It’s Your Business – Vol 1, Issue 4 – December 2009

December 1, 2009

The Disturbances of Failing to Obtain Non-Disturbance

Quite often in commercial tenancy relationships, the primary commercial tenant will decide to sublet a portion of its rented space to a subtenant. As expected, this can be done with or without the landlord’s consent; however, the majority of the time a tenant is required to obtain the landlord’s consent and approval of a specified subtenant. Depending on the contractual obligations between the parties, the subtenant may be required to pay its rental payments to either the primary tenant or the landlord. In the normal course, most subtenancies and tenancy relationships run smoothly with little or no issues between the parties. A myriad of factors and situations can be envisioned that would cause the relationship between a tenant and subtenant to deteriorate but, quite frequently, subtenants do not contemplate the potential severe and drastic results when the relationship between a tenant and landlord sours. For example, many do not consider the impact on a subtenant should a tenant fail to pay a landlord its rent or when a tenant is required to submit a subtenants rent to a landlord and fails to do so. In such circumstances, quite often subtenants think they are adequately protected as their rent has been paid, and that a landlord has no rights to force the subtenant to pay all amounts due and take other actions such as distrain upon its goods.

Unfortunately, and much to the surprise of many commercial subtenants, the New Brunswick Landlord and Tenant Act, the Legislation governing commercial tenancies in the province, provides that a landlord may both cease and distrain upon all goods of a subtenant and a tenant for rental arrears of the tenant. A landlord is entitled to enter the premises of a tenant and/or subtenant, and tag, seize, and levy a distress on not only the assets of a tenant, but also those of a subtenant which are on site when the landlord, or its properly instructed agent decides to enter the premises. If this occurs, the subtenant loses all rights to deal with any of the tagged assets. The subtenant is unable to sell the assets. If the assets are inventory the subtenant is unable to use them. If the assets are in the form of equipment, the subtenant is unable to remove them from the premises. Should a subtenant take any such activities, they may be liable to pay penalties to the landlord equal to twice the value of the goods which has been removed, sold, etc. Any person acting on behalf of the subtenant and providing any such instruction is deemed to be personally liable to the landlord. The results of such a scenario can be devastating and can potentially be so severe that a subtenant could be put out of business should it not be able to move its inventory and satisfy its customers. This is the case, even though the subtenant continuously made all its required rental payments and other payments to either the tenant and/or the landlord and complied with all the provisions of its subtenancy agreement.

The question then becomes, what can a subtenant do to protect itself in light of the legislation which appears to be unjust and unjust for a subtenant? The solution, a non-disturbance agreement between the landlord and subtenant allowing the subtenant to continue its business activities in the normal course in the event that there arises an issue between the landlord and the tenant during the terms of the subtenancy. Such an agreement generally will include provisions that prohibit the landlord from distraining the subtenant’s assets and from interfering with its business operations, thereby allowing it to continue operations despite any difficulties between the landlord and tenant. Due to the specific language in the Landlord and Tenant Act, it is crucial that a subtenant negotiate a non-disturbance agreement if at all possible when considering entering in to a subtenancy arrangement with a tenant and landlord. Quite simply, this is one of the few ways a subtenant can protect itself and avoid the pitfalls of a tenant’s failure to pay rent.

Competition Bureau Updates Internet Representations Guidelines

With so many businesses having an on-line presence, either to advertise products and services, provide information about the business, or to carry out commercial activities, such as retail, it is necessary to be informed about how businesses should and should not make representations on the Internet. Guidance in this area can be found in the recently updated Competition Bureau Enforcement Guidelines, Application of the Competition Act to Representations on the Internet, (the “Guidelines”). These Guidelines were published October 16, 2009 and replace the previous Information Bulletin of the same name that was published in February of 2003.

As their title suggests, the Guidelines specifically address issues relating to advertising and marketing on the Internet. By way of background, they also provide a short primer on the legal prohibition against making false and misleading representations as they would apply in any medium of communication. Any representation that is “false or misleading in a material respect” such that it would induce a person to a course of conduct they believe to be advantageous on the basis of such representation constitutes a violation of the Competition Act which may be subject to either civil or criminal sanctions. The determination of “materiality” is based upon the general impression conveyed by the representation as well as the literal meaning of the representation. The general impression must be evaluated based on the perspective of the average consumer who is interested in the product or service being promoted and the context of the medium used.

With respect to context of the medium used, the Guidelines outline factors for determining who in the communication chain can be liable for a false or misleading representation: marketing agencies, web designers, web hosting services, internet service providers (“ISP’s”); and the business for whose benefit the representation was made in the first instance. Each situation must be evaluated on its own particular facts, but the determining factor in each case is the control or degree of control a party to the communication has over the content of the representation. For instance, ISP’s and web hosting companies may bear no liability for a false and misleading representation over the Internet if they had no control over the content of the communication. Alternatively, the business owner for whose benefit the representation was made may bear full responsibility as it had ultimate control over the content of the representation.

Representations that are properly qualified by a disclaimer may not be found to be false or misleading. Whether a disclaimer is sufficient to alter the general impression created by the principle representation will depend not only on the actual content of the disclaimer but the context and means for communicating the disclaimer. The Guidelines provide specific guidance on the use of disclaimers in Internet communications by addressing distinct qualities of the Internet versus traditional mediums of communication such as audio and text. For example, the Guidelines provide guidance on the placement and presentation of disclaimers on a web-page, use of hyperlinks and attention-grabbing tools for disclaimers, and accessibility by all potential users.

Business owners that have an on-line presence are encouraged to familiarize themselves with these Guidelines to avoid potential liability for alleged false or misleading representations. The Guidelines along with other relevant E-Commerce Information Bulletins can be accessed online from the Competition Bureau website.

This is a Cox & Palmer publication prepared by our Corporate & Commercial Group in Fredericton, NB. It is intended to provide information of a general nature only and not legal advice.  For assistance with any matter involving your business, call a member of our team:

Walter Vail, Q.C. (506) 453 9602
Bruce Hatfield, Q.C. (506) 453 9674
Matthew Tweedie (506) 462 4750
Deborah Power (506) 453 9645
Aaron Savage (506) 444 9284
Paul White (506) 453 9671
Daniel Stevenson (506) 462 4754

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Cox & Palmer publications are intended to provide information of a general nature only and not legal advice. The information presented is current to the date of publication and may be subject to change following the publication date.