Commercial Leasing: Landlord Not entitled to 6 Months’ Future Rent on Termination for Default

Categories: Blog, Real Estate

The BC Courts recently had the opportunity to consider the enforceability of a lease clause requiring a tenant to pay 6 months’ future rent on termination for breach of lease (Tropic Holdings v. Roots and Wings Enterprises Ltd., 2018 BCSC 439). The court found that the 6 months’ future rent clause was unenforceable because the requirement to pay that much rent was not related to the actual losses of the landlord arising from having to re-lease the premises to a new tenant, and was an unenforceable penalty.

The landlord recovered the unpaid rent past due and damages equal to the difference between base rent payable by the original tenant and the replacement tenant. In that case, it was the difference of $1,750 per month for 3 years, or $63,000.00. The amount which would have been payable under the 6 months’ clause, had it been enforceable, was $99,750.00.

Landlords need to ensure that they are not inadvertently including unenforceable penalty clauses in the default provisions of their leases. Clauses requiring payments on default are only enforceable where they meet fairness requirements and are a pre-estimate of the damages the landlord would be entitled to at court. If you would like a review of your lease, please contact Andrea East.

Andrea East is a business lawyer at Pushor Mitchell LLP practicing in the areas of Business Law and Commercial Leasing. You can reach Andrea at 250-869-1245 if you would like assistance.