Edie asked:

I have a hypothetical situation i'd love to know the answer to. Let's say a business is trapped in a five year lease with a monthly rent that has become far too difficult to continue paying (two years in). The landlord is unwilling to release them from the lease and they did not have the forsight to negotiate any exit clause in their lease contract.

So, this business makes the decision to stop paying their rent entirely for several months. Thus after all this landlord hires a bailiff who locks the doors and seizes all the goods of the business to be sold on auction or private sale.

Now, could the business (via the owner himself or proxy) prospectively bid on their own seized goods (for less than the unpaid rent/retail value of the goods) and reopen the same business under a new name at a new location with a superior lease/lease contract or is there some kind of legal ramification preventing a business from using this loophole of lease evasion?

Stan Galbraith answered:

Anyone can attend an auction and bid on the merchandise that is up for sale. If the legal entity that broke the lease is the successful bidder, they could still be subject to a claim by the landlord. In other words, the landlord could seize the goods a second time if there is still money owing.

However, if another person buys the goods, even if they are related to the tenant, the landlord is only entitled to the money they receive from the auction. Make sure the person who buys the goods has not provided a personal guarantee to the landlord for the debts owing by the tenant.

About the author

Stan Galbraith is a lawyer with over 25 years of experience. He was admitted to the Alberta Bar in 1983 and has operated his own law office since 1988. Stan has a wealth of experience ranging from litigation and appeal work to teaching and writing.

He has now left the world of litigation behind and works with commercial and residential realtors and their clients on closing their transactions. He also practices extensively in the areas of small business and wills and estate planning and administration.

You can find his website at www.galbraith.ab.ca.

 
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