Legal insight and perspective from the Steinbergs Team
Published: April 29, 2024
Category: Real Estate
Continuing with that theme, this week I wanted to review the significance of “go dark” provisions.
It is not uncommon for a tenant to want to vacate a premises before the term of the lease expires. This is especially true in light of the duration of the typical commercial lease. A tenant in such circumstances may seek to avoid breaching the provisions of the lease by continuing to pay rent and otherwise satisfy its obligations to the landlord. However, from the landlord’s point of view, a vacant property may be less than desirable even where rent continues to be paid, especially where the tenant anchors a multi-unit retail property.
In the absence of an express term in the lease addressing the issue, a court may, where circumstances warranted, recognize the existence of an implied term requiring that the tenant maintain its operations. The case of Nickel Developments Ltd. v CanadaSafeway Ltd. provides an example of a court making such a finding. In Nickel Developments, the tenant grocery store, Safeway, vacated the leased premises for another property nearby, while continuing to pay rent so as to prevent a competitor from moving into the premises. Ultimately, Manitoba’s Court of Appeal found that in reading the lease as a whole, “one is bound to find an intention that there be continuous operation.” As a result, Safeway was found to have been in breach of the lease.
Whether a court will make such a finding will ultimately depend on the circumstances of the case, and whether an implied term is needed to give business efficacy to the lease or where it would express the intention of the parties. The lack of an express term can, thus, introduce uncertainty into the parties’ obligations.
Enter the “go dark” provision, which is an express term included in a lease that recognizes that the tenant may cease its operations or vacate the premises while continuing to pay rent. Such a provision not only provides certainty in respect of the tenant’s rights and obligations, but also allows the parties to prescribe conditions on its use. For example, a go dark provision could require a notice period before a tenant is permitted to cease operations, or may provide the landlord with the right, under certain circumstances, to take back possession of the premises so as to seek out another tenant.
Thus, while they are typically thought of as providing tenants with maximum flexibility, go dark provisions can also offer landlords a measure of certainty and protection in cases where a tenant seeks to cease its operations. Landlords and tenants should therefore consider including go dark provisions in their lease agreements.
