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As an insolvency practitioner we are often involved in situations that include landlord and tenant issues.  We are either dealing with a tenant or landlord that is insolvent, or we are acting on behalf of a lender who has taken security over real property.  In all of these situations the insolvency practitioners must be aware of the rules that govern landlord and tenant issues.  The purpose of this section is to provide an overview of the day to day issues that may arise.  The posts that follow will discuss the following:

 

• Insolvency of a Tenant
• Insolvency of a Landlord
• Managing a Rental Property

This is likely the most common situation for insolvency practitioners to encounter.

Tenants generally try to keep their payments to their landlord up to date, due to the rights and remedies available to landlords.  Landlords generally have either a statutory, contractual and common law remedy available to them to enforce payment of rent including the right to either terminate the lease or to distrain on the tenant’s property for rental arrears.

The remedies available to a landlord will be stayedby any of the following:

• Assignment in Bankruptcy;
• Proposal;
• Notice of Intention to File a Proposal;
• Receiving Order.

Any property under seizure for rent at the time any of the above events takes place must be turned over to the Trustee.  The BIA provides that the costs of distress rank as a first charge against the property.   If the bailiff has sold the property and the sale proceeds have not been turned over to the landlord, the funds, less the costs of distress, must be paid to the Trustee.

In the case where a Receiver or Receiver Manager is appointed by a Court Order, often the Court Order contains stay provisions as well.  However, instrument appointed Receivers have no greater rights than the tenant and can only stop a distress by remedying the default under the lease (i.e. paying the rent).  Accordingly, landlords may enforce their rights against an instrument appointed Receiver.

In the event the debtor is in arrears with its rent and there is no stay of proceedings, the Receiver, in consultation with the secured creditor, will have to make a quick decision regarding its position.  Based upon the amount of rent arrears it may be in the secured creditors’ best interest to pay the arrears.  However, if the arrears are significant, or ongoing use of the premises is required, the Receiver must consider paying the arrears and coming to terms with the landlord for the ongoing use of the premises or consider having the tenant placed into bankruptcy to avail itself of the stay provisions of the BIA.

A bankruptcy may be advantageous for the orderly administration of the estate as the Receiver will not have the issue of the rental arrears being an impediment to the sale of assets.  As well, there will be a realigning of the statutory creditors and the secured creditor will benefit as well.

The appointment of a Receiver over a landlord will usually place the Receiver in the same position as the landlord with respect to leases which are in effect at the time. Therefore, all powers which the landlord may have remain in effect.  As well, there may be certain obligations that the Receiver will inherit in order to satisfy the landlords’ obligations to the tenants.

This post is a continuation of our series on Landlord Tenant Issues in Insolvency

The Commercial Tenancy Act (“CTA”) allows a Trustee to occupy the debtor’s premises for three months following the date of the bankruptcy unless the lease has been terminated before bankruptcy or unless the tenancy is a monthly one. However, in our view, the Trustee has a right to three months occupancy even in the case of a month to month tenancy.

The purpose of the three-month period is to provide the Trustee with an opportunity of selling the assets at the highest price. Although the landlord is not entitled to distrain against the Trustee, the Trustee is responsible for occupation rent during this period.

Several factors will affect a Trustee’s decision to occupy the premises or remove the assets immediately. However, the primary factor is the value of the assets vis-à-vis the cost of occupation. In certain circumstances, the nature of the assets will preclude immediate removal, i.e. large retail operations, manufacturing plants, etc.