Legal Brief for October, 2020

When A Commercial Tenant Doesn't Pay Its Rent

As the covid 19 pandemic continues to hover around us many businesses are still experiencing significant disruption in their operations.  While some sectors of the economy weren’t much affected to begin with, and others have actually experienced increases in business activity, there are many businesses that are struggling.  This has caused a ripple effect right across the economy, as many commercial tenants have stopped paying their rent.

In the initial days of the pandemic shutdown that started in mid-March the Alberta government enacted a short term law that prohibited commercial landlords from evicting tenants for non-payment of rent.  That program however expired as of August 31st, 2020.  The federal government also brought in a program which allowed landlords to apply for a forgivable loan from the government for up to 50% of the rent that they were not receiving from their tenants.  That was an optional program and if the landlord did not wish to enroll for a loan then the tenant was still required to pay its full rent.

What are the options for a landlord if a tenant has stopped paying its rent?

There are two basic options open to commercial landlords to follow, which are mutually exclusive.  This means that whichever option the landlord chooses it is precluded from pursuing the other option.

The first option for a landlord (subject to complying with whatever notice to the tenant is required in the lease) is to exercise what is known as a right of re-entry to the premises and to change the locks.  This action serves to terminate the lease immediately, and the tenant is required to vacate the premises and the landlord can then clean things up and look to rent the premises to a new tenant.

The second option is for the landlord to effect a seizure of the tenant’s goods at the premises and then proceed to sell them in order to raise money to apply against the rent arrears.

If the landlord does a change of locks then the lease is terminated and the landlord cannot then place a seizure on the tenant’s goods.  On the other hand, if the landlord places a seizure then that is considered an affirmation that the lease is still in existence and the landlord cannot then go in and do a change of the locks to terminate the lease.  And, whichever step the landlord does first cannot be undone.  For example if a landlord places a seizure on the tenant’s good, it cannot then change its mind a few days later and purport to effect a termination of the lease by changing the locks.  Or, if the landlord does a changing of the locks, it cannot then do a seizure of the tenant’s goods afterwards.

This is a very basic overview of the landlord’s options where there is a default in payment of rent.  I always advise commercial clients who are landlords that this is a complicated area of the law and that great care has to be taken in mapping out a strategy for dealing with a tenant in arrears due to the consequences that flow from the initial decision taken by the landlord.