Advising the Landlord on Tenant Insolvency and Restructuring
By Administrator on 2015/10/29
In ordinary circumstances the commercial landlord-tenant relationship is extremely one-sided. In exchange for what is referred to as "quiet possession", the tenant owes the landlord a host of monetary and non-monetary obligations and covenants usually detailed in a lengthy and complex commercial lease agreement, breach of which entitles the landlord to exercise various remedies on limited notice including termination, re-entry, distress and the right to recover damages. Subject to The Landlord and Tenant Act ("LTA") and a few remedial restrictions that developed in antiquity, the lease agreement dictates the landlord-tenant relationship.
Tenant insolvency can significantly alter the dynamics of the lease dictated relationship – in some cases effectively re-writing the lease terms and even reversing legal priorities. To further complicate this, the nature and extent of the alteration of the lease dictated relationship varies depending upon which restructuring tool the tenant is subject to, whether it be private or Court appointed receivership, bankruptcy or debtor in possession restructuring pursuant to filings under either the Bankruptcy and Insolvency Act ("BIA") or the Companies Creditors Arrangement Act ("CCAA").
This paper will focus upon the following key landlord considerations when a tenant becomes the subject of different restructuring tools:
- Impact upon the landlord's traditional remedies;
- Occupation rent;
- Lease disclaimers;
- Lease assignments; and
- Other covenant breaches during restructuring.