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
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