Commercial Lease Rights And Remedies 2009 Alberta

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

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Commercial Lease Rights And Remedies 2009 Alberta

  1. 1. COMMERCIAL LEASES Landlord Rights & Remedies Presented by: Peter Collins, Partner Kevin Schouten, Associate Katherine Kowalchuk, Associate
  2. 2. Objectives of this Seminar • Learn about: – Landlord’s rights and remedies upon lease default – Tenant’s rights and remedies – Practical Issues
  3. 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. 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. 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. 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. 7. Flowchart
  8. 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. 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. 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. 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. 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. 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. 14. Rights on Default – Re-entry • Alberta has no Commercial Tenancies Act • Retake possession – Self-help – Court order
  15. 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. 16. External Remedies Topics • Lease Repudiation • Specific Performance • Injunction
  17. 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. 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. 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. 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. 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. 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. 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. 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. 25. Duty to Mitigate LANDLORD HAS DUTY TO MITIGATE LOSS, whether: • Re-renting on tenant’s account • Termination and damage claim
  26. 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. 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. 28. Injunction An injunction is a court order compelling someone to • Do something (example – Specific Performance) OR • NOT DO something
  29. 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. 30. Injunction, cont’d. Better chance of obtaining injunction where • Tenant is an anchor tenant • Injunction sought BEFORE Tenant vacates
  31. 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. 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. 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. 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. 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. 36. Practical Considerations • Tenant selection • Payment security • monitor the tenant • Enforce the lease • Document everything
  37. 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. 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. 39. Collateral Security Larger tenants • larger security deposits • guarantees from affiliates/parents • irrevocable letter of credit to support guarantee
  40. 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. 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. 42. DOCUMENT EVERYTHING! • Creates chronological history • Demonstrates consistent lease enforcement • Makes enforcement less difficult • Creates stronger, clearer case against tenant
  43. 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

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