Landlord's Remedies upon Tenant Defaults
When a commercial tenant defaults on a written lease such as failing to pay rent, abandoning the leased premises or committing defaults listed in the lease, the landlord must know what steps it can take at law and the consequences of taking such steps.
The most common default is failure to pay rent. In this situation, the landlord can either seize the tenant's assets located on the leased premises or terminate the lease but not both. Not all assets of the tenant can be seized, however. For instance, if the tenant is an individual, rather than a corporation, property of the individual tenant located on the leased premises used by the tenant to earn his livelihood is exempt. As well, property that is the subject matter of a purchase-money security interest is not subject to seizure. Examples of this type of property are property that has been delivered to the tenant under a commercial assignment and property that is leased to the tenant for a term of more than one year. Seizures must be conducted in accordance with the Civil Enforcement Act.
Rather than seizing, in situations where there is little or no hope in the tenant ever being able to pay the full rent for the balance of the lease term, the landlord can decide to terminate the lease and re-take possession. Before re-taking possession, the landlord must (1) deliver the appropriate notice as set out in the written lease and (2) wait the appropriate cure period as set out in the written lease. If the tenant has not cured the default, the landlord can then terminate the lease and re-take possession.
Another option for the landlord is to do nothing. Without terminating the lease, the landlord can sue the tenant for rent in arrears on a monthly basis. This option, however, is generally impractical unless a replacement tenant cannot be found so that the present defaulting tenant is better than a vacant space.
If the tenant has abandoned the leased premises, failed to pay rent and failed to carry on business in the leased premises when the lease requires the tenant to continue operations, the landlord can consider this conduct as the tenant's repudiation of the lease, accept this repudiation and notify the tenant of its intention to hold the tenant responsible for all damages arising from the repudiation. Such damages include the loss of rent for the balance of the unexpired term of the lease. Because the law requires the landlord to keep its damages to a minimum, the landlord must take commercially reasonable steps to locate another tenant.
As any successful businessperson knows, it is better to be proactive rather than reactive. So that the landlord is not surprised when the tenancy goes wrong, maintaining a close business relationship with the tenant is crucial. If the landlord is entitled to receive a sales report from the tenant, it should carefully review the report to keep apprised of the tenant's financial health. With its business strategy clearly in mind, a landlord can, when faced with a defaulting tenant, consider its various options and legal ramifications and take decisive steps immediately so that its losses are kept to a minimum.