What happens when a tenant goes into default?

8923306_origLaws governing commercial real estate tenancies vary from province to province. In Saskatchewan, once a tenant has been determined to be in default (by definition of their lease agreement) there are several remedies available to the landlord.

Some of the information presented here is from an article prepared by the local firm of Robertson Stromberg. This should not be taken as legal advice, rather a discussion on some of the consequences that can be imposed on delinquent tenancies. Each tenancy must be dealt with on a case by case basis.

Default

Your lease will define a list of conditions that result in default. This is typically outlined as missed rental payments or some type of breach of agreement.

The default clause wording is vital in determining how to implement the remedy.  Often there are timelines and communication specifics that need to be satisfied before either party can declare default.

Termination

Depending on the length of term remaining on the lease, termination can be a quick solution. Typically in this scenario, the landlord takes the space back, changes locks and will not allow the tenant reentry without their supervision.

In a termination, there is cost involved with engaging a bailiff to follow the legal procedures necessary to proceed. The landlord is unable to seize the goods in the space and must provide opportunity for the tenant to recover items if asked.

The lease ceases to exist following termination. However, a Landlord still has the right to pursue the tenant after the fact for arrears and loss of future rental.

Distraint

There are few acts in legislation protecting landlords and tenants. One is known as The Landlord and Tenant Act.  The Distress Act involves distraining on a tenant.

Distraint occurs only in a default situation where arrears are owed. The lease must be in full force for it to be implemented.

This process allows the landlord to seize good for auction to recover the expense of the outstanding arrears. Again there is a cost for a bailiff and proper posting of the distress notice is required.

The landlord is only allowed to recover enough goods to settle the outstanding debt. However, most of the time the items will not garner enough at auction to cover the defaulted amount owing and the landlord will often move into the next stage: termination.

Similar to defining default and starting termination proceedings, there is a timeline of events that need to occur in distraint to be legal under Saskatchewan Law. There is also an opportunity to derail the process if the tenant comes up with the arrears within a certain timeframe.

Court action

Many landlords want a speedy solution to a defaulted tenancy. They are no longer receiving a return on their investment and they seek the quickest way to turn the proverbial faucet back on.

While distress and termination allow an element of pressure on the tenancy, court action does not. This is typically the lengthiest of all default remedies.

So why bother? In a circumstance where a financially strong tenancy has abandoned a property with substantial term left, a landlord could be prompted to try court action. In pursuing a company with depth there is a lot more opportunity to recover the full cost of the default as opposed to a business that has gone bankrupt.

The decision is left up to the courts as to who is owed what. With a well-structured lease in place and a defined default recognized, this can be an option for landlords with the patience to wait it out.

Know your rights

As a tenant there are rights set in place to protect assets and allow a reasonable amount of time to remedy a default situation with your landlord. However, understandably there are rights set in place for landlords that allow them to take back control of their property when a default has occurred.

It is important to seek legal advice on either side of the agreement within a timely fashion. Any of the aforementioned processes are complicated with varied consequences so it’s important to understand what is being proposed.

Posted by Kelly Macsymic

 

 

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