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November 7, 2025

A case from the Alberta Court of King’s Bench, CNOOC Petroleum North America ULC v 801 Seventh Inc, 2025 ABKB 145, outlines the responsibilities of landlords and tenants regarding their contractual obligations when litigation is ongoing or imminent. The case, while arising from a dispute over asbestos management, provides guidance on how landlords and tenants must act in good faith. The Supreme Court of Canada had previously found the principle of “acting in good faith” requires a party to fulfill their contractual duties honestly and reasonably and not seek to undermine the other party’s interests.

BACKGROUND

In 2013, the Defendant (the “Landlord”) leased the Nexen Tower to CNOOC Petroleum North America ULC (the “Tenant”), with the lease running until 2031. When oil prices fell, the Tenant downsized and left several floors vacant. During renovations in late 2017, a very small amount of asbestos was discovered in the building’s fireproofing. The Tenant waited months before notifying the Landlord and then demanded the full removal of the asbestos. The Landlord refused to remove all asbestos, due to cost and difficulty, but proposed alternative options to ensure the Tenant’s employees were safe and not impacted by the asbestos. In May 2019, the Tenant terminated the lease, citing the Landlord’s failure to remove the asbestos and protect the Tenant’s employees.

ACTING IN GOOD FAITH

The Court emphasized that tenants’ and landlords’ obligations under a contract continue even when a dispute is headed to litigation. Preparing for litigation does not suspend the duty to act honestly and perform contractual duties in good faith. Landlords must continue to responsibly manage the property, while tenants must continue cooperating with their landlords.

“POUNCING”

The Court held that a party may “pounce” on an opportunity to terminate their contract when they genuinely believe they have found a lawful exit. Pouncing on an opportunity is not considered a breach of good faith, so long as the opportunity was not manufactured and the party acts honestly in exercising its right to terminate. Even if the basis for terminating the contract later turns out to be illegitimate, the act of “pouncing” itself would not be considered improper.

CONCLUSION

In this case, the Court determined the Tenant was wrong. The Tenant’s termination of the lease was not permitted. The Tenant was found liable under the Lease Indemnity Agreement and was required to indemnify the Landlord’s losses. This case confirms that landlords and tenants must continue to act in good faith despite difficult circumstances. Both parties have an obligation to act honestly, cooperate with each other, and avoid using litigation tactics as a means to ignore their contractual obligations.

COMMERCIAL LEASE CHALLENGES? WE CAN HELP.

Disputes between landlords and tenants, particularly in commercial leases, can quickly become complex and time-consuming. Our goal is to identify and minimize the risks our clients face throughout the life of a lease or dispute, including obligations to act in good faith. If you are dealing with lease terminations, property management issues, or other landlord-tenant conflicts, our legal team is ready to provide the guidance and support you need.

Carbert Waite’s lawyers bring extensive experience in commercial lease and landlord-tenant disputes, including matters involving office buildings, retail spaces, and multi-floor commercial properties. We offer practical, strategic advice to help you confidently navigate your lease obligations, resolve conflicts, and maintain professional, legally compliant relationships between landlords and tenants.