This article has been contributed by Darrell Gold LLB with Robins Appleby & Taub LLP.
Typically, changing old locks for new ones should make your premises more secure. However, in the context of commercial leases, that is not the case where the tenant is in default, is locked out by the landlord and re-enters and changes the locks again. In fact the tenant risks the loss of its right to relief from forfeiture in those circumstances, as was the result in the 2012 Ontario Superior Court decision in 7984987 Canada Inc. v. Lixo Investments Ltd.
The Facts: In the Lixo case, the tenant was in the auto parts and auto detailing business. The lease provided for post-dated cheques which the tenant never delivered and was also late on its rent. The landlord gave notice of default to the tenant for the late rent, the failure to provide the post-dated cheques, un-approved alterations and for damage caused by the tenant to the premises. The tenant eventually provided a bank draft for the rent and the post-dated cheques but one of them bounced. The landlord had enough and posted a notice of termination of the lease and changed the locks to terminate the lease. However, the tenant had a locksmith change the locks again and re-entered the premises. It was only a few months afterwards that the tenant went to court to seek relief from forfeiture of the lease.
The Decision: The Court ruled in favour of the landlord and denied the tenant’s application for relief from the forfeiture of the lease and awarded costs of the application to the landlord.
The Reasons: The Court found that the tenant was chronically late in paying rent and on some occasions, rent cheques were returned NSF. The Court stated that the law does provide for a landlord to re-enter premises on the non-payment of rent and terminate the lease. However, the law also provides for a tenant to apply for relief from the forfeiture of its lease but that relief is a discretionary remedy which the Court may or may not grant based on a review of the parties conduct and the surrounding circumstances.
In Lixo, the Court held the tenant’s conduct was “unacceptable”. “The proper route for a tenant when faced with a notice of termination and a change of locks is an application for relief from forfeiture, or at the very least, a phone call to the landlord, not a ‘break-and-enter’“.
The Court also noted that the tenant delayed bringing its application for relief from forfeiture for almost two months after the re-entry which did not help the tenant.
The Lessons: 1. Relief from forfeiture is usually given to a tenant that has been in default, but Lixo indicates circumstances where the tenant’s conduct can jeopardize that relief. 2. Factors to consider included: the nature and extent of the tenant defaults – such as failure to pay rent in full and when due, bounced cheques and unauthorized alterations. 3. The “self-help” remedy of changing the locks as opposed to going to court for relief is a definite red-flag and in and of itself can tilt the scales of the court against granting relief from forfeiture. 4. Landlords can only take possession by re-entry peacefully and should always use the assistance of a bailiff and locksmith. 5. When a tenant has been locked out and disputes the default or even if it acknowledges the default but wants another chance, then it should contact the landlord directly and also go to court to seek immediate relief from forfeiture. 6. Typically a Court will carry out a “cost benefit” analysis of the loss of the tenants business v. the consequences to the landlord of the tenant’s defaults and if they can be cured, in determining whether or not to grant the relief.
Disclaimer: This article is for general information purposes only and not intended as or to be relied upon for legal advice. Consult with a lawyer for your unique situation.
[*If there is a general real estate or leasing related question you would like to see addressed in a future article in “The Legal Corner”, please contact me directly by e-mail at email@example.com with your suggestion. Not all requests can be accommodated.]