Commercial Leasing Disputes

Commercial Tenant Failing to Pay Rent

A commercial tenant failing to pay rent to a landlord is a common cause for a business dispute. In some cases, the tenant’s failure to pay may be because of cash flow problems. In other cases, the tenant may be unable to pay because of circumstances beyond his/her control. While landlords might be tempted to take immediate steps to deal with any arrears, it may make more business sense to work out a payment plan to allow the tenant to keep operating and thereby continue to generate income to pay the rent. Of course, this includes various business considerations, such as vacancy rates and the time left in the lease, as well as the cost of litigation.

Tenant Unable to Pay Rent

In other cases, the tenant is unable (or unwilling) to pay rent because some default on the part of the landlord is impacting on the tenant’s use and enjoyment of the premises. Tenants in this situation are advised to try to work the matter out with the landlord or consult a lawyer, rather than simply withholding the rent. As soon as the rent falls into arrears, the landlord is entitled to take actions set out below, which could have an adverse effect on the tenant’s business.

The landlord could distrain for the arrears by hiring a bailiff to seize and sell the tenant’s property in order to pay the rent. This may not always be a good option for the landlord since it may put the tenant out of business and limit the prospects for recovery. In addition, the Rent Distress Act has a number of formal requirements that have to be strictly adhered to. If they are not, a tenant can sue the landlord for damages for wrongful distraint.

Another course of action available to the landlord is to re-enter the premises and terminate the lease. How this right can be exercised in a given case may depend on the terms of the lease, which may set out pre-conditions for exercising the right that must be followed. Once the lease is terminated, the landlord can sue for the arrears owing. The landlord may be able to sue for damages for lost rent over the remaining term of the lease, if proper notice is given and the landlord makes reasonable efforts to mitigate damage by finding a new tenant.

Yet another option is for a landlord to affirm the lease and periodically sue the tenant for arrears of rent as they come due. In this case, there is no obligation to mitigate by finding a new tenant.

The rules and statutes applied to real estate and commercial leasing matters can be quite technical, and while many businesspeople are often tempted to try to use “self-help” methods to try to resolve disputes, in some cases this can make matters worse.  It is always advisable to seek legal advice if you find yourself in a real estate or commercial leasing dispute.