Rent Arrears and the Right of Distress: What Every Ontario Landlord Should Know
One of the oldest and most powerful remedies is the right of distress. Distress allows a landlord to seize and sell a tenant's goods located on the leased premises to recover unpaid rent. Ontario's Commercial Tenancies Act (the "Act") expands this remedy in ways that landlords often do not fully appreciate. Understanding how distress works, when it applies and how to exercise it lawfully can be essential to protecting your revenue and preserving the integrity of your lease. Here’s what landlords need to know.
From Seizure to Sale: Every Step Matters
Section 53 of the Act sets out the mandatory procedure for selling distrained goods. Courts treat each step as non-negotiable. The first step is the landlord’s delivery of a Notice of Distress giving the tenant five full days to pay their arrears and recover their property. If the arrears remain unpaid, the landlord must then, among other things, obtain at least two sworn valuations of the items from independent appraisers.
The items may then be sold to an arm’s length purchaser for the best possible price, with proceeds applied to the unpaid rent and the costs of the seizure and sale. Any surplus must be returned to the tenant.
Landlords who fail to follow these steps risk exposure. In both Longo v. Yu Cheng (2024) and 1694879 Ontario Inc. v Krilavicius (2017), the Court found the landlord's distress irregular and excessive where proper inventory, appraisal, or auction procedures were not followed, and held the landlord liable for damages.
‘Following the Goods’: Modern Anti-Evasion Protections
Generally, only items located on the demised premises may be seized by way of distress. Personal property of the tenant located elsewhere cannot ordinarily be distrained. This has historically created an incentive for tenants facing arrears to remove valuable equipment or inventory before distress can be levied.
Section 48 of the Act addresses this directly. It provides that where a tenant has fraudulently removed goods from the premises, the landlord may follow and seize those goods within 30 days, provided they have not been sold in good faith to an innocent third-party purchaser. Section 49 adds that where the removed goods are secured behind lock and key at another location, the landlord may enter that location to recover them, provided they attend with a peace officer, swear an oath that they have reasonable grounds to believe the goods are present, and conduct the entry during daytime hours.
Section 50 of the Act also imposes strict consequences for attempting to defeat distress. Any person, tenant or third party, who fraudulently removes goods to defeat distress, may be held liable for twice the value of the items removed. Courts have confirmed that sections 48 and 50 can be used in tandem, allowing the landlord to recover and distrain the goods while also pursuing compensation from those involved in the removal for an amount equal to those proceeds.
Mutually Exclusive Remedies: Where Distress Is Unavailable
Distress is strictly a remedy for unpaid rent. It cannot be used to recover damages for other lease breaches, such as property damage, and it becomes unavailable once a landlord has commenced an action or obtained judgment for the arrears.
Distress and lease termination are also mutually exclusive. A landlord cannot forfeit the lease and distrain at the same time, even if the lease purports to preserve that right after termination. A landlord may choose to end the distress mid-way if the value of the distrained goods does not justify the cost and risk of proceeding. However, if the landlord wishes to complete the distress by a sale, it must be careful not to effectively terminate the lease while the distress process is still underway.
Limits and Risks: Where Distress Can Go Wrong
Although distress can be an effective enforcement tool, it also carries legal exposure if exercised improperly.
First, distress must be proportionate to the arrears outstanding and reasonable in the circumstances. The Court has repeatedly held that a landlord cannot seize more property than is necessary to satisfy the arrears. Distress may also be considered excessive where the seizure itself prevents an otherwise solvent tenant from paying back the arrears.
Second, under the Act, a landlord who levies distress unlawfully or excessively may be liable for full general damages, including damages for loss of business. At the same time, the Court has ruled that a landlord is entitled to initiate distress proceedings where a tenant is in significant arrears and the landlord has not taken any steps that would preclude reliance on the remedy.
Third, a landlord must be cautious not to take steps that effectively terminate the lease. For example, changing the locks or re-entering the premises before the notice period prescribed by the lease agreement has expired may be treated as a constructive termination, rendering any subsequent or concurrent distress invalid. However, in appropriate circumstances, the court has permitted a landlord to change the locks to secure the goods, provided that the landlord’s notice of distress provides that the locks have been changed for that purpose only and that, upon request, the tenant continues to have full access to the premises.
Finally, not everything on the premises can be seized. Under the Act, goods in which the tenant has no beneficial interest, including property belonging to an under-tenant or third party, are exempt from distress. Certain personal property is also exempt by law, including tools used to earn income, subject to statutory limits. However, this exemption applies only to property held personally by an individual. If those same tools or equipment are owned by a corporation, they may be distrained.
The Bottom Line
The value of distress lies not just in knowing the remedy exists, but in being positioned to use it. This means building practical safeguards into day-to-day property management, including maintaining lawful access to the premises, keeping visibility over valuable items entering and leaving (for example, through surveillance systems), and documenting movable personal property on-site, including its value and legal ownership.
These steps support the timely use of distress while reducing the risk of procedural missteps. Landlords who incorporate these practices into their operations can protect their revenue and respond more effectively when arrears arise.HOW WE CAN HELP
RAR Litigation’s lawyers have decades of experience advising commercial landlords and tenants on lease defaults, enforcement rights and remedies, and risk management in commercial leasing disputes.
Contact us to discuss how RAR Litigation can support and protect your commercial leasing interests.