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Earlier this year, we provided a summary of court decisions on commercial rent relief cases in Canada during the COVID-19 pandemic.

More recently, an Ontario court ruled on a case in which a commercial landlord brought its tenant to court after it vacated the premises in breach of its lease during the COVID-19 pandemic.

Parties Agree To Commercial Lease With Renewal Clause

The landlord and tenant, who ran a physiotherapy clinic, signed a lease agreement in 2015 for a term of five years, ending on October 4, 2020. The base rent in 2020 was $12,825 per month. 

The lease also contained a renewal clause, which provided that the tenant had to provide six months’ notice prior to the expiry of the lease as to whether it wanted to renew or terminate the lease. The clause further stated that if the landlord did not receive the tenant’s notice, the lease would automatically renew for another term of five years. 

This meant that the tenant needed to inform the landlord of its decision to renew or terminate the lease by April 4, 2020.

On March 17, 2020, Ontario declared a state of emergency in response to the COVID-19 pandemic.

Tenant Abandons Premises During COVID-19 Pandemic

In March 2020, as a result of the COVID-19 pandemic and the declared health emergency, the tenant was forced to drastically reduce its services, which had a serious impact on its ability to earn revenue. As a result, the landlord agreed to the tenant’s request to defer its April 2020 rent until December 2020.

However, the tenant failed to provide the landlord with any notice of termination or renewal by April 4, 2020.

Instead, the tenant sent the landlord a letter on June 5, 2020 indicating that it intended to terminate the lease effective October 4, 2020. Three days later, the landlord responded stating that the renewal clause had been triggered and the lease would therefore renew for another five years.

At the end of September 2020, the tenant abandoned the premises and ceased paying rent. 

The landlord therefore went to court seeking summary judgment against the tenant.

The landlord submitted that the lease renewed automatically, while the tenant argued that the tenancy ended without renewal in October 2020.  

Court Rules in Favour of Landlord

The court noted the tenant’s main argument that the pandemic amounted to force majeure and nullified its obligation to give notice of renewal or non-renewal by 6 months prior to the renewal or termination date. The court observed, however:

“The [tenant]’s affiant deposes that due to the pandemic closure the clinic was in financial crisis and was in no position to consider renewal for another 5 years. That may be the case, but it does not explain why the [tenant] could not give notice of non-renewal. The [tenant] argues that the pandemic conditions prevented it from carrying on business as usual, but the Lease did not require business as usual and the [landlord] had already deferred some of the spring 2020 rent. All the [tenant] had to do in order to stop the automatic renewal of the term of the Lease was to give the [landlord] notice to that effect. The [tenant] failed to do so, and so the renewal provision was deemed to be exercised and the Lease was renewed for five additional years.”

Additionally, the court found that the wording of the renewal provision was precise, unambiguous and easy to interpret.

In the result, the court therefore ruled in favour of the landlord and ordered the tenant to pay the landlord damages for defaulted rent in the amount of $850,592.

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Real estate transactions represent some of the largest financial transactions in the life of any individual or company. Whether you are a first-time homebuyer or a large corporation acquiring a new space to grow your business, it is important to retain a law firm with the experience and skill necessary to ensure your interests are protected and the transaction closes without issue.

At Bader Law, we have an extensively experienced business law team and regularly represent our corporate clients in various real estate matters. We work with business clients ranging from small family-run operations to large enterprises, helping our clients manage their real property interests with an eye toward growth. Our business and real estate teams work closely together to provide thorough and strategic representation on all commercial real estate transactions, including commercial leasing issues affecting landlords and tenants.

The Mississauga real estate lawyers at Bader Law represent individual and corporate buyers and sellers in both residential and commercial real estate transactions in Mississauga and throughout Greater Toronto Area. We will advise you on your options, help secure your interests, and protect your financial investments. Contact us online or at (289) 652-9092to learn how we can help.