If the Tenant has Not Paid the Rent: Do Distress

 In business law, commercial leases, real estate

If you are a landlord in Ontario and your commercial tenant has not paid the rent, you might consider using the remedy of distress, which allows you to seize the tenant’s goods and chattels to satisfy the unpaid rent. You should, however, use this remedy cautiously as if it is unlawfully or improperly handled, it will lead to damages, and these damages can be substantial. 

Warning
Before using this remedy, you should talk with a Ontario lawyer and go over your lease agreement. If your attorney has determined that this remedy is appropriate, you should consider hiring a bailiff. A bailiff will act as your agent to carry out the distress. As he or she will usually not be insured for errors and omissions, you may be liable for his or her mistakes. Thus, it is important that you give your bailiff clear instructions. 

Definition
Distress, or distraint, is a self-help remedy that allows you, the landlord, to hold your and potentially sell tenant’s goods and chattels found on its leased premises, as security to satisfy rent arrears. The only parties able to use this remedy are you, a sub-landlord, or your agents. 

Termination
At the outset, you must decide whether instead of using the distress remedy you would rather just terminate the lease (you cannot use both remedies). You might prefer to terminate the lease if your tenant does not have valuable goods on the leased premises, or it is unlawful to seize those specific goods. You might also prefer to terminate if the rent arrears is large or the tenant is at risk of being assigned into bankruptcy. 

Process
If you decided to use the remedy of distress, you must first determine whether the rent is actually in arrears. If the tenant disputes a rent increase, for example, you may not be entitled to use this remedy. If you have determined that the rent is in arrears, you should calculate the exact amount due. (Depending on the lease, rent may include things such as operating costs, property taxes, and other fees and expenses.) You need an accurate calculation so that you distrain enough goods to satisfy the rent arrears without taking more than needed. After making this calculation, deliver a notice specifying the amount of arrears to the tenant. 

You should search to see whether any of the tenant’s goods are subject to writs, liens, charges, or security agreements in Ontario. After you conducted this search, you may enter the tenant’s premises through ordinary means of entry, such as by an open or unlocked door or an open window. You cannot enter at night or cause a breach of the peace. 

There are a lot of limits to what types of goods and chattels you can actually take. You cannot seize the goods of the tenant that are not on its leased premises. You cannot seize the following:

  • goods in actual use;
  • exempt goods, which include money, wild animals, perishable goods, fixtures and improvements, and goods of third parties (unless the owners of the goods has derived title from the tenant or is related to the tenant); and
  • goods subject to writs, liens, charges, or security agreements.

 

You may seize the tenant’s goods simply by stating that the goods are seized, by placing labels on the distrained goods, by removing the goods from the tenant’s premises, or by entering into an undertaking with the tenant. After you seize the items, take an inventory and list each item seized with a description of the item, and then provide the tenant with a written statement of the distrained goods and the date by which they must be replevied. 

If the tenant fails to replevy the goods within five days, you may have the goods appraised by two appraisers, and after the appraisement you may sell the distrained goods for the best price possible price (you may not purchase the goods yourself or sell them to a party that is not at arm’s length). You may use the proceeds towards satisfaction of the rent, along with the costs of the distress, appraisement, and sale. If the proceeds are not sufficient to pay the rent in arrears, you may not distrain again unless certain conditions are met. If, however, there are proceeds left over, it must be given to the owner of the goods (usually the tenant).

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