One of our previous posts examined letters of credit and the security they provide to landlords under commercial leases. In our blog post today, we would discuss the reverse of this situation and highlight the concerns that may arise for a commercial tenant when their landlord becomes insolvent.

In most commercial leases, landlords often scrutinize tenants to ensure that they are financially capable of paying rent. But what happens when the landlord cannot live up to its financial commitments regarding its ownership of the property and its obligations under the lease and becomes insolvent? Tenants hardly ever probe into the financial circumstance of their landlord.

In some cases, a tenant only becomes aware of the landlord’s insolvency when utilities have been cut off. In other instances, they may receive a Notice of Sale under mortgage, bankruptcy order, or receivership order which will indicate the landlord’s predicament.

Diverse concerns may arise for tenants in this situation who may face uncertainty about deposits they may have paid, improvements made, and continued occupancy of the property. Tenants may also be unsure whether to continue their rent obligations or pay any rent at all. In these instances, the fate of the tenant is usually dependent on the priority of the tenant’s interests. Since the majority of landlords finance their property through a mortgage, the tenant’s claim may be subject to the interest of the landlord’s mortgagee.

Dealing with this situation comes with many risks and anxieties for tenants, as it involves their investments, improvements, and office space security. Therefore, it is advisable to obtain proper legal advice from a knowledgeable legal practitioner about the risks that may arise in commercial tenancies and how to mitigate them effectively.

If you have questions about reducing risks in commercial tenancies, kindly book a free consultation with Northview Law by following this link or contact us at 416-639-7639. We look forward to hearing from you soon.

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