Farm and Land Legal Update Spring 2018

The Farm Debt Mediation Act Can Apply to Landlords Too

In 2017, the Saskatchewan Court heard a case brought by a legal action by a landowner against a partnership that leased farm land from a landowner.  The lease covered 4,500 acres and had significant annual rent.  The tenant failed to make rent payments and ultimately abandoned the land, unable to afford input costs.  The landlord demanded payment of rent arrears and sued the tenant for the rent arrears.  Before commencing its action, the landlord did not serve notice on the tenant under the notice requirements of the Farm Debt Mediation Act (FDMA).

Section 21 of the FDMA requires that a specific notice be served on a farmer before a secured creditor can start to enforce any remedy against the property of the farmer or start any action to recover a debt against a farmer.  What was unusual about this particular case was that the action related to a land lease and was commenced by a landlord, not a lender (a typical secured lender).

This lease contained a grant of security by the tenant to the landlord (and attached an unsigned security agreement to the lease as a schedule).  No money was ever loaned by the landlord – the security was granted solely to secure payment of rent.  The Court found that the security provision in the lease made the landlord a “secured creditor”.  The Court also concluded that the rent arrears were a “debt”.  Finding that the landlord was a “secured creditor” and the rent arrears were a “debt”, the Court ruled that s. 21 of the FDMA had to be complied with.  Because it was not complied with, the landlord had improperly brought its action and the landlord had to start all over again with proper notice on the tenant.

This is not an uncommon result as many secured lenders forget the breadth of the FDMA and the strict compliance with the notice provisions that it places on secured lenders.  What is novel is that the FDMA and its notice provisions were applied to a landlord who would not have been considered a “secured creditor” but for the security granted under the lease.  The lesson here is that a landlord and its counsel should review the lease before taking steps against the tenant to see if it has the effect of raising the landlord to the status of a secured creditor, in which case the FDMA will apply.