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I recently acted for a landlord concerning commercial premises it had leased to a tenant.  The tenant’s business was failing. The tenant made it clear that it was not going to be able to meet its obligations.  With the full knowledge of the landlord, the tenant packed up its goods and vacated the leased premises.  The tenant then dropped off the keys to the leased premises to the Landlord.

Since there were personal guarantees to the lease, I commenced an action against the tenant corporation and the guarantors.  I subsequently brought a motion for Summary Judgment for both the arrears in rent and for the ongoing rent that would come due up to the point that the landlord was able to re-let the premises and mitigate the potential loss.

The guarantors defended on numerous grounds (which the court ultimately referred to as ‘limp defences’), including the defence that the landlord had agreed to the ‘surrender’ of the leased premises and that the landlord agreed to resume possession.  The guarantors based their argument on the fact that the landlord was aware of their impending departure, allowed them to take chattels and did not complain when the keys were dropped off.

The issue of ‘surrender’ in connection with the lease actually became problematic in the conduct of the litigation.  So what legally is meant by the term ‘surrender’ and what are its implications for a landlord?

Firstly, a surrender occurs  where there is an agreement that the tenant will abandon the premises and the landlord will resume possession.  This can be done in writing where the parties explicitly document there agreement.  Alternatively, the actions of a landlord and tenant may amount to a surrender.  The net effect of surrender is that the landlord cannot claim for damages based upon an ongoing loss of rentals after the departure date of the tenant even though the lease may have several years to go before expiry.  Obviously, this could be very costly to the landlord who may have difficulty in finding a new tenant to lease the premises.

Ensuring that the intent of the parties regarding a proposed surrender is documented can be critical to the outcome of litigation if a dispute on the issue arises.  However, and as in the case discussed above, a tenant can attempt to establish surrender in the absence of such a documented agreement.  Where there is no documented agreement explicitly dealing with the proposed surrender, the party relying on surrender may try pointing to the conduct of the parties (and in particular, the conduct of the landlord) to set up a surrender ‘at law’.  Essentially the tenant is pointing to evidence that the landlord agreed to retake possession of the lease premises and, as a result, the tenant conducted itself in such a way as to effect its legal position that the landlord had through its actions accepted the surrender.  In other words, the tenant’s position was this:  ‘but for’ the landlord’s actions, the tenant would have taken other steps to try to mitigate the loss (i.e.: find a sublettor).

Fortunately in this case, my client prudently delivered correspondence both before and after the tenant’s departure making it clear that the tenant remained responsible for the ongoing rent.  The tenant’s argument that the landlord had, through its actions, accepted the surrender was refuted by clear documentary evidence.

The morale of this story is that landlords need to be careful when a tenant is departing to ensure that they do not forego their legal rights inadvertently.  More importantly, always take steps to clearly document your intent.

 

John Barzo
205-60 Collier Street,
Barrie, Ontario, Canada
L4M 1G8

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#: 705-733-6245
jbarzo@barzolaw.com