A landlord has five basic options when a commercial lease goes into default:
1. affirm the lease and sue for amounts due;
2. affirm the lease and distrain the tenant’s goods on the premises for rent in arrears;
3. terminate the lease and re-enter the premises;
4. affirm the lease and relet the premises on the tenant’s account; or
5. negotiate a surrender of lease.
Importantly: Choosing one of these options will often foreclose the possibility of choosing another alternative, therefore it is often in your best interest to discuss these options with your lawyer prior to proceeding.
1. Sue for Amounts Due:
The landlord can refuse to accept the repudiation of the lease by the tenant and do nothing to alter the relationship of landlord and tenant. The landlord can then insist on performance of the terms under the lease and sue for rent or damages on the basis that the lease remains in force.
2. Distress when rent has not been paid:
If the lease has not been terminated and the tenant owes rent, the landlord may seize the tenant’s goods at the leased premises and hold them as security for payment of the outstanding rent.
A landlord cannot distrain a tenants' fixtures or improvements. A fixture is personal property that is attached to land or a building and is regarded as an irremovable part of the building. A landlord can then sell the seized moveable property (chattels) and apply the proceeds of that sale to the outstanding rent.
A landlord must be careful not to commit an illegal distress. An illegal distress occurs when:
- there is no tenancy (if the possession is characterized as a mere license or other interest);
- no rent is due; or
- rent is due, but:
a. the landlord has terminated the lease;
b. the landlord or the bailiff break into the premises, or enter during a prohibited period;
c. exempt goods are seized, such as personal property of someone who is not the tenant;
d. the distress is made more than six months after the end of the term;
e. the landlord continues the distress after the tenant tenders the rent and costs of the distress; or
f. goods are seized off the premises when not permitted
When dealing with large items, a landlord should have a bailiff state that the goods are seized, secure and sell the property on the premises rather than removing them. If the tenant retakes them, then the landlord can recover damages and costs.
3. Re-entering and Terminating the Lease
The landlord will have terminated the lease if the landlord's actions made it clear that the landlord had no intention of allowing the tenant to re-enter the premises again or to carry on with the lease unless the money owing was paid. Once a tenancy is terminated and the landlord has taken possession of the premises, the landlord is then only able to sue only for rent due or for damages for breaches of covenant committed before the date of termination.
4. Affirming the Lease and Re-letting the Premises
The landlord can refuse to accept the repudiation or abandonment of the lease, but advise the tenant that it will re-enter the premises and re-let the property “on the tenant’s behalf”. The landlord then holds the tenant liable for any deficiency in rental for the balance of the lease term.
This is foregoing is generalized information only and not legal advice for any particular set of facts.
For more information, please contact Peter Borszcz at PIHL Law Corporation: