Landlords Need to Avoid the Big Ticket Chattel

Here’s the problem. The Landlord is looking for tenants to occupy its industrial complex. Most of the units are about 3,000 sq. ft. in size.

It’s difficult enough to find good tenants, so what happens when the tenant’s business requires something that occupies most of the unit? Consider the large ovens of an industrial baker, an MRI, a large paint booth for custom painting, massive printing equipment, industrial freezers and compressors.

These items require customized facilities, and special venting, and related accommodations. The cost of acquisition and installation may be the responsibility of the tenant. But, this is the time when the tenant has money.

What happens 5 years into a 10 year lease, when the tenant is out of money? In all likelihood the asset has been pledged to the bank or finance institution as security. If the security was registered under the Personal Property Security Act,  that means it remains as a chattel and the secured party has first claim over the asset. The Landlord’s consent would be sought and secured in advance of installation.

But, it will cost $50,000 to remove! The secured party is under no obligation to remove it and the Landlord has limited remedies.

Eventually, the Landlord may simply have to absorb the cost, remove the chattel and chalk most of it up to experience.

The solution? Actually, that was easy. At the outset, get a deposit for the cost of removal or get the tenant to post a “performance bond”. Remember when the tenant had lots of money, lots of enthusiasm and lots of optimism right before they moved in, that was the time for the Landlord to deal with this matter.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

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