To Distrain or Not to Distrain:
Remedies Available to Commercial Landlords for Defaulting Tenants
February 3, 2023 by Sanjeeta K. Johal
When a tenant fails to pay the lease, what are the landlord’s options? Can the landlord terminate the lease AND try to recover the arrears by seizing and selling the assets of the tenant (a process called distress or distraint for rent)?
The short answer is no. Under the common law, a lease cannot be terminated at the same time as distraining for rent. In other words, distress proceedings and termination are mutually exclusive remedies and the landlord must only choose one. This is the case even if the lease contains a “cumulative remedies” clause that preserves all of the landlord’s remedies under the lease (i.e., even if the lease uses language such as “all remedies and powers of the landlord may be exercised concurrently”).
If the landlord elects to distrain for rent by seizing and selling the assets of the tenant, this amounts to an irrevocable election at law to affirm the lease. If the rental arrears are not satisfied by distraint, the landlord is entitled to sue for the balance of the arrears but the lease remains ongoing.
What happens if the tenant continues to miss payments after distress proceedings have been taken? This would be a “new” default or breach by the tenant that gives the landlord the right, once again, to choose a remedy: distraint or termination. The difference is critical – rental arrears that post-date distress proceedings are a “new” default or breach; rental arrears that pre-date distress proceedings (such as any outstanding arrears following distraint) are not.
In a 2014 decision of the BC Court of Appeal, the court provided the following helpful summary:
“…What the landlord who has elected distress may not do is terminate the lease on the basis of the same breach on which the distress was founded. The landlord’s “election” is thus preserved in that the landlord is bound by its choice; but it is not without a remedy for existing rental arrears. It may also, of course, give a new notice of default based on any new fault.
It should go without saying that the new notice, based on a new default, would have to comply with the five-day notice requirement in the Lease and state clearly the amount of rent (post-distress) said to be due and owing to [the Landlord]; otherwise the tenant is unlikely to be aware of the precise amount necessary to cure its breach…”
Key Points:
- Distraint and termination are mutually exclusive remedies and they cannot be exercised at the same time;
- Distraint affirms the lease, it does not terminate the lease;
- If the rental arrears are not satisfied by distraint, the landlord can sue for the outstanding balance;
- Once distress proceedings are complete (i.e., once the seized assets are sold), then the landlord can terminate the lease based on any “new” breach or default by the tenant. The landlord must follow the provisions in the lease governing termination; and
- The “new” notice of default based on the “new” breach or default must specify clearly the amount of rent (post-distress) said to be due and owing.
- H.M. Haber, Distress: A Commercial Landlord’s Remedy (2001)
- Delane Industry Co. Ltd. v. PCI Properties Corp., 2014 BCCA 285
- Delane supra at para. 44
NOTE: The information contained on this website is for information purposes only and should not be taken as legal advice. Please contact our litigation department at 604-635-3000 to discuss any legal issues you may have.