Commercial lease disputes

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If a commercial landlord is going to illegally terminate their tenant’s lease, they should pick a tenant which is going out of business anyway. That is the tongue-in-cheek message behind Shanahan v. Turning Point Restaurant Ltd., a recent decision of the BC Court of Appeal. The case also emphasizes the importance for landlords of careful consideration before terminating a tenant’s lease.

In Shanahan, the tenant had given the landlord a $7,600 deposit, which the landlord said was on account of the first and last months’ rent, and which the tenant said was a general deposit. When the tenant fell behind, he asked the landlord to pay the rent arrears from this deposit. The landlord ignored this request and terminated the lease, changing the locks and blocking access to the premises. At trial the court found that the tenant had been within his rights in asking that the deposit be applied to the rent arrears, and that therefore the landlord had illegally terminated the lease. As a result of this “high-handed, unjustified action” by the landlord, the tenant had been deprived of the opportunity to continue with the business, and the court awarded damages of $100,000 (less a small setoff). The landlord appealed.

The Court of Appeal declined to overturn the trial judge’s finding that the lease had been illegally terminated, but did take issue with the trial judge’s damage award. The Court of Appeal found, on the evidence, that the tenant’s business would very likely have failed shortly after the landlord’s termination, even if the lease had continued. In view of this, any award of damages for lost opportunity had to be discounted significantly. The $100,000 award was reduced to $12,500.

The landlord’s troubles began with a lease that did not make clear what the deposit could or could not be used for, and were compounded by a “shoot first, ask questions later” attitude when the tenant fell into arrears. Proper advice would have helped avoid both these missteps.

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