Can an Ontario landlord seize assets I bought for the seller’s unpaid rent?

The Government of Ontario’s guide says that, instead of evicting tenants, landlords may seize and sell a tenant’s property contained within the rented premises to cover unpaid rent, a process called distress. It adds that a landlord cannot evict and exercise distress at the same time. It also says some types of tenant property cannot be seized, for example property that is leased or co-owned.

Whose goods can be distrained

In s.31, subject to s.32, the word tenant includes a sub-tenant, the tenant’s assigns and any person in actual occupation under or with the tenant’s assent during the lease or while rent is due or in arrear. Under s.31(2), a landlord shall not distrain for rent on the goods of anyone except the tenant or a person liable for the rent, even if the goods are found on the premises. That restriction does not apply in favour of a person whose title is derived by purchase, gift, transfer or assignment from the tenant, and the same sentence lists other exceptions. Whether the restriction protects what was bought is a question for a lawyer, since the exception turns on how title passed.

Goods moved off the premises

Save as the Act otherwise provides, s.47 says goods not on the premises at the time of the distress shall not be distrained for rent. Under s.48(1), where a tenant fraudulently or clandestinely conveys away or carries off the tenant’s goods from the premises to prevent the landlord from distraining them for arrears of rent, the landlord may within thirty days take and seize them wherever they are found. Under s.48(2), no landlord or other person entitled to the arrears may seize goods that were sold in good faith and for valuable consideration before the seizure to a person not privy to the fraud.

Arrears, re-entry and bankruptcy

Unless otherwise agreed, s.18(1) deems a demise to include an agreement that the landlord may re-enter if rent remains unpaid for fifteen days after the day it ought to have been paid, although no formal demand has been made. Under the federal Bankruptcy and Insolvency Act, s.136(1), and subject to the rights of secured creditors, the proceeds from a bankrupt’s property are applied in a priority order. That order includes the lessor’s arrears of rent for three months before the bankruptcy, but the total payable shall not exceed the realization from the property on the premises under lease. BDC says an accountant can help analyze the company’s financial records and a lawyer can assist with the letter of intent, draft the purchase agreement and conduct legal due diligence.

See what happens if you buy a business that is behind on rent or taxes for related rules.