Jan 10, 2022
Darrell Gold and Jordana Lyons - The Law of Distraint Under a Commercial Lease in Ontario
By: Darrell Gold
Written with the help of Jordana Lyons, Articling Student at Robins Appleby
Where a landlord and tenant have entered into a commercial lease under which the tenant has committed a monetary default (the failure to pay rent or additional rent), a landlord may exercise the remedy of distraint (also referred to as distress).
Distraint is a self-help remedy granted to landlords (often exercised through an agent such as a bailiff) without a court order, which allows them to seize (and then dispose of) the personal property, including chattels, fixtures, equipment and inventory, of the tenant on the leased premises to an amount equivalent to satisfy the rent arrears subject to the qualifications discussed below. If the tenant’s monetary default remains uncured following seizure of the goods, the landlord may have the goods appraised and sell the goods, then apply the proceeds to the rent arrears.
The distraint remedy is only available to commercial landlords, as the remedy has been abolished in residential tenancy contexts (see section 40 of the Residential Tenancies Act, 2006, S.O. 2006, c. 17).
Distraint is an effective landlord remedy for a tenant’s monetary default provided the tenant has sufficient assets and other creditors do not have priority to the landlord’s interest.
What Is the Remedy of Distraint?
The 4th edition of Black’s Law Dictionary, Definitions of the Terms and Phrases of American and English Jurisprudence, Ancient and Modern, distraint/distress is defined as follows:
“DISTRAINT. Seizure; the act of distraining or making a distress.
DISTRESS. The taking a personal chattel out of the possession of a wrong-doer into the custody of the party injured, to procure a satisfaction for a wrong committed; as for non-payment of rent…”
At common law in Ontario, the remedy of distraint is “the seizure of someone’s property in order to obtain payment of rent or other money owed” (Walsh v Lonsdale (1882), 21 Ch. D. 9 (Eng. C.A.). In a situation where a commercial tenant has defaulted on its rent, the remedy of distraint allows the landlord to seize, take possession of, and sell the tenant’s goods, chattels, and inventory to reimburse a landlord for rental arrears (see Practice Note, Tenant in Default: Landlord’s Rights and Remedies (Commercial Real Property)). The common law remedy of distraint has since been restricted and regulated by provincial statute, including the Commercial Tenancies Act, R.S.O. 1990, c. L.7 (CTA), in Ontario.
Who Can Exercise the Remedy?
The remedy of distraint is available for exercise by a commercial landlord for a tenant’s rent default. A landlord includes a lessor, owner, the person giving or permitting the occupation of the premises in question, and these persons’ heirs and assigns and legal representatives, along with the person entitled to possession of the premises which can include a duly appointed property manager of the landlord. Often, the remedy is exercised by a bailiff as an agent of the landlord.
Pre-Conditions for Exercise of the Remedy
For the distress remedy to be exercisable:
- There must be a landlord-tenant relationship (a lease or agreement to lease at a fixed rent).
- The tenant must be in possession of the premises.
- There must be rental arrears due and payable.
- (Harvey M. Haber and Robert Malen, Distress: A Commercial Landlords Remedy, 2nd ed. (Toronto: Thomson Reuters, 2021) (Haber & Malen).)
The landlord must in fact be a landlord as described above in Who Can Exercise the Remedy?. A tenant is described as a “lessee, occupant, sub-tenant, under-tenant, and the person’s assigns and legal representatives” (section 1 “tenant”, CTA).
Where there is a rent default by a commercial tenant, distraint is but one remedy available to the landlord to cure the default. However, since there must be a landlord–tenant relationship, that means the lease must not have been terminated. So, where there has been a rent default, a landlord has the option to seek either distraint or termination of the lease (but not both), along with other remedies such as re-entry for reletting. If the landlord has sought termination, it cannot also pursue a distraint remedy. A condition of exercising such remedy is that the lease is not at an end.
There is one exception where distraint can be exercised by the landlord notwithstanding that the lease has ended (see Mundell v. 796586 Ontario Ltd., 1996 CarswellOnt 2620 (Ont. Gen. Div.) (Mundell)). If the tenant is in arrears after the term of the lease has ended, the landlord may seize the tenant’s goods for up to six months thereafter, provided that the:
- Landlord still owns the premises.
- Tenant is still in possession of same.
This exception is codified in the CTA, which states that a landlord of a lease ended or determined upon which arrears are due may “distrain for such arrears…in the same manner as the person might have done if the lease had not been ended or determined, if the distress is made within six months after the determination of the lease, and during the continuance of the landlord’s title or interest, and during the possession of the tenant from whom the arrears became due” (section 41, CTA).
Tenant in Possession
The tenant need not be in physical occupation of the premises but must exercise care and control over the premises. Care and control may include the presence of sub-tenants pursuant to the terms of the lease.
Rental Arrears Due and Payable
There must be rent arrears in order for the distraint remedy to be exercisable (Baragar & Russell Ltd. v. 1553464 Ontario Ltd., 2004 CarswellOnt 1701 (Ont. S.C.J.) and Cassandro v. Glass, 2018 CarswellOnt 9798 (Ont. S.C.J.) (Cassandro)). However, note that a default initially unrelated to rent, such as a failure to repair, can turn into a rent default where the lease gives the landlord the right to cure the tenant’s default and deems the costs incurred in doing so to be rent.
”Rent” is not defined in the CTA, as such, the meaning of “rent” is determined by the lease between the landlord and tenant. If “rent” is defined under the lease as basic rent or fixed minimum rent, the landlord will only be able to distrain this amount. If rent is designated more broadly as all monetary obligations of the tenant pursuant to the lease (for example, taxes, insurance, all other operating costs) then the landlord’s distraint is more potent, as it will cover all amounts owing under the lease, not just basic rent (subject to the maximum set by the BIA as discussed under Maximum Rent Arrears Subject to Distraint). Further, rent must be fixed and certain (for example a set amount). If rent is determined by mediation or arbitration, it is not so fixed and not subject to distraint rights by the landlord.
From the landlord’s perspective, its lease form should be reviewed to determine if “rent” is defined to include all monetary obligations of the tenant, while the tenant will wish for a more limited definition of “rent” (Haber & Malen).
Maximum Rent Arrears Subject to Distraint
The maximum rent arrears for recovery through the distraint process is three months of rent arrears and, so long as the lease provides for it, accelerated rent of three months pursuant to section 136(1)(f) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (BIA). The accelerated rent provision of the BIA is intended to increase the amount the landlord can claim as a “preferred” creditor in the event of the bankruptcy of a tenant if the lease provides for accelerated rent. However, many landlord lease forms provide for three months accelerated rent to apply on any defaults and not just in the case of a bankruptcy. If you are acting for a tenant, the accelerated rent provision should be limited to where it applies under the BIA.
Subtenants’ Goods, Chattels, Etc.
Special rules apply when dealing with subtenants (third parties subleasing all or part of the tenant’s space for less than the entire term). Where a landlord seeks distress of goods against a subtenant for the head tenant’s rent default, the subtenant’s goods, chattels, etc. may be exempt from the seizure if it complies with section 32(2) of the CTA. Under section 32(2) of the CTA, the subtenant must do the following:
- Make a statutory declaration that states:
- that the head tenant has no interest in the goods;
- that the goods are solely the property of the subtenant; and
- the amount due from the subtenant to the head tenant.
- Annex a correct inventory of the goods mentioned in the declaration.
- Pay to the landlord or bailiff the amounts owing from the subtenant to the head tenant, or as much as is sufficient to discharge the arrears to the landlord.
The ability to avoid distress pursuant to section 32(2) of the CTA is only afforded to subtenants who are in possession of the premises with the consent of the landlord where consent is required. Subject to a subtenant’s compliance with section 32(2) of the CTA, any goods of subtenants possessing the premises without consent of the landlord are subject to distress (Haber & Malen, at page 17).
What Items Are Subject to the Distraint?
Generally, all goods, chattels and inventory of the tenant may be seized. This includes chattels of a subtenant, occupant, guarantor, or other assigns of the tenant liable to pay rent if such assignee is not in compliance with section 32(2) of the CTA. The landlord may distrain any goods that are situated on the property. Goods in common areas or on residential property are exempt (Cassandro, at paragraph 85; Al Reisman Ltd. v. Indrasenan, 2009 CarswellOnt 7675 (Ont. Div. Ct.), at paragraph 10).
What Items Are Exempt from Distraint?
Though the general rule is that all goods and chattels on the premises can be seized by the landlord (subject to the possible exemption noted above for subtenant’s goods (see Subtenants’ Goods, Chattels, Etc.)), “fixtures” are not subject to seizure for distraint. The term has been subject to interpretation over the years in many cases and continues to be interpreted by the courts. “Fixtures” include articles attached to the premises (leasehold improvements) and articles affixed to the premises (tenant’s trade fixtures). For more information on fixtures, see Practice Note, Fixtures vs. Chattels.
In Royal Bank v Maple Ridge Farmers Market Ltd., 1995 CarswellBC 375 (B.C. S.C.), the court set out six rules to help determine whether something is a fixture or a chattel:
- Any item unattached to the property, except by its own weight, and can be removed without damage or alterations to the fixtures or land that will need repair, is a chattel.
- Any item which is plugged in and can be removed without any damage or alteration is a chattel.
- Any item which is attached even minimally (i.e., it cannot be unplugged) is a fixture.
- If a piece of equipment is attached to a structure, a part of which could be removed but which would be useless without the attached part, then the ensure piece of equipment is a fixture.
- Where an item is determined to be a fixture, it may nevertheless be removed if it can be shown that it is a tenant’s fixture. A tenant’s fixture may be removed from the premises during the currency of the tenancy provided that the tenant leaves the premises in exactly the same condition as they received them.
- In very exceptional circumstances not covered by these rules the court should have resort to the purpose test.
- (Maple Ridge, at paragraph 11.)
- For more information and help to determine if something is a fixture or a chattel, see Practice Note, Fixtures vs. Chattels.
Other Exempt Items
Other items exempt from distress include perishable goods, wild animals, and money, unless the money is in a sealed bag, drawer, or container in which money is kept (Haber & Malen, at page 16).
Exemption Pursuant to the Executions Act, Ontario
Pursuant to section 30(1) of the CTA, there is an exemption from distraint of certain goods of an individual tenant (not a corporation) under section 2 of the Execution Act, R.S.O. 1990, c. E.24.
Before exercising the distraint remedy and seizing any goods, it is prudent for the landlord or its counsel to conduct certain searches on the tenant as debtor. Searches are conducted to raise any priority issues regarding competing claims to the tenant’s goods that might subordinate the landlord’s interest in the tenant’s goods on the premises. Goods of the tenant over which a higher priority claim exists will not be able to be seized by the landlord. Searches that should be conducted include:
- An execution search for writs of seizure and sale against the tenant in the county where the leased premises are located, as these execution creditors may cause the sheriff to seize the tenant’s goods before the distraint is exercised.
- A personal property security search to disclose security interests in the tenant’s property as a result of loans to the tenant. If the secured creditor has priority over the landlord in the tenant’s goods, the landlord may be liable if it sells those goods.
- A bankruptcy search to determine whether a creditor has applied to assign the tenant into bankruptcy. Once bankruptcy proceedings commence, there is a stay of proceedings and the landlord will not be able to exercise its distraint remedy. Until proceedings commence, the landlord is free to distrain.
- A Bank Act, S.C. 1991, c. 46, search for notice given by the tenant to the bank under section 427 of the Bank Act of intention to give the bank security over certain items. If the tenant has given such notice, the landlord generally cannot distrain against the tenant’s goods since they are transferred to the bank.
- A Retail Sales Tax Act, R.S.O. 1990, c. R.31, search for arrears of tax, which form a lien in favour of the Ministry of Finance and have priority over the landlord. The landlord who improperly sells goods subject to such a lien will be personally liable for the value of the goods. The landlord must obtain the tenant’s consent to conduct such a search.
- An Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), search for arrears of source deductions, which form a deemed trust in favour of the Canada Revenue Agency and have priority over the landlord. Similar to Retail Sales Tax Act searches, the landlord requires the tenant’s consent to conduct this search.
For more information on the above searches, see Practice Note, Due Diligence: Conducting Public Office Searches.
How Is Distraint Exercised?
The rules surrounding how the right may be exercised by the landlord once the pre-conditions are met (see Pre-Conditions for Exercise of the Remedy) are derived from the CTA, the common law and the lease itself.
As mentioned, the distraint remedy is often exercised by a bailiff acting as an agent of the landlord. Bailiffs are governed by the Bailiffs Act, R.S.O. 1990 c. B.2. A bailiff is a person appointed by the Lieutenant Governor who acts or assists any other person in repossessing or seizing chattels. Though not required under the Bailiffs Act, in practice it will require a warrant from the landlord authorizing the bailiff to seize the goods.
Bailiffs often require an indemnification from the landlord for damages and costs if the distraint is unlawful; however, bailiffs also have an implied indemnification in most cases at common law (Haber & Malen, at page 19). A landlord will not be responsible for illegal acts committed by the bailiff unless the landlord authorized or later ratified or adopted those acts (Choderker v Harrison, 1910 CarswellMan 141 (Man. K.B.)).
When the bailiff is formally retained, confirmation should be obtained that it has the authority to act as Bailiff in the area where the premises are located, and the landlord will be asked to indemnify the bailiff.
Peaceful Access Without the Use of Force
Entry onto the premises to seize the tenant’s goods can only be achieved through “ordinary and natural” means (Haber & Malen, at page 23). The landlord or its agent may not use force to enter the premises, such force including breaking a window or door or picking a lock. The landlord may not break or open a window but may enter through a fully or partially open window. Depending on the terms of the lease, a landlord may or may not enter if it has a key. If it is understood between the tenant and landlord that the key is only for use in emergency situations, the landlord cannot use the key to enter and exercise its distress remedy; however, if the landlord has a master key and may enter pursuant to the lease, using the key would not be unlawful (Haber & Malen, at page 24).
The Tenant Must Be in Default
Before exercising any distraint right, the tenant must in fact be in default of the rent. A tenant has until midnight on the due date to pay the rent, unless the lease stipulates otherwise.
Time and Days When Distress May Not Be Exercised
A landlord cannot exercise its remedy until after midnight, i.e., after the rent payment day has passed (see Practice Note, Tenant in Default: Landlord’s Rights and Remedies (Commercial Real Property)). However, the landlord is further restricted from exercising distress between sunset and sunrise (Tutton v. Darke (1860), 157 E.R. 1338 (Eng. Ex. Ct.)). There is also much debate in the common law around whether distress is prohibited on a Sunday; the answer is not entirely clear (Haber & Malen, at page 27). Generally, the landlord will bear the onus of proving that it exercised its remedy within a permitted time (Independent Lumber Co. v. David, 1911 CarswellSask 36 (Sask. S.C. en banc)). Distress exercised contrary to time principles may be illegal and void ab initio (Haber & Malen, at page 27).
Notice to Tenant
In addition to the notice of default (unless the lease expressly provides no notice is required) there are three notices that the landlord is required by statute to give the tenant pertaining to the exercise of its distraint remedy (these notices may be combined into one notice in practice):
Notice of Seizure
The notice of seizure must be left at a conspicuous place on the tenant’s premises. The notice must contain the “cause of taking” and will start the five-day period after which the chattels may be sold if default persists (section 53, CTA). It is prudent to set out the reason for distress and the amount of arrears to avoid tainting the distress (Haber & Malen, at page 35).
For an example of a notice of default, see Standard Documents, Notice of Monetary Default (Commercial Lease) and Notice of Non-Monetary Default (Commercial Lease).
Notice of Storage
The landlord must, within a week after seizing the goods, notify the tenant of where the goods are being lodged or deposited. It is also good practice to include the time and place of any intended sale (Haber & Malen, at page 35).
Notice of Costs
The landlord must deliver to the tenant a notice of the costs of the distress (see section 6, Costs of Distress Act, R.S.O. 1990, c. C.41). The tenant is permitted to make a claim to the local Superior Court of Justice for an assessment of the costs upon two days’ notice.
Seizing the Goods
Actual seizure of the goods to effect the distraint remedy often consists of physically taking the goods from the premises and storing them elsewhere. However, physical removal is not required as it sufficient for the landlord to simply prevent removal of the goods from the premises, which is known as a “constructive distress” (Haber & Malen, at page 29).
When effecting seizure, the landlord must take care not to inadvertently terminate the lease. As was mentioned earlier, the remedy of distraint and termination are like oil and water – they don’t mix and the exercise of one, precludes the exercise of the other. So, an inadvertent termination would render the distraint remedy inapplicable since the remedy cannot be exercised where there is no lease between the landlord and tenant. Often this potential issue is a concern where the landlord changes the locks to secure the premises without removing the chattels. In these situations, the landlord cannot prohibit entry by the tenant but must ensure (and make it clear to the tenant) that entry is permitted in the landlord’s presence or in the presence of its representative (e.g., a bailiff).
Where constructive distraint is carried out, a notice should be sent to the tenant as required by the lease and posted on the entrance to the premises. The notice should advise that:
- The premises have only been secured to protect the distrained chattels and not to prevent entry by the tenant.
- By securing the premises, the landlord is not terminating the lease.
- The tenant will be permitted access upon contacting the landlord or its agent named in the notice.
- Under the CTA, if the default is not cured within five days, the chattels can be sold.
The landlord or its agent should take a written and video inventory of all chattels and their respective condition upon securing premises. In the event the chattels will be removed and stored off-site to be sold, the notice must advise of the costs for storage on a per diem basis and the sale process. Sometimes, a lease will expressly provide for off-site storage of distained or abandoned goods and the per diem costs for such storage.
If the distraint is challenged by a tenant (or possibly a creditor), the onus is on the landlord to demonstrate that it lawfully conducted distress (Gooch v. Song, 2010 CarswellBC 1558 (B.C. Prov. Ct.)).
Appraisal of Goods
Before the goods can be sold by the landlord, the landlord must obtain an appraisal of the goods under the CTA. Two appraisers must swear a memorandum evincing their intention to conduct the appraisal with the best of their understanding. The sworn memorandum is subsequently attached to the inventory taken of the goods to be sold.
Sale of the Goods
The CTA dictates that where a landlord posts notice of distress and the rent default remains uncured for five days thereafter, the landlord may sell the goods. The day of seizure and day of sale are excluded from the calculation of the five days (Haber & Malen, at page 42). The landlord does have freedom to conduct the sale publicly by auction or privately by contract in a way it deems fit. The sale must be within a reasonable time after the distress, otherwise the landlord may be liable in trespass for possession of the goods (Lynch v Bickle, 1866 CarswellOnt 164 (U.C. C.P.)).
The landlord has a duty of care to the tenant to protect the goods before the sale occurs. The goods must be sold to third parties, not to the landlord or any of its subsidiaries, to promote fairness. The landlord must obtain the best price that it can for the goods. Once the goods are sold, the costs of the sale (which costs may include appraisal fees, legal fees, storage fees, advertising fees, auctioneer’s fees, and more) are first deducted from the proceeds, then the balance of the proceeds are put toward the tenant’s arrears.
Any surplus over the amount of arrears will be held by the landlord and paid on demand to the owner of the goods. Any unsold goods must be returned to the tenant (Haber & Malen, at page 47). If the sale proceeds are insufficient to cover the tenant’s arrears, the landlord may terminate the lease, re-let the premises or claim damages for the balance against the tenant. Alternatively, once the distress is complete, if arrears remain, the landlord may commence a new distress process by complying with the aforementioned notice requirements.
The landlord will be liable to account for the sale proceeds if it or its agent conducts the sale in a negligent manner likely to reduce the value of the goods or fails to exercise good faith (Haber & Malen, at page 45). It should be noted that to avoid personal liability for the sale pursuant to the Retail Sales Tax Act, the landlord should obtain a Retail Sales Tax Certificate before selling the goods (Haber & Malen, at page 45).
Loss/Termination of Distraint Remedy
There are certain scenarios under which the landlord may lose its right to the distraint remedy, even where all pre-conditions are met (Haber & Malen, at page 83).
Express or Implied Agreement
The landlord and tenant may agree to either completely contract out of or qualify the landlord’s right of distress in the lease. Such an agreement may also be implied by the landlord’s conduct, for example, by agreeing to accept a promissory note or certified cheque as satisfaction of the outstanding rent. In that case, by implication, the right of distress is suspended (Haber & Malen, at page 85).
Landlord’s Waiver of Remedy in Favour of Lender: Tri-Partite Agreements
Often, when a tenant seeks financing, its lender will require the tenant to obtain a waiver from the landlord of its distraint right so that the lender has priority over the tenant’s goods and chattels. A landlord should not waive its distraint right but, in the ordinary course, since tenants do need financing and the lender does often require security over the tenant’s assets, wherever situated, a landlord can postpone rather than waive its distraint rights in exchange for a tri-partite agreement with the lender and tenant providing for the seizure, sale and, in some cases, the removal of the seized items by the lender so the landlord can re-let the premises as soon as possible. Often a lender with priority will agree to pay rent while it is in possession of the premises dealing with the assets and trying to find a buyer for them or the tenant’s business. For an example of a tri-party agreement, see Standard Document, Leasehold Financings: Landlord Lender Direct Agreement (Three Party).
Termination of the Lease
Distraint is a remedy that may only be exercised by the landlord when there is an underlying lease between the landlord and the tenant. A landlord must be careful that nothing has transpired between the parties that would bring the lease to an end according to its terms. Another instance in which the distraint remedy will be unavailable is where the landlord and tenant enter into a new lease, rendering the previous lease terminated.
Tenant Brings Lease into Good Standing
A rent default is a condition to the availability of the distraint remedy to the landlord. Therefore, if the rent is not in fact in arrears, the landlord may not distrain. At any point in the process before the goods have been sold, the tenant may tender the rent and the landlord will lose the right to seize or sell the goods.
Goods No Longer on Premises
The landlord’s distraint remedy extends only to seizure of those goods of the tenant that are on the premises. If the landlord removes goods without following the proper procedures or is aware of the tenant’s intention to remove the goods but fails to take steps to exercise distraint, its remedy will be lost. That being said, the landlord’s remedy will be preserved in situations where the tenant has fraudulently removed its goods from the premises to avoid seizure. The landlord will be able to distrain against the goods for 30 days after such fraudulent removal by the tenant.
Abandonment or Completion of Distress
If a landlord at any point abandons the exercise of its distress, it cannot later distrain for the same arrears of rent. Whether abandonment of distress occurs is a question of fact and will not be found to have occurred where a landlord withdraws at the request of the tenant (Haber & Malen, at page 112). Also, if the landlord successfully completes the distress process, it may not again distrain for the same arrears, except where the landlord reasonably overestimated the value of the goods. Where the landlord has reasonably overestimated the value of the tenant’s goods and the arrears are not satisfied by the first distress, the landlord may exercise its distress remedy a second time (Haber & Malen, at page 113).
Generally, once a tenant enters bankruptcy proceedings under the BIA, a stay of proceedings is imposed, and the landlord cannot exercise any right of distress or proceed with any existing distress without obtaining leave of the court. As such, it is imperative that a landlord take action soon after learning of a tenant’s insolvency, in order to complete distress before proceedings commence (Haber & Malen, at page 119).
If there has been a winding-up order against the tenant under the Winding-up and Restructuring Act, R.S.C. 1985, c. W-11, the landlord may no longer commence distress. However, if the tenant’s goods have already been seized once the order is given against the tenant, the landlord may proceed in its distress (Haber & Malen, at page 120).
Under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, when winding-up proceedings begin, the landlord may not commence a distress procedure without leave of the court.
Additionally, an order under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, will impose a stay of proceedings and prohibit the commencement of distress by the landlord.
The above statutory ramifications are all the more reason why the searches noted earlier should be carried out by the landlord or its counsel (see Priority Issues).
Tenant Remedies for Wrongful Distress by Landlord: Illegal vs. Irregular Distress
Some missteps by the landlord will render the distress wholly “illegal” and void ab initio, while others will merely render the distress “irregular” for lack of adherence to proper procedure, giving the tenant a cause of action for damages.
Distress will be illegal where the landlord had no right to exercise the remedy in the first place. Such an illegal distress is void ab initio. The landlord’s distress will be held illegal where the conditions are not met (for example, where there is no landlord-tenant relationship or there has not been a rent default). Distress will also be illegal where the landlord breaks established rules, including entering unlawfully/forcefully, entering between sunset and sunrise, seizing goods exempt from seizure, seizing goods not on the premises, or terminating the lease in the process (Haber & Malen, at page 141).
Irregular distress occurs where, despite having the right to exercise distraint, the landlord does not adhere to procedural requirements. Breaches of procedural requirements rendering a distress irregular include failing to give the required demands to the tenant, failing to obtain proper appraisals, selling the goods after sooner than five days, selling for an unreasonable price or selling the goods to a non-arm’s length purchaser (Haber & Malen, at page 142). In these instances, the distress is not rendered invalid from the beginning, but the landlord’s misconduct gives the tenant cause of action for damages.
Additionally, distress will be irregular where it is found to be excessive or “unreasonable” under the CTA. Unreasonable or excessive distress can include seizing more goods than necessary (recall that the seizure can only be for the amount sufficient to cover rent arrears to a maximum of three months and three months accelerated rent if the lease provides for it). Where the distress is excessive and the landlord/agent acts oppressively, the court may declare the distress illegal altogether (Rawlins v. Monsour, 1978 CarswellOnt 1463 (Ont. C.A.)).
Causes of Action and Remedies for Illegal Distress
Causes of action for illegal distress include:
- Trespass (direct physical interference with property) (only for illegal distress).
- Conversion (wrongful dealing with goods).
- Replevin (recovery of goods wrongfully taken).
- Some combination of the three.
Depending on the cause of action pursued by the tenant, the tenant may be granted any of the following remedies:
- Return of the seized goods.
- Damages for loss of business as a result of illegal distress.
- Special damages (value of the tenant’s actual loss).
- Termination of the lease.
Issues, Concerns and Considerations for Landlords Exercising the Distraint Remedy
Overall, there are a number of important things to consider when determining if distraint is the appropriate remedy and whether its exercise is proper:
- Always look at the notice clause in the lease for where and how notices must be sent and when they are deemed to be received and calculate the cure and distraint periods accordingly.
- The landlord must not terminate the lease before or during the exercise of the remedy. Since the exercise of the remedy requires an existing landlord-tenant relationship, if the lease is terminated, the remedy will be lost.
- It is possible that other interests in the tenant’s goods will enjoy a super-priority (examples noted in Priority Issues). It is important to conduct the appropriate searches so as not to seize goods of the tenant that are subject to a higher claim of priority. Conducting searches may entail writing to the Canadian Government or the Province of Ontario to determine whether there are unpaid taxes that would give the Ministry of Finance a lien over the tenant’s goods. Searches that should be conducted include:
- Personal property search;
- Distraint must be exercised within the established rules; it must not be exercised between sundown and sunrise or using force, and only those of the tenant’s goods on the property subject to seizure may be seized (subject to the exceptions set out herein).
- Assess the practicality of storing and selling any seized chattels. Where will the goods be stored pending sale? How marketable are the goods? How long will they take to sell?
- The landlord has a duty to the tenant to obtain the “best price that can be got” for the seized goods (section 53, CTA).
- Consider possible claims for damages by the tenant (for example, if distress is exercised outside the time constraints, proper demands are not given, exempt goods are seized, or there was a failure to obtain proper appraisals of the seized goods).
What Should the Tenant Do When or in the Event its Landlord Distrains?
There are also considerations for tenants once their landlord begins the process of exercising the distraint remedy against them:
- When the landlord exercises its distraint rights, it is affirming the lease. Often seizing and selling a tenant’s goods under distress will not yield sufficient proceeds to cover the tenant’s arrears. In these cases, the landlord has affirmed the lease by distraining and cannot terminate based on those same arrears that remain outstanding (Delane Industry Co. v. PCI Properties Corp., 2014 CarswellBC 2048 (B.C. C.A.)). A new default under the lease would be required terminate the lease.
- Tenants are entitled to all proper notices relating to the landlord’s intention to seize and to sell the goods. In addition to notice of default under the lease, the landlord must give the tenant notice of seizure of the goods, notice of storage of the goods, and notice of costs relating to the distress. If a tenant does not receive these notices, the distress is irregular, entitling the tenant to damages or other remedies.
- Always look at the notice clause in the lease for where and how notices must be sent and when they are deemed to be received and calculate the cure and distraint periods accordingly. Review the notice for technical defaults that may invalidate the notice of default or distraint.
- The tenant may tender the amount of rent owing under the lease at any point in the distraint process up until sale of the goods. Where the tenant does tender the rent owing, the landlord may not sell the goods and must return them to the tenant.
- The tenant should be careful not to improperly remove goods from the premises that are subject to distress. Sometimes, where a tenant knows it is in default, it will try to remove valuable goods from the premises to prevent them from being distrained. Under the CTA, a landlord is empowered to seize any of the tenant’s goods that have been fraudulently carried off the premises for 30 days thereafter. The landlord is also able to enter the premises where the goods have been relocated (sections 48 and 49, CTA). A tenant who fraudulently removes goods may also be subject to a monetary fine, which can amount to double the value of the goods removed (section 50, CTA). Anyone who assists the tenant in such removal may also be liable (section 50, CTA).
- Certain actions of the landlord will render the distress irregular and may entitle the tenant to damages. These situations include failing to give the required demands to the tenant, failing to obtain proper appraisals, selling the goods sooner than five days, selling for an unreasonable price, or selling the goods to a non-arm’s length purchaser.
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- Certain actions of the landlord will render the distress illegal and void ab initio (invalid from the beginning, as if the distress never occurred). These situations include the landlord entering forcefully, seizing exempt goods or goods off the premises, or terminating the lease during the exercise of the remedy.
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