Canada: Two Routes To Rent Recovery

A decision by the British Columbia Court of Appeal serves as an important reminder that landlords must choose carefully when determining which course of action to pursue against a defaulting tenant. The BCCA confirmed that distress and termination are mutually exclusive remedies, and held that a landlord who elects to levy distress for a particular breach of a lease irrevocably waives their right to subsequently terminate the lease for the same breach. 

In Delane Industry Co. Ltd. v. PCI Properties Corp. [2013] B.C.J. No. 1704, a disagreement arose between a landlord and a tenant with respect to the terms of the tenant's lease. After the tenant had withheld rent for over a year and accumulated over $120,000 in rent arrears, the landlord issued a notice of default and proceeded to distrain for the unpaid rent by seizing and selling the tenant's assets. However, the amount recovered in the distress proceeding was insufficient to cover the full amount of the rent arrears. Accordingly, the landlord purported to terminate the lease on the basis of the earlier notice of default.

The tenant applied to the British Columbia Supreme Court for a declaration that the lease had not been effectively terminated. The BCSC granted the declaration sought on the basis that, by electing to distrain, the landlord had affirmed the lease and had therefore waived its right to terminate the lease on account of the unpaid rent. It held that the landlord would need to provide a new notice of default in order to terminate the lease and implied that such notice (and the subsequent termination of the lease) could be based on the rental arrears that had accumulated before the conclusion of the distraint proceeding. In other words, a fresh breach of the lease would not be necessary before the landlord could terminate the lease.

On appeal, the BCCA agreed with the lower court's determination that a new notice of default was required in order for the landlord to terminate the lease. However, the court held that such notice would need to be based on a fresh breach of the lease on the part of the tenant. The court reaffirmed that the remedies of distress and termination are mutually exclusive, meaning that both cannot be exercised with respect to any one default in the payment of rent. As a result, once the landlord had levied distress against the tenant, it had irrevocably waived its right to terminate the lease for the same default. Although the landlord was entitled to sue for the unpaid rent since this remedy was consistent with the affirmation of the lease, it could not rely on the fact that a portion of the unpaid rent remained outstanding following distraint in order to reverse course and terminate the lease based on the same breach. Notably, the BCCA made its determination despite the existence of a "cumulative remedies" clause in the lease, on the basis that such a clause cannot be extended to permit concurrent remedies that are inconsistent and mutually exclusive.

Delane highlights the fact that landlords must proceed with caution when choosing the appropriate remedy to address a defaulting tenant. This is particularly important when considering whether to levy distress against a tenant's goods, since distress rarely provides full compensation for outstanding arrears. A landlord who elects to distrain in order to recover a portion of rent arrears may be closing the door on their right to subsequently terminate the lease if the rent arrears remain outstanding. As the decision in Delane makes clear, it is critical for landlords and their legal counsel to carefully determine the objective of exercising a particular remedy before impulsively pulling the trigger on a course of action that will limit their remedial options moving forward. If the landlord's objective is simply to put the tenant on notice of their willingness to take steps to collect unpaid rent, then the remedy of distress may be appropriate, provided that the landlord is aware that, by levying distress, they will not be entitled to terminate the lease unless the tenant fails to make future rent payments when due. However, if the landlord is fed up with the tenant and wishes to retain the right to terminate the lease on the basis of the tenant's rent arrears, then they should not proceed with distress.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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