What To Do When Your Lessee Declares Bankruptcy

A commercial lease does not end on the sole basis that the lessee declares bankruptcy; to the contrary, the Bankruptcy and Insolvency Act ("BIA") provides that the property of the bankrupt, including the lease, is vested in the trustee. In fact, the terms of the lease are what make it possible for the lessor to terminate the lease should the lessee declare bankruptcy.

Once the lease is terminated, the lessor has priority to recover three months of rent due as at the date of bankruptcy; however, if the lessor is entitled to advance rent under the lease, he will also be able to recover three months of upcoming rent. The priority granted to the lessor applies only to rent and does not include any amount related to damage caused by the lessee, for which the lessor can make an ordinary claim.