A condominium’s declaration can include restrictions on the uses that may be made of a unit. In residential developments, this usually takes the form of “single family use” to prevent short-term rentals. Commercial developments often use declarations to prohibit certain types of businesses, or to allow for only one of a specific type of business.
In a commercial condominium building, units can be leased for a higher rent if the tenants are confident that there will be no direct competition for their business in the same building. Owners will therefore pay a premium for units that can enjoy a “monopoly” on certain uses within a particular development. This reassurance is often provided through restrictive use provisions in the condominium’s declaration.
Restrictive uses attached to a particular unit can be created for anything from services (e.g., medical offices, dental clinics, law offices, hair salons) to retail businesses (e.g., restaurants, convenience stores, butcher shops, hardware stores). The restrictive uses should be clearly set out in the declaration itself to ensure they are enforceable.
Can exclusive use provisions be circumvented?
A provision for restrictive use was recently interpreted in Urmila Holding Inc. v Anand Holdings Inc., 2021 ONSC 2707 (CanLII). The case centred on a unit that was assigned the right to exclusive use as a dental clinic. The owner, Urmila Holdings, had paid a premium to purchase a unit with an “exclusive use” attached to it, because it would generate greater rent revenue. The unit was leased to Dr. Anand for a ten-year term, and he operated his dental business from it.
When the lease expired, Urmila offered only a five-year renewal, which would end in 2022. Dr. Anand renewed the lease. However, he quietly purchased the unit next door and then moved his business into that unit. He got around the restrictive use clause by giving (as the tenant) written permission to himself to operate a dental business in another suite. This was the requirement set out in the declaration: the current lessee had to agree in writing to allow a competing business (in this case, his own) to move into another unit.
Dr. Anand’s intention was to pay rent to the owner of his old location until the lease expired, and then continue operating his dental clinic in his own unit. Urmila found out and complained to the board that the restrictive use provision had been breached.
A tenant cannot transfer an owner’s restrictive use
At the Ontario Superior Court of Justice, Justice Belobaba held that under the provisions of the declaration, Dr. Anand could give himself permission to operate a dental clinic next door to the unit originally given the exclusive right to do so. However, he could only provide that permission until his lease expires in 2022.
Once he is no longer the tenant of the original unit, he will lose the right to overrule the restrictive use provision. It then becomes unacceptable for him to run a dental clinic in another unit. Only Urmila, as the owner of the unit granted the right to be used as a dental clinic, has the authority to agree to transfer that exclusive use to another unit.
The declaration’s provisions should be clear
Justice Belobaba also reminded the parties that a declaration “should be read as reasonably well-informed unit holders would read it and not in a technical or specialized sense.” This means that nobody is permitted to avoid the clear intentions of a declaration by applying a technical meaning to the words of a provision that isn’t their intended meaning. As a result, provisions drafted in clear, unambiguous language will be easier to interpret and enforce.
In commercial condominiums, the use of restrictions in the declaration can accomplish several things. In addition to protecting unit owners against competing businesses, provisions can be drafted to prevent owners from leasing their units to unwanted businesses—for example, businesses that create excessive noise, generate unpleasant smells, or attract undesirable customers. Careful drafting of the provisions is the key to ensuring that purchasers and tenants understand the restrictions, and that the board can enforce them effectively.