June 20, 2022
Since the pandemic began, everybody involved in commercial real estate has been looking for some definitive guidance as to the effect of a force majeure clause in a lease upon the rights of the parties during the pandemic and as a result of the pandemic.
The Ontario Court of Appeal has now provided its first guidance on the issue. Time will tell whether it is applicable to most situations, or specific to the individual case. As discussed below, the issue in this case is very narrow.
Despite this, until we know otherwise, we except that it will be the starting point for deciding upcoming cases. The trickier question is whether it will be the ending point as well.
WHAT IS FORCE MAJEURE?
“Force majeure” is a term that has been in used in British, and now Canadian, lawsuits back to the days when the British courts borrowed terminology from the French language. “Force majeure” literally translates as “greater force”. We use it in law to describe unforeseeable circumstances that prevent someone from fulfilling a contract, or which require that the contract be performed in a different manner than originally intended. Because the term has been in use for so long, it has developed its own body of law, so we continue to use the old-fashioned term.
There is no one single force majeure clause that is routinely inserted in all contracts. There are various common forms that lawyers and other drafters take from precedents because the wording has been tested in prior cases. Sometimes though parties negotiate new variations to reflect a different intention.
Therefore, interpretation of one force majeure clause may not apply to every other clause but, wherever possible, the courts attempt to maintain general consistency.
IS A PANDEMIC A FORCE MAJEURE?
Very few leases drafted before 2020 contain force majeure clauses that specifically anticipate the pandemic. This means that most people who would benefit from having the pandemic seen as an unforeseeable circumstance affecting the performance of their lease will argue that it is a force majeure. This is a very attractive interpretation and most of us begin from the assumption that this is the interpretation of similar clauses unless or until the wording of the clause or the surrounding facts convinces us otherwise.
THE CASE BEFORE THE COURT
In Windsor-Essex Catholic District School Board v. 2313846 Ontario Limited o/a Central Park Athletics the school board leased athletic facilities from a commercial landlord. As a result of pandemic lockdowns, the landlord was unable to open its doors from March to August 2020 and the school board was unable to use the facilities. The school board applied to court arguing that the force majeure clause in their leases should abate the rent during that time. The initial application judge considered the clause within its context, applied the clause and debated the rent.
In this case there was no dispute that the lockdown met the definition of force majeure as defined in the lease. There was also no dispute that the landlord could not provide the leased space as intended during the lockdown. The dispute was as to the effect of this triggering event on the parties’ complex contractual obligations.
The tricky part that makes this case a little different than most is the wording of the clause:
In the event the Landlord claims a Force Majeure has prevented the Landlord from enabling the Tenant to make use of the Leased Premises or operate its programs in the Centre, Rent and Additional Rent shall fully abate during such period until the Landlord has restored the ability of the Tenant to use the Leased Premises and operate its programs in the Centre. [Emphasis added]
The landlord argued on appeal that the application judge had not sufficiently considered and applied the underlined words in the clause. They said that since they had never claimed that a force majeure existed, rent should not abate.
WHAT THE COURT DECIDED
The Court of Appeal agreed with the application judge. The government lockdowns prevented the landlord from providing the leased space for its contracted use. This triggered an abatement of rent, even without the landlord claiming force majeure.
As the courts point out, the specific wording of each lease drives the interpretation. Particularly with custom negotiated leases, the parties explicitly allocate the risks between them in the event of an unforeseen event.
Because the wording of this lease may not match your lease, your result will not automatically follow.
You will also need to decide whether a force majeure event occurred as defined in your lease, since that was admitted in this case.
Whether you are a landlord or tenant, if the parties cannot agree as to the consequences of the pandemic, you will require at least legal advice, and perhaps dispute resolution either in court or at arbitration.
Attempting to apply this first Court of Appeal decision to your specific situation would be difficult without legal training. We can expect that there will be an ongoing series of other cases that provide us guidance on other specific wordings and start laying out a framework to apply to more cases.
Context is always an important part of interpreting contracts. The old rule that a judge only looks sat the “plain wording” is long gone. Particularly in custom contracts, the surrounding circumstances are important to determining intention.
Identifying the correct cases and analyzing them in comparison to your specific situation is the art of lawyering.
WEILERS LLP CAN HELP
Weilers LLP has a team of experienced and knowledgeable commercial lawyers who can help you interpret your lease and give you appropriate advice. We can also assist you in negotiations.
If your situation requires dispute resolution, these commercial lawyers work closely with our litigation team to provide effective representation.
If you need assistance with any pandemic related questions, please feel free to give the team at Weilers LLP a call.