Canada: Landlord Waivers

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Real Estate Leasing, April, 2008

Occasionally a tenant will present a landlord with an agreement entitled "landlord waiver" or "landlords waiver and consent," requesting execution by the landlord, often on an urgent basis.

A landlord waiver is usually delivered to a landlord for execution in the context of a loan transaction by a tenant. As part of the financing, the tenant may be required to grant security over both its real and personal property in favour of its lender.

The granting of a leasehold mortgage (i.e., the registration of a mortgage in respect of the tenants leasehold interest in the real property) will typically require the landlords consent, which may or may not be unreasonably withheld, depending on the terms of the lease.

Where the tenant has significant personal property assets, such as valuable equipment, machinery, parts, supplies, raw materials, work in process and finished goods inventory, the lender will also require that a security interest in respect of those assets be granted. The security agreement entered into by the tenant will give the lender a security interest in the present and future assets and personal property of the tenant located in or on the real property leased by the tenant from the landlord. Not surprisingly, the security agreement will provide the lender with a variety of rights and remedies vis-a-vis the personal property collateral in the event of default by the tenant under the loan, including an ability to seize and sell the collateral, either by the lender itself or through a receiver or another agent or representative.

Competing with the leasehold lenders claim to the tenants personal property in the event of default under the financing will be the landlords rights in respect of the same personal property if the tenant defaults under the lease. These landlord rights, claims or liens in respect of the collateral, whether arising pursuant to the lease, at common law or by statute, may trump the leasehold lenders claim to the collateral, even if the latters security interest is registered under the applicable personal property security legislation.

To deal with these competing interests, the lender will request that the landlord review and execute an agreement through which the landlord will, among other things, waive and release in favour of the lender all present and future rights, claims and liens that the landlord may have in respect of the collateral (hence the term "landlord waiver"). The landlord will also frequently be asked to acknowledge the existence of the lenders prior rights in respect of the collateral and, if necessary, consent to the granting by the tenant of the security interest in the collateral.

The landlord waiver establishes a direct contractual link between the landlord and the tenants lender. Accordingly, in addition to securing the landlords waiver and consent, the lender may take advantage of the opportunity to request that the landlord confirm the lease is in good standing and there are no existing defaults.

In addition to these basic (and usual) provisions, many other elements of the landlord waiver will be the subject of negotiation between the landlord and the tenants lender, if applicable, including:

  1. at what point in time the lender, by virtue of its enforcement of its rights and remedies under its security, should be recognized as the tenant under the lease and become liable to carry out the tenants obligations under the lease;

  2. to what extent the lender shall be provided with notice of, and an opportunity to cure, a default by the tenant under the lease, if such default would entitle the landlord to terminate the lease;

  3. whether the lender or its agent will be entitled to conduct an auction or sale from the leased premises to dispose of the collateral (this will be particularly important to a landlord in the retail setting, where liquidation sales may reflect poorly on the property in which the premises are located);

  4. the length of time during which the lender and its agents and representatives may occupy and remain on the leased premises (including after expiration or termination of the lease), to permit the collateral to be removed and disposed of, and whether the lender should be required to pay rent during its occupation (including any rent in arrears for the period preceding the lenders occupation) and, if so, how much rent should be payable; and

  5. the extent to which the lender will be responsible for repair at its expense of any physical damage to the leased premises caused by the removal of the collateral from the premises.

Some of these matters may be more appropriately dealt with in a subordination, non-disturbance and attornment agreement, although there is some overlap between this type of agreement and a landlords waiver document. Whatever the length and complexity of these agreements, a careful review should be undertaken in all circumstances, whether being reviewed from the landlords perspective or the lenders perspective, to ensure an appropriate balance is struck between the landlords and the lenders respective interests.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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