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Distressing Decision for Landlords

Date

January 22, 2014

AUTHOR(s)

Scott Smythe


Landlords that exercise the remedy of distress rarely recover sufficient funds to satisfy the arrears of rent owing by the tenant. A recent decision of the British Columbia Supreme Court (BCSC) held that, in such a case, a landlord cannot immediately terminate the lease without first giving the tenant any required written notice of default and allowing the applicable cure period to expire.

In Delane Industry Co. Ltd. v. PCI Properties Corp., 2013 BCSC 1397, the tenant fell into arrears and, after giving a written demand letter specifying the amount owing and providing a five-day cure period as required by the lease, the landlord elected to exercise its right of distress and seize and sell the tenant’s goods. The distress proceedings were completed but the amount recovered was insufficient to cover the arrears. Later that same day, the landlord gave written notice terminating the lease with immediate effect.

The BCSC held that the termination was invalid. It began with the well-settled proposition that a landlord cannot levy distress against a tenant’s property and terminate the lease at the same time (as distress and termination are mutually exclusive remedies). While the BCSC accepted that the landlord was entitled to terminate the lease for any unpaid arrears following the distress, it did not agree that the landlord could do so on the basis of the demand letter, which had been acted upon with an alternative remedy (the distress). In the BCSC’s view, the termination notice did not comply with the lease because it did not provide five days’ notice and an opportunity to cure, and did not state the precise amount then owing (taking into account the amount recovered by the distress). In order for the landlord to terminate the lease validly, it would have had to first comply with the terms of the lease by issuing a fresh demand letter (specifying the amount owing) and allowing the five-day cure period to expire.

The decision is under appeal.

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