Recap of Landlord’s Rights upon Rent Default by Tenant

A pair of recent Ontario court decisions provide a brief refresher on some of the rights and obligations of commercial landlords, in the event the tenant defaults on the obligation to pay rent.  

Malka v. Vasiliadis was a straightforward case involving a commercial lease for a property on which the tenant operated retail premises.  Rent was $3,000, payable on the first of the month to the landlord’s office, which was conveniently located right next door to the property.  About two years into the lease, the tenant became unable to pay the rent on time. The landlord agreed to extend the deadline until February 19th; however, while the tenant managed to come up with the rent money, he missed the deadline by three days. Accordingly the landlord terminated the lease, and entered into a new one with a third party.  

The tenant – who incidentally waited until almost the very last day of the 6-year limitation period deadline – sued the landlord for damages for wrongful termination and breach of the lease, trespass, conversion, and for illegal and excessive distress of his property.

The tenant’s action was dismissed, mainly because the court found the tenant’s credibility to be entirely lacking.  Nonetheless in the context of doing so, and after considering a number of well-established case authorities, the court listed the landlord’s choices upon default to be as follows:

The law is clear that when a tenant defaults in the obligation to pay rent, the landlord has two mutually exclusive legal remedies, and must elect which remedy to pursue. The landlord can elect to enter the premises and distrain the goods owned by the tenant for purposes of satisfying the debt owed by way of rent, but with a view to continuing the lease. Alternatively, the landlord can elect to re-take possession of the premises and terminate the lease, and potentially pursue other additional remedies.

The second case, called Andriano v. Napa Valley Plaza Inc, deals with the next step:  Once a landlord has lawfully exercised one of those options, namely the right to take possession of the premises and terminate the lease, what are a landlord’s obligations respecting the tenant’s inventory, records, and other items?   The facts in Andriano involved a tenant who ran a restaurant on the leased premises and defaulted on rent. The landlord took possession, terminated the lease, notified the tenant that he had failed to remove his equipment and goods (including some perishables), and indicated that if the goods were not removed promptly, they would be disposed of.  Almost three months passed, and the tenant never took steps to remove the goods, so the landlord disposed of them by giving anything still of value to charity, and putting the rest in the dumpster.  

The tenant unsuccessfully sued the landlord for trespass and “breach of bailment”.  In the course of granting the landlord’s summary judgment motion, the court reviewed the relevant authorities and clarified that a bailment had to be “voluntary" and could not simply be "foisted on the bailee".   Moreover, the landlord as an "involuntary bailee" is entitled to properly dispose of a tenant’s goods at the conclusion of a lease: (1) with a court order; (2) with the tenant's consent; or (3) upon providing "reasonable notice to the tenant that the goods will be disposed of if not removed".  

These cases are good reminders that landlords not only have rights upon a tenant’s rent default, but they have legal obligations too.  See Malka v. Vasiliadis, 2011 (ONSC); See Andriano v. Napa Valley Plaza Inc., 2010 (ONSC).