One of the more common questions I receive from commercial landlords is what to do with stuff left behind by a tenant after a tenancy is terminated. Generally this arises if either the landlord terminates a lease because of a default or if a tenant walks away during its lease. (As an aside, this question does not apply if the landlord seizes goods under its distress rights while the lease is still in effect). The answer to this question was recently discussed by the Ontario Court of Appeal in the case of Dean v. Kotsopoulos.
To sum up the facts of Dean v. Kotsopoulos, on February 1, 2006 the landlord Mr. Kotsopoulos leased premises to Mr. Dean for a restaurant and also sold him some equipment located in the premises for $40,000.00. After approximately five months the tenant went into default and the landlord locked the doors and terminated the lease with most of the tenant’s equipment still in the premises. A few days later, the landlord advertised the premises and the equipment for sale and also put a “For Rent” sign up in the window. About two weeks after being locked out, the tenant’s lawyer wrote the landlord asking for the right to take out the equipment left behind but this letter was not answered and the matter was apparently not pursued at the time by the tenant. At the end of August, the landlord leased the premises to a new tenant and included the equipment as part of the new lease. Mr. Dean’s lawyer wrote again in November asking for an opportunity to remove the equipment. The landlord in response wrote back that it considered the equipment as having been abandoned by the tenant. The hapless former tenant, Mr. Dean, did nothing for approximately two years then issued a statement of claim for damages alleging conversion of his property by the landlord. (“Conversion” is legal speak for stealing someone’s property).
At trial, the judge considered the issue of abandonment as a defence to conversion. The party alleging abandonment has to prove on the balance of probabilities that there was a specific intent either expressed or inferred by the actions of an owner of the chattels to in fact abandon them. A court is to take into consideration the passage of time, the nature of the property, the conduct of the owner of the property and the nature of the transaction. In this case, the judge decided that given the minimal efforts made by the tenant to recover his equipment and the length of time until he took action, the court could infer the intent by the tenant was to abandon the equipment. Besides which, the judge agreed with the landlord that the equipment had little value.
The tenant appealed the decision of the trial judge. The Appeal Court sided with the tenant. It indicated that the landlord had given no notice to the tenant that he was putting the equipment up for sale or lease and indeed, began advertising the sale of the premises and the equipment only a few days after the tenant was locked out. Furthermore, the Appeal Court sympathized with the tenant’s difficulty in accessing the premises and his property after being locked out.
The Appeal Court also gave weight to the fact that the tenant had only been in occupancy for a period of five months before the default and had paid the landlord $40,000.00 for the same equipment that the landlord benefitted from. The Appeal Court, looking at these factors, felt that it would be extremely unlikely that the tenant would just walk away from that investment after five months. The fact that Mr. Dean sent two letters of his wish to reclaim the goods in the months following the termination of the lease was sufficient to show a lack of intent to abandon. The landlord had ignored those letters at his risk. The Appeal Court agreed that the tenant would be entitled to damages for the realizable value of the equipment left behind, which it considered to be $10,000.
As a comment, although the tenant won on appeal, his victory was pyrrhic as obviously the damages awarded are a quarter of what he paid five months earlier and must have covered only a small portion of his legal fees in pursuing the claim.
In summary, property left behind by a tenant remains the tenant’s property unless the landlord can determine that the property was abandoned. If the goods left behind are of a deteriorating nature, such as fresh food or similar items with a limited shelf life, the landlord has the right to dispose of these items as they would have no value after their shelf life expires and could be a hazard if left to rot. If the goods have some value, a landlord should first look to the lease to see how it deals with this situation. Usually the lease mentions abandonment without a clear definition. The landlord must examine the circumstances and must be able to infer a clear intent by the tenant to abandon the goods before it can resell them or dispose of them. To clarify the matter it would be incumbent on a landlord to give notice to the tenant offering it an opportunity to reclaim its goods within a reasonable time frame and advise the tenant that its failure to do so would be construed to be abandonment. Also it would be prudent for a landlord to check the Personal Property Security Registry to see if the tenant’s property was subject to security interests which would have priority and to examine the property to see if there is any indication that the property may have been leased or otherwise owned by a third party. As well, if the tenant was subject to bankruptcy proceedings at the time it abandoned, the trustee would have to be consulted.
As in most cases, the court will look askance at parties who seem to be unfairly taking advantage of a situation to their own benefit and who act without reasonable notice.
For further information, please contact John Singer by phone at (416) 364-4400 or by email at jsinger@businesslawyers.com.
This article is meant as a general guide and is not meant to be legal advice nor a definitive analysis of the law. Readers should discuss their situation with their professional advisors and not rely on this information.
