Terminate a Lease in Ontario

If you are a commercial landlord in Ontario and your tenant has defaulted under the lease agreement, you may be able to terminate the lease. (Your tenant can also terminate the lease if it has been deprived substantially the whole of the benefit of the lease.) You can terminate a lease either with a court order or without a court order by re-entering and repossessing the premises of the defaulting tenant. 

Timeline
Your lease agreement will probably contain language that allows you to immediately terminate and take back possession of the premises for serious defaults, such as if the tenant fails to pay the rent. If your lease is silent on the issue and the tenant has failed to pay the rent for more than fifteen days, you have a statutory right in Ontario[1] to terminate the lease without notice to the tenant.[2] For most other defaults, you must give the tenant notice of the default and give it an opportunity to remedy the default or, depending on the circumstances, to begin remedying the default. 

Before Proceeding with Re-Entry

• Talk to your lawyer.
• Confirm that the tenant has actually defaulted.
• Confirm that the default triggers a right to terminate the lease.
• Confirm whether you have to provide the tenant with notice, and if so, how much.
• Provide notice in writing to the tenant’s registered lien claimants.
• Confirm that the tenant has not remedied the default, making sure not to accept a partial remedy, as it could be seen as a waiver of termination.
• Consider whether it is better to get a court order.
• Hire a bailiff, who will act as your agent and carry out the re-entry him or herself. To use a bailiff, you will need to sign a form of warrant, which should include a clause stating you will only indemnify the bailiff for lawful acts.

Process of Re-Entry

• Enter the leased premises when it is vacant so that the tenant does not resist or interfere. Neither you nor your bailiff can use force to effect the re-entry.
• Change all of the locks, preferably with the help of a locksmith.
• Post a notice of termination somewhere on the premises that is both visible and secure, such as on the inside of a window in the front door.
• Send a copy of this notice to the tenant and the tenant’s lawyers.
• Turn off the utilities to the premises except if the tenant has perishable inventory.
• Supervise the tenant’s removal of its goods and chattels.

Court Order
If the breach is insignificant, is in dispute, has been allegedly rectified, or may not be covered by the lease, then you might consider getting a court order to terminate the lease. If you terminate the lease through re-entry and repossession and a court finds a wrongful termination, you may be liable for not only general damages but also punitive damages. 

Relief from Termination
Your tenant has a right to apply to the Ontario Superior Court for relief against termination,[3] and the Court may grant such relief as it thinks fit.[4] If the default involves rent, a tenant will likely have its lease re-instated if it pays the arrears. So if you are going through this process, you should make certain that the tenant will be unable to pay the rent arrears. This can be done through an acceleration clause in the lease that would make the next three months’ rent immediately due. 

Bankruptcy
If you think the defaulting tenant will become insolvent, you need to terminate the lease quickly because if it assigns itself into bankruptcy, you cannot terminate the lease (or use any other remedies). If the tenant is bankrupt, you will have to wait three months for a trustee in bankruptcy to decide whether it is going to disclaim the lease or assign it to someone else. 

Alternatives
If you terminate a tenant’s lease, you can still seek damages from the tenant but you cannot use the remedy of distress. You might prefer using the remedy of distress for unpaid rent if you do not have potential tenants interested in the premises and the tenant has sufficient goods on the premises to satisfy the arrears. 

For more information on this subject, please contact us. 

[1] Statutory rights are rights granted under statutes, which are laws enacted by legislature. A statutory right is part of a contract unless the contract says otherwise.
[2] Commercial Tenancies Act (Ontario), R.S.O. 1990, c. L.7 R.S.O. 1990, c. L.7, s. 18 (1).
[3] The tenant cannot make this application for default involving a breach against subletting or assignment.
[4] Commercial Tenancies Act (Ontario), R.S.O. 1990, c. L.7 R.S.O. 1990, c. L.7, s20. (1)