When it comes to court-appointed receiverships, there can be much confusion surrounding the issue of rent obligations. Essentially, the main tension arises from the fact that existing legal principles don’t always align with what a receiver would like to do in practice. In most commercial tenancy cases involving an insolvent tenant, a receiver would like to:
- Occupy and use the leased property for a period of time while liquidating assets or finding a new tenant to take over the lease.
- Have the option to terminate the lease at some point during the receivership proceedings, such as when it becomes clear that a new tenant cannot be found or the property is no longer needed.
- Pay current rent based on the existing lease, but not pay any past rent or future rent beyond the time the receiver needs the property.
- Comply with the necessary “operating provisions” within the lease, but not necessarily be bound by other terms of the lease.
- Avoid incurring personal liability for any obligations under the lease.
However, it is important to note that a receiver must adopt a lease within a reasonable period of time; otherwise, the contract is rejected. Also, a receiver has no statutory or common law right to occupy the leased premises and only has such a right if granted by a court order. In terms of obligations, a receiver that has the benefit of the lease is obligated to abide by its terms, including the payment of rent, until the lease is determined (whether adopted or rejected) for the premises over which its appointment is extended. Additionally, if a lease is adopted by a receiver, it is personally liable for the performance of the lease, including the payment of arrears.
Court-appointed receiverships can be a tricky matter as the law and desired outcome can be difficult to reconcile. Factors such as the lack of vesting of property in a receiver and the lack of comparable rights bestowed upon receivers compared to trustees in bankruptcy can complicate the matter. It is important to note that a receiver must adopt a lease within a reasonable period of time and is obligated to pay rent for the premises, irrespective of occupation and use. However, these obligations and rights may vary on a case-by-case basis and it is best to consult with a legal professional for guidance.
Credit: Summarized from the excellent resource, Canadian Bankruptcy and Insolvency Law for Commercial Tenancies (Bish).