Tenant in Default? What Every Commercial Landlord Needs to Know

This update is the first instalment of a three-part series addressing key issues relating to defaults under commercial leases. In this instalment, we examine a landlord’s rights and remedies following a tenant’s lease default. The subsequent updates in this series will address lease termination and the landlord’s right of distraint.

Defaults and Notice Provisions: An Overview

A default under a commercial lease occurs when a tenant breaches an express contractual obligation under the lease. Defaults are generally categorized as either monetary or non-monetary. A monetary default occurs when a tenant fails to pay an outstanding amount owed to the landlord, such as rent. A non‑monetary default occurs when the tenant fails to perform an obligation other than payment under the lease, such as failing to complete a required repair or abandoning the premises.

Depending on the drafting of the lease, certain non-monetary defaults, such as a tenant’s failure to perform required repairs, may ultimately give rise to remedies associated with monetary default. For example, where a landlord has provided the required notice and the tenant fails to cure the default within the applicable period, the lease may permit the landlord to perform the outstanding obligation on the tenant’s behalf and recover the associated costs as “Additional Rent”. If the tenant then fails to reimburse those costs, the resulting non-payment may constitute a monetary default. This may be advantageous to landlords, as it can allow them to pursue lease termination and other remedies available for non-payment of rent, which are often broader and more straightforward to enforce than remedies for non-monetary defaults.

Distinguishing the type of default is fundamental, as the classification determines the remedies available to the landlord and the applicable notice requirements. The lease may specify what notice and procedural steps are required upon default; however, in the absence of such provisions, Ontario’s Commercial Tenancies Act, R.S.O. 1990, c. L.7 (the “Act”) will govern the minimum statutory requirements.

Landlord’s Rights Following a Default

A lease sets out the obligations agreed to by the parties; however, where a lease is silent on the steps to be taken upon a default, the landlord can elect to either terminate the lease or affirm the lease while pursuing available remedies.

In circumstances where the lease is silent and the default is monetary in nature, the Act provides that the landlord’s rights to forfeiture, re-entry and other remedies arise only once rent has remained unpaid, or in arrears, for fifteen days after the due date. Once that fifteen-day period has expired, the landlord may re-enter and exercise its remedies. In this context, there is no statutory requirement for the landlord to provide prior notice to the tenant.

In circumstances where the lease is silent and the default is non-monetary in nature, the Act requires the landlord to provide written notice to the tenant of the breach and a reasonable period to cure the default. This obligation to provide notice and an opportunity to remedy the default cannot be contracted out of when negotiating the lease.

Remedies

The following remedies are available to landlords once any applicable notice requirements and cure periods have elapsed.

Forfeiture: The landlord can terminate the lease and prevent the tenant from entering the property, typically by changing the locks. In cases where preventing a tenant from entering is impractical, the landlord may obtain a writ of possession. A writ of possession is a court order authorizing a court bailiff to take possession of the premises on the landlord’s behalf. This remedy effectively allows the landlord to recover the premises and re-let them to a new tenant.

Forfeiture is often an attractive remedy in cases of a non-monetary default or unpaid rent where the personal property left on the premises is of minimal value. Forfeiture may also be preferable when the tenant is approaching insolvency, as the landlord’s right to distraint may be affected by competing third-party claims. In all cases, the availability and appropriateness of forfeiture depend on the terms of the lease and the specific circumstances.

Distraint: The remedy of distraint is available only in circumstances where a tenant has defaulted in the payment of rent and the lease remains in force. The landlord is permitted to seize and sell the tenant’s personal property located on the premises to recover rent arrears and costs associated with the distraint. Landlords must be mindful of competing claims to the tenant’s personal property, as third-party interests may affect the landlord’s ability to distrain. The Act specifies that the right of distraint must be carried out during daylight hours and without the use of force. Further, the Act imposes the following procedural requirements:

• no advance notice is required before the landlord seizes the tenant’s goods unless the lease provides otherwise; however, the landlord must notify the tenant of the distress at the time the remedy is engaged and advise the tenant of the amount required to pay off the arrears and redeem the goods;
• the landlord must hold the seized property for five calendar days (excluding the day of seizure) and, if the arrears remain unpaid, obtain two independent appraisals before proceeding with the sale of the tenant’s personal property;
• the goods must be sold for the best price obtainable; and
• any surplus funds remaining after the payment of rent arrears and associated costs must be remitted to the tenant.

These statutory requirements govern the remedy of distraint. They are mandatory and cannot be contracted out of by the parties. Failure to comply with these requirements may expose the landlord to liability for damages for irregular distraint.

Distraint may be more attractive than forfeiture where the tenant is reliable but experiencing a temporary cash-flow issue. In such circumstances, the landlord may want to preserve the lease and ensure the tenant remains liable for future rent. A landlord may also prefer distraint where valuable assets, such as machinery or equipment, are located on the property and can be used to recover rental arrears.

Damages: The landlord may elect to commence an action against the tenant and seek to recover damages arising from the default, either as a standalone remedy or combined with one of the remedies listed above. Generally, a landlord has no duty to mitigate while the lease remains in effect. However, in the case of forfeiture, once the lease is terminated, the landlord is required to take steps to mitigate its damages. This distinction may make distraint a more attractive remedy than forfeiture in certain circumstances.

Before commencing an action, a landlord should be mindful of the limitation periods that govern the commencement of a claim. Ontario’s Limitations Act, 2002, S.O. 2002, c. 24, Sched. B establishes a basic two-year limitation period running from the date the landlord discovers a claim. In 6971971 Canada Inc. et al. v. Messica, 2025 ONSC 604, affirmed 2025 ONCA 514 (leave to appeal to the Supreme Court of Canada dismissed), the court held that breaches of a commercial lease are generally categorized as contractual claims rather than real property claims, and thus are subject to the two-year limitation period. However, rental arrears are governed by a different regime under Ontario’s Real Property Limitations Act, R.S.O. 1990, c. L.15. Section 17(1) of the Real Property Limitations Act prescribes a six-year limitation period, meaning that a landlord is barred from recovering rent arrears, exercising distraint or seeking damages once six years have elapsed from the date the arrears became due. This limitation period can be restarted by a written acknowledgement of the outstanding debt signed by the tenant. Landlords should note, however, that not every amount characterized as “Additional Rent” under a lease will necessarily qualify as “rent” for the purposes of the six-year limitation period under the Real Property Limitations Act (see Pinnacle International (One Yonge) Ltd. v. Torstar Corporation, 2024 ONCA 755).

As a result, while most commercial lease claims are subject to a two-year limitation period, claims specifically for rental arrears may be subject to a longer six-year period, particularly when enforced through property-based remedies such as distraint.

Injunction or Specific Performance: A less common remedy is a court-ordered injunction or an order for specific performance. The landlord may seek equitable relief requiring the tenant to cease a particular action, or an order for specific performance compelling the tenant to fulfill its obligations. This remedy is difficult to obtain and is available only in limited circumstances.

Key Takeaways for Landlords

• Clearly outline notice provisions in leases and ensure the tenant is aware of cure periods and remedies that will be applied for both monetary and non-monetary defaults.
• Include provisions allowing the landlord, after notice and the cure period, to perform unfulfilled obligations and pursue monetary default remedies if the tenant fails to reimburse the applicable cost.
• Avoid waiving, directly or indirectly, the right to terminate the lease, such as accepting rent from the tenant following the breach.
• Be mindful of and act within the correct limitation periods for both monetary and non-monetary defaults.

Should you require clarification with respect to any of the above, or wish to request a consultation, please do not hesitate to contact Paul De Francesca ([email protected]), Lovejot Bhullar ([email protected]) or Mila Simic ([email protected]). The authors gratefully acknowledge the assistance of summer student Rajul Ghelani in the preparation of this update.

This update is intended as a general summary only and should not be regarded or relied upon as legal advice for any particular client or circumstance.

If you would like further information about the matters discussed in this update, or wish to discuss how they may apply to your circumstances, please contact us.