In these uncertain economic times, tenants looking for
loans from financial institutions are facing stringent
requirements. Charges over tenants' personal property are often
insufficient. Lenders are increasingly taking extra precautions to
safeguard their security by requiring tenants to obtain waivers of
landlords' rights of distraint over the tenants' personal
WHAT IS A RIGHT OF DISTRAINT?
In the event a tenant defaults in the payment of rent, the
landlord holds a common law right to seize the tenant's
personal property located within the leased premises in
satisfaction of the tenant's rent arrears.
AS A COMMERCIAL LANDLORD, WHY WOULD I AGREE TO WAIVE MY RIGHT
OF DISTRAINT IN FAVOR OF MY TENANT'S LENDER?
Practically speaking, waiving a right of distraint may be a
small price to pay to maintain a rent-paying tenant rather than
risking the loss of a tenant who is unable to carry on its business
due to lack of capital. It may also be an opportunity for the
landlord to seek additional consideration from the tenant (i.e. new
or increased security deposits and/or letters of credit) in
exchange for waiving this valuable remedy.
In negotiating a waiver of the landlord's right of
distraint, the tenant will find itself in the tenuous position of
balancing the lender's and landlord's concerns, some of
which may include the following:
Ensure the landlord is on notice with respect to the
lender's security interest in the tenant's personal
Define the lender's security interest and establish its
priority by obtaining a waiver (or subordination) of the
landlord's right of distraint
Obtain from the landlord notice of any tenant default pursuant
to the terms of the lease.
In the event of tenant default, obtain the right to store the
secured personal property at the leased premises and the ability to
remove such secured property without any further notice or consent
Exclude from the lender's security interest any of the
tenant's personal property forming part of the leased
premises' leasehold improvements
Provide a postponement of the landlord's right of distraint
in favour of the lender rather than a waiver thereof so as to
preserve the landlord's right to seize the balance of any
remaining proceeds to apply to rent arrears, if any
Limit the landlord's covenant to provide the lender notice
of tenant defaults pursuant to the terms of the lease
In the event of default, (i) disclaim any obligation of the
landlord to safeguard the secured property so that the storage is
at the lender's sole risk, (ii) collect occupation rent from
the lender for the period of time the tenant's personal
property is stored on the leased premises, (iii) limit the
lender's access to the leased premises to seize the
tenant's personal property to a specific timeframe and (iv)
obtain the lender's commitment to repair any damage caused by
the removal of the tenant's personal property.
The tenant's primary objective in managing this waiver
negotiation will be to keep both the lender and landlord
sufficiently happy to allow the tenant to obtain its financing.
However, it is important for the landlord to be cognizant of the
implications involved in waiving its right of distraint and to
ensure it is sufficiently safeguarded in granting such a waiver.
Accordingly, landlords are encouraged to obtain legal advice prior
to starting such waiver negotiations. If you have any questions or
concerns relating to commercial tenancy matters, we encourage you
to contact any member of our Real Estate Group.
The Ontario Court of Appeal confirmed that courts will generally support and uphold decisions of condominium directors because they are better positioned than judges to make decisions pertaining to their buildings.
According to the city bylaws in Calgary, the grading of lots for new buildings must be done properly so that the water never flows toward the new building or any other nearby properties, but away from those buildings.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).