In April 2020, the Canadian government introduced the Canada Emergency Commercial Rent Assistance for small businesses, which provided relief for small businesses experiencing financial hardship due to COVID-19. It was later replaced by the Canada Emergency Rent Subsidy.
Despite these programs, courts have now seen several cases in which commercial tenants have asked the court to excuse them from paying rent as a result of the COVID-19 pandemic and related government shutdowns.
In most cases, courts have refused to accede to the tenants’ requests, with one notable Quebec exception, as set out below.
In this Quebec case, the commercial tenant operated a gym. However, because of the Quebec government’s emergency decree on the COVID-19 pandemic, the tenant had been forced to close its business from March to June 2020, when it went to court. The tenant thus asked for a reduction in rent during the period it had been closed. The tenant argued that the COVID-19 pandemic constituted superior force (which is a statutory principle under Quebec law, which is similar, but not identical, to force majeure principles in common law provinces).
The court sided with the tenant and concluded that it was not liable for unpaid rent for the months of March, April, May and part of June, 2020. While the court rejected the tenant’s argument that it had been prevented from paying rent due to superior force, it held instead that superior force caused by the COVID-19 pandemic had prevented the landlord from fulfilling its part of lease and its obligation to provide the tenant with peaceable enjoyment of the premises, thus relieving the tenant from its obligation to pay rent.
The commercial tenant had closed its business from March to May 2020, due to public health mandated closures related to COVID-19 in Ontario. The tenant asked the court to relieve it of its obligation to pay rent during the shutdown period. The tenant argued frustration and force majeure.
The court held that the force majeure did not relieve the tenant from its obligation to pay rent. It held that because the tenant had not paid rent, the landlord’s obligation to provide quiet enjoyment had not arisen. As a result, the court rejected the tenant’s application.
The commercial tenant, Hudson’s Bay Company (“HBC”), had ceased paying rent in six different locations in Quebec beginning in April 2020. The landlords went to court seeking safeguard orders forcing HBC to pay rent. HBC argued that the burden posed by the pandemic should be shared fairly by both landlords and retailers.
In six separate decisions, HBC was ordered to pay 100 percent of its rent to the landlords for six months. This resulted in HBC paying over $1.8 million in unpaid rent to the landlords.
(Note: The Quebec decisions were issued on the same day an HBC department store in B.C. was shuttered for non-payment of rent, and two weeks after an Ontario judge ordered HBC to pay half the rent owing at a Richmond Hill, Ont., store to stave off eviction.)
Quest University Canada (Re) (2020)
The tenant was a British Columbia university. It had filed for restructuring in the context of the COVID-19 pandemic and sought to defer the payment of rent owing on four of its student residences because its ability to use them had been limited by government decree.
The court rejected the tenant’s argument, holding that the lack of physical occupation of the residences was not a determining factor, and that the word “use” had a more expansive meaning than that which the debtor had proposed.As a result, the court dismissed the tenant’s application for rent relief.
In a more recent Quebec case, a company that had filed for restructuring sought a court order relieving it of its rent obligations in Manitoba and Ontario. The tenant argued that it was not “using” the premises due to government shutdowns and should therefore be relieved of its rent obligations.
The court rejected the tenant’s argument, finding that, while the tenant had limited use of the premises due to government shutdowns, it was still “using” the premises and was therefore liable for its rent obligations.
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