Commercial Lease Remedies During The COVID-19 Pandemic – Real Estate and Construction – Canada – Mondaq News Alerts

In a series of recent cases, courts in Quebec have prevented
landlords from terminating commercial leases and/or have reduced
rent payable during periods where tenants were forced to close due
to COVID-19, particularly where landlords did not apply for the
Canada Emergency Commercial Rent Assistance program
(CECRA). 

In Ontario and British Columbia¹,
similar measures have temporarily been enacted into law to prevent
landlords from terminating leases or exercising distress rights if
they are or would otherwise be eligible for CECRA; however, these
measures do not relieve tenants of their obligation to pay rent or
give the tenant the right to pay reduced rent.² The expiration of these measures may result
in an influx of landlord-tenant disputes and challenge courts to
apply existing common law principles to unfamiliar
circumstances.

Court cases

Quebec courts have begun to temporarily prevent landlords from
terminating commercial leases for rental defaults arising from the
forced closure of retail establishments due to COVID-19. In a
majority of those decisions, courts have granted tenants temporary
injunctive relief pending the determination of the matter on its
merits. In other cases, tenants have succeeded at trial and been
relieved of the obligation to pay rent during periods of forced
closures due to, among other things, the landlord’s inability
to provide peaceable enjoyment of the premises for their intended
use or the fact that the tenant resumed paying full rent following
the forced closures. 

Courts outside Quebec are unlikely to rely on those same
principles in pandemic-related lease disputes. However, the
decisions canvassed in the early stages of the pandemic signal a
willingness by the courts to use their power to protect tenants
affected by the impacts of COVID-19. This is particularly true in
situations where landlords do not take advantage of CECRA or other
government initiatives to mitigate the consequences of the
pandemic. As such, commercial tenants outside Quebec may be able to
achieve similar results by interlocutory injunctions and/or relief
from forfeiture.

Interlocutory injunctions

An interlocutory injunction is a form of temporary relief
granted by courts to prevent a party from performing certain acts.
In Quebec, courts have used this relief to prevent landlords from
terminating leases in situations where the pandemic has caused the
forced closure of retail establishments. To obtain such relief, a
tenant must establish that its claim has some merit, it will suffer
harm that cannot be cured by monetary compensation (such as the
loss of its business or customer base) and the harm it may suffer
if the injunction is not granted is greater than the harm to the
landlord.

The test for interlocutory injunctions is substantially the same
throughout Canada, suggesting that similar decisions may be reached
at the interim relief stage, particularly when a landlord is
eligible but has refused to apply for CECRA. This remedy is likely
to be a commercial tenant’s first recourse if a landlord seeks
to terminate a lease when and where legislative protections no
longer apply.

Relief from forfeiture

A court may grant an interlocutory injunction to a tenant either
pending or as part of its discretion to grant relief from
forfeiture, a remedy available to commercial tenants in Ontario,
British Columbia and Alberta that gives courts the power to
reinstate a tenancy as they see fit. At least one reported decision
in Ontario has already considered such relief in light of COVID-19
and would have restored the tenancy.³

Generally, courts will consider four criteria when the
tenant’s alleged default is the non-payment of rent, including
whether or not:

• the tenant acted honestly and in good
  faith;
• the tenant refused to pay rent
  outright;
• the landlord suffered a serious loss
  from the delay in paying rent; and
• the rental arrears were
  significant.

The recent Ontario Second Cup decision signals a willingness to
look at rental defaults in the context of the pandemic. In that
case, the tenant’s rental arrears amounted to 25.5% of rent,
which was considered insignificant in light of the
“unprecedented pandemic that shut down most of [the
tenant’s] operations and the country’s economy.”
Tenants may be able to make similar claims either where they ask
the landlord to forego 25% of rent as part of the CECRA program or
where the tenant can only make partial payments. A tenant’s
expressed desire to have a landlord apply for CECRA or enter into a
rent abatement or deferral agreement during the pandemic may
therefore weigh in its favour as such actions contradict an
outright refusal to pay rent.

The courts may also consider a number of other factors,
including the length of the tenancy, the history of defaults and
the tenant’s ability to bring the lease into good standing.
Where special circumstances are at play, those factors may weigh
more heavily in favour of the tenant. For example, the Ontario
decision involved a unique scenario where the tenant would have
lost the benefit of applying for a cannabis retail store licence
for the premises and other locations, which was of utmost
importance to the company.

Practical impact

The decisions released in the early stages of the pandemic may
be a sign of what is to come in the “new normal.” While
the statutory protections in Ontario and British Columbia have been
extended to October 30, 2020, and October 13, 2020, respectively,
the courts have signalled a willingness to effect similar results
in the absence of those protections by the application of equitable
doctrines. This trend may decrease the level of commercial
certainty and comfort that landlords have in pursuing lease
remedies for pandemic-related defaults.

While each situation must be examined case-by-case, landlords
wishing to exercise their rights and remedies under a lease are
encouraged to seek legal advice, particularly in circumstances
where they were eligible but did not apply for CECRA or believe
special circumstances are at play for their tenants. 

A tenant facing eviction for pandemic-related defaults would
also be wise to consult its legal advisors in order to identify the
full range of available rights and remedies. Further, tenants are
encouraged to keep detailed records of COVID-19-related losses
suffered and should actively engage with landlords regarding the
options available to help militate against the financial impacts of
the pandemic on both parties. 

Footnotes

1. The Alberta Commercial Tenancies Protection
Act (Bill 23) lapsed on August 31, 2020 regarding certain
protections afforded to tenants and to date, this emergency period
(non-enforcement period) has not been extended by regulation even
though the government has the power to do so. The regulations
expire on August 31, 2023.

2. See Helping Tenants and Small Businesses Act,
2020 (Ontario) and COVID-19 Related Measures Act (British
Columbia).

3. The Second Cup Ltd. v 2410077 Ontario Ltd.,
2020 ONSC 3684.

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