Distraint is a self-help remedy available to Landlords. This is a process whereby the Landlord can take possession of the property of a defaulting tenant’s property. Although the Commercial Tenancies Act(Ontario) governs this process, an ill-drafted lease can prevent a Landlord from using the distraint remedy.
When Can a Landlord Distraint
A Landlord can distrain against the property of a tenant when the tenant is in default of its lease. The Landlord should determine if the tenant’s property will satisfy the arrears under the lease. The Landlord should assess the value of the property and ensure that they are not taking possession of excess value than the arrears, marketing and fees for taking possession.
Distraint should occur during daylight hours and it may only be levied against the property of the tenant or someone else liable under the leas therefore searches should be made as to any ownership interests in the tenant’s property, including executions searches. If the property is being used under a lease or consignment, it cannot be distrained against.
Distraint is limited to the Landlord and as such the landlord-tenant relationship must stay intact. The Landlord should not change the locks to the premises as this is a clear indication of the termination of the lease and the landlord-tenant relationship. The tenant must maintain possession of the premises. According to case law, changing the locks is re-entry to the premises and effectively terminates the lease, excluding the use of the distraint remedy.
Process of Distraint
- No notice is necessary prior to the distraint act. However, five (5) days’ notice is necessary at the time of the distraint.
- The Landlord must wait these five (5) days.
- The Landlord must then have the property appraised by two (2) separate valuators.
- The Landlord must market the property to obtain the best price available in the marketplace for them” although no specific requirements for the sale of goods exist, the Landlord must avoid making an improvident sale.
The Landlord should only take enough property to cover the amount of the arrears and should be careful in removing the property. Further, only the property of the tenant is subject to the distraint and searches should be done for leased property.
Finally, if the tenant makes an assignment in bankruptcy within three (3) months of the distraint, it can be considered a fraudulent preference in the eyes of the court and the funds will be assigned to the trustee in bankruptcy. Further the tenant has a right to trace the property for thirty (30) days.
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