Deciding what to do with a defaulting commercial tenant can be a trap for the unwary. A recent decision from the BC Court of Appeal has confirmed that once a landlord has elected to pursue a certain remedy or course of action as against a defaulting tenant, that election may well be irrevocable such that a landlord may not “switch horses” and later elect to pursue a different course of action for the exact same breach.
In Delane Industry Co. Limited v. PCI Properties Corp., PCI Waterfront Leasing Corp., 2014 BCCA 285, a landlord had initially elected to distrain for past arrears of rent in the amount of well over $100,000 and indeed some of the tenant’s property was sold to pay down the arrears. However, a large amount of arrears remained outstanding following completion of the distraint. Accordingly, the landlord purported to terminate the lease in reliance on a Notice of Default that had been provided prior to levying distraint on the tenant’s property. In other words, in response to the breach by the tenant, the landlord elected to affirm the lease by seizing and selling the tenant’s assets but then later sought to terminate for that same breach because the distraint did not pay the arrears in full. The tenant applied for a declaration from the Court that the lease had not been effectively terminated. The Trial Judge granted the declaration sought and indicated the landlord ought to have provided a new notice of default if it subsequently wanted to terminate the lease after completion of the distraint. The Court of Appeal dismissed the appeal of the landlord and confirmed that the landlord ought to have given a new notice of default but only if that notice was based on a new default on the part of the tenant. In other words, the Court of Appeal held that once the landlord had elected to levy distraint, that election affirmed the lease and was irrevocable. If the landlord wanted to subsequently terminate the lease, it had to rely on a fresh default and issue a new default notice. It was not entitled to simply rely on the fact that arrears were still outstanding after the distraint had concluded because the lease had already been affirmed by the landlord’s election to levy distraint in the first place.
The result in this decision may surprise some commercial landlords or property managers. However, the decision reinforces the idea that, once again, steps taken by landlords at the outset in response to a defaulting commercial tenant are critical and, in that regard, landlords need to be fully apprised of their options in light of their stated goals in addressing the tenancy in question. Oftentimes, the goal of levying distraint is to simply ‘send a message’ to a tenant whereas other times a landlord may be content to terminate a lease for the smallest of defaults in order to regain possession of the premises so that it can start afresh with a new tenant. ‘Kneejerk’ reactions to a tenant’s default may therefore prejudice the ability of a landlord to ultimately achieve a desired result. The seeking of timely legal advice at the outset is the most prudent course of action as that will help landlords hopefully avoid the pitfalls which inevitably arise when dealing with troublesome tenants.
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