Commercial tenant not paying rent Ontario; collect unpaid commercial rent; commercial landlord remedies Ontario; commercial lease default; distress for rent Ontario.

When a commercial tenant stops paying rent, the financial consequences for a landlord can add up quickly. In addition to unpaid base rent, the landlord may be facing unpaid additional rent, operating costs, property taxes, utilities and other amounts owing under the commercial lease.

Fortunately, commercial landlords in Ontario have several remedies available to recover unpaid rent. Depending on the terms of the lease and the circumstances, these remedies may include terminating the lease, changing the locks, exercising the right of distress, suing the tenant for unpaid rent, and pursuing a guarantor or indemnifier.

Commercial tenancies are very different from residential tenancies. A commercial landlord dealing with significant rent arrears should therefore review the lease and obtain legal advice before deciding which remedy to pursue.

What Should a Commercial Landlord Do When a Tenant Stops Paying Rent?

The first step is usually to review the commercial lease carefully.

A well-drafted commercial lease will normally specify when rent is due, what constitutes a default, whether notice of default is required, what remedies are available to the landlord and whether the landlord can recover interest and legal costs.

The lease may also contain a guarantee or indemnity from a principal of the tenant or another third party. This can become particularly important if the tenant corporation has few assets or is experiencing financial difficulties.

Ontario’s Commercial Tenancies Act also provides important rights and remedies to commercial landlords. However, the lease itself can significantly affect the parties’ rights.

Can a Commercial Landlord Change the Locks for Unpaid Rent?

In certain circumstances, yes.

Where rent remains unpaid, Ontario law permits a commercial landlord to terminate the tenancy and regain possession of the premises. Under the Commercial Tenancies Act, a landlord may generally exercise the right of re-entry once rent has been in arrears for 15 days, meaning that the landlord may generally change the locks on the 16th day after the rent became due.

Unlike a residential tenancy, a commercial landlord does not necessarily have to first obtain an eviction order from the Landlord and Tenant Board.

However, the terms of the particular lease must be reviewed before taking this step. The landlord should also consider whether terminating the tenancy is commercially desirable.

For example, if the tenant operates a viable business and the arrears are temporary, terminating the lease may eliminate the possibility of receiving future rent from that tenant. In other cases, particularly where arrears are increasing and the tenant’s financial position is deteriorating, obtaining possession quickly may be the better option.

Can a Commercial Landlord Seize a Tenant’s Property for Unpaid Rent?

Another important remedy available to Ontario commercial landlords is known as distress for rent.

Distress may allow a landlord to seize certain goods belonging to the tenant that are located at the leased premises and, subject to the applicable legal requirements, sell those goods to satisfy unpaid rent.

This can be a powerful collection tool, particularly where the tenant has valuable equipment, inventory or other assets at the premises.

There are, however, important restrictions on the use of distress. For example, not every item located at the premises necessarily belongs to the tenant or is legally available for seizure.

A landlord considering distress should therefore obtain legal advice and will often retain a properly licensed bailiff to carry out the seizure.

Can a Landlord Evict the Tenant and Also Use Distress?

Generally, a landlord must choose carefully between terminating the lease and exercising distress.

A landlord cannot simply terminate the tenancy, take possession of the premises and then assume that it can exercise distress against the tenant’s property as though the tenancy were continuing.

This distinction can be extremely important. A landlord who changes the locks too quickly may unintentionally eliminate a remedy that could otherwise have provided a means of recovering substantial rent arrears.

Before changing locks or instructing a bailiff, landlords should therefore consider which remedy is most likely to maximize their recovery.

What Happens to Property Seized for Unpaid Commercial Rent?

A landlord exercising distress must comply with the requirements imposed by Ontario law.

Among other things, before seized property is sold, the landlord must notify the tenant of the distress and the amount required to satisfy the arrears. The seized property must generally be held for the prescribed period before it can be sold.

If the tenant pays the arrears during that period, the property cannot simply be sold. If the arrears are not paid, additional requirements apply before a sale takes place, including appraisal requirements.

Because an improper distress can expose a landlord to a claim for damages, landlords should be particularly careful about attempting to seize or sell a commercial tenant’s assets without professional advice.

Can a Commercial Landlord Sue a Tenant for Unpaid Rent?

Yes. A commercial landlord can commence a court proceeding to recover rent and other amounts owing under the lease.

Depending on the circumstances and the wording of the lease, the claim may include:

• unpaid base rent;
• additional rent;
• common area maintenance or operating costs;
• property taxes;
• utilities;
• interest;
• other amounts characterized as additional rent under the lease; and
• legal costs where recoverable.

The appropriate court will depend in part on the amount being claimed. Claims within the monetary jurisdiction of the Ontario Small Claims Court can generally be pursued there, while larger claims are brought in the Ontario Superior Court of Justice.

Obtaining a judgment is only part of the collection process. If the tenant does not voluntarily pay the judgment, enforcement measures may be required.

Can the Landlord Sue a Guarantor for the Tenant’s Unpaid Rent?

Potentially, and this is an issue that should be investigated early.

Many commercial leases, particularly leases involving smaller or privately held corporations, are supported by a personal or corporate guarantee or indemnity.

If the tenant corporation cannot pay its rent, the landlord may have a claim against the guarantor.

The precise wording of the guarantee is important. Landlords should also be careful when negotiating amendments, extensions, rent deferrals or other changes to the lease because changes to the underlying agreement can potentially affect rights against a guarantor.

What If the Commercial Tenant Abandons the Premises?

A tenant leaving the premises does not necessarily mean that its financial obligations under the lease disappear.

The landlord’s rights will depend on the lease, the circumstances surrounding the abandonment and what the landlord does afterward.

The landlord may have several strategic options, including terminating the lease and pursuing amounts owing or taking steps concerning the remaining term of the lease.

The landlord should obtain legal advice promptly because its actions after discovering the abandonment can affect the remedies that remain available.

Should a Landlord Negotiate a Payment Plan?

Sometimes. Where the tenant has a viable business and the default is temporary, a negotiated repayment arrangement may produce a better financial result than immediately terminating the lease.

However, landlords should be cautious about informal promises that the tenant will ‘catch up’ later while the arrears continue to increase.

Any rent repayment agreement should generally be documented in writing and should clearly identify the existing arrears, payment schedule, treatment of ongoing rent and consequences of another default.

The landlord should also consider whether additional security can be obtained as part of the arrangement.

What If the Tenant Is Insolvent or Going Bankrupt?

Speed can become particularly important when a commercial tenant is experiencing serious financial difficulties.

A bankruptcy, receivership or restructuring proceeding can substantially affect a landlord’s ordinary enforcement remedies.

If there are signs that the tenant may be insolvent – including repeatedly missed rent payments, suppliers attending at the premises, returned payments, disappearing inventory or statements that the business may close – the landlord should obtain legal advice before taking enforcement action.

Waiting while the arrears continue to accumulate can significantly reduce the landlord’s practical ability to recover the debt.

What Is the Best Way to Recover Unpaid Commercial Rent in Ontario?

There is no single remedy that is best in every case.

The appropriate strategy depends on factors such as the amount of rent owing, the wording of the lease, the value of the tenant’s assets, whether there is a guarantor, whether the tenant is still operating, the remaining term of the lease, the availability of a replacement tenant and the tenant’s overall financial condition.

For one landlord, the best strategy may be to exercise distress and preserve the tenancy. For another, it may be better to terminate the lease, regain possession and pursue the tenant and guarantor through litigation.

The important point is to assess the available remedies before taking action that could eliminate another, potentially more valuable, remedy.

Commercial Tenant Not Paying Rent? Speak With an Ontario Commercial Litigation Lawyer

If your commercial tenant has stopped paying rent, acting early can significantly improve your options.

The commercial litigation lawyers at our law firm represent commercial landlords in Toronto and throughout Ontario in disputes involving unpaid rent, commercial lease defaults, termination of leases, recovery of possession, distress, guarantees and the collection of amounts owing under commercial leases.

We can review the lease, assess the tenant’s default and advise you on the most effective strategy for recovering the amounts owing and protecting your property.

Contact Landy Marr Kats LLP to speak with a commercial litigation lawyer about unpaid commercial rent or a commercial lease dispute.

Disclaimer: This article provides general information only and is not legal advice. The rights and remedies available in a commercial tenancy dispute depend on the lease and the particular circumstances.