Legal Blog

Default & Distress

Varsity v. 1666862 Ontario Inc. 2019 Ont SCJ

Distress can only take place if the tenant is in default of the lease provisions (and in previous cases to which this case did not refer, only in default of actual payment of rent). The tenant decided to shut down its unprofitable restaurant business. The tenant removed the perishables and left all of the other chattels and fixtures. The landlord noticed that the restaurant was closed and spoke to the tenant. The tenant informed the landlord that he had closed the business and was looking to find a new tenant to take over the lease. Four days later, while the rent had been fully paid, the landlord engaged a bailiff to lock the tenant out of the premises, posting its usual non-conforming notice that the tenant could re-enter subject to the landlord’s right of distress. The tenant stopped payment on the next monthly payment of rent and the landlord re-leased the premises months later for a loss of $208,000. The landlord relied on the definition in the lease of an event of default, which included the premises being vacant or unoccupied for 5 consecutive days or the tenant abandoning the premises or disposing of property so that there was insufficient property on the premises to satisfy rent for the next 12 months. The landlord then argued that, with an event of default, there was 3 months accelerated rent for which the landlord could distrain. The judge interpreted this event of default definition to include only the abandonment of the premises or removal of property in circumstances of abandonment. It made no sense that the removal of property, no matter how small, when the property was not being abandoned should constitute an event of default. Since the distress was illegal, the landlord was liable for payment of the chattels it seized, pre-paid rent, and the tenant’s deposit for last month’s rent. The landlord received no damages.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.