Written by: Irvin Schein
The recent Superior Court decision in 7984987 Canada Incorporated v. Lixo Investments, provides a useful summary and update of the law on the relief from forfeiture.
Ontario’s Commercial Tenancies Act provides that where a tenant is in default with respect to a rent payment of 15 days or more, the landlord can exercise its remedies including termination of the lease (unless the lease itself provides otherwise).
Landlords do not normally pounce on tenants on the 16th day after a rent cheque either doesn’t arrive or bounces. Such events are normally followed by communication between the parties often resulting in the payment being made.
If the tenant is prepared and able to remedy the default, but the landlord decides that it would prefer to end the relationship, the tenant still has an option. The same statute provides that the tenant can apply to the court for what is referred to as relief against forfeiture. The tenant can ask the court to require the landlord to accept the late rental payment and allow the tenant back into the premises.
The court has an almost unlimited discretion in dealing with such applications. The statute specifically provides that the court can grant whatever relief it thinks fit in the circumstances, and on whatever terms as to payment of rent, costs, expenses, damages, compensation, penalty or otherwise that might consider appropriate.
In considering the tenant’s request, the court will consider three factors:
(a) The tenant’s conduct and the seriousness of the breach or breaches;
(b) Whether the dispute has to do with the payment of money as opposed to some other type of breach (in the sense that relief from forfeiture will much more readily be granted where the issue is strictly monetary); and
(c) The disparity between the value of the property in question and the damage caused by the breach.
This recent decision involved a the tenant in the auto parts business. It was locked out by the landlord for nonpayment of rent and applied to the court for relief from forfeiture.
The lease had required that the tenant provide 12 post-dated cheques for rent. The tenant had failed to do so.
The record indicated that the tenant was chronically late in paying rent and on some occasions, rent cheques were returned NSF.
When the landlord became fed up and changed the locks, the tenant had a locksmith change the locks again and re-entered the premises.
When this was discovered by the landlord, the landlord changed the locks again and called the police, although the police declined to get involved.
At the hearing of the application, the judge also noted that according to the landlord, the tenant had damaged part of the premises and furthermore, had made unauthorized leasehold improvements. The tenant had also allegedly interfered with another tenant’s property to the extent that the other tenant vacated its premises.
Many of the allegations made by the landlord concerning its dealings with the tenant were disputed by the tenant. This in itself gave rise to a problem for the judge, in the sense that judges on applications usually are not interested in making findings of fact where there is conflicting evidence and issues of credibility to be resolved.
Nevertheless, in this case, there were enough undisputed facts for the judge to consider himself able to deal with it.
In considering the tenant’s conduct, the judge observed firstly that normally, when the default is merely for nonpayment of rent, relief from forfeiture will be granted. This is even true where the failure to pay rent is persistent. In this case, however, the judge was not impressed by the tenant’s action in changing the locks after it had been locked out. He considered this to be serious misconduct on the tenant’s part. He also noted that the tenant had failed to act diligently and quickly enough when the lockout took place.
Secondly, the fact that the tenant was at least alleged to have interfered with another tenant’s use of the leased property constituted evidence that the matter in issue was more than simply the payment of money.
Thirdly, the judge accepted that the lease had substantial value, but the tenant failed to quantify that value for the court and accordingly, the judge regarded this factor as being neutral.
On balance, the judge concluded that this tenant did not deserve to be allowed back into the premises and dismissed the application.
The lessons to be drawn from this case, for tenants experiencing financial difficulties, is that in the event of a missed lease payment, it is important to seek relief from forfeiture from the court quickly in the event that the landlord will not negotiate. At the same time, it is important for tenants to act in a correct and business-like manner. Any misconduct on their part will make it far less likely that they will ever be able to get back into the premises.