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What Not to Do: Landlord Ordered to Pay Punitive Damages in Commercial Lease Dispute

In a relatively recent decision, Pita Royale Inc. (Aroma taste of the Middle East) v Buckingham Properties Inc., 2019 ONCA 439, the Ontario Court of Appeal confirmed yet again that once a commercial landlord makes an ‘election’ to terminate a lease due to a specific default of a tenant, the landlord is not permitted to distrain or seize the tenant’s goods on the premises in order to satisfy or pay down any arrears of rent or other obligations owing by the tenant. Distraint rights are only available where there is an existing landlord / tenant relationship. Termination of a commercial lease ends that relationship and therefore no distraint is permitted following termination.

In Pita Royale, the landlord was found to have properly terminated the lease. However, it then was found to have illegally distrained the tenant’s chattels following termination and therefore was liable to the tenant not only for damages for conversion of the goods that were distrained but the trial judge also awarded the tenant $10,000.00 in punitive damages for the conduct of the landlord. The trial judge found, quite correctly, that the landlord had to choose between the mutually exclusive remedies of termination and distraint (seizing of goods). Instead of making that decision / election, it attempted to do both and thus the trial judge found that the distraint was illegal. That finding was not disturbed on appeal. There was, however, a reduction of the damages awarded to the tenant by the Court of Appeal based on the evidence of the value of the goods that was before the trial judge.

The Court of Appeal also did not disturb the trial judge’s finding that the landlord’s actions, in converting the tenant’s goods without providing the tenant with an opportunity to remove the goods from the premises, warranted an award of punitive damages which, as mentioned, were set at $10,000. Also, the trial judge had found that the principal of the landlord was personally liable for the actions of the landlord, but that result was overturned by the Court of Appeal. Leave was sought to appeal to the Supreme Court of Canada, but that application was dismissed earlier this week.

The Pita Royale case is another example of a cautionary tale for commercial landlords when dealing with a defaulting tenant. When a default occurs, the landlord is typically faced with a decision to either terminate the lease, or to affirm the lease by suing for arrears of rent, or distraining on the tenants’ goods on the premises. Once that election is made there is no going back on that election unless, and until, a further default is committed by the tenant. At that time, a further election must be made by the landlord.

Failure to abide by these basic principles could expose the landlord to not only the cost of the goods distrained upon, but also the extraordinary award of punitive damages which is meant to deter high-handed conduct such as that engaged in by the landlord in Pita Royale.

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