Have commercial tenants been trying to avoid paying rent because of the Covid-19 pandemic?
Yes. We have seen cases emerging where commercial tenants have tried to avoid or delay paying rent because of the COVID-19 pandemic. When the lease at issue includes a force majeure clause, unavoidable delay clause or other clauses with language suggesting the tenant may be relieved from paying rent in certain circumstances, we have seen tenants relying on the lease to argue they are relieved from paying rent (see, for example, Hudson’s Bay Company ULC v Pensionfund Investment Ltd., 2020 BCSC 1959).
In the absence of a force majeure or a “rent relief” clause in the lease, we see tenants seeking to argue the doctrine of frustration. Here, the essence of the argument is that the COVID-19 pandemic has made performance of the lease impossible thereby excusing performance under it. Finally, when all other arguments fail, we see tenants invoking the equitable jurisdiction of the courts to seek relief from forfeiture.
What is “relief from forfeiture?”
Relief from forfeiture is an equitable remedy which allows the court to reinstate the lease notwithstanding that it has been validly terminated for reasons such as non-payment or late payment of rent. This enables the court, in appropriate circumstances, to reinstate the tenant into premises from which it has been evicted.
Relief from forfeiture is the prevailing argument in the cases we have seen emerging since the start of the COVID-19 pandemic.
So then could all commercial tenants be granted relief from forfeiture because of the pandemic?
No, you have to look at it on a case-by-case basis. The trend we see from a review of the decisions coming from British Columbia and Ontario courts is that the courts reject a generalized invocation of the COVID-19 pandemic when considering requests for relief from forfeiture (see, for example, Hunt’s Transport Limited v. Eagle Street Industrial GP Inc., 2020 ONSC 5768). The reported decisions emphasize that to successfully argue for relief against forfeiture, tenants must plead and demonstrate particulars of the specific impact of the pandemic on their businesses.
For example, a chain coffee shop that had to shut down most of its operations was granted relief from forfeiture, but a commercial trucking/logistics company, which was not required to cease operations at any time since the onset of the pandemic, was not granted the relief it requested. Instead, the court granted the trucking company a temporary relief from forfeiture for 20 days to cure its default by paying all arrears of rent.
What else do the courts consider when granting or refusing relief from forfeiture?
Another factor that we have seen being considered by a court when granting relief from forfeiture is uncertainty over whether the landlord was planning to seek relief under the Canada Emergency Commercial Rent Assistance (“CECRA”) program. While participation in CECRA is voluntary for landlords, the Ontario Superior Court of Justice in 2487261 Ont. Corporation v. 2612123 Ont. Inc., 2021 ONSC 336 held that the actions of the landlord were unreasonable because they had the effect of “lulling” a tenant into thinking that the landlord intended to apply for CECRA and that the rent was in abeyance or reduced.
What else should landlords and tenants keep in mind before commencing an action over a commercial lease?
A review of emerging cases indicates that tenants are having a difficult time arguing that they ought to be forgiven from their performance under the lease because of the COVID-19 pandemic and related government-mandated shutdowns. This argument is premised on the mistaken theory that the risk of not being able to occupy the premises should be allocated entirely to the landlord; we have not seen support for this theory in the recent cases. Instead, we have seen courts exercising their discretion and power in such a manner as to allocate the risks as between tenants and landlords to achieve an equitable balance.