Introduction and overview

A recent decision from the Alberta Court of King’s Bench (the “Court”), Impero Inc v 1035352 Alberta Ltd. 2025 ABKB 605, offers a crucial reminder for commercial landlords about the importance of documentation and clarity during lease negotiations. The case highlights that what a landlord knows about a tenant’s business plan before a lease is signed can significantly influence how a court interprets lease provisions, particularly when a dispute arises over a purported breach. Understanding this approach now can help landlords avoid premature lease termination, unexpected damages awards, and costly commercial litigation.

What were the key facts behind this commercial lease dispute?

The parties in this case signed a lease dated October 3, 2016 (the “Lease”), in which 1035352 Alberta Ltd. (the “Landlord”) leased premises in central Edmonton to Impero Inc. (the “Tenant”). The term of the Lease was approximately 5 years, from October 3, 2016, to October 31, 2021.

The Tenant made improvements to the premises, installed equipment and furniture, and obtained various permits which enabled it to open for business around August 2017.

Section 1.1(j) of the Lease included a “permitted use” clause, which read:

Permitted Use of the Premises: The Tenant shall not use or occupy the Premises or any part thereof for any purposes other than the continuous operation of a Restaurant, Lounge and such other use(s) as may be first approved in writing by the Landlord.[1]

Between September 2017 and January 2018, the Landlord and the Tenant received several complaints about late night or early morning noise outside the premises. The Landlord also suspected the Tenant had been operating a nightclub on the premises, contrary to the “permitted use” clause of the Lease.

On May 1, 2018, the Landlord entered the premises and changed the locks, purporting to terminate the Lease. The Landlord alleged that the Tenant had breached the Lease by operating as a nightclub and causing excessive noise.[2] The Tenant sued the landlord for breach of Lease, primarily seeking damages for loss of use of leasehold improvements or loss of income.

The core issue before the Court was whether the Tenant had indeed breached the permitted use and noise restrictions outlined in the Lease.

Can courts look beyond the written lease when interpreting “permitted use”?

While the specific wording of a lease is paramount, the Court emphasized that interpreting a contract requires considering the words as a whole, alongside the surrounding circumstances known to both parties before the contract was signed.[3] This principle, established by the Supreme Court of Canada in Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53, means that courts can look beyond the four corners of the lease document to understand the context in which the agreement was made, in order to interpret the express wording of the agreement. That contextual, mutual understanding becomes a material factor when determining what the Landlord knew or ought to have known when entering the Lease. In practical terms, this means that pre‑lease communications and documents can become legally significant when disputes arise over “permitted use” clauses.

In this case, the Tenant had provided the Landlord with a detailed business plan and floor plan prior to signing the Lease.[4] Those documents outlined the Tenant’s intention to:

  • operate a restaurant and bar, with more seating in the bar area than in the dining area;
  • have a hookah lounge and space to host parties on the weekends; and
  • have space to accommodate DJ booths. The Court found that these pre-contractual documents were useful aids for interpreting the Lease.[5]

How did pre‑lease knowledge influence the Court’s interpretation?

Crucially, the Court used this pre-lease knowledge to interpret the “permitted use” clause of the Lease. It determined that the Tenant’s operations were consistent with the objective meaning of “restaurant and lounge” as informed by the business plan and the design of the premises, which the Landlord was aware of during negotiations. While subjective intentions and verbal communications before the contract are generally irrelevant to objective interpretation[6], objective facts known to both parties at the time of contracting are relevant.

Did the Tenant breach the Lease or municipal bylaws?

The Court ultimately concluded that the Tenant had not breached the Lease and that the “Tenant operated a restaurant and lounge, within the objective meaning of those words in the Lease, in the context known to the parties before the Lease was executed…”.[7] Additionally, the Court held that the Tenant was not in breach of municipal bylaws or zoning bylaws per the Lease as alleged by the Landlord. Consequently, the Landlord was not entitled to terminate the Lease, and, in fact, the Landlord breached the covenant of quiet enjoyment by re-entering and changing the locks.[8]

The Tenant was entitled to damages based in part on the value of the leasehold improvements shown in the Tenant’s records, in the context of the 5-year Lease, in the amount of $441,029 as well as storage costs in the amount of $36,316.08.[9]

Key takeaways for commercial landlords

This decision serves as a critical reminder for commercial landlords:

  • Document everything: Ensure that all aspects of a tenant’s proposed use, especially if it involves specific operational details, are clearly documented and, ideally, incorporated into the lease or referenced within it.
  • Clarity in “permitted use” clauses: Be as precise as possible when defining “permitted use.” If there are specific activities or operational parameters that are acceptable or unacceptable, spell them out explicitly in the lease.
  • Consider pre-lease information: Be mindful that any business plans, floor plans, or other objective information shared by a prospective tenant during negotiations, and known to you, could be used by a Court to interpret ambiguous lease terms in the future. This information can establish the “surrounding circumstances” that inform the objective meaning of the lease.
  • Review and update: Regularly review your standard lease agreements to ensure they adequately address potential ambiguities, especially concerning permitted uses and operational expectations.

Understanding how courts interpret leases, particularly by considering the context of negotiations, can help landlords mitigate risks and avoid costly disputes. It underscores the importance of thoroughness and clear communication from the very first interaction with a prospective tenant.

For further questions about these issues, please contact Miller Thomson’s Commercial Litigation Group and Commercial Real Estate Group.

[1] Impero Inc v 1035352 Alberta Ltd [“Impero”], 2025 ABKB 605 at para 45.

[2] Impero at para 8.

[3] Impero at para 51.

[4] Impero at paras 51, 55, and 61.

[5] Impero at para 55.

[6] Remington Development Corporation v Canadian Pacific Railway Company, 2025 ABCA 244 at para 47.

[7] Impero at para 61

[8] Impero at para 85.

[9] Impero at para 99.