Area of Law: Landlord and Tenant
Answer # 450
What are a landlord's options if a tenant is in arrears?Region: Ontario Answer # 450
Paying rent on time is usually the main obligation of a commercial tenant. Most commercial leases state what a landlord can do if a tenant does not pay the rent on time. Normally, there are three possible options for a landlord:
- To terminate the lease and sue for arrears and future loss,
- To sue the tenant for arrears and maintain the tenancy agreement, or
- To seize the tenant’s goods and furniture and sell them to pay off the arrears.
Landlord’s right to re-enter the premises if the rent is not paid
If a tenant fails to pay rent, a landlord has two options under the Commercial Tenancies Act as well as any other options set out in the lease. First, the landlord is entitled to “re-enter” the premises, which usually includes changing the locks and preventing the tenant from using the premises any longer. To change the locks, the landlord is required to wait 16 days after the rent was due.
The landlord can also re-enter the premises, without notice, to seize and sell the tenant’s property. Before selling the tenant’s property, the landlord must give the tenant five days’ notice.
Unless the lease requires the landlord to give the tenant notice, the landlord may be able to terminate the lease and evict the tenant as soon as the tenant does not pay the rent on time, even if it only happens once. Or, the landlord may choose to apply to court to have the tenancy terminated and the tenant will have an opportunity to explain why they could not pay rent. If the tenant has temporary financial difficulties and otherwise acted in good faith, a judge may not terminate the tenancy.
Suing a tenant for arrears of rent
Second, a landlord also has the option of suing the tenant for the arrears of rent. Even though a landlord can usually terminate the tenancy immediately, the landlord and tenant may disagree about how much rent is owing, or the landlord may not want to have to find a new tenant but still wants to collect the outstanding arrears. If the landlord does not apply to terminate the lease or does not terminate it by taking over the premises and changing the locks, then the lease continues even though the tenant is being sued for arrears. If the judge finds that the tenant is in arrears, the tenant will be ordered to pay the landlord.
Distress: a landlord’s right to sell the tenant’s property
Third, if a landlord wants to collect arrears of rent but does not want to terminate the tenancy by taking over the premises and changing the locks, or does not want to sue the tenant, they usually have the right seize the tenant’s goods and furniture and sell them to recover the arrears. Under the law, this is called “distress”. If the landlord does not recover the entire amount from the sale of goods and furniture, they may be able to sue the tenant for the remaining amount owing. Once the landlord recovers the arrears, they no longer have the right to terminate the tenancy.
For additional information on commercial tenancies, visit the Ministry of Municipal Affairs and Housing.
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If you are a commercial landlord, before taking steps to evict a tenant or collect arrears, you should consult a lawyer.
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