Determining the most appropriate remedy in response to a
tenant's failure to pay rent can be a difficult decision for a
commercial landlord. Exercising distress is one such available
remedy. The British Columbia Court of Appeal's decision in
Delane Industry Co. Ltd. v. PCI Properties Corp., 2014
BCCA 285 highlights the need to proceed with caution. The decision
also clarifies the legal intersection between a landlord's
distress remedy and its right to termination.
Facts and Decision
The landlord, PCI Properties Corp., leased retail space in the
Vancouver Convention Centre to the tenant, Delane Industry Co. Ltd.
A dispute arose between the parties and the tenant withheld rent
for over a year. After months of unpaid rent accrued and informal
demands by the landlord went unrectified, the landlord wrote a
formal demand letter on April 18, 2013 demanding payment of the
outstanding rent in excess of $100,000. The landlord threatened to
exercise its rights and remedies under the lease, including its
right to terminate. On May 13, 2013, the landlord issued a distress
warrant, seizing the goods of the tenant. Shortly thereafter, on
May 14, 2013, while the distress was underway, the landlord issued
a notice of default to the tenant, demanding full payment of the
arrears within five days.
The landlord's bailiff sold the tenant's chattels for
the small sum of $9,500 plus tax, leaving the landlord with a
significant deficiency. After the landlord's bailiff had sold
the tenant's goods, the landlord terminated the lease for
non-payment of rent by way of a letter on May 29, 2013. On that
same day, the landlord also changed the locks to the premises.
The tenant argued that rent distress and termination are two
mutually exclusive remedies, and that by having exercised its right
to distress, the landlord was not entitled to terminate the lease
for that same breach. The landlord did not dispute that distress is
inconsistent with termination, but argued it was entitled to
terminate the lease after distress had been completed on the basis
of the May 29 letter.
The British Columbia Court of Appeal, upholding the trail level
decision, ruled in favor of the tenant. Relying on established case
law on the intersection between the distress remedy and
termination, the Court stressed that for any given breach a
landlord may elect to terminate or affirm the lease. In this
instance, once the landlord elected to exercise its right of
distress, it made an irrevocable election to affirm the lease. It
therefore could not then terminate on the basis of the same breach
on which the distress was grounded. Importantly, the Court upheld
its decision despite the existence of a clause in the lease which
stated that the landlord could exercise multiple remedies.
The decision in Delane raises serious considerations
for landlords and their counsel.
The act of distraining represents an irrevocable election to
affirm the lease. Once a landlord elects to distrain for arrears,
the landlord may not then seek to terminate the lease for default
based on those same arrears even if the arrears have not been fully
paid as a result of the distress. The reality of exercising a
distress remedy is that it may not always provide a landlord with
full compensation. A landlord and its counsel must be mindful that
exercising the remedy of distress may prevent a subsequent
termination of the lease. The Court's reasoning in
Delane also emphasizes that that the initial steps taken
by a landlord in response to a defaulting commercial tenant are of
critical importance. Counsel must be diligent in advising landlords
against kneejerk reactions to a tenant's default.
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