Why Your Bank Wants Your Landlord to Sign Away a Right Before Funding Your Equipment Loan

You pledged the equipment to the bank — so how can your landlord still seize it? The answer hides in the exceptions to section 31(2) of Ontario’s Commercial Tenancies Act, and the waiver is how lenders paper over the gap.

I’m Arthur Zhao. Somewhere on a commercial lender’s closing checklist there is a line most borrowers never see coming: obtain landlord waiver. It sits there quietly, next to the appraisal and the PPSA search, and it can stall a fully approved equipment loan as hard as a failed credit check. The borrower’s assumption is reasonable enough — the collateral is theirs, it’s in their own unit, it’s registered to their lender. The lender’s lawyer knows something the borrower doesn’t.

In Ontario, being a commercial tenant hands your landlord a built-in claim over the goods on your premises — and pledging those goods to a bank does not push that claim out of the way. This piece unpacks what that one checklist line is really guarding against: the landlord’s right, the lender’s exposure, and why a signature on a single-page form can decide your financing more surely than the rate printed on it.

The one-page form that stalls a funded deal

Start with the sticking point itself. A small business — the kitchen line in a restaurant, a clinic’s equipment, a shop’s machinery, or the inventory on the shelves — pledges those assets as collateral and gets a loan approved. Underwriting goes smoothly, right up until the lender’s lawyer sends over a form and says: before we advance the money, your landlord needs to sign this.

The borrower usually has two questions. First, the equipment is mine and I pledged it — why is my landlord even involved? Second, the bank already approved me, so how can the landlord refusing to sign hold up my funding? Both questions land on the same fact: in Ontario your landlord already holds a claim over the goods in your unit — one you may never have known existed. That claim is where this starts.

What “distress” actually is

The claim is called distress (or distraint). It is a common-law self-help remedy given to commercial landlords: when a tenant falls behind on rent, the landlord can seize the tenant’s goods on the premises and sell them toward the arrears — without first going to court.

Two features catch borrowers off guard. First, distress is a built-in common-law right: as long as there is a valid commercial tenancy and rent is in arrears, it exists automatically — the landlord does not register it anywhere and does not need a special clause to create it. Second, it does not live in the PPSA (Personal Property Security Act) world at all — the landlord’s lien is valid without being registered under the PPSA. It runs on a track that is parallel to, and separate from, the bank’s register-perfect-rank system.

The trap: why the statute’s third-party shield doesn’t protect your lender

The instinct is: doesn’t the law protect goods that aren’t the tenant’s? The equipment is on the premises but it’s pledged to the bank — surely that makes it “someone else’s”. The first half of section 31(2) of the Commercial Tenancies Act does say roughly that — a landlord generally may not distrain on the goods of any person other than the tenant, even where those goods are found on the premises.

The trap is in the second half. The same subsection immediately lists a run of exceptions (“but this restriction does not apply in favour of …”), and one of them is a person whose title is derived from the tenant “by way of mortgage or otherwise”.

A lender’s security interest is precisely a title derived from the tenant by way of mortgage. So it lands inside the exception and outside the protection — the landlord can still distrain on the very equipment you pledged to the bank. That is the skeleton of the whole problem, and the reason the bank wants a waiver: to close that statutory gap by contract.

Not every piece of equipment is equal

One nuance matters before you panic. What the landlord can reach is only the tenant’s own interest in the goods — and how much of an interest the tenant has depends on how the equipment was financed.

· A true equipment lease — where the tenant leases the gear and never owns it — leaves the tenant with no title to seize, so the landlord’s distress has nothing to bite on.
· A conditional sale — where the tenant is buying over time and gains ownership only after paying it off — gives the tenant a growing slice of equity with each payment, and that equity can be distrained by the landlord.

This is why a blanket statement like “the landlord can grab it all” is wrong, and equally why “it’s pledged, so it’s safe” is wrong. The honest answer sits in the middle, and it turns on the paperwork behind each asset — which is exactly the sort of uncertainty a lender would rather remove up front.

Landlord distress vs the lender’s PPSA security, side by side

Why “who registered first” doesn’t settle it

This is the step people get wrong most often. Surely, the thinking goes, if I just register the bank’s PPSA and get in first, I outrank the landlord? Section 4(1)(a) of the PPSA says the Act does not apply to “a lien given by statute or rule of law”. The landlord’s distress falls squarely in that phrase — it is simply not inside the PPSA priority system, so there is no “first to register” contest to win against it.

Someone will then point to section 20(1)(a)(i), which subordinates an unperfected security interest. True enough — but that provision speaks only to the unperfected case. Do not flip it into “once I’m perfected I necessarily beat the landlord’s distress”; the section doesn’t say that. Practitioners describe the pre-bankruptcy contest as a “race to the swiftest” — whoever seizes first holds the goods subject to a later fight over rank. Because the outcome is genuinely uncertain, the lender won’t bet on it. It wants a certain contract instead.

What’s actually in the waiver (market practice, not a statutory form)

Set the framing first: a landlord waiver is not a government form and not a legal requirement — it is an ordinary commercial contract. So what follows is how these are typically written, not what the law mandates; the actual document always governs.

A typical landlord waiver does two things:
① The landlord waives or subordinates its distress or lien over the pledged collateral — agreeing to stand behind the lender, or to give up seizing that equipment altogether.
② The landlord grants the lender access rights — so that on a default the lender can enter the premises and remove the equipment. This matters because at common law, absent a court order or a written agreement, the landlord has no obligation to let the lender in at all.

On top of that, many commercial leases prohibit the tenant from encumbering its goods in the first place, so the lender may also need the landlord’s written consent to override those lease provisions.

For tenants, landlords, and agents — plus the fine print

For tenants (borrowers): if a landlord waiver shows up in your loan conditions, treat it as a closing prerequisite and start the conversation with your landlord immediately. Whether the landlord cooperates can decide your financing more than the rate does.
For landlords: read the scope before you react — is it one identified set of equipment, or all the tenant’s chattels? Does it reach fixtures? Then negotiate for something (security, restoration language, limits on how access happens). Note too that a landlord already cannot distrain over fixtures at common law — but a lender ripping a fixture out damages your property, so you still want that addressed even though distress never applied to it.
For agents: when you act on a commercial lease, put the future-financing question on the table early — will the tenant need to borrow, and will the landlord cooperate on a waiver — rather than letting it surface as a surprise after the deal closes.

A compliance note: this is general information and not legal advice for your specific situation. For the actual terms of a commercial lease or a security document, consult your own lawyer.