A commercial tenant falling into arrears is unfortunately a not-infrequent occurrence. Faced with a non-paying tenant, commercial landlords have a number of options to enforce their rights.
First, the landlord can distrain for the arrears pursuant to the Rent Distress Act. This typically involves retaining a bailiff to seize and sell the tenant’s personal property in order to pay the arrears of rent. Distraint can be a particularly useful remedy where the tenant has valuable inventory or other property on the premises. Often the mere threat that their property will be seized and sold will result in a non-paying tenant coming to terms with the landlord.
One disadvantage to this option is that it may effectively put the tenant out of business, meaning that as a practical matter, any recovery may be limited to the proceeds of the distraint. A landlord also cannot sue for arrears of rent while there is an outstanding distraint. A further disadvantage is that landlords may face exposure to damages for wrongful distraint if the formalities of the Act are not strictly adhered to or there is a dispute over whether the landlord is entitled to distrain, for example, because the lease has either ended or been terminated, or the tenant has properly tendered the rent to stop the distress. In some cases, the principals of a corporate landlord can be held personally liable for an illegal distraint.
Second, a landlord can re-enter the premises and terminate the lease. When a landlord is permitted to do so may depend on the terms of the lease, however most commercial leases typically give a landlord the right of re-entry and termination for non-payment of rent. Most leases will set out pre-conditions for the exercise of this right, such as delivering notice of default and giving the tenant an opportunity to cure. It is important to ensure any such pre-conditions are strictly adhered to.
Once the lease is terminated, the landlord has the right to sue for the arrears due at the date of termination. The landlord can also sue for damages for lost rent over the remaining term of the lease, however the landlord must give express notice to the defaulting tenant of its intent to claim for damages. In addition, the landlord must make reasonable efforts to mitigate by finding a new tenant and re-letting the space.
Lastly, a landlord can affirm the lease and periodically sue the tenant for the arrears of rent as they come due. Where a landlord has elected to affirm the lease, there is no duty to mitigate by finding a new tenant – the landlord is entitled to continue to sue for the arrears as they become due for the balance of the term of the lease, or until it is terminated. This might be an attractive option to a landlord where the prospects for re-letting the space are poor and where the landlord is confident of its ability to collect on a judgment against the tenant. In other cases, it might be more practical to terminate the lease and find a new tenant.
While the choice of remedy is often a business decision for commercial landlords, there are potential pitfalls associated with each of these remedies. Landlords faced with a non-paying tenant are therefore well advised to seek legal advice before exercising their rights.