A recent decision of the British Columbia Court of Appeal is a
useful caution for commercial landlords when they are considering
whether there is a right to terminate a lease and what the risk
might be if the termination is wrongful.
In Shanahan v. Turning Point Restaurant Ltd.
[Shanahan], the tenant paid the landlord two months'
base rent at the commencement of the term as a deposit (the
"Deposit"). The tenant's business was not profitable
and the tenant subsequently defaulted on its monthly rental
payment. In response, the landlord delivered notice of default to
the tenant advising that the landlord had the right to terminate
the lease when the arrears reached 30 days, and advising the tenant
to bring the rent up to date immediately. The tenant responded by
asking the landlord to apply the Deposit it held to the rent in
arrears. The landlord did not do so and purported to terminate the
lease for non‐payment of rent.
At trial, the landlord argued that the Deposit was implicitly
for first and last month's rent while the tenant claimed it was
a general deposit which it was entitled to have applied
mid‐term to any rent that might be in arrears. While the
landlord could have expressly asked that the first and last
month's rent be paid in advance in the course of lease
negotiations, the trial judge found that the executed lease
agreement made no mention of such a requirement. The tenant was
therefore well within its rights to request that the Deposit be
applied to the mid‐term rental arrears. The trial judge then
assessed damages against the landlord as a remedy for wrongful
termination of the lease. On appeal, the BC Court of Appeal upheld
the trial judge's findings but reduced the trial judge's
assessment of damages for wrongful termination.
Shanahan underlines the importance of clear drafting
and carefully reviewing the terms of the lease to ensure it
accurately reflects the intent of the parties. When a problem
arises, it is equally important to carefully review the terms of
the lease to determine whether there is a precise right to
terminate. If the landlord wrongfully terminates the lease, as did
the landlord in Shanahan, the landlord could be found in
breach of the lease thereby entitling the tenant to terminate the
lease, avoid future obligations and potentially claim damages.
In assessing the potential risks of wrongful lease termination,
Shanahan also serves as a caution against assuming that
the tenant has no claim for damages for wrongful termination simply
because its business is not profitable at the time of termination.
When assessing the quantum of damages, the court will look at a
number of factors, including the potential loss of opportunity and
assess the strength and weaknesses of various possibilities.
Consequently, the opportunity, however remote, that but for the
landlord's wrongful termination the tenant's business could
have recovered from difficult financial circumstances and become
profitable, may be considered by the court in assessing
Landlords should therefore exercise caution and consider all
potential factors before terminating a lease as the analysis of
whether damages may be assessed against the landlord for wrongful
lease termination does not end at whether the tenant's business
is profitable at the time.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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