tenant with a proper statement and if required, back-up material to support a claim for "additional rent". A termination in those circumstances above could result in relief from forfeiture and a damage award.

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