Creighton owned a commercial property on the main street of a large city, which he leased for 15 years to a franchise of a nationwide department store. The lease contained a covenant prohibiting the department store tenant from establishing another one of its stores within a 15-kilometre radius of its current location. The main reason for the restrictive covenant was to protect the landlord's rental revenues. The rent for the property was set at a $24,000 minimum per year plus 3% of gross sales receipts. In reality, another franchisee of the department store had been operating a store within six blocks of Creighton's property for the last 10 years. Creighton was well aware of this fact but had never taken any steps to enforce the covenant in his lease.
In December, Creighton sold his property to Murdock and assigned the lease in its entirety. Creighton and Murdock arranged the deal such that Murdock made a lump sum down payment and Creighton held a mortgage that Murdock would pay, in part, with the monthly rental revenues from the property. The assignment was executed under seal and immediately written notice was sent to both the store manager at the leased property and to the national office of the department store chain. The notice informed the tenant that the assignment had occurred and that all future rental payments were to be directed to Murdock. The tenant properly forwarded its monthly payments to Murdock for several months.
In March, Murdock telephoned the tenant to inform it that he had reassigned the right to receive the rental income to Creighton and that future payments should again be made directly to Creighton. The purpose of the reassignment was to reduce the length of time it took each month to get the payments processed from the tenant to Murdock and on to Creighton. In return, Creighton reduced the rate on Murdock's mortgage by one-quarter percent. Murdock pointed out, however, that he retained his capacity as landlord, having assigned only the rental income back to Creighton.
One week later, Creighton brought an action against the tenant for damages for breach of the lease's covenant prohibiting the existence of the second store within 15 kilometres. Creighton sought damages in the amount equal to lost rental revenue for the previous 10 years.
What legal issues are raised in this case? What arguments will be used by both Creighton and the tenant and what will be the likely outcome?

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fatema hassn · Accepted Answer

Final Answer :

The case examines the principles of assignment, both statutory and equitable. The first of the two assignments is a statutory assignment meeting the requirements of writing, absoluteness and notice. It transfers all rights and obligations of the lease contract to the assignee, Murdock, who steps into the contract in precisely the same position as Creighton. As such, the assignee inherits the lease covenant and the right to enforce it.
The second assignment is equitable. It is not absolute in the sense that only the right to receive the rental income was transferred in return for an interest rate reduction. The facts are unclear whether the assignment was written or oral, however, it is clear that no written notice was given to the tenant. Murdock has retained the remaining rights under the lease, and he is the only party entitled to enforce them. Moreover, as an assignee under an equitable assignment, Creighton may not institute an action in this matter without joining Murdock in the action as assignor.
Some students may make an equitable argument for Creighton's entitlement to damages for breach of the covenant at least prior to the original sale, and assignment to Murdock. The tenant's defences to such a claim would include the absolute assignment to Murdock as a bar to action by Creighton. Murdock inherits all rights and claims in the contract once the assignment is valid. Furthermore, the tenant may raise the defence of estoppel in light of Creighton's open acquiescence to the breach for a 10-year period. This defence, if successful against Creighton, would also prove effective against Murdock if he should at some future time attempt to enforce or sue upon the covenant.

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