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Unable to Pay Your Rent as a Small Business Owner?

If your small business is struggling financially, it can be tough to keep up with the bills. Unfortunately, some struggling small businesses find themselves unable to pay their rent. In this situation, a business owner could be faced with a number of serious issues and consequences.

One of the most serious of these is that your landlord could remove your business from the location and rent the space out to another tenant. Once you fall behind on rent payments, a landlord can provide notice and then terminate your lease agreement. If this happens, you will be given a short period of time to remove your assets from the property and vacate the premises.

How quickly this can be done and how much notice needs to be provided will depend on the specifics of your lease agreement. In addition, standard rental agreements will vary by province.

small-business-cant-pay-rentYour lease agreement will often outline whether or not you are responsible for clean-up costs, property damage, and other costs. The agreement will also state whether you provided any personal guarantees, such as whether you agreed to be personally responsible for any unpaid rent or other costs.

In general, if you miss a rental payment, a landlord can provide you with notice. If you fail to pay the outstanding rent and uphold your part of the rental agreement, the landlord can take action. However, in some cases, you may be able to work with your landlord. For example, if you have a good working relationship with the landlord and if you can prove that your financial difficulties are just temporary, your landlord may be willing to let your business remain at their property for a certain period of time. However, you shouldn’t necessarily count on this happening; in many cases, landlords can be very aggressive at exercising their rights under the lease. A landlord can also take legal action against your business (or you personally, depending on your rental agreement and the legal status of your business) in order to collect unpaid rent or to collect expenses associated with clean-up and repairs to the property.

Another way that a landlord can collect on rent arrears is through an option called Distraint of Goods. This is when a landlord is able to collect the money that is owed to them by seizing and selling the assets of the business that owes the money. If the value of these assets is not enough to cover the rent owing and the collection costs, the landlord can sue for the balance or terminate the lease agreement.

Protecting your Small Business from Legal Action

If your small business is experiencing financial difficulties, one option to protect the business from the landlord’s legal action is to file a Proposal to Creditors. In a Proposal to Creditors, you will meet with a Licensed Insolvency Trustee who will review the financial details of your business. The Trustee will then prepare a Proposal to your creditors that will see your business offer to repay a portion of what is owed or to pay lower monthly payments over a longer time period.

Not only is a Proposal a way for a business to avoid bankruptcy and remain in operation, while still ensuring that creditors receive at least some of what is owed to them, but it also provides your business with a Stay of Proceedings. This prevents the landlord from terminating your lease agreement or seizing the assets of your business.

A Proposal prevents creditors from taking legal action against you to collect their debts. It also stops legal action that is currently underway. Depending on the timing of the Proposal, it may even be able to stop the landlord from selling the assets that have been seized.

Many small businesses that are having difficulty financially choose to file a Proposal to Creditors. In addition to providing legal protection, a Proposal also allows a business to retain assets and maintain control of the business. As long as the Proposal payments are made as outlined in the agreement, a Proposal to Creditors allows a business to continue operating and, hopefully, return to profitability.

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What Happens When a Small Business Owner Can’t Pay Their Rent? was last modified: August 14th, 2017 by Licensed Insolvency Trustee