Commercial leases commonly provide that the tenant may not
assign or sublet without the landlord's consent, which
landlords will typically agree not to unreasonably withhold. Many
leases go on to provide that, "notwithstanding" the
landlord's covenant to act reasonably, the landlord may
terminate the lease upon receiving a request for consent. This
enables a landlord to recapture premises and benefit from a rising
market by leasing them directly to a new tenant at a higher rental
rate than provided for in the lease.
In 550 Capital Corp. v. David S. Cheetham Architect
Ltd., 2009 ABCA 219, released on June 12, 2009, the Alberta
Court of Appeal considered the validity of a termination right
(Section 10.03) that was stated to be available to the landlord
"notwithstanding" the landlord's covenant
(Section 10.02) not to unreasonably withhold its consent to an
assignment or sublet. Significantly, Section 10.02 did not give the
tenant an option to withdraw its request for consent if the
landlord elected to terminate the lease. The tenant requested the
landlord's consent to an assignment and the landlord
elected to terminate the lease in reliance on Section 10.03. The
tenant refused to vacate the premises and the landlord sought an
order for possession.
The court refused the landlord's application, holding
that, even though the landlord's termination right was to
apply "notwithstanding Section 10.02," it effectively
negated the landlord's covenant not to unreasonably
withhold its consent, and was therefore unenforceable. The court
stated that it could not have been intended that the tenant might
lose its entire tenancy simply by requesting that the landlord do
what it had promised to do; namely, not unreasonably withhold its
consent. The court indicated that, had the tenant been provided the
right to withdraw its request for consent if the landlord elected
to terminate and thereby avoid jeopardizing its continuing tenancy,
the landlord's termination right would not have been
This decision is troubling for landlords whose leases suffer
from the deficiencies identified in 550 Capital Corp. and
makes it clear that the use of a "notwithstanding"
clause, although a common drafting device used to subordinate one
contractual provision to another, may be ineffective in some cases.
In order to preserve its right to terminate, a prudent landlord
will want to review its master leases to ensure that:
the landlord's termination right permits the tenant to
withdraw its request for consent if the landlord elects to
terminate (in which case the election to terminate will be
the landlord's covenant to act reasonably is expressly
conditional upon the landlord first electing not to exercise its
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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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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