Challenges of Leasing Real Estate to the Foreign States

Disclaimer: This blog is only intended for educational purposes and shouldn’t be used as a substitute for legal advice.

Canada opens its borders to immigrants worldwide for tourism, trade, business, and education. The country’s thriving economy creates avenues for immigrants that they lack in their home countries. Many business people apply for an entrepreneur visa for Canada each year to capitalize on the endless opportunities available in the country.

Running a business in Canada sure has its perks, and the return on investment can often exceed the expectations of foreign investors.

Landlords face an unusual challenge when leasing real estate to foreign governments. The procedure of the principle of sovereign immunity, if not appropriately handled in the rental instrument, can significantly affect a landowner’s power to pursue recourse from the court system when confronted with a troublesome tenant.

The purpose of this blog is to summarize the fundamental difficulties that landowners with portfolios that contain representative offices, ambassadors, or other foreign state renters should address.

What Does Leasing A Property Mean?

Leasing is a complicated subject, and finding legal specialists knowledgeable with customized leases for specific industries like electronics, energy production, resort and lodging, logistics management, and so on is critical. In Canada, there are various options for leasing property.

1. Ground Lease

A brief ground rental agreement, in which a tenant rents an empty property and modifies it, is one type of leasing contract. Once the construction is finished, the ground renter sublets property to commercial, industrial, and manufacturing clients. Like basic property ownership, ground leasehold assets can be acquired and leased.

2. Leasing Of Commercial Properties

The majority of urban workplaces and commercial shops, including industrial plants, are only accessible on a lease agreement in Canada. The majority of business lease agreements begin with a contract proposal or settlement. In contrast to the United States, an agreement or proposal to rent is often a legally enforceable document that details the participants’ agreed-upon financial terms, such as the area, tenure, payment, and tenant financial incentives.

Usually, lease agreements in Canada are on a gross long-term lease, enabling tenants to cover a fair amount of the property taxes, security, electricity, and other upkeep costs that companies normally incur. A client may be obliged to pay a monthly fee based on sales in a retail contract.

3. Leasing of residential properties

The laws governing residential leases are set by the province. In some situations, irrespective of the participants’ intentions, the relevant provincial statute will overrule the conditions of the tenancy agreement. For example, in some provinces, government policy restricts a landlord’s authority to raise domestic rent.

Challenges Of Leasing Real Estate

The following are the challenges faced by the landowners after leasing a real estate property:

1. The Use Of Sovereign Immunity To Protect Leasing Agreements

The concept of sovereign immunity relates to rental agreements in favour of embassies and other international government renters, as laid forth in the State Immunity Act (“SIA”), the Foreign Missions and International Organizations Act, and limited situations in which these governmental measures have been reviewed. The Supreme Court of Quebec’s judgment in Teitelbaum v. 9093-8119 Quebec Inc. from 2008 and the Ontario High Judge’s ruling in Royal Bank of Canada v. Corriveau from 1980 are extremely relevant in this regard. In both of these judgments, the judges clearly stated that operating a consulate or diplomatic mission is a “governmental action” to benefit from the SIA’s protection.

2. What Happens If The Foreign State Tenant Fails To Claim Immunity?

The SIA’s Section 3 provides a foundation of sovereign immunity that applies even if a government fails to claim it. The party challenging the foreign government bears the burden of disproving this assumption. This can be accomplished by convincing the judge that the adverse claimant should be entitled to use one of the SIA’s limitations to sovereign immunity. To be clear, sovereign immunity is supposed to apply regardless of a state’s inactivity except if the opposing party shows that an exemption exists or the state concedes to the authority of a Canadian court.

3. Landowner Solutions In The Eyes Of Sovereign Immunity

Even though the SIA established a baseline of protection from a judicial authority, it doesn’t specifically forbid confidential parties from asserting ownership terms where doing so doesn’t necessitate court action. As a result, landowners may have some flexibility in using self-help solutions. While the SIA doesn’t appear to limit self-help, constitutional lawyers disagree about how much security the ideology of sovereign immunity will provide to a foreign state leaseholder if the lender chooses to re-enter the property.

In addition to self-help options, landowners might be able to use SIA’s Section 6. When a foreign government is a respondent to a process involving “injury to or damages to property that occurred in Canada,” this section stipulates an exemption to the concept of immunity. Whereas the court interpretation of “property” in this case refers to investment properties and doesn’t include financial damage, proprietors may be entitled to use this exemption in situations where the tenant’s behaviour has culminated in degradation or destruction of the rental asset.

4. Putting An End To The Use Of Sovereign Immunity In The Long Term

Property owners can avoid the application of sovereign immunity with significant bargaining power. By contractual contract, foreign governments might expressly consent to the authority of Canadian courts under Article 4(2) (a) of the SIA. This may be challenging for property owners to get, which includes a provision in a rental contract that assures that the foreign state is entitled to similar legal protections as a regular Canadian renter. An illustration of authorization is as follows:

The tenant agrees to the following terms:

1. Acknowledges that for all considerations connected to this rental agreement, its signing, execution, and enforcement, and other accords, leases, papers, and documents about this tenancy agreement, shall be considered retail and official acts rather than corporate or governmental conduct.
2. Concedes that in the event whether any litigation is brought against it or its holdings in any regulatory authority in connection with this tenancy agreement or any money transfer anticipated. Then no sovereign will be alleged by or on behalf of itself or any of its investments from such litigation, executions, attachments, or other judicial procedures.
3. Agrees to provide any remedy or the issuance of any procedure in conjunction with these kinds of deliberations. Also, without restricting the formation, implementation, or delivery against or in connection of any commodity, regardless of its usage or anticipated application, according to subordinate clause 2.

5. Concern About Rental Rates

In 2022, the Ontario government declared that landowners would be authorized to raise rents by 1.2 percent.

This is a positive hint that matters will be starting to recover for the leasing business starting next month, following a ban on all rental hikes until 2021. The 1.2 percent growth is lower than the five-year average. Yet, it’s in line with the administration’s effort to keep rent hikes in line with inflation.

There are a few prominent exceptions to rental control that you should be aware of:

1. Upcoming Leaseholders 

When a tenant walks out, and another one comes to rent the property, the landowner can charge whatever rate they desire.

2. New Structures

If the structure was constructed after 2018, there is no price control. This implies that if a renter has been on the existing rental agreement for a couple of years and lives in a newly constructed property, the landowner can raise the rental prices as much as they want with a three months’ notice and don’t raise the rate annually.

3. Refurbished Units

If the unit is modern, there is no rental restriction. For instance, if your property was built in the ’90s but the cellar was rebuilt in 2019 and converted into a studio apartment, the cellar room is regarded as a new unit. The landowner is free to raise the rental rates as much as they desire with ninety days’ written notification.

Legislation Governing Real Estate And Mortgage Brokers

In most cases, an individual who intends to sell or invest in a property will obtain help from a professional broker or lawyer. In Canada, realtor brokers are governed by certain rules. Each province has laws that govern the property market to better protect customers and instill trust in the purchasing and marketing of rental properties.

Each province has several sorts of regulating organizations that control the acquisition and resale, the activities of realtors, and the basic criteria for moral obligation to the community while interested in the buy and resale of a property.

In Canada, financial advisers, lending institutions, and executors are subject to strict restrictions. Various elements of statutory law regulate these restrictions. The Mortgage Brokerages, Lenders, and Administrators Act, 2006 became fully operational in Canada in 2008. To trade in Canada, all property realtors, executives, dealers, and salespeople must get a license. In most provinces, proposed bills either exist or are being considered.

How Can A Real Estate Professional Assist You

You might be wondering why you should pay a lawyer for a simple process. Well, leasing or renting a real estate property is not as easy as you think. There are a lot of technicalities that you need to be careful about when renting a property.

Hiring a real estate lawyer helps ensure you don’t commit any legal mistake or oversight when renting or leasing a property. Investments in real estate are huge, and so are the risks. Make sure you have the right legal help to guide you through the process.

Following are all the things your real estate lawyers can do for you when renting or leasing a property.

1. They Provide Exclusive Representation

While selling a property, you need to negotiate several matters with the lenders and real estate agents. In these meetings, you struggle to put forward your POV in the meetings. If, however, you hire an experienced lawyer, they’ll act as a partner and an independent third-party that can closely review the contracts, inform you if there are any discrepancies, and represent your best legal and financial interests throughout the contract.

2. Mitigate Risks

A majority of sellers don’t have sufficient knowledge about the different processes involved in the sale and purchase of real estate property. These processes may include title issues and home inspections. A little negligence on these matters can lead to several legal complications, and misrepresentation of insufficient disclosure of information can even lead the other party to sue you for the matter. A professional lawyer can help you mitigate these risks.

3. Peace Of Mind

A lawyer specializing in real estate law can handle cases similar to yours and understand the nuances of the renting and leasing process and the practices of the various government agencies.

Choosing the correct form, documenting your case, or answering a question won’t take up any of your valuable time using our service. Leasing in Canada is complicated, and a knowledgeable real estate lawyer can help you navigate it. With the help of a professional lawyer, you won’t have to worry about whether or not you’ve handled your legal procedures effectively.

Real Estate Lawyers Available To Help You Out

If you don’t understand the guidelines and restrictions, buying, selling, or renting a property in Canada might be a nightmare. Hire lawyers from Nanda and Associate Lawyers if you wish to rent, buy or sell property with ease. With our services, we have assisted many international business owners in establishing operations in Canada.

Our law firm was founded in 2003, and our professionals have over one hundred and fifty years of expertise. We also offer excellent real estate services. Our real estate professionals in Canada can assist you with all legal processes.

Nanda & Associate Lawyers is also considered one of Mississauga’s top three immigration law firms. Lawyers specializing in various law areas make up their highly qualified staff. We have a well-trained staff with years of experience managing difficult cases and treating each customer with respect.

Nanda & Associate Lawyers are experts in various practice areas, including immigration, business, wills & estates, family, and civil litigation. Regardless of race or ethnicity, every client receives the same level of service from their staff. Compared to their competitors, the firm’s success rate is significantly higher.

For further information, please get in touch with us.