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January 13, 2014

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Law Times • January 13, 2014 FOCUS Page 9 Defaulting tenants warned about changing locks Conduct may affect chance of relief in disputes with commercial landlords BY MARG. BRUINEMAN For Law Times C ommercial tenants who default on their rent usually get relief when they face court for the first time. But that doesn't always happen. Tenants who play hide-andseek with their landlord, fail to pay the rent, and don't provide post-dated cheques as required by the lease may be on softer ground. But if they return to the property and, as the tenant, change the locks, they've probably blown all of their chances. "Almost always, a tenant will be successful in relief," says Natalia Iamundo, an associate in the real estate group at Miller Thomson LLP. "It's well-documented in the case law. In this case, where the tenant didn't come to the table with clean hands, the court didn't give them the relief they were asking." In 7984987 Canada Inc. v. Lixo Investments Ltd., the company, Lixo, leased space for an auto parts and auto detailing business in Toronto and paid $10,806.62 for first and last months' rent. In the lease, company representatives agreed to provide post-dated cheques for a year but didn't follow through. Rent was late early in the tenancy and when the rent didn't come the following month, the landlord sent a letter stating it was in breach of the lease due to damage caused to the premises, chronically late rent payments, and failure to provide the postdated cheques. A cheque produced by Oleg Zilbergerts, the company's manager, bounced. He then paid through a bank draft and eventually provided post-dated cheques. One came back due to non-sufficient funds a few months later. The landlord changed the locks, but the tenant returned with his own locks. Superior Court Justice Robert Goldstein rejected the tenant's request for relief. "This 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," wrote Goldstein. "I find it curious that a corporation renting space at approximately $5,000 per month, and employing a manager, a secretary, two automotive detailers, a mechanic, a parts manager, and casual part-time labour does not have a bank account. It is even more curious that the corporation pays the rent using the manager's personal bank account — when that manager is leasing firm Daoust Vukovich LLP, says tenants not a corporate director. One might reasonably ask sometimes trespass onto the property after a landby what method these employees were paid, not to lord locks them out. He has also seen other tactics mention suppliers and others with whom the appliused in misguided attempts by the tenant to avoid cant did business." eviction. In denying the tenant relief from forfeiture, "It's not unusual for a tenant to start sleeping" on Goldstein awarded costs of $3,200 to the landlord. the premises in order to prevent the landlord from "It's one of the few cases where the court says, taking possession, he says. "At that point, you have 'No, we're not going to help you, tenant,'" says Jeffrey to get a court order." Lem, a partner at Miller Thomson and a Law Times The best tactic for the tenant is to go to court imcolumnist. mediately to seek relief from forfeiture. The goal is His firm sees a lot of circumstances involving to prove there's an imbalance in the consequence default of rent. And although judges usually grant of not paying a month's rent versus the prospect of relief to the tenant, he encourages landlords to go losing the business altogether. to court immediately in order to have the facts on In Lixo, there was no such imbalance because the record in the event the problems happen again. the company hadn't yet fully established the busiWhat's perhaps surprising is that his firm hasn't ness at that location and the tenant didn't promptseen a noticeable increase in bankruptcies and deTenants sometimes resort to unusual tacly seek relief from the court but instead made faults since the economic meltdown. tics to prevent eviction, says Wolfgang the application after essentially breaking into the "We're not seeing as many defaults as 1990," says Kaufmann. premises. Lem. In making his judgment, Goldstein relied on Greenwin Construc"It hasn't been as bad as we expected." When a tenant defaults on the rent, it's up to the landlord to take tion Co. Ltd. v. Stone & Webster Canada Ltd. in which the judge relied possession of the premises peacefully, often with the assistance of a on the conduct of the tenant and the gravity of the situation, whether bailiff and a locksmith. That usually involves changing the locks at the object of the right of forfeiture in the lease was essentially to secure the payment of money, and the disparity between the value of night when the building is empty. LT Wolfgang Kaufmann, a senior trial lawyer at boutique commercial the property forfeited and the damage caused by the breach. The title insurer that puts you front row, centre Putting the legal community front and centre has made us the #1 choice with Canadian lawyers for over a decade. While other title insurers go head to head with you for your business, Stewart Title does not support programs that reduce or eliminate the lawyer's role in real estate transactions. 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