COMMERCIAL LEASESLandlord Rights & Remedies

Presented by: Peter Collins, Partner

Kevin Schouten, AssociateKatherine Kowalchuk, Associate

Objectives of this Seminar

• Learn about:– Landlord’s rights and remedies upon lease

default– Tenant’s rights and remedies– Practical Issues

Rights and Remedies - LandlordTopics• Lease Remedies/External Remedies• What constitutes a default• Keep or Evict the Tenant• Monetary v. Non-monetary defaults• Remedies on Default

Lease Remedies/External Remedies

• Two categories of Landlord’s remedies upon a tenant’s default:– Remedies in Lease– External Remedies

• Remedies provided by law

Lease Remedies• Read the Lease: Every lease is different!• Topics:

– Is it a Default?– Keep or Evict the Tenant?– Discussion of Various Remedies

Is it a default?• Landlords have extensive common law

rights• Most leases expand on common law rights• Read the lease - every lease is different!

– Is Tenant’s act/conduct a default?– Must notice of default be given?– Does the Tenant have a “cure period”?

Flowchart

Keep or Evict the Tenant?• This is a business decision

– Likelihood of future defaults– Financial condition of tenant– Desirability of tenant

• Lease and Legal Remedies depend on the Keep/Evict decision

Keep the TenantIf you decide to keep the Tenant, then respond

to the default• Read the lease - every lease is different!• Determine type of default• Determine Landlord’s rights

Is it a Non-Monetary Default?• “Non-Monetary” = defaults other than payment

defaults – Example – failure to repair

• Read the lease - every lease is different!– Does Landlord want to remedy Tenant’s default? – Does Landlord have right to remedy Tenant’s default?

• Without notice?• Only after notice and cure period?

Converting a DefaultRead the lease - every lease is different!• Can Landlord charge the tenant for costs of

curing tenant’s non-monetary default?• If so, follow procedure to make the claim for

reimbursement• Claim for reimbursement, when not paid, is a

Monetary Default• Most leases state all monies due are “rent”

Rights on Monetary Default-Seizure• Civil Enforcement Act (Alberta) permits

rent distress• Rent distress permits a bailiff to seize

Tenant’s goods on premises, and potentially sell them to pay rent arrears

• Lease might permit seizure of goods removed from the premises, also

Seizure, cont’d.• Beware excess seizure• Individuals who are tenants have

certain exemption rights • Must keep lease alive to carry out and

complete a seizure– If you seize, then terminate the lease, the

seizure is released.

Rights on Default – Re-entry

• Alberta has no Commercial Tenancies Act • Retake possession

– Self-help– Court order

Rights on Default – Termination• Read the lease - every lease is different!• Give appropriate notices required by lease• Await cure period, if any• If default not cured

– Terminate lease– Retake possession

• Carefully Comply With All Lease Requirements

External RemediesTopics• Lease Repudiation• Specific Performance• Injunction

Lease Repudiation

• Discussion above focused on landlord’s remedies WITHIN lease

• Landlord also has remedies OUTSIDE the lease, in certain cases

• Main external remedy/right arises when tenant “repudiates” the lease

What is repudiation?• A clear continuing act inconsistent with

continuation of lease• A fundamental breach going to the heart of

the lease• Examples:

– Failure to pay rent– Cease operating, contrary to continuous use

provision– Abandonment of premises

Landlord’s Options upon Tenant’s Repudiation

Where a tenant “repudiates” the lease, landlord has four options:1. Do nothing – instalment litigation2. Terminate and sue for rent arrears to date of termination3. Re-rent on tenant’s account4. Accept repudiation, terminate and sue for past and future damages(Highway Properties case)

The “Do Nothing” Option

Use where:• Tenant is financially viable• Landlord wants to keep Tenant OR• There are no better options for space at

that time (even if vacant)

TerminateThe “Stop The Loss” option, use where:• Tenant not financially viable for future rent• Tenant not desirable to keep in place• Likelihood of collecting damages for balance

of rent is low• Not worthwhile to preserve lease rights• Take your licks and move on

Re-rent on Tenant’s Account• Use where:

– Tenant has financial resources to pay some/all future rent

– Tenant presence/continuation not desirable• Give notice to Tenant

– Act as tenant’s agent– Re-rent – sublease– Tenant liable to Landlord for any deficiency– Landlord liable to Tenant for any surplus

Highway Properties RemedyGive notice to Tenant• Tenant has repudiated lease• Landlord accepts repudiation• Tenant is liable for all past rent• Tenant is liable for all other damages,

including a part of future rent • Retake possession and re-rent the premises

Highway Properties, cont’d.Future rent recovery:• Present value of unpaid future rent for

balance of lease term LESS Actual Rental Value for balance of lease term

• [NOTE: loss from breach of cont. op. covenant is also recoverable]

Duty to Mitigate

LANDLORD HAS DUTY TO MITIGATE LOSS, whether:

• Re-renting on tenant’s account• Termination and damage claim

Specific Performance• Where there is a lease breach, innocent

party can sue for Specific Performance• Specific Performance is a court order

FORCING the breaching party to perform its lease obligations

Specific Performance, cont’d.

• Rarely awarded – an “equitable” remedy– Requires a clear and strong case– Damages must not be an adequate

alternative– Must be easily enforceable – court is not a

property manager• Anchor tenant example

Injunction

An injunction is a court order compelling someone to

• Do something (example – Specific Performance)

OR• NOT DO something

Injunction – cont’d.• Rarely awarded in lease situations – another

equitable remedy• Requirements

– A serious issue to be tried– Potential harm not compensable in damages– Balance of convenience must favour injunction

• Greater harm test

Injunction, cont’d.

Better chance of obtaining injunction where• Tenant is an anchor tenant• Injunction sought BEFORE Tenant vacates

Tenant Remedies• Tenants rarely have remedies set out IN the

lease• Tenant remedies usually only arise OUTSIDE

the lease• Major “outside” tenant remedies are:

– Relief from Forfeiture – Damages– Set-off– Specific Performance/Injunction

Relief from Forfeiture• An equitable remedy• Court will “relieve” the Tenant from an

inadvertent lease forfeiture• Tenant’s behaviour must be

innocent/unintentional, not deliberate• Tenant must come to court with “clean

hands”• Usually only a one time remedy

DamagesWhere landlord breaches lease• Tenant might have remedies in lease (rarely)• Tenant can sue Landlord for damages

– Usual contractual loss principles apply– Tenant has obligation to mitigate (reduce loss)– Remote damages are not claimable

Set-off• Set-off is the reduction or elimination of one debt

by application of a countering debt between the same parties

• Set-off is an admission that the primary debt is a valid debt

• Most leases use very clear wording to prohibit set-off

• Courts uphold clearly worded anti-set-off clauses in leases

Specific Performance/Injunction

• Rarely available to a tenant• Rarely awarded – an “equitable” remedy• Requirements same as apply to landlord

– A serious issue to be tried– Potential harm not compensable in damages– Balance of convenience must favour injunction

• Must be easily enforceable• Monitor financial condition on ongoing basis

– Not just in retail leases• Be vigilant/ Keep in contact

Practical Considerations• Tenant selection• Payment security• monitor the tenant• Enforce the lease• Document everything

High-grade your tenantsGood Tenants cause fewer problems, so:• Check Tenant references• Check Tenant financial condition at the

start of the relationship• Get collateral security

Collateral SecuritySmall tenants:• Larger security deposits• Guarantees from principals• PPSA rights in lease (and, register at PPR!)• collateral mortgages against home, to

support guarantee• irrevocable letter of credit to support

guarantee

Collateral SecurityLarger tenants• larger security deposits• guarantees from affiliates/parents• irrevocable letter of credit to support

guarantee

Monitor the tenant• Be vigilant/ Keep in contact• "Full contact" "hands-on" relationship• Regularly exercise your inspection rights• Monitor financial condition on ongoing

basis (and not just in retail leases)

Enforce leasebeware divergent “course of conduct”• Undermines lease rights and remedies• Creates enforcement uncertainty• Avoid waiver

– post-default conduct might affirm lease– waiver may preclude default remedies

DOCUMENT EVERYTHING!• Creates chronological history• Demonstrates consistent lease

enforcement• Makes enforcement less difficult• Creates stronger, clearer case against

tenant

CLOSING THOUGHTS• Prevention is better than cure• If cure becomes necessary:

– Read the lease– Know your rights

• In the lease• At law

• Identify your goal, plan for it and be as pro-active as possible