Canada: Buying Time: Rent Relief Agreements

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Real Estate, April 2009

As a result of the current economic downturn, many commercial tenants are finding themselves in precarious financial positions and are approaching landlords to seek rent relief in order to survive until the economy recovers. While landlords are often hesitant to diminish their revenue stream by granting rent relief, they may have a strong self-interest in facilitating a successful lease restructure if the tenant need is genuine. The prospect of a vacancy and its resultant effects on surrounding tenants may justify reconsideration of lease workout proposals and motivate landlords to come to the negotiating table. A landlord may wish to act promptly so as to avoid the loss of an anchor tenant or a key tenancy which triggers the exodus of other tenants, as well as the additional costs involved in replacing a tenant through brokerage fees, lease inducements and other costs.

Granting rent assistance by entering into a lease restructuring arrangement can also be an excellent opportunity for landlords to effectively regain leverage or concessions granted during the initial lease transaction, either through the claw-back of tenant rights or by obtaining additional security and rights in favour of the landlord. Therefore, landlords should consider rent relief arrangements holistically and not just in terms of a break on rent in favour of the tenant. When determining whether or not to negotiate with a troubled tenant, there should also be consideration of the advantages a landlord can secure in exchange for its temporary concessions.

Preliminary Considerations

In order to be effective for both parties, rent relief must be sufficient to avoid a future default or bankruptcy by the tenant, at least until the economy improves. Accordingly, the elements of a successful lease restructure can be numerous and complex. From the landlord's perspective, the costs of the rent reduction must be affordable and less than the consequences of a tenant's breach. When approached by a tenant for rent relief, landlords should analyze whether there is any benefit to a restructuring arrangement and if there is actual need on the part of the tenant for a rent reduction. Owners should also consider whether rent relief will have the intended effect: does the tenant have a viable business operation, or will a rent reduction simply delay the inevitable demise of the tenant.

Rent Abatement vs. Rent Deferral

A fundamental consideration is whether the rent relief arrangement should be structured to allow for a temporary forgiveness of rent or merely rent deferral until the tenant can recover. While tenants prefer that some or all of the rent abate or be forgiven fully, the landlord's inclination is to provide that a portion of the rent be deferred until a later date such that aggregate subsequent rent payments are increased. This strategy is advantageous to the landlord by allowing recapture of presently conceded rent at a later date, and by creating the appearance that the net return on the lease is not diminished. Going forward, the landlord retains the option of forgiving the deferred rent or financial concessions in exchange for timely payment or other proper performance of lease obligations by the tenant. Owners may also pursue creative solutions such as temporary conversion from base rent to percentage rent, or the deferral of non-critical management costs.

Termination Of Rent Relief Period

From the landlord's perspective, the rent relief agreement should be finite and short in duration, and should expressly allow the landlord to terminate the rent assistance immediately upon default or certain circumstances such as the following: (i) transfer of the lease by assignment or subletting; (ii) disclosure of the terms of the rent relief agreement to a third party; (iii) a corporate tenant making any distributions by way of dividends, bonuses or repayment of loans to any of its shareholders, directors or officers or anyone not at arm's length of the client; (iv) increase to the salary or other remuneration of any of the foregoing; and/or (v) the tenant or other entity directly or indirectly lending financial assistance to or guaranteeing the debts or obligations of another entity. Rent relief should also automatically be deemed as terminated one day prior to the tenant becoming bankrupt or filing for creditor protection so as to avoid any bankruptcy trustee obtaining the benefit of the rent relief.

Additional Security And Accelerated Payments

Keeping in mind that rent relief is part of a larger restructuring strategy, landlords should also consider obtaining additional security.

Where the deferral of rent is significant, proactive landlords can become secured creditors by requiring the tenant to grant a security interest equal in value to the amount of the deferred/abated rent in its personal property, accounts, inventory and other assets. By registering its interest, the landlord will augment its position in bankruptcy or insolvency proceedings. Furthermore, requests by other lenders for postponement of this security will flag the landlord to claims of other secured creditors who may be lending money to the tenant. Landlords may also require the addition of an indemnifier or guarantor if there is not one in place already, or to expand the obligations of any existing covenantors.

Recapture Of Tenant's Favourable Rights

Granting rent relief to a tenant should coincide with the landlord taking back, either permanently or temporarily, rights given to the tenant during the initial lease negotiations including renewal rights, rights of first refusal, expansion rights, broad use clauses, lease termination rights, co-tenancy provisions and exclusivity clauses. The original lease deal can also be amended favourably to the landlord by extending the term of the lease and reclaiming signage rights to be used as inducement to replacement tenants.

This is also an excellent time for the landlord to couple the relief with additional landlord rights, or to impose various new restrictions such as continuous operating covenants. Landlords may also revisit previously negotiated exclusions from operating costs or eliminate year-end reconciliations and lease audit rights. Landlords can also impose new relocation obligations or demolition clauses on the tenant, or require payment of additional or increased security deposits.

In order to facilitate re-letting the space to a more reliable and solvent tenant, landlords should add a blanket right to terminate the lease at any time. This right will provide the landlord with flexibility in order to market the premises if a replacement tenant is found who is prepared to pay the full rent.

Suggestions For Landlords

Landlords should keep in mind the following restructuring strategies while considering a request for rent relief:

  • Determine the relative bargaining positions of both the landlord and the tenant. Market conditions and trends are key in considering options, as is the tenant's economic justification for rent relief. Acquire knowledge of the tenant's core business, supply and funding sources and creditworthiness. The tenant should be required to provide financial statements to the landlord regularly at set intervals in order to track the needs for rent relief including monthly gross revenue reports.
  • Consider supplementary factors such as tenant mix and the impact that dark storefronts may have on the centre and whether losing an anchor tenant may have a domino effect on the business of other tenants through the operation of co-tenancy clauses.
  • Keep in mind financial or other restrictions on the landlord's ability to modify leases, such as the need to obtain lender or partner consents to lease modifications. The landlord should be particularly attentive to the potential effects that restructuring may have on its own ability to meet debt service in co-tenancy/operating requirements of other leases.
  • Develop standardized procedures for evaluating rent assistance requests. Consider forming internal committees comprised of leasing agents, property managers or financial analysts to address the inquiries. The mandate of such committees usually includes conducting credit checks, assessing inventory levels and supply sources, and reviewing the tenant's business plan and financial statements. Often when faced with a detailed information request, the tenant without a bona fide need for relief will withdraw their request for assistance.
  • Consider obtaining a release or estoppel from the tenant for any landlord defaults, omissions of payment of tenant allowances or any liability arising out of the lease prior to the restructuring arrangement.

Tenant Considerations

Tenants should be prepared to provide a solid business basis and detailed financial information together with the relief request and should keep the following considerations in mind:

  • Be cognizant of your bargaining power and vulnerabilities. Understand the market value of the premises in the centre/building in order to practically consider your options. Have a solid understanding of your financial condition and be prepared to demonstrate that while the tenant is financially threatened, it is not so greatly impaired that it will be considered a lost cause which the landlord will have little motivation to assist.
  • Weigh opportunity costs. By obtaining temporary relief through a rough economic period is the tenant losing an opportunity to relocate to a better premises? Consider the likelihood that you may be able to negotiate an even better deal by delaying this request for relief. Tenants should consider whether they would be better off negotiating a lump sum lease buyout payment in exchange for termination now and seeking premises elsewhere. Also consider if there an easier exit strategy from the lease such as assignment/subletting or going dark.
  • Analyze whether any landlord defaults exist and if so, how remedies may be part of the overall restructuring approach.

As the above considerations demonstrate, with a systematic and thoughtful approach, both landlords and tenants can work together to negotiate a lease restructuring and rent relief arrangement in order to achieve a constructive resolution to a potentially undesirable tenant departure during challenging economic times.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.