A commercial lease creates a legal relationship between a landowner, the landlord or lessor, and a business person, the tenant or lessee, to rent premises for a business purpose. The lease itself is often a lengthy, single-spaced document on legal size paper setting out the terms and conditions of the relationship in hard to understand legalese. The commercial lease is historically treated as an actual conveyance of an interest in land which creates a property relationship between the landlord and the tenant rather than a contractual relationship for the ongoing use of the land which could also characterize the relationship because the lease is a contract. Courts have grappled with this characterization, sometimes applying concepts from property law or concepts from contract law to resolve the rent issue on a repudiation of the lease.
A lease dispute may arise when a tenant abandons the premises and seeks to repudiate the lease. The landlord has three options. Firstly, the landlord may refuse to accept the repudiation and elect to keep the lease alive. In this cumbersome option, the landlord has no right to enter the premises or to re-lease them. The landlord may sue for lost rent only as it occurs in the unexpired term of the lease. Secondly, the landlord may expressly or impliedly accept the repudiation thereby causing a surrender of the lease. The return of keys by the tenant and the acceptance by the landlord is cogent evidence that the lease has been surrendered. However, it is insufficient in itself because the return of keys could be for a purpose other than taking possession of the premises. For example, a landlord may accept the keys for security reasons. For the doctrine of surrender to apply, the landlord must take physical possession of the premises for a purpose inconsistent with the continued existence of the lease. For example, the landlord may occupy the premises. When this occurs, the property relationship is at an end and the terms of the lease obliterated. The landlord cannot sue for prospective lost rent for the unexpired term of the lease.
A recent third option in this ancient land law was developed by the Supreme Court of Canada in a 1971 decision. This decision made it possible for landlords, upon repudiation of the lease by the tenant, to elect to terminate the lease but, with notice to the defaulting tenant, that damages will be claimed for prospective lost rent for the unexpired term of the lease.