Legal Blog

Faulty Distress

You have seen the situation before. The landlord, usually through a bailiff, changes the locks and posts a notice on the doors to the rented premises saying that it has distrained the tenant’s goods inside. The bailiff sells the goods at fire sale prices and pays the landlord the amount from the sale after deducting its expenses. What is wrong with this picture? Plenty, according to the decision in Excellent Fashion v. Namdev Property Management [2003] O.J. No. 422 (S.C.J.).

Out

You know that the landlord is in trouble when the tenant testifies that all rent payments were in cash and that the landlord refused to give receipts or accept cheques. The landlord alleged that rent was in arrears for $1,800 but had no records to back up the allegation.

The bailiff had changed the locks on the premises, posted a notice of distress, and refused to allow the tenant access to the premises. The bailiff inventoried some 250 items in the store and obtained two appraisals. One appraisal was from the son of one of the partners in the bailiff’s firm. He appraised the inventory as having a retail value of $43,000 and an actual value at 2 1/2 cents on the dollar, approximately $2,900. The appraisal was not sworn. We are not told about the other appraisal, other than that the appraisal was for a similar amount.

The bailiff sold the inventory for $1,826, 2 3/4 years after the seizure. There was no bill of sale and the bailiff gave no notice of sale to the tenant. The bailiff did not advertise the goods; rather, he showed them to “some people who came around.”

The judge described the bailiff’s conduct as follows: “accepting it at face value, it represented a model of how a bailiff ought not to conduct himself. It betrayed either a complete lack of appreciation of the law governing his occupation or a complete disregard for it.”

Breaches

Distress is a minefield for the unwary. It was certainly a minefield for the incompetent bailiff:

1.   Appraisers are supposed to be independent.

2.   Appraisers must swear to appraise accurately before the actual appraisal is made. The oath must be endorsed on the inventory.

3.   The sale should take place within a reasonable time of seizure for the best price that can be obtained.

4.   The tenant should have some idea of the arrears of rent and charges and a date by which the tenant can pay before the goods are sold.

5.   Distraint can only be completed if the lease continues. Forfeiture of the lease, achieved by changing the locks, eliminates the distress remedy.

The last point is interesting because, almost invariably, bailiffs change the locks to protect the goods, state that the lease is not terminated, and advise that the tenant can arrange for access. In the meantime, the landlord has shut down the tenant’s business. We have seen a number of cases that have allowed this type of notice. We suggest that this make no sense. The landlord can distrain by taking the chattels from the premises or by marking them and selling them from the premises. It has no right to change the locks and make access any more difficult to the tenant than attending at the premises with its own key.

The judge held that the distraint was illegal for all of the reasons set out above.

The judge then had to assess damages. He found this difficult because the tenant also had no records. We cannot tell from the reasons whether this was because she did not keep any records or because she was denied access to get them.

The tenant wanted damages of $171,000 for lost value of goods. The judge awarded her $50,000. The judge also awarded punitive damages of $5,000.

Strategy

We have acted for tenants in situations in which the bailiff has played fast and loose. Problems arise when the arrears of rent are higher than the value of the goods. If the tenant is a corporate tenant with no assets other than the value of the goods, it matters not whether the distress is illegal. The damages will still be less than the rent in arrears.