Relief from forfeiture in commercial lease disputes: What landlords should know when tenants seek to reinstate terminated leases

The remedy of “relief from forfeiture” allows a court to restore a commercial tenancy after a lease is terminated, even where the termination was valid under the provisions of the lease. This possibility presents an important risk for commercial landlords.

A relief from forfeiture application can significantly affect a landlord's ability to regain control of a leased premises, delay reletting, hamstring recovery of rent arrears, and, if successful, expose the landlord to further losses.

In this blog post, we discuss B.C. court decisions released in the last few years that illustrate how the court approaches relief from forfeiture applications and when they are likely to be granted.

Key takeaways include:

• Future compliance is critical. The courts will examine closely whether the tenant can realistically comply with the lease going forward if the relief is granted.
• Candour matters. Tenants seeking relief must come to court with “clean hands.” Incomplete disclosure can undermine an application.
• Serious non-rent breaches can be decisive. Issues related to licensing, safety, unauthorized uses, or illegal and unauthorized subletting can weigh heavily against relief.
• Third-party interests can tip the balance. Courts are less likely to grant relief where the landlord has reasonably re-let the premises to a third party.

The Legal Test

Relief from forfeiture is a discretionary, equitable remedy available under the B.C. Law and Equity Act. The tenant bears the burden of establishing it should be granted.

In Sechelt Golf & Country Club Ltd. v. District of Sechelt, 2012 BCSC 1105, the B.C. Supreme Court identified the five key considerations that have been recited in almost every subsequent case:

Themes in Recent B.C. Court Decisions

Relief from forfeiture is highly fact-specific. While the five Sechelt considerations guide the analysis, recent cases show that courts focus less on any single factor and more on whether reinstating the tenancy would be just and fair in all the circumstances. In particular, the outcome often turns on the tenant's overall conduct and the practical consequences of reinstating the lease.

Future Compliance is Critical

Courts will closely examine whether the tenant can realistically comply with the lease if relief is granted. For instance, in Dabanxiong Trading Corporation v. 0733849 B.C. Ltd., the court looked beyond a single missed rent payment and considered the tenant's broader payment history, shareholder disputes, and lack of evidence supporting future compliance. It refused relief.

Similarly, in Emerald Enterprises Ltd. v. 1026900 B.C. Ltd., the court was not satisfied that the tenant could pay its arrears or meet its future obligations given its financial difficulties, so it would have dismissed an application for relief.  

Candour Matters

Because relief from forfeiture is an equitable remedy, tenants must approach the court with “clean hands.” For instance, in Emerald Enterprises, the tenant failed to disclose multiple court proceedings relevant to its financial circumstances. The court treated those omissions as evidence of a lack of candour and would have weighed them against granting relief from forfeiture.

Landlords seeking to resist relief from forfeiture applications should scrutinize a tenant's evidence for material omissions or inconsistencies, and where appropriate consider conducting their own investigations to unearth other skeletons in the closet.  

For example, in Sea House Restaurant Ltd. v. One West Holdings Ltd., after the defaulting tenant (a restaurant) had filed its application seeking relief from forfeiture and an injunction to reinstate the lease, the landlord discovered through discussions with the City of Vancouver that the tenant had been operating with an open building permit and without a valid business license, both further breaches of the lease.

Serious Non-Rent Breaches Can Be Decisive

Applications for relief commonly arise from rent defaults, but courts will also consider compliance with the lease more broadly. For example, in 1008718 B.C. Ltd. v. Osiria Welding & Fabrication Ltd., the tenant (a metal business) had paid rent but breached the lease by subletting without consent, operating without the required business licence, and using the premises for unauthorized purposes. The court refused relief, emphasizing both the seriousness of the breaches and the tenant's failure to correct them.

Even a long-lived tenancy is not enough to reinstate a lease in the face of a tenant’s history of defaults or other misconduct. In Delta Automotive Ltd. v. 4846 Elliott St. Ltd., the tenant (an automotive repair shop) had occupied the premises for more than 30 years and argued that upholding the termination based on three rent defaults would cause significant disruption.

Relief was nevertheless denied for reasons including that the tenant failed to promptly remedy circumstances that posed a fire risk and put its ongoing insurability at risk.

Third-Party Rights Can Tip the Balance

Where a landlord has re-let the premises, the interests of a new tenant weigh heavily against relief. For example, in Sea House, the court acknowledged the significant losses that the tenant would suffer if relief were denied but ultimately refused relief for reasons including that the landlord had already entered into a lease with a replacement tenant.  

Courts have confirmed repeatedly that intervening third-party rights can be a powerful factor, particularly where the landlord has acted reasonably and in accordance with the lease.

We Can Help

McCarthy Tétrault’s BC Real Estate Litigation Group comprises a team of industry-leading lawyers with deep experience navigating complex BC real estate litigation, including relief from forfeiture applications, commercial lease disputes, and other contentious real estate matters. McCarthy Tétrault represented the landlord in Sea House before the B.C. Supreme Court, successfully opposing applications for relief from forfeiture and injunctive relief.

Our lawyers provide a full suite of litigation services across a broad range of disputes, including construction, development, environmental, purchase and sale, tenancy and leasing, land use and bylaw, bankruptcy and insolvency, tax and assessment, and other disputes. Whether you’re a developer, an investor, or a real estate professional, trust McCarthy Tétrault to protect your interests and help you achieve your objectives in the BC real estate market.

If you have questions about real estate disputes, please contact the authors or the other lawyers in our litigation group.