Commercial rent arrears

How BC law treats it

Commercial rent arrears are not governed by the Residential Tenancy Act, and the Residential Tenancy Branch has no role. The lease sets what counts as rent (often including additional rent such as taxes and operating costs), when default occurs, and what notice must be given. Claims are enforced in the courts: the Civil Resolution Tribunal or Provincial Court for smaller amounts, and the BC Supreme Court for larger claims or possession. A landlord usually has three remedies. It can sue for the arrears as a debt, and against any guarantor. It can levy distress, seizing and selling the tenant's goods on the premises under the common law and the Rent Distress Act, RSBC 1996, c 403. Or it can terminate the lease by re-entry if the lease contains a right of re-entry or the common law allows it. The remedies interact: distress affirms that the lease continues, so a landlord that has terminated generally cannot then distrain. A tenant facing termination can apply to the BC Supreme Court for relief from forfeiture under s. 24 of the Law and Equity Act, RSBC 1996, c 253, usually by paying the arrears and costs. After a valid termination for the tenant's repudiation, the landlord may claim damages for future lost rent, subject to its duty to mitigate by re-letting (Highway Properties Ltd v Kelly, Douglas & Co, [1971] SCR 562). Each unpaid instalment is generally a separate claim, and the two year basic limitation period under the Limitation Act, SBC 2012, c 13 runs from its due date.

What it means for your business

Unpaid rent is the most common commercial lease dispute. A landlord that acts too aggressively, for example by changing locks without a right of re-entry or seizing exempt or third party goods, can face damages claims. A landlord that waits too long can waive a default by accepting rent. Tenants in trouble should negotiate early, because a deferral agreement is cheaper than litigation, and relief from forfeiture is discretionary and not guaranteed. Example: A Kamloops retailer falls three months behind on rent. The landlord serves notice under the lease, then re-enters and changes the locks, and the tenant applies to the BC Supreme Court for relief from forfeiture, offering to pay all arrears within 30 days.

Risks and common mistakes

Using the residential 10 day notice process for a commercial tenant. Re-entering or changing locks without a clear right of re-entry in the lease. Terminating the lease and then trying to distrain the tenant's goods. Accepting rent after a default without a reservation of rights, which may waive the default. Overlooking the guarantor, or releasing the guarantor through amendments made without its consent.