What You Should Know About Breaking a Commercial Lease

Breaking a commercial lease can have serious legal and financial consequences. Whether you are the tenant or the landlord, you should be aware of your rights and the different remedies that may apply.

When a Tenant Breaks a Commercial Lease

When a tenant breaks a commercial lease, the first step for landlords is to determine the type of breach (known as the “default”.) Depending on the nature of the default, the landlord will be able to use different remedies.

Generally speaking, a default will fall into one of two categories:

1. A monetary default, where a tenant fails to pay rent or fulfill other contractual obligations such as utility payments; or
2. A non-monetary default, where some other contractual obligation is breached, such as damaging the property, failing to have proper insurance as required, or using the property for something outside its permitted use.

Note that many lease agreements allow for the landlord to convert a default from non-monetary to monetary in nature. For example, the landlord may pay to repair damage caused by a non-monetary default and add the cost to the tenant’s rent. In many cases, it is easier to enforce remedies to monetary defaults than non-monetary defaults.

Remedies Available to Landlords

If the tenant fails to remedy the default within the applicable notice period the landlord may take further action. The main decision the landlord must make is whether to evict the tenant by ending the lease or try to preserve the relationship with the tenant while still recovering damages.

When the Landlord Wishes to Preserve the Lease

There are four main remedies available to a landlord that wants to preserve the lease agreement:

1. Distraint: The remedy of distraint allows the landlord (usually with a bailiff) to enter the premises and seize goods with a value up to the amount of outstanding monies owed. Distraint is governed by strict rules that, if breached, can expose the landlord to liability for damages.
2. Damages: The landlord can sue the tenant for monetary damages resulting from the tenant’s default.
3. Injunction: An injunction is a court order that forces a party to stop doing something. For example, a landlord may seek an injunction to stop a tenant from using the leased premises to operate a business that is not permitted under the lease.
4. Specific Performance: A landlord may seek an order of specific performance which forces the tenant to act. For example, the order may require the tenant to repair damages to the leased premises.

Landlords are not limited to seeking just one remedy in their attempts to salvage the lease.

When the Landlord Wishes to Terminate the Lease

The landlord may decide that the landlord-tenant relationship is beyond saving and should be terminated. They have three remedies that can be used separately or in conjunction with each other:

1. Forfeiture: The landlord provides written notice of the lease’s termination to the tenant and usually will prevent the tenant from entering the premises.
2. Writ of Possession: This type of court order allows the bailiff to take possession of the property on the landlord’s behalf and is useful in situations where it is impractical to physically exclude the tenant from the premises.
3. Damages: The landlord may choose to seek damages suffered as a result of the lease’s termination. Usually, this includes the value of the lost future rent payments. However, landlords have a duty to mitigate (minimize) their losses by finding another tenant as soon as possible.

When a Landlord Breaks a Commercial Lease

Tenants have a variety of potential remedies to pursue when their landlord breaches the terms of their commercial lease or when they are facing legal action from their landlord.

When the Tenant Wishes to Preserve the Lease

As with landlords, tenants can bring a claim for an injunction, damages, or specific performance. However, they may also seek relief from forfeiture. An order granting relief from forfeiture can be used to “forgive” a tenant’s inadvertent breach of the lease and has made reasonable efforts to remedy the breach. It also may be used in situations where a landlord has unlawful motives for attempting to terminate the lease.

When the Tenant Wishes to Terminate the Lease

Where a landlord has defaulted, and the tenant wishes to end the lease, they may seek a number of legal remedies, including:

1. A claim that there has been a fundamental breach of the lease by the landlord. The tenant alleges that the landlord’s actions are so egregious and interfere with the tenant’s ability to do business that the result is, in effect, a repudiation of the lease. There is a high threshold to prove a fundamental breach. However, if met, the damages available to the tenant could include relocation costs and the difference in rent between the old and new location.
2. The tenant may set-off the value of the landlord’s breach by deducting any amounts owed to the tenant from their rent payments to the landlord. Some lease agreements specifically preclude the use of a set-off.
3. Tenants may rely on their right to quiet enjoyment of the premises. The tenant may argue that the landlord has interfered with the tenant’s right to use the premises as contemplated in the lease. A claim for quiet enjoyment may include damages to compensate the tenant for the landlord’s interference with this right.

Other Considerations

Know Your Notice Periods

A notice period is a timeline in which a tenant must remedy the default of a lease agreement. The applicable notice period is normally set out in the lease itself. Notice periods may be different for monetary and non-monetary defaults. Where a lease does not specify the notice period, the Commercial Tenancies Act allows a landlord to terminate a lease if rent has not been paid for more than 15 days. By contrast, non-monetary default notice periods are often longer.

Watch for Waivers

A landlord’s right to terminate a lease may be considered waived if a tenant can prove that the landlord knew of a breach but acted as if the lease was still in effect. For example, if a tenant were in breach of some term of a lease but the landlord continued to accept rental payments, the tenant could later argue that the landlord’s willingness to keep accepting rent constituted a waiver of the other term breach.

Contact Tierney Stauffer LLP in Ottawa for Trustworthy Advice in Commercial Lease Disputes

At Tierney Stauffer LLP, our commercial lawyers have an extensive background representing clients in a variety of civil litigation matters, including lease disputes, construction issues, and occupier’s liability claims. We represent clients in Ottawa, Cornwall, Arnprior, Kingston, and North Bay. To set up a consultation and discuss how we can help you, contact us online or call 1-888-799-8057.