Is The Mining of Bitcoin Permitted Under Your Lease? Lessons from Flowers v Persist Oil and Gas Inc.

March 24, 2025

Written By Dan Chubb, Denise Bright, Luke Stretch and Kendall Pearce

In Flowers v Persist Oil and Gas Inc., 2025 ABKB 142,¹ the Court of King's Bench of Alberta provides some important reminders to commercial landlords, tenants and their respective lenders regarding the growing intersection between real estate and the digital economy. In its decision, the Court of King's Bench ruled that the tenant's operation of a Bitcoin mine was not a permitted use under a surface lease, and granted as remedy a permanent injunction requiring the tenant to remove the Bitcoin mining equipment.

Decision Summary

Roy Flowers (Flowers), as landlord, and Persist Oil and Gas Inc. (Persist), as tenant, were parties to a surface lease agreement (the Lease) of certain lands owned by Flowers comprising approximately 3.14 acres located in Rocky View County, Alberta (the Premises).

The permitted use stated in the Lease was for "any and all purposes and uses as may be necessary for the exploration, development and production of oil, gas, related hydrocarbons or substances produced in association therewith, including the right to lay a pipeline or pipelines, construct and operate a sweet natural gas compressor facility, remediation and reclamation."

Prior to April 2021, Persist operated a compressor station on the Premises exclusively for the production of natural gas. But beginning in April 2021, as a response to low natural gas prices, Persist installed generators, computers and other equipment at its compressor site onto the Premises and thereafter periodically used electricity from the natural gas fired generators to mine Bitcoin.

Flowers was opposed to the mining operation, writing several letters demanding that such operations cease. Following discussions with Rocky View County, Flowers was issued a formal notice of non-compliance which noted that Persist's Bitcoin operation lacked both the required zoning and development permits.

While the term of the Lease expired on November 12, 2019, and Persist and Flowers were unable to agree on Lease renewal terms, the Land and Property Rights Tribunal (LPRT) granted Persist a Right of Entry Order. This order was specifically based on section 144(1)(a) of the Environmental Protection and Enhancement Act (EPEA) which provides that a surface lease cannot be terminated until a reclamation certificate has been issued, which had not yet occurred in the case of Persist's lease. In response to Flowers' argument that Persist's Bitcoin mining operations were in breach of terms of the Lease the LPRT noted that such allegations were outside of its jurisdiction and subject to a concurrent application to the Alberta Court of King’s Bench.

Flowers sought relief before the Alberta Court of King's Bench, seeking a permanent injunction against Persist as well as disgorgement of the proceeds from the Bitcoin mining operation.

In his decision, J. Rickards concluded as a preliminary matter that the EPEA created a statutory right for Persist to remain on the Premises despite the expiration of the Lease term, and such right were supplemented by the LPRT right of entry order. This right to remain on the Premises did not, however, modify the other terms of Lease. J. Rickards then reviewed the Lease's terms to conclude that in its plain and ordinary meaning the permitted use provision of the Lease did not include Bitcoin mining operations as they are completely distinct from oil, gas and related hydrocarbon operations. Persist's argument that the use of electricity produced from natural gas made Bitcoin mining operations ancillary to oil and gas operations was rejected. On this basis it was ruled that Persist was, and had been since April 2021, in breach of the permitted use terms of the Lease.

In the absence of sufficient evidentiary records, J. Rickards refused to rule on whether Persist's mining operation constituted a nuisance to Flowers' adjacent property, or whether Persists held the requisite approvals to operate its Bitcoin mine. The notice of non-compliance and other involvement by Rocky View County suggested that it did not, and that Flowers may face administrative penalties if the mining use continued.

Having found that the Lease was breached, J. Rickards concluded that an injunction was the appropriate remedy because: (1) monetary damages could not adequately remedy the breach; and (2) equities weighed in favour of Flowers, as the innocent party. Citing Atlantic Lottery Corp. Inc. v Babstock² for the principle that disgorgement in breach of contract should only be available in exceptional cases where other remedies are inadequate, J. Rickards rejected Flowers' further request for disgorgement of the revenue from the Bitcoin mine. He held that while the ongoing breach would be remedied by permanent injunction, the historic breach since April 2021 could be remedied by determining damages based on what reasonable consideration may have been demanded for allowing Persist to operate the Bitcoin mine.

Takeaways

This decision offers several important reminders to landlords, tenants and their respective lenders, both in the energy industry and in traditional commercial real estate:

1. Non-Permitted Use: Permitted Use clauses form essential parts of leases and should be carefully reviewed both during lease negotiation and any time a tenant considers expanding its use or pursuing a new business venture on leased property. Absent ambiguity, a permitted use clause will be read in its plain and ordinary meaning by the courts. In this case, the permitted use of oil and gas operations was not sufficiently broad to include the use of electricity produced as a product of that gas in a further operation. 
2. Injunctive Relief: Injunctive relief may be available where a tenant has refused to stop a non-permitted use under a lease. A permanent injunction is an appropriate remedy because allowing the tenant to continue a non-permitted use would allow the breach of the lease to persist. Where a breach is ongoing and cannot be adequately addressed by damages, an injunction serves to enforce contractual obligations.
3. Expiration of Lease: The Court affirmed that a statutory regime can extend the validity of a lease even after expiration of the lease term. Specifically, under section 144 of the EPEA, the tenancy under a surface lease, as defined in the EPEA, is extended, and a lease remains in effect until a reclamation certificate has been issued.
4. Negotiated Damages: Where the successful claimant for breach of contract cannot easily demonstrate monetary damages, as in the case of historic non-permitted use of premises, the award of negotiated damages may be available to prevent a defendant from obtaining an unjust advantage for which they did not bargain. Actual financial losses need not be proven as negotiating damages focus on compensating the claimant for the value of the right infringed upon.

Bennett Jones LLP has extensive and market-leading experience in all aspects of financing, commercial leases, acquisitions, dispositions and other real property transactions. If you have any questions about the effect of these legal principles on your business, please contact the authors.

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