On December 30, 2013, we wrote about the BC Supreme Court’s decision in Delane Industry Co. Ltd. v. PCI Properties Corp., 2013 BCSC 1397, where the Court held that a landlord’s termination of a commercial lease was ineffective because the landlord, having issued a demand letter while the distress process was underway, subsequently purported to terminate the lease after the distress failed to yield sufficient proceeds to cover the rent in arrears.  To validly terminate the lease following distress, the landlord needed to issue a fresh demand letter (specifying the amount of rent still in arrears) and allow the five day cure period in the lease to expire.

On July 17, 2014, the BC Court of Appeal affirmed the lower court’s decision about the need for a fresh demand letter (reasons are indexed at 2014 BCCA 285).  Significantly, the Court of Appeal took the matter one step further and decided that landlords may only terminate a lease, after the distress process has been completed, if there has been a fresh event of default, unrelated to the failure to pay rent that caused the landlord to elect to levy distress in the first place.

The case involved leased premises in the Vancouver Convention Centre. Following a dispute between the parties, the tenant withheld rent for over a year. When arrears exceeded $120,000, the landlord issued a demand letter requiring payment by a stipulated date. The rent remained unpaid past the deadline, and the landlord issued a distress warrant through a firm of bailiffs.  While the distress was underway, the landlord issued another notice of default.  Then, upon completion of the distress, with only a fraction of the tenant’s arrears recovered, the landlord purported to terminate the lease on the basis of the earlier default notice.

The Court of Appeal held that, when a landlord chooses to levy distress against a tenant for a particular breach of a lease, the landlord waives its right to terminate the lease for that same breach. For any given breach, a landlord can elect to terminate or affirm the lease. Exercising the remedy of distress affirms the lease and, once a landlord has made that election, it will be bound by its choice.  While the landlord in this case could have sued the tenant for the outstanding arrears that remained following distress (consistent with the affirmation of the lease implicit in the distress), it could not terminate the lease on the basis of the same breach on which the distress was founded. To effect a termination, there needed to be a fresh breach of the lease and a fresh notice of default. Notably, the Court of Appeal made its decision despite the existence of a “cumulative remedies” clause in the lease which purported to allowed the landlord to exercise multiple remedies concurrently.

The decision is an important one that functions as a cautionary tale for landlords seeking to collect overdue rent.  Distress rarely provides full compensation and, as this decision makes clear, exercising the remedy may prevent a landlord from terminating a lease unless the tenant fails to make future rent payments when due.

It is currently unknown whether the landlord will seek leave to appeal to the Supreme Court of Canada.