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FINDING THE “GOOD” IN GOODBYE: HOW TO END A COMMERCIAL TENANCY

Laurie J. Sanderson

Laurie J. Sanderson
Laurie J. Sanderson

So your tenant is late paying the rent – again. Only this time, you’ve reached your limit and you want to terminate the lease. In Ontario, commercial landlords are in the enviable position of not needing to obtain a court order to repossess their premises (re-enter in legal speak) and terminate the lease. The Commercial Tenancies Act gives us the right to do so, without the intervention of the court, provided we follow certain required steps.


STEP 1 – Ensure that you have not waived your rights

If the tenant has persistently paid its rent late, and you have accepted late payment, you may have waived your right to require strict performance of the tenant’s obligation to pay the rent on the first of the month. Likewise, if the tenant habitually fails to remain open for business during the operating hours of the mall despite its promise in the lease to the contrary, you may by your conduct be found to have acquiesced in this default or waived your right to strictly enforce this term of your lease. As I always say, no good deed goes unpunished. So much for being nice.
Not to worry however, the waiver is not forever and can be dealt with by sending the tenant a formal notice advising the tenant that its rent is due on the first of the month and that from that time you will be strictly enforcing this obligation under the Lease. 

STEP 2 – Read the default section of the lease

If this is a rent default, check the terms of the lease to see if you are required to give the tenant notice of the rent default or whether you have to wait a certain period of time after the rent was due before you can treat it as in arrears. Most leases will say that the landlord can terminate the lease if the rent is not paid when due.  Assuming rent is payable on the first of the month, this means that we can repossess the premises on the 2nd of the month. If your lease is silent, however, you must wait 15 clear days (that is, until the 17th of the month) before doing your re-entry. 

If the tenant’s default is for something other than its rent obligation, despite what your lease may say to the contrary, you must give the tenant notice of the default and reasonable time to cure the default before you will be entitled to terminate the lease.

STEP 3 – Be sure that the tenant is in default

One of the consequences to being given the right to terminate without a court order, is that we are held to a very high standard in exercising this self-help remedy.  You want to be very sure that your tenant is indeed in default.  If we are dealing with a rent default, you will want to exercise your right to terminate the lease only on the basis of arrears that are indisputably owing. If you and your tenant are having a dispute over operating cost adjustments, I strongly suggest that you not include these arrears in your notice of termination. You are just inviting your tenant to challenge the re-entry in court and if, at the end of the day, the judge disagrees with you, your re-entry is not just tainted, it will be found to be unlawful. Suddenly, it is not the tenant behind the eight ball, but you. The damages for an unlawful re-entry can be extremely high. From the court’s point of view, you have unlawfully interfered with your tenant’s business operations and quite probably injured its reputation with its customers and suppliers.

STEP 4 – Be strategic

A tenant who pays the arrears into court is entitled to have its lease re-instated. (It is what the law calls relief from forfeiture.) So it does not make sense to terminate the lease for a single month’s rent default if we believe that the tenant has the ability to pay.

When you read the default provisions of the lease, did they refer to the current month’s rent and the next three month’s rent accelerating as a consequence of any event of default? Most commercial leases do. Once upon a time this accelerated rent provision was limited to the tenant being insolvent but in the past decade or so, most landlords’ leases have been amended to extend this provision to any event of default.

If your lease permits the acceleration of the next 3 month’s rent, you will need to first confirm whether the acceleration is automatic (ie the rent accelerates as soon as the tenant defaults without any action on your part) or whether it is not triggered until the tenant has been given notice and time to cure the default. If this is the case, you will want to advise the tenant of the acceleration in your default notice. Why is acceleration relevant to this discussion? We want to make it as expensive as possible for the tenant to apply to have its lease reinstated.

Along these lines, we also want to make it as difficult as possible. The tenant’s right to apply to the court to have its lease reinstated is not limited to curing a rent default. It extends to other lease defaults as well but with a few exceptions, the most relevant one being a breach of the restrictions in the lease against assignment and subletting.  If you terminate the lease for a breach of this nature, the tenant is not entitled to court ordered relief.
If we have a tenant that is both in arrears and in breach of other terms of the lease, it may make sense to take the extra step, give the tenant notice of the non-rent default and reasonable time to cure, before doing the re-entry, as it will make it more difficult for the tenant to have its lease reinstated.

This will not apply, however, when we believe that the tenant is insolvent.  In these cases, we need to terminate the lease as quickly as possible. If the tenant assigns itself or is petitioned into bankruptcy before we terminate the lease, we are stayed – meaning our hands are tied. We are not permitted to exercise any of our remedies against the tenant. Worse, we must wait 90 days while the trustee in bankruptcy decides whether it is going to disclaim (walk away from) the lease or whether it will exercise its right to assign the lease to someone else. Beware, the trustee is not bound by the use restrictions in the lease and is legally permitted to assign the lease to someone to use the premises for a use other than the permitted uses under the lease.

If we believe that the tenant is on the cusp of bankruptcy, we will want to terminate the lease as quickly as possible. As such, we will almost always re-enter on the basis of the rent default so that we are not having to give notice of default to the tenant and time to cure.

STEP 5 – Use a bailiff

Unless you have terminated a lease before and this is a very clear cut case, as for example, where the tenant is in arrears and abandoned the premises, you will want to engage the services of a qualified bailiff. The bailiff is your best friend. They have done this a thousand times before and know how to effect the re-entry in as painless and drama-free way as possible.

The bailiff gets their authority by way of a warrant from the landlord. The bailiff will send you the form to sign. The only amendment I ever make to the bailiff’s form of warrant is to limit the indemnity to its “lawful” acts. The bailiff will also prepare the notice of termination for you.

Generally speaking, it is very easy to effect the termination. We almost always do this by changing the locks on the premises and posting the notice of termination on the inside of a window or door so that it is visible (but not removable) from the outside. I also send a copy of the notice of termination to the tenant by email as well as a copy to their lawyer.
The bailiff will want to know how many exterior doors there are in the premises, what kind of lock is being used and whether the premises are alarmed. The bailiff will also want to do the re-entry when the premises are not occupied so will also ask you about the operating hours of the tenant and when we can be reasonably sure that the premises will be vacant.

Neither you nor the bailiff can use force to effect the re-entry. If the tenant stands in the doorway and refuses us access we will need to come back another time.

STEP 6 – Do not seize the tenant’s chattels

By terminating the lease, you are forfeiting your right of distress. (This is the landlord’s right to seize the tenant’s chattels for non-payment of rent.)  To avoid any confusion or allegation to the contrary by the tenant, I include in my notices of termination, a statement to along the following lines:

This notice of termination of the Lease, any changing of the locks at the Leased Premises and the termination of the Lease shall not constitute a seizure by the Landlord under any security agreement by the Tenant in favour of the Landlord, if any, or in favour of any other person, of any chattels or other personal property belonging to the Tenant and remaining on the Leased Premises. Please contact the Landlord at (Tel.)  in order to arrange for the removal of your property from the Leased Premises by •, 2013, failing which we will treat any remaining property as abandoned and will dispose of it without recourse by or compensation to the Tenant.     

Be aware that despite the warning to the tenant that we will dispose of their property, we are not entitled to do so unless this is specifically provided for in the lease. Otherwise, we are required to store the tenant’s property and are not permitted to kick it to the curb.

STEP 7 – Reserve your right to claim damages

You are entitled to damages from the tenant as a consequence of the early termination of the lease. You must, however, claim these damages within a reasonable period of time after the termination of the lease. To be on the safe side, I include the following statement in the notice of termination.

The Landlord hereby also gives you notice that it will without further notice or demand hold the Tenant responsible for the base rent and additional rent due •, 2013, accelerated rent as provided in section • of the Lease and damages for the loss of the benefit of the Lease for the balance of the term of the Lease, including without limitation, base rent and additional rent that would otherwise have been payable for the balance of the term of the Lease but for this early termination.

STEP 8 – What if the tenant breaks back in?

Funnily enough, this happens fairly frequently; at least often enough for me to amend my notices of termination to include the following:

 - WARNING -

THESE PREMISES ARE NOW IN THE LAWFUL POSSESSION OF THE BAILIFF ON BEHALF OF THE LANDLORD.  ANY RE-ENTRY OR ATTEMPT AT RE-ENTRY ONTO THESE PREMISES BY ANY PERSON WITHOUT THE CONSENT OF THE BAILIFF, THE LANDLORD OR A JUDGE OF THE SUPERIOR COURT OF JUSTICE SHALL CONSTITUTE A CRIMINAL ACT AND WILL RESULT IN CRIMINAL PROSECUTION TO THE FULLEST EXTENT OF THE LAW.

It doesn't always work but it has definitely helped.  If the tenant breaks back in, it is often just to retrieve their personal property, and so it is easiest just to have the locks re-changed the next day. If, however, the tenant re-opens for business, you have a different situation on your hands and your safest route is to apply to the court for an order evicting the tenant (called a writ of possession).

Part of why I love my practice is that no two leases or tenants are ever the same. I hope that you will take all of the above comments as they are intended, as a guide and not a rule book.


Source: Gowlings' News

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