A presentation to property owners and managers on commercial lease enforcement in the Province of Alberta

1. COMMERCIAL LEASES
Landlord Rights & Remedies
Presented by:
Peter Collins, Partner
Kevin Schouten, Associate
Katherine Kowalchuk, Associate

2. Objectives of this Seminar
• Learn about:
– Landlord’s rights and remedies upon lease
default
– Tenant’s rights and remedies
– Practical Issues

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

4. Lease Remedies/External Remedies
• Two categories of Landlord’s remedies
upon a tenant’s default:
– Remedies in Lease
– External Remedies
• Remedies provided by law

5. Lease Remedies
• Read the Lease: Every lease is different!
• Topics:
– Is it a Default?
– Keep or Evict the Tenant?
– Discussion of Various Remedies

6. 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”?

7. Flowchart

8. 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

9. Keep the Tenant
If 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

10. 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?

11. Converting a Default
Read 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”

12. 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

13. 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.

14. Rights on Default – Re-entry
• Alberta has no Commercial Tenancies Act
• Retake possession
– Self-help
– Court order

15. 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

16. External Remedies
Topics
• Lease Repudiation
• Specific Performance
• Injunction

17. 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

18. 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

19. Landlord’s Options upon
Tenant’s Repudiation
Where a tenant “repudiates” the lease, landlord has four
options:
1. Do nothing – instalment litigation
2. Terminate and sue for rent arrears to date of termination
3. Re-rent on tenant’s account
4. Accept repudiation, terminate and sue for past and future
damages
(Highway Properties case)

20. 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)

21. Terminate
The “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

22. 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

23. Highway Properties Remedy
Give 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

24. 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]

25. Duty to Mitigate
LANDLORD HAS DUTY TO MITIGATE
LOSS, whether:
• Re-renting on tenant’s account
• Termination and damage claim

26. 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

27. 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

28. Injunction
An injunction is a court order compelling
someone to
• Do something (example – Specific
Performance)
OR
• NOT DO something

29. 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

30. Injunction, cont’d.
Better chance of obtaining injunction where
• Tenant is an anchor tenant
• Injunction sought BEFORE Tenant vacates

31. 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

32. 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

33. Damages
Where 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

34. 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

35. 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

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

37. High-grade your tenants
Good Tenants cause fewer problems, so:
• Check Tenant references
• Check Tenant financial condition at the
start of the relationship
• Get collateral security

38. Collateral Security
Small 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

39. Collateral Security
Larger tenants
• larger security deposits
• guarantees from affiliates/parents
• irrevocable letter of credit to support
guarantee

40. 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)

41. Enforce lease
beware 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

42. DOCUMENT EVERYTHING!
• Creates chronological history
• Demonstrates consistent lease
enforcement
• Makes enforcement less difficult
• Creates stronger, clearer case against
tenant

43. 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