The Court of Appeal released a decision last week in the Dean case that deals in part with what a commercial landlord can do with assets belonging to a tenant. In that case, the tenant entered into a five year lease but fell into default within five months. While not discussed to any extent in the Court of Appeal’s decision, it would appear that the landlord (or someone) changed the locks. On a commercial lease, one of the remedies available to a landlord is the remedy of “distress” which is, put as an oversimplification, the ability of the landlord to hold the tenant’s items located in the rented space until payment is made and if payment is not made to then sell the items. However, the remedy of distress (or distraint – depending on the proper grammatical usage) will not be possible where the landlord has foreclosed on the lease. One of the ways in which a landlord can foreclose is to change the locks. Therefore, it would appear that there was a foreclosure on the lease. As such, the tenant should have received its items back and it would then be up to the landlord to (a) try and get a new tenant in to the space in order to minimize the landlord’s damages from lost rent and then (b) to sue the tenant for that lost rent.
In this case, the locks were changed and certain items remained within the rented space. Ultimately, the landlord was able to re-lease the space and in doing so the lease appeared to include some of the equipment that was owned by the tenant. The tenant therefore sued for conversion – which is when one party unlawfully appropriates the property of another party. One of the defences to a claim of conversion is that the plaintiff abandoned his/her/its property. Abandonment requires a “giving up, a total desertion, and absolute relinquishment” of the items by the owner. On the facts of this specific case, the Court of Appeal found that the tenant had not taken such steps.
The Court does make mention of the fact that abandonment could be found where the defendant took steps to contact the owner of the property before the property was disposed of and no response was made by the owner. In this particular case, there was no notice or attempts by the landlord to contact the tenant.
There are two points for commercial landlords to remember: the first is that if the lease is being foreclosed upon and being treated as at an end, you do not have a right to distrain the tenant’s goods in the rented speace. The second is that if you do proceed to take the goods and sell them, you had better give notice to the tenant of your intention to do so – otherwise you could end up having to pay damages for conversion like the landlord in the Dean case.
Something to think about.