November 20, 2022
We all need relief from the pressures of the pandemic.
The law is still sorting out its role in that desire.
THE ISSUE
Can a judge order deferral or reduction of rent under a commercial lease due to a pandemic?
Unfortunately, the answer is not a simple yes or no. We know clients wish that the law was simple, but it simply is not.
We might hope that that issue is no longer important on a go-forward basis, but even if the COVID pandemic disappears, which appears increasingly unlikely, other issues may arise that depend upon similar principles.
THE CASE
The Ontario Court of Appeal said in Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI v. Oxford Properties Retail Holdings II Inc. that in granting a relief from forfeiture which prevents the landlord from terminating a commercial lease: “Section 20 [of the Commercial Tenancies Act] allows the court to intervene and prevent the forfeiture of the lease, even though the landlord is entitled to forfeiture under the terms of the lease. In my view, relief from forfeiture does not contemplate a recalibration of existing rights and obligations under the lease on a go forward basis to reflect what the court sees as a fair arrangement in light of unforeseen developments. Nothing in s. 20 empowers the court to create what the court regards as a fair lease for the parties.”
This is consistent with the Court of Appeals usual view that a contract is a contract that is a bargain between the parties. Along with the freedom to contract and make your own rules comes the responsibility to abide by your own rules and not expect the court to intervene except in highly unusual circumstances.
Relief from forfeiture must anticipate that the tenant will be given some time to pay the rent, or the relief would be meaningless, but that does not excuse the tenant from paying the entire rent.
Many tenants may have hoped for a more interventionist viewpoint, but that is not the case.
Relief from forfeiture will prevent landlords from taking unfair advantage of circumstances where a tenant cannot pay their rent due to unforeseen circumstances like a pandemic, but the courts will be very conservative and balanced in applying this relief.
In the Hudson’s Bay company case, there was no evidence with respect to the ability of the tenant to pay the rent. The court notes this as an important evidentiary factor in determining how far relief from forfeiture will go. If the tenant is in dire financial straits, it might hope that relief may be more generous, but the court warns that: “If the motion judge concludes that the tenant cannot bring itself into compliance with the lease within a reasonable, specified time period, relief from forfeiture will not be an appropriate remedy.”
They stop short of suggesting what remedy may be appropriate or available.
TAKEAWAYS
If you are a tenant, do not be totally discouraged:
- The primary take away from this case is that the Court of Appeal honors the principles of freedom of contract.
- This case turned specifically upon the absence of any wording in the lease that provided for relief or reduction of rent, if you have a case still pending arising from the pandemic, the result in your case may depend upon the specific wording in your lease.
- A boilerplate force majeure clause may not be what you need, particularly if you are a tenant.
- Paying attention to all of the terms of your lease, not just the rent, is one of the most important lessons to take from the pandemic.
- Although this decision may not be in your favor with respect to past rents,
- it does tell us that in leases negotiated or renegotiated going forward, a tenant would be well advised to insist upon wording of the lease which contemplates an abatement of rent in future situations including a pandemic, or
- a lease term which at least empowers a court to construct a remedy that is fair to both parties.
- Despite this dire result from the Court of Appeal, our experience is that most landlords want to retain desirable tenants, and therefore will be flexible even renegotiating terms when unexpected events occur in the future that resemble the pandemic.
Whether a landlord will agree to such a clause will depend upon all of the usual commercial factors that go into the relative bargaining power. A desirable tenant will likely be able to negotiate something reasonable.
WHAT WEILERS LLP CAN DO TO HELP YOU
At Weilers LLP part of our proud tradition is paying attention to all of the terms of the lease, and their suitability for our particular client’s interests. Part of our progressive approach is trying to protect our clients from the unexpected. Perfection in that regard is impossible, but because we take the time to work with our clients and understand their concerns and their needs, we believe that we achieve better results than a lawyer who simply drafts or approves a boilerplate lease.
If you have an existing lease and an issue under the pandemic or otherwise that may involve relief from forfeiture, the litigation team at Weilers LLP collaborates with our commercial lawyers to achieve the best possible results. Our particular interest in understanding and applying equitable principles, including relief from forfeiture, often enables us to provide timely and appropriate advice which leads to a favorable cost-effective resolution of the dispute.
Whether you are drafting a fresh lease, amending a current lease, or need to resolve the dispute under a lease, Weilers LLP may be the right lawyers for you.