Recovering Rent From A Commercial Tenant

Recovering Rent From A Commercial Tenant


Alex J. Chang, Associate
Phone:  604-685-1255
Email:  ajc@lmlaw.ca

 

A landlord has multiple options to collect rent from a commercial tenant in default. However, these options may be more or less favourable depending on the lease and the economic circumstances of the parties. Taking advantage of one remedy may also preclude a landlord from taking advantage of other rights.

The first place to look is to the lease to confirm if there are any limitations or notices required prior to taking advantage of the landlord’s remedies. The following are three remedies available to a landlord:

1.  A landlord may terminate the lease and sue for the arrears and damages. The right to terminate the lease will depend on the terms of the lease. Most leases provide for this right in the event of non-payment of rent upon notice. It is critical that pre-conditions to termination set out in the lease are strictly followed or the landlord may be subject to a claim by the tenant for wrongful termination. Once the lease is terminated, the landlord may sue for the arrears as well as damages for rent over the remaining term of the lease. However, the landlord must still make reasonable efforts to mitigate losses by finding a new tenant.

A landlord that elects for termination cannot then seize the tenants goods through distraint proceedings which are explained below.

Termination is likely the best option where the landlord wants the tenant removed and/or the landlord is confident that a new tenant can be found reasonably quickly.

2.  A landlord may distrain for the arrears. This process under the Rent Distress Act involves retaining a bailiff to seize the tenant’s property to satisfy the arrears. The threat of distraint may cause the tenant to pay the arrears. If not, distraint can be effective for collecting if the tenant has sufficiently valuable inventory.

This option may seem attractive compared to termination if the landlord is concerned that they will not be able to easily find a new tenant. However, distraint has the side-effect of causing the landlord to irrevocably affirm the lease and waive past breaches which led to the distraint. This means that the lease cannot be terminated. The landlord would have to wait until the distraint process is complete and a new breach of the lease occurs before termination becomes an option again.

Landlords and their bailiffs must also be extremely cautious in carrying out this remedy. Failure to follow the correct legal process under the Rent Distress Act may result in a claim by the tenant. Landlords must also be cautious against claims by third parties if the property seized is subject to a security interest.

Finally, the landlord should consider whether seizing the tenant’s property will cause the tenant to be unable to pay the rent in the future.

3.  A landlord may affirm the lease and sue for arrears. Under this process, the landlord continues the tenancy but sues under the lease for the arrears. As with option 1 above, affirming the lease means that distraint is no longer an option.

Just suing for arrears may be the best option when distraint is not a reasonable option or the landlord does not think they could easily find a replacement tenant. By affirming the tenancy, the landlord also keeps a tenant in place that remains liable under the lease until the end of its term.

Each of these options has their own particular pros, cons and legal requirements under the lease, relevant statutes and common law. Landlords should proceed cautiously based on their strategic and commercial interests. As such, landlords should get legal advice as soon as possible before enforcing their remedies.

https://www.canlii.org/en/bc/bcca/doc/2014/2014bcca285/2014bcca285.html

Have questions about property disputes? Please contact Alex Chang at 604-685-1255 or by email at ajc@lmlaw.ca