COVID-19 and Your Commercial Lease (for Landlords)
Can I evict my tenant for non-payment of rent?
A commercial lease agreement will often contain language that allows a landlord to terminate the lease and re-gain possession of the premises if the tenant fails to pay rent. In this case, the right to repossess the premises under the lease should be exercised in accordance with any notice or other requirements stipulated in the lease.
If a lease is silent on this issue, a landlord is entitled under statute in Ontario, after a tenant has failed to pay rent for 15 days, to terminate the lease and re-enter the premise without notice. This may involve changing the locks and preventing the tenant from using or re-entering the premises.
A landlord wishing to terminate a lease and evict a tenant should ensure that it does not inadvertently waive its right to terminate. For example, if a landlord accepts payment of rent from the tenant after 15 days of non-payment, the landlord may be deemed to have waived its right to terminate the lease.
Landlords should also be aware that tenants have the right to apply to the Ontario Superior Court for relief against termination. The Court may reinstate the lease if the tenant pays its arrears. Further, if your tenant becomes insolvent and assigns itself into bankruptcy, you cannot terminate the lease or call on other remedies. In this case, a landlord will need to wait three months for a trustee in bankruptcy to decide whether it is going to disclaim the lease or assign it to someone else.
In light of COVID-19, no new eviction orders will be issued by Ontario Courts until further notice. Scheduled enforcement of current eviction orders are also postponed.
What alternatives do I have to evicting my commercial tenant?
If a landlord does not have other interested potential tenants and if the defaulting tenant possesses sufficient goods on the premises to satisfy the arrears, a landlord may consider maintaining the lease and using the remedy of distress to re-enter the premises and seize and sell the tenant’s property. The landlord must give the tenant five days’ notice before selling its property.
Prior to terminating a lease or seizing the tenant’s assets, it is advisable to seek legal advice to ensure that the tenant has defaulted, that the default triggers a right to terminate the lease or seize assets, that you have provided the tenant and any of the tenant’s registered lien claimants with appropriate notice and that the tenant has not remedied the default. A lawyer can also assist you in determining whether obtaining a court order to terminate is the most appropriate avenue and discuss with you the steps and precautions you should take when re-entering your leased premises or hiring a bailiff to enter on your behalf. Wrongful termination or unlawful re-entering and/or seizing a tenant’s property can lead to substantial damages for a landlord.
If you are on positive speaking terms with your tenant, you may also consider negotiating a solution, rather than attempting to terminate the lease or seize your tenant’s assets. You and your tenant may agree to fix a reasonable period of time in which the tenant is relieved of rental payments (but may still be responsible for taxes, maintenance and insurance) and, in exchange, the tenant may agree to pay increased rental rates after the grace period, enter into a longer rental commitment with you or allow you to participate in the rebound of the tenant’s sales for a certain period of time. If your lease is already a percentage lease, your tenant might agree to lower the set amount of gross sales to be met for the percentage rent to kick in or increase the percentage of gross sales to which the landlord is entitled for the remainder of the term. In negotiating a solution with tenants, landlords should ensure that they are continuing to carry out their legal obligations to third parties such as municipalities and lenders.
What programs, if any, can I take advantage of to assist me with my own finances when tenants stop paying rent?
In response to the evolving COVID-19 outbreak, no new eviction orders in Ontario will be issued until further notice and sheriff’s offices have postponed any scheduled enforcement of current eviction orders. Tenants are still required to pay rent during this period, and landlords are entitled to collect compensation from a tenant for each day an eviction order is not enforced.
Landlords experiencing financial difficulties may wish to speak with their municipality about assistance with property taxes and municipal service fees, inquire with their mortgage lender about mortgage payment deferrals, call on bank guarantees or deposits provided under their leases and review their insurance policies to determine whether they have loss of rent insurance.
It is important to note that the Canadian government and our Courts are strongly encouraging landlords and tenants in these unprecedented times to “do their part” and make every attempt to negotiate terms in good faith and develop solutions that work for both parties, at least on an interim basis.