Enforcement of Commercial Leases: A Practical Guide
You will not find in this paper a detailed analysis of legal niceties. That kind of thing is well covered in
the thorough and citation-filled texts and reporting services.
What you will find here is a summary of how a lawyer acting for a commercial landlord in
Saskatchewan actually goes about enforcing the lease. From this summary it will not be difficult to
extract ideas about what a lawyer acting for a tenant can do.
Table of Contents
1. Overview
2. Default
a. Non-payment of rent
b. Breach of other covenants
3. Remedies
a. Court action
b. Re-entry and termination
c. Distraint
4. Conclusion
5. Schedules
a. Schedule A
b. Schedule B
c. Schedule C
d. Schedule D
e. Schedule E
6. Contacting a Lawyer on this Subject
1. Overview
In advising the commercial landlord you must bear in mind that your client seldom will have the
sympathies of the Court, at least at first, if the matter ever gets to court.
This is not because there is any kind of plot among Saskatchewan Judges against commercial
landlords. It is because the usual situation involves:
A tenant who is a financial weakling compared to the landlord, and whose breach of the lease
may be attributed in part to hard economic times beyond its control; and
A landlord with apparently inexhaustible financial and legal resources, who has the benefit of
a lease loaded with terms empowering the landlord to do anything and requiring the tenant to
pay for it.
The Court's sympathy for the tenant will manifest itself most often in interpretation of the lease, which
almost always has been prepared by the landlord. The Court has available to it the use of contra
proferentum, and it will use it.
Even in the face of this, though, a landlord can accomplish much by being aggressive. This is
because most landlord-tenant disputes do not end up in front of a Judge. The tenant can't afford to
take it that far.
Frankly, the landlord has a real advantage in having time, money and the attitude that it will press a
point in the courts if it has to. Many commercial landlords are sophisticated in the use of the courts,
while many tenants regard the legal system as an expensive mystery.
In advising your commercial landlord client, then, often you will counsel taking the aggressive route,
knowing that it likely won't be challenged in court, but always bearing in mind the hurdle you must
overcome if the matter goes to trial.
I do not recommend advising a landlord to try something that can't be supported by a reasonable
argument. If an approach can be supported, however, then a lawyer is justified in recommending
that the landlord pursue it.
2. Default
Non-payment of Rent
Usually this is why the landlord comes to you. Usually it is clear whether the default exists.
"Rent" often has a broader meaning than one might think. Many commercial leases
expressly define it to include any payment for which the tenant is liable under the lease.
The definition of "rent" is relevant when it comes to identifying the arrears of rent for the
purposes of re-entry and distraint, especially in the context of the tenant's attempt to obtain
relief from forfeiture or to redeem the goods distrained.
Breach of Other Covenants
The usual commercial lease contains a "Landlord's Remedies" section, setting out the
circumstances in which the landlord may employ its remedies. While the section will contain
a list of several specific breaches, it always provides that if the tenant fails to do anything that
it promised to do, the landlord's remedies are triggered.
At this point (identifying the breach), just about anything is enough. If the lease says that the
tenant may not post signs on the windows, and if the tenant puts them up, the tenant is in
breach and the landlord's remedies are triggered.
If there is a dispute, usually it is not over whether there has been a breach. It is over what
the landlord can do about it.
In some cases, however, whether there has been a breach is in real question. Uncertainty
such as this affects your advice regarding the remedy to be employed. Generally, the more
uncertain the breach, or the more trivial the breach, the less severe and irreversible will be
the remedy you recommend.
3. Remedies
Court action
You hardly ever will recommend this.
It is slow and expensive. Your client wants swift action that will put money in its pocket or will
free up the premises for a paying tenant.
Serving a Statement of Claim on the tenant doesn't put any pressure on the tenant at all,
once the tenant has talked with its lawyer. The tenant knows that the action can proceed at a
snail's pace while whatever it is doing (or not doing) continues.
Putting pressure on the tenant is one of the great advantages of distraint and re-entry,
because it results in that immediate money or access to the premises.
There are circumstances in which bringing an action is the best course. For example, if the
tenant is otherwise a good tenant, paying substantial rent and perhaps attracting business to
the overall property, the landlord will not want to interrupt this source of income by distraining
or re-entering.
Rather, the landlord will be prepared to forego any attempt at a quick resolution, and will take
the matter to the courts for determination.
Another example is the case of abandonment. If the tenant presents the landlord with the fait
accompli of abandoned premises, almost the only remedy available to the landlord is to sue
the tenant.
When the tenant abandons, the landlord must elect whether to accept the abandonment. If it
does, the lease is terminated. In these circumstances the landlord should deliver to the
tenant a notice acknowledging the termination of the lease, and reserving the right to recover
the value of the balance of the lease payments from the tenant. This is the reservation
referred to by Laskin, J. in Highway Properties Ltd. v. Kelly, Douglas & Co., [1971] S.C.R.
562.
The landlord then sues the tenant.
If there is some chance that the landlord can pursue goods pursuant to Section 30 of The
Landlord and Tenant Act (discussed below in Section 3(c) - Distraint), then the landlord
should deliver to the tenant a notice refusing to accept the abandonment of the premises and
insisting on the tenant's return to the premises to fulfill the terms of the lease.
Affirmation of the continuation of the lease is necessary to provide the framework within
which to distrain.
A court action also is required in an injunction case. For example, if the lease contains a
provision prohibiting a tenant from selling certain products (likely in protection of an exclusive
right granted by the landlord to another tenant), and if the tenant sells those products, the
landlord may seek an injunction restraining the tenant from that breach.
To obtain an injunction the landlord must first commence an action.
Cases such as these occur from time to time. For the most part, however, you will
recommend to your client either a re-entry or a distraint.
Re-entry and Termination
By re-entering and taking possession the landlord terminates the lease. Everybody knows
this. It is a long-standing common law rule.
Some leases provide an exception to this rule. They provide that the landlord may take
possession of the premises on behalf of the tenant. This is important because if the landlord
exercises this right, the tenant is barred from the premises, but remains liable for payments
under the lease, and the tenant's assets remain available for distraint.
Another well-known rule is that termination and distraint are mutually exclusive. A landlord
may distrain only while the lease exists. If the lease ceases to exist (by re-entry, for
example), the landlord may not distrain.
The provision allowing the landlord to enter on behalf of the tenant neatly gets around this
rule. Effectively it allows the landlord to both re-enter and distrain, by characterizing the re-
entry not as a termination of the lease. Since the lease remains in force, the landlord may
distrain.
Will the courts enforce such a lease provision? What choice have they? It is a clear
provision contained in a contract executed by both parties. (In reading this comment bear in
mind that I represent commercial landlords).
The usual manner of terminating a lease by re-entry is to physically re-enter. The landlord
moves in, changes the locks, and doesn't let the tenant return except under the landlord's
supervision.
There are methods of re-entry other than physical re-entry. They are too esoteric for my
liking. The landlord wants to know that it is in possession, and the sure way of accomplishing
that is to hand the landlord the keys.
Here is how you re-enter and terminate:
o Give the appropriate notice.
Sections 9(1) and 10(2) of The Landlord and Tenant Act state:
"9(1) In every lease, whether verbal or in writing and whenever made, unless it is
otherwise agreed, there shall be deemed to be included an agreement that if the rent
reserved, or any part thereof, remains unpaid for two calendar months after any of the
days on which the same ought to have been paid, although no formal demand thereof
has been made, or if default is made in the performance of any covenant or
agreement on the part of the lessee, whether express or implied, and the default is
continued for two calendar months, the landlord may at any time thereafter re-enter
into and upon the demised premises, or any part thereof in the name of the whole,
and again have, repossess and enjoy the premises as of his former estate.
10(2) A right of re-entry or forfeiture under a proviso or stipulation in a lease, for a
breach of any covenant or condition in the lease other than a proviso in respect of the
payment of rent, shall not be enforceable by action or otherwise, unless and until:
(a) the lessor serves on the lessee a notice specifying the particular breach
complained of and if the breach is capable of remedy requiring the lessee to remedy
the breach, and, in any case, requiring the lessee to make compensation in money for
the breach; and
(b) the lessee fails, within a reasonable time thereafter, to remedy the breach, if
it is capable of remedy, and to make reasonable compensation in money to the
satisfaction of the lessor for the breach."
Many leases specify a time within which the rent must be paid, failing which the
landlord may re-enter without notice to the tenant. In my view, this falls within the
meaning of "unless it is otherwise agreed" in Section 9(1). The landlord may follow
the time and notice provisions contained in the lease provision.
Some leases require the landlord to give notice of the non-payment before re-
entering. If the lease requires it, it must be done.
In the absence of a specific provision in the lease that shortens the time period for the
notice or that removes its necessity, Section 9(1) must be obeyed in a re-entry for
non-payment of rent. If it is not, the tenant surely will obtain relief from forfeiture (if
the tenant applies for it), and the landlord will be liable to the tenant for damages for
wrongful re-entry.
If the re-entry is for a breach other than non-payment of rent, the notice provisions of
Section 10(2) must be obeyed. In my view, if the lease provides a time for notice, that
amounts to agreement between the landlord and the tenant as to what is "a
reasonable time" within the meaning of Section 10(2).
In short, every time you re-enter, read the lease and read Sections 9 and 10. Do
what they say.
The overholding tenant poses an ugly problem for the landlord. Regardless of the
lease provisions, you must obey the rules set out in Section 50 of The Landlord and
Tenant Act. Be aware that the requirement of notice contained in Section 10(2) of the
Act applies to proceedings to remove an overholding tenant pursuant to Section 50.
o Prepare the documents.
You will need a Warrant from the landlord to the bailiff. You need the Warrant
because the bailiff wants it, for the indemnity it contains and for the express
authorization it contains.
A form of Warrant is attached as Schedule "A".
You will need a letter from the landlord to the tenant. This letter informs the tenant of
the re-entry and termination of the lease. It also advises the tenant to remove its
assets.
The letter also notifies the tenant that the landlord reserves the right to pursue the
tenant for the value of the rent owing for the balance of the lease term,
notwithstanding the termination of the lease.
A form of the letter is attached as Schedule "B".
o Hire the bailiff.
Phone him. Tell him what's going on, and make sure he understands. Tell him to
hire a locksmith.
You will review with him the procedure for allowing the tenant access to remove its
assets.
Make sure that the bailiff knows how to contact the landlord's property manager.
If your client doesn't want to use a bailiff, deliver to your client a letter detailing as
much as possible the procedure that it should use in effecting the re-entry.
o Re-enter.
The bailiff and the landlord's manager will have agreed on the best time to re-enter.
Usually this will be early morning, before customers arrive, or at the end of the
business day, when customers are gone.
The bailiff arrives, advises staff of the re-entry, has them leave, has the locksmith
change the locks, and closes the door.
That's it. The re-entry is done, and the lease is terminated. There is no need to post
notices.
Often the tenant's representative is present and the bailiff hands that person the letter
from the landlord. If the representative is not present, the bailiff should give a copy of
the letter to whomever is in charge at the time, and immediately the bailiff should find
the tenant and give the tenant the letter.
If the landlord does not want to use a bailiff, the landlord (or its manager or other
agent) must re-enter itself. I do not recommend that you volunteer, because you
have been trained in the law, not in hand-to-hand combat.
o Allow the tenant to remove its assets.
Because the lease is terminated, the landlord must allow the tenant to remove its
assets. The landlord may not seize them.
Do not allow the landlord to give the key to the premises to the tenant for the purpose
of removing its goods. In the face of the re-entry and the letter, giving the key
probably does not imply a rescission of the re-entry, but what if the tenant decides to
stay? Neither you nor your client needs the hassle.
The landlord must have someone present while the tenant removes its assets, both to
avoid an inference of rescission of the re-entry and to prevent the tenant from
retaking possession. If there is a lot of property to be removed, and it will take a long
time, the bailiff may hire a commissionaire to save expense.
In the letter from the landlord (Schedule "B") you will note the time limit set out for
removal of assets. This is included because sometimes a tenant loses interest once
it has lost its lease.
The time limit is intended to protect the landlord from future action by the tenant. If
the tenant does not remove its goods, what can the landlord do? The landlord wants
to clean the place up and put in a new tenant. It can't do that while the former
tenant's goods are in there.
The best that can be done is to include this "time limit" paragraph in the letter. If the
tenant does not remove its assets, the landlord removes them. If there is something
salvageable, the landlord salvages it, keeping the money obtained. If it is junk, the
landlord throws it out.
This position is based on the premise that the tenant has abandoned the assets. If
the tenant later accuses the landlord of wrongfully disposing of the assets, the
landlord can point to the letter, which put the tenant on notice.
I have not had a tenant make this accusation, so I cannot say whether the letter is
effective.
o Respond to the application for relief from forfeiture.
If the tenant brings an application for relief from forfeiture you of course will research
the area. The general rule you will find is that the Court will grant relief, returning the
tenant to the premises and reinstating the lease, if the tenant remedies the breach
and promises to conform to the lease thereafter.
In the case of a re-entry for non-payment of rent, the tenant must come to court, if it
has not already paid the arrears, with money in hand to pay the arrears and whatever
costs the Court assesses in connection with the re-entry.
Every case, of course, has its own quirks. If the tenant tenders the arrears and some
money for costs once you have re-entered, the landlord may be prepared to
voluntarily reinstate the lease. In other cases, the landlord will have hardened its
heart to this particular tenant, and you will receive instructions to argument
vehemently against relief from forfeiture.
In such a case you will file affidavit evidence indicating what a rotten person the
tenant has been, and how the landlord has put up with late and missing payments far
longer than reasonableness requires.
If the Court grants relief anyhow, you at least will have established a case sufficient to
justify the payment of some substantial costs.
The relief from forfeiture applies only to the particular re-entry that triggered it. If the
tenant breaches the lease the next day, you can do it all over again.
o Pursue the tenant.
As I mentioned previously, your notice to the tenant reserved the right to sue the
tenant for arrears and future rent.
Now that the re-entry has been effected, and the landlord has relet or is trying to relet,
the last piece of business is to decide whether to sue the tenant.
This decision is no different from deciding whether to sue in other cases. You must
consider whether you will be successful (almost certainly - there are arrears at least)
and the amount of the potential judgment (arrears, future rent, costs). Most
importantly under these circumstances, you must consider whether there is any
chance of enforcing the judgment.
Depending on the tenant, your re-entry on the business premises may well mean the
end of that business. There may be no assets available. If this is a real possibility,
your client wants to know about it.
It is my experience that lawyers can derive great satisfaction from a judicial victory,
regardless of whether it can be enforced. Clients, on the other hand, are odd ducks
who fail to appreciate the beauty of a fine point of law. They tend not to be impressed
by it until it translates into dollars.
Distraint
In addition to The Landlord and Tenant Act, in a distraint situation you must be aware of The
Distress Act.
The right of distraint arises from the common law. The right to sell the assets seized arises
from The Landlord and Tenant Act.
The right of distraint arises only if there are rent arrears. The idea is to pay the arrears by
liquidating some of the tenant's assets. The tricky part, of course, is to sell off the tenant's
assets without putting the tenant out of business.
In fact, when the landlord elects to distrain, the writing is on the wall. The landlord does not
choose distraint because it likes the tenant and wants to keep the tenant in the premises.
Rather, the landlord sees an opportunity to get some money to pay some of those arrears
before it re-enters and terminates.
The plan, then, is to seize the goods, sell them, disburse the money, and then (assuming
there are still arrears) re-enter and terminate the lease.
Bear in mind these rules when you distrain:
A. Do not distrain on a Sunday (unless you want to test an old rule).
B. Distrain only during daylight hours.
C. Do not distrain the day the rent is due (it is not past due until midnight).
When you consider distraint, pay attention to rumours that the tenant is on the verge of an
assignment in bankruptcy. If it does make an assignment your distraint proceedings, if not
completely finished (money disbursed), are suddenly terminated and the assets you hold
must be turned over to the Trustee in Bankruptcy.
Here is how you distrain:
o Identify the tenant.
This sounds too elementary, but consider: How many times does an individual start
up a business, entering into a lease before the new corporation is incorporated?
Lots.
How many times does the corporation carry on the business in the premises as soon
as it is incorporated? Lots.
How many times does the landlord ensure that this change is documented? Few.
What chance is there that the tenant is the individual, but the assets all belong to the
corporation? Lots.
On whose goods may the landlord distrain for rent? The tenant's.
Who is out of luck? The landlord.
Certainly, the landlord can point out that the tenant breached the lease by assigning
without the landlord's permission. That doesn't help the landlord distrain, however.
o Search the Personal Property Registry.
There is no point in distraining if all the assets are subject to a true Purchase Money
Security Interest: The Landlord and Tenant Act, Section 25.
If the search comes back showing no PMSIs, you probably will not be bothered by
any claims of PMSIs. If someone was astute enough to obtain a PMSI, almost
invariably that person has been astute enough to register it. Bear in mind, though,
that a true PMSI that happens not to be registered still could possible take priority
over the landlord's distraint.
If the search shows a PMSI, then the guessing game begins. A creditor may have
registered a PMSI, but that does not necessarily mean that the creditor really has
one. The Personal Property Registry is loaded with claims for PMSIs that are not in
fact backed by PMSIs.
You want to know whether the money that was given to the tenant by the creditor was
used to purchase the assets that are encumbered by the PMSI that is registered. If
the answer is "no", proceed.
You also want to know whether the assets purchased with the money remain in the
possession of the tenant. If the assets are inventory, for example, it may well be that
the tenant has sold that original inventory and used the proceeds to buy new
inventory. In the circumstances of such a case, the new inventory has been found to
be subject to the PMSI: C.I.B.C. v. Marathon Realty Co. Ltd. (1987), 57 Sask. R. 88
(Sask. C.A.). Note that there may be room for argument that this decision was
based on facts peculiar to that case, and that the normal rule is that the current
inventory is not subject to the PMSI.
Finally, you want to know how much remains owing on the debt secured by the PMSI.
It is very difficult to get the answers to these questions without tipping off the creditor
who registered the PMSI.
If the landlord seizes the assets, it has priority over other creditors to the proceeds of
the assets, subject only to the holder of a PMSI. If you tip off the creditor, however,
and the creditor seizes the assets, then it has priority over the landlord, whether it has
a PMSI or just a simple security agreement.
Therefore, do not phone the bank manager and ask for the details of the loan. If you
do, you may lose your client its one opportunity to recover some of its arrears from
this tenant.
So what do you do? Your client asks you whether it should distrain. You describe
the procedure, you estimate the costs, you tell your client that the bank has registered
a PMSI but you don't know if there really is one, and you say that if there is one the
landlord could go through the time and money of a distraint only to turn all the
proceeds over to the bank.
Of course, that is no answer to your client's question. Again your client asks you
what it should do.
All you can do is help your client analyze the chances. How much forced sale value
is there in the assets? Could there be enough for both the landlord and the bank? If
so, it may be worth the risk.
Is this the only chance to recover money from this tenant? If so, it may be worth the
risk.
Ultimately, your client must decide whether to chance it. If it does decide to proceed,
I recommend that while your bailiff is in the premises doing the inventory of the assets
he has just seized, you notify the creditor who registered the PMSI. By then you have
established your priority over anything but a PMSI. You are in a position to find out if
the creditor truly has one.
If it has, you may turn the proceedings over to the creditor (depending on the value of
the goods seized), probably with the creditor agreeing to pay most or all of the
landlord's expenses to date because it is getting the benefit of them. In any event,
you have incurred as little expense as possible before finding out about the PMSI.
o Give the proper notices.
Normally, prior notice is not required. Ensure that this rule is not modified by the
lease.
o Prepare the documents.
You need a Warrant to the Bailiff, to be signed by the landlord. A form is attached as
Schedule "C".
You need a Notice of Distress, which will be signed by the bailiff. A form is attached
as Schedule "D".
The Notice of Distress contains a statement of the arrears. Make sure that you
include only those arrears properly described as "rent", and only those arrears
properly included according to the relevant time requirements.
You may need an Undertaking. This is discussed under item (vii) - "Walk-in distraint",
below. A form is attached as Schedule "E".
o Hire the bailiff.
Phone him. Discuss the case. Advise him of the results of your PPSA search. Tell
him what is subject to a PMSI, and what seems unencumbered.
He will want to know what kinds of assets he will be seizing so he can plan for tools,
workers and trucks.
As with the re-entry, you will sort out with the bailiff and the property manager the
best time to move in.
o Distrain.
The common law rule is that you may distrain the day after the rent is due. Ensure
that this rule is not modified by the lease. For some reason, many commercial leases
require the landlord to allow the tenant more time to pay the rent before the landlord
may distrain.
Do not make an error on the timing. Any error in distraint can be disastrous for the
landlord. The courts view distraint as a powerful tool to be exercised only in strict
compliance with the rules. If the landlord has not dotted every "i" and crossed every
"t" the Court will be pleased to find the entire process improper.
To this I must add that Sections 37 and 39 of The Landlord and Tenant Act provide a
certain amount of flexibility to the distraining landlord, provided the distraint is well-
founded in the first place.
The bailiff arrives at the premises and locates the person in charge of them. He
hands to that person the Notice of Distress and he identifies the assets he is seizing.
Immediately the bailiff conducts an inventory of the assets he is seizing. Once the
inventory is complete he gives a copy to the tenant. It forms a part of the Notice of
Distress.
Provided the Notice of Distress has been delivered to the tenant, there is no need to
post a notice. If the bailiff cannot locate the tenant to serve the Notice of Distress, he
must post it at the premises.
Section 22 of The Landlord and Tenant Act requires the landlord to be reasonable in
levying distress. Thus the landlord should seize only so much as is sufficient to cover
the arrears and the costs of the distraint.
This necessarily requires some estimation, both as to the forced sale value of the
goods and as to the costs of the distraint. Generally, the forced sale value of retail
goods (as opposed to equipment) is 1/4 to 1/3 of retail value.
The forced sale value of equipment must be estimated according to the equipment
itself and the industry involved.
Section 24 of The Landlord and Tenant Act deals with levying distress on cattle,
livestock and standing crops. Section 24(3) requires the landlord to notify the tenant
of the location of the goods "so distrained". In my view, this requirement applies only
in the case of seizure of cattle, livestock and standing crops. It may be that a court
would take a different view, however. I say this in light of the comments of the Court
in Saskatoon Tan Centre Ltd. v. Budget Rent-A-Car of Saskatoon Ltd., [1985] Sask.
D. 2324-01 (Sask. Q.B.).
The basic rule for distraint is that only goods belonging to the tenant and found in the
leased premises may be distrained. Section 30 of The Landlord and Tenant Act
extends the remedy beyond this.
If the tenant fraudulently or clandestinely removes goods from the leased premises to
prevent them being distrained on, the landlord may within 60 days of the removal
distrain on them, wherever they are. As well, by way of court action the landlord may
recover from the tenant (and anyone who assisted) double the value of the goods
removed.
It is important to note that the removal must be fraudulent or clandestine.
In unusual circumstances the landlord will leave the distrained goods in the premises,
but will change the locks to the premises to secure them. In such a case you should
deliver to the tenant a notice (if it is not contained in the Notice of Distress) clarifying
that this is the reason, that it is not a re-entry, and that the tenant may approach the
landlord for access to the premises.
o Consider the "walk-in distraint".
Two major expenses associated with distraint are the cost of removing the goods to
another location and the cost of advertising and conducting the sale. At least the first,
and sometimes the second, can be avoided with the "walk-in distraint".
In a "walk-in distraint" the tenant signs an undertaking in the form of the attached
Schedule "E". The tenant acknowledges that the distraint has occurred, and that the
goods are in the possession of the landlord. This is important because if the landlord
gives up possession of the goods to the tenant, the distraint is deemed to have been
abandoned.
Specifically, the tenant acknowledges that it is a bailiff of the landlord, and that it
holds the goods on the landlord's behalf.
There are two case in which the landlord agrees to this procedure. In both cases the
landlord must trust the tenant sufficiently that it doesn't think the tenant will ship the
goods out the back door the first time it is alone.
In the first case the tenant thinks it can raise the arrears and costs within a few days.
The landlord has no particular wish to increase the costs by removing and storing the
goods, and so it agrees to this procedure. If the tenant does not raise the money, the
landlord subsequently may remove the goods and proceed with the sale.
In the second case the tenant is prepared to co-operate to the point of selling the
goods for the landlord. Usually this arises when the tenant for some time has been
robbing Peter (the landlord) to pay Paul (some other creditor). The tenant still has
confidence in the viability of its business, if it can just buy a little more time.
Now Peter comes to the fore. The tenant agrees to hold the goods (usually inventory)
for the landlord. It agrees to sell the goods in the normal manner, and to deliver the
proceeds of the sales to the landlord each day. The money is applied to the arrears
that triggered the distraint.
If the tenant is right, and his business has some viability, this can work to pay off the
arrears and costs without destroying the tenant's business. It has the added benefit
(to the tenant, in this case) of keeping the costs of distraint as low as possible.
Alas. Often relations between landlord and tenant are strained. By the distraint
stage, they are characterized by mistrust. Under these circumstances the landlord is
unlikely to risk the "walk-in distraint".
o Wait five days.
Of course, every time you are about to distrain you will review both The Landlord and
Tenant Act and The Distress Act to ensure that neither they, nor your memory of
them, have changed.
In that review you will be reminded that you must allow the tenant five days to redeem
the assets before you sell them.
o Accept the tenant's redemption of the goods.
Sometimes the tenant finds the money it just couldn't find before you distrained.
"How much?" the tenant will ask, noting that your Notice of Distress refers to the
arrears (which are specified) and to the costs (which are not).
"Everything," says the landlord. "The arrears, the bailiff's fees, the moving and
storage costs, and especially those [darned] legal fees."
Well, maybe.
Section 2.1 and the First Schedule of The Distress Act limit the amount the landlord
may recover for the costs of the distraint. One might argue that the Schedule
provides for recovery of less than the actual costs.
Here is where the landlord's advantage comes into play again. There is some
uncertainty as to how the Schedule is interpreted. What are amounts "actually and
reasonably incurred"? One may argue that they are what the landlord actually pays,
including all those things listed above.
So you tell the tenant that this is what it must pay to recover its goods and (in its view)
to save its business.
The tenant counters that the landlord can't do that because it is restricted by The
Distress Act.
Your reply is that this is the landlord's interpretation of The Distress Act, and the
landlord will not return the goods unless the tenant pays the full amount.
What will the tenant do? It has three choices.
First, the tenant may give up on the whole business. The landlord then proceeds with
the sale and disbursements of proceeds, then re-enters (or more likely accepts the
tenant's abandonment).
Second, the tenant may try to rush into court for a ruling. It must do this by
commencing an action, likely of replevin. Alternatively, it might try an action for
damages for some wrong committed by the landlord, coupled with an application for
an interim injunction restraining the landlord from breaching The Distress Act by
overcharging.
Third, and most likely, the tenant may pay up. Possibly this will be followed by an
application against the landlord to recover what the tenant views as excess costs.
Again, though, the tenant's financial and intestinal resources come into play. The
tenant may just pay up and hate the landlord.
If your landlord client wants to be aggressive, be aware of Section 5 of The Distress
Act. It provides that a tenant may apply to a Judge in Chambers for a ruling that the
costs it paid to redeem its goods were excessive. If the Judge so finds, he or she
may order the landlord to pay three times the excess.
o Sell the goods.
The landlord is obliged to be reasonable in disposing of the goods. There are various
methods of selling the goods. The nature of the goods will dictate what you do.
An experienced bailiff will have good ideas.
If the goods are restaurant equipment, for example, you may advertise to all persons
in the industry, asking for offers.
If the goods are clothing, you may advertise to the public a liquidation sale to be
conducted over the course of a few days at a location that is readily accessible to the
public.
If the goods are miscellaneous articles, you may simply put them in the hands of an
auctioneer.
The landlord may take what it can get for the goods, but it must get all it can.
o Disburse the proceeds.
The money goes first to the costs of the distraint, then towards the arrears. If there is
money left over it goes to the tenant: The Landlord and Tenant Act, Section 35. This
may be complicated by the intervention of a creditor.
If a creditor claims the excess, to protect you and your client you should release the
excess only upon agreement of the parties. If there is no agreement as to payment,
try to get the parties to agree to your paying it into the trust account of one of their
lawyers so they can fight over it while you and your client get out of the picture.
Section 36 of The Landlord and Tenant Act provides to employees of the tenant a
claim in priority over the landlord with respect to their wages, to a maximum of
$500.00 each. To obtain that priority the employees must file a claim with the Sheriff
before the sale of the distrained goods occurs.
If a claim is filed, other employees have an extended period of 60 days from the sale
within which to file.
If a claim is filed the landlord is obliged to pay all of the sale proceeds to the Sheriff,
who will hold them for up to 70 days, pay the claims, take a fee equal to 5 percent of
the employees' claims, and return the balance to the landlord.
In the alternative, if the landlord elects not to pay the Sheriff, the landlord is liable
directly for the payment of the amounts that the employees would have obtained
through the Sheriff.
You might consider not paying the Sheriff, and paying the employees directly,
provided you can verify the employees and their status at an early stage. This will be
the landlord's preference, for it will have the use of the money earlier.
o Carry on.
As I mentioned before, once the proceeds are disbursed, the distraint proceedings
are completed. If the landlord is in a position to terminate the lease, it may do so
without interfering with the distraint.
4. Conclusion
Curiously, I have found that words printed in a statute or a text change position and meaning if I
haven't looked at them for a while. Also, the law does change from time to time. Because of this I
suggest that, whenever a commercial lease case comes to you, you should check the appropriate
sections of the following references:
a) The lease;
b) The Landlord and Tenant Act;
c) The Distress Act;
d) Texts and reporting services; and
e) Case law.
5. Schedules
SCHEDULE "A"
WARRANT TO BAILIFF
TO: THE BAILIFF COMPANY
I, being the Landlord of the premises known as Dale's Widget Store, Unit #16, Centre
Shopping Plaza, 300 Main Street, Saskatoon, Saskatchewan, leased to Dale Smith by agreement in
writing dated March 10, 1985, hereby engage you as Bailiff on my behalf and authorize and require
you or your servants or agents to re-enter the premises and take possession of them on my behalf
because of the Tenant's breach of the lease by failing to pay rent, now in arrears in the amount of
$4,500.00.
I hereby agree to indemnify you, your bailiff or agents against any and all claims which may be
made against you under this authority and to defend any action brought against you in respect
thereof.
AND FOR SO DOING, this shall be your full and sufficient warrant and authority.
DATED at Saskatoon, Saskatchewan this 7th day of November, 1988.
LANDLORD HOLDINGS LTD.
Per: _________________________________
SCHEDULE "B"
November 7, 1988
Dale Smith
c/o Dale's Widget Store
Centre Shopping Plaza
SASKATOON, SK
Dear Ms. Smith:
Re: Premises leased at Centre Shopping Plaza
Today we have re-entered your leased premises and terminated your lease.
We have done this because of the arrears of rent totally $4,500.00 calculated as follows:
September 1, 1988 Rent $1,000.00
September 1, 1988 CAM 500.00
October 1, 1988 Rent 1,000.00
October 1, 1988 CAM 500.00
November 1, 1988 Rent 1,000.00
November 1, 1988 CAM 500.00
TOTAL $4,500.00
You have some personal property in the premises. You must remove that property within five days of
today.
You may make arrangements for access to the premises to remove the property by calling the writer
at 555-1234.
If you do not remove your property within five days, we will consider that you have abandoned your
interest in the property and we will dispose of it.
We further inform you that, notwithstanding the termination of the lease by this re-entry, we continue
to hold you liable for the arrears of rent, for our costs incurred in connection with the re-entry and for
the payments you would have made pursuant to the lease for the balance of the lease term.
Shortly we will provide you a statement totalling these amounts, along with a demand that you pay
them forthwith.
Yours truly,
LANDLORD HOLDINGS LTD.
Per:
Chris Jones
Shopping Centre Manager
SCHEDULE "C"
DISTRESS WARRANT
TO: THE BAILIFF COMPANY
I, being the Landlord of the premises known as Dale's Widget Store, Unit #16, Centre
Shopping Plaza, 300 Main Street, Saskatoon, Saskatchewan, leased to Dale Smith by agreement in
writing dated March 10, 1985, hereby engage you as Bailiff on my behalf and authorize and require
you or your servants or agents to distrain such of the goods and chattels as may be lawfully
distrained for rent now and lately due upon the above premises in the amount of $4,500.00 being the
amount of rent in respect of such premises due to the undersigned as of November 1, 1988, and to
proceed thereon for the recovery of the said rent as the law allows or directs.
You may give up the said goods and chattels upon payment of the sum of $4,500 together with
your own lawful fees and charges.
I hereby agree to indemnify you, your bailiff or agents against any and all claims which may be
made against you under this authority and to defend any action brought against you in respect
thereof.
AND FOR SO DOING, this shall be your full and sufficient warrant and authority.
DATED at Saskatoon, Saskatchewan, this 7th day of November, 1988.
LANDLORD HOLDINGS LTD.
Per: ____________________________
SCHEDULE "D"
NOTICE OF DISTRESS
TO: DALE SMITH
Pursuant to the provisions of The Landlord and Tenant Act of Saskatchewan and the
common law of the Province of Saskatchewan, I [name of individual bailiff], as Bailiff for Landlord
Holdings Ltd., the landlord of the premises known as Dale's Widget Store, Unit #16, Centre Shopping
Plaza, 300 Main Street, in Saskatoon, Saskatchewan, leased to Dale Smith by lease dated March 15,
1988, hereby give you notice that I have this day distrained the goods and chattels described on the
annexed inventory upon the above premises for $4,500.00 being the amount of rent in respect of
such premises due to the said landlord as of November 1, 1988 and still unpaid.
UNLESS the sum of $4,500.00, being the rent now overdue, is paid together with the cost of
this Distress within 5 days of this Notice, the goods and chattels described below will be sold and the
proceeds thereof applied towards payment of the rent and costs.
DATED at the City of Saskatoon, in the Province of Saskatchewan, this 7th day of November,
A.D. 1988.
-
____________________________________
Bailiff for the Landlord,
Landlord Holdings Ltd.
LIST OF GOODS AND CHATTELS IS ATTACHED
SCHEDULE "E"
TO: LANDLORD HOLDINGS LTD.
In consideration of your withdrawing from the immediate possession of the chattels owned by
me, which you have seized under a distress against me for rent, and which goods and chattels you
have put me in possession of, as your bailiff, to hold the same for you pursuant to the distress for
rent, and subject to your order and direction, I hereby agree with you as follows:
I agree to act as bailee and keep in my possession all items seized under distraint and to deliver to
you all seized items upon demand by you, whenever and wherever required.
I authorize and empower you to re-enter onto the premises so occupied by me and to retake
possession of the distrained items, and you are entitled to follow such items to any place where the
same have been removed.
DATED at the City of Saskatoon, in the Province of Saskatchewan, this 7th day of November,
A.D. 1988.
___________________________________
Dale Smith
6. Contacting a Lawyer on This Subject
For more information on this subject or specific legal advice, contact Robertson Stromberg Pedersen
LLP at (306) 652-7575.