I’ve Distrained Against My Tenant’s Property. Did I Just Do the Canada Revenue Agency a Favour?

The remedy of distraint has long been used by commercial landlords against tenants who fall into arrears of rent.  This remedy offers the landlord the advantage of recovering some of the arrears by seizing and selling the tenant’s property while preserving the tenancy relationship.  Before initiating this process, landlords typically conduct searches to ensure that the tenant’s property is not subject to any security interests or outstanding executions.  These searches, however, do not necessarily safeguard landlords from all future claims.  In particular, if the Canada Revenue Agency discovers that the tenant has failed to remit any amounts withheld from its employees for income tax, employment insurance, and Canada pension plan contributions, as well as sales taxes collected from customers, any amounts recovered in a distraint will be subject to a deemed trust in favour of the CRA.

The recent News ReLease drafted by the team at Daoust Vukovich LLP entitled “I’ve Distrained Against My Tenant’s Property. Did I Just Do the Canada Revenue Agency a Favour?” reviews the principles behind these deemed trusts and how they work.  The article provides pointers on how such claims by the CRA may impact landlords and offers tips on what landlords can do to safeguard themselves when distraining on defaulting tenants.