We have been closely monitoring how courts have been ruling on commercial rent disputes in response to the COVID-19 pandemic, writing about various cases across Canada here, here and here. With the exception of one Quebec case, courts have so far been rejecting commercial tenants’ attempts to reduce or excuse rent payments during the pandemic.
In the most recent case, a British Columbia court ruled that the tenant, Hudson’s Bay Company (“HBC”), was required to pay rent despite the COVID-19 pandemic. However, the court also granted HBC relief from forfeiture, provided it pay rent as due.
HBC Fails to Pay Rent During Pandemic
The landlord operates a shopping centre in Penticton, British Columbia. HBC has leased retail space for one of its stores in the shopping centre since 1996. The lease had been renewed several times and was set to expire in 2023.
Pursuant to the terms of the Lease, HBC was required to pay annual rent for the year 2020 in the total amount of $936,437. The annual rent was to be paid in 12 monthly installments of $78,036 each. The lease also contained a clause that required rent be paid “without any abatement, set-off or deduction whatsoever except as specifically provided for in this lease”.
Further, the lease contained a clause that set out the landlord’s right to terminate the lease for non-payment of basic rent, provided notice of default was given and the tenant failed to remedy the default within 30 days. Finally, the lease contained a force majeure clause, which excused a party from non-performance of certain lease obligations during a period of “unavoidable delay”, which was defined as follows:
“’Unavoidable Delay’ means any prevention, delay, stoppage or interruption in the performance of any obligation of the parties hereunder due to strike, lockout, labour dispute, act of God, or the occurrence of fire or other casualty, condition or cause which is beyond the reasonable control of the party obligated to perform despite all reasonable efforts of such party to perform (but shall not include any inability to perform because of any lack of funds or any financial condition).”
In March 2020, due to the COVID-19 pandemic, HBC closed its store at the shopping centre and it did not re-open until mid-May 2020. Moreover, beginning in April 2020, HBC ceased paying its monthly rent to the landlord. HBC had requested that the landlord restructure the lease in response to the disruptions caused by the COVID-19 pandemic. The landlord suggested that HBC apply to its tenant relief program, but HBC refused.
Thus, on April 15, 2020, the landlord delivered a notice of default to HBC and demanded payment of the outstanding rent within 30 days.
In response, on May 4, 2020, HBC wrote to the landlord advising it would not be paying rent due to the COVID-19 pandemic.
In the following months, HBC continued to not pay rentand the landlord sent HBC a notice of default each month.
Then, on September 4, 2020, HBC wrote to the landlord alleging that it was in default of the lease for failing to maintain the shopping centre in accordance with “first class regional shopping centre” standards and by failing to take extraordinary marketing initiatives during the COVID-19 pandemic. HBC requested an abatement of rent.
On November 9, 2020, the landlord issued a notice to quit and notice to terminate the lease agreement. The landlord alleged that HBC had been in wrongful possession of the premises since that date.
In its application to the court, the landlord submitted that pursuant to the terms of the lease agreement, HBC was required to pay the full amount of the agreed upon rent, without abatement or set-off, and that failure to do so entitled it to terminate the lease and retake possession of the rented premises.
In response, HBC submitted that the landlord was in breach of the terms of the lease in that it failed to provide a “high quality” shopping centre. HBC stated that, in the circumstances, the court should exercise its equitable and legal jurisdiction to prevent it from having “to bear the entire economic burden of an unprecedented public health and economic crisis”. HBC further argued that the COVID-19 pandemic amounted to “unavoidable delay” as defined in the lease and that the “unavoidable delay” clause operated to suspend its obligation to pay rent. Finally, it sought relief from forfeiture.
Court Grants HBC Relief from Forfeiture
After reviewing the applicable legal principles and the terms of the parties’ lease, the court first held that HBC was in default of its obligation to pay rent pursuant to the terms of the lease and was not entitled to an abatement or set-off.
However, the court ultimately held that HBC was entitled to relief from forfeiture of its interest in the premises, stating:
“Notwithstanding that HBC deliberately chose to not pay rent, I am satisfied that this is an appropriate case to grant relief from forfeiture. A significant factor leading to this conclusion is that the sum to be forfeited is out of all proportion to the loss suffered. HBC has leased the Premises since 1996, a period of almost 25 years. It undoubtedly has a substantial investment in the Premises. Moreover, the evidence before me is that there are no other premises in the area where the HBC store can be located. Accordingly, if forfeiture is granted, HBC would not only lose its lease and its investment in the Premises, but would not be able to relocate the store. In contrast, the loss suffered by [the landlord] is not large….
A further significant factor in my decision is the Covid-19 pandemic. The pandemic is, as HBC submits, unprecedented and has inflicted devastating economic losses on many, including HBC. It is the pandemic that is the root cause of the current dispute. In the circumstances, the court must attempt to ameliorate the consequences of the pandemic, where it can do so with equity and fairness.”
In the result, the court therefore declared that HBC was entitled to relief from forfeiture on the condition, however, that it pay the landlord all rent arrears, plus interest in accordance with the terms of the lease, and provided it pay ongoing rent to the landlord as provided by the terms of the lease.
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