We have been closely following Canadian cases in which commercial tenants have attempted to get out of their commercial leasing obligations due to the COVID-19 pandemic and the related shutdowns, in many cases citing force majeure clauses.
More recently, the Quebec Court of Appeal examined a case in which the tenant invoked a force majeure defence in the landlord’s claim for unpaid rent during the pandemic.
Commercial Tenant Stops Paying Rent During COVID-19 Pandemic
The commercial tenant rented space from the landlord in Montreal at $39,600 per month pursuant to a ten-year lease.
During the COVID-19 pandemic, and with the cooperation of the landlord, the tenant benefited from the Canada Emergency Commercial Rent Assistance (“CECRA”) program from April 1, 2020 to September 30, 2020 and paid a reduced rent during this period.
However, as of October 2020, when it ceased benefiting from the CECRA program, the tenant stopped paying rent to the landlord.
Tenant Blames Pandemic for Unpaid Rent and Invokes Force Majeure Defence
The landlord took the tenant to court.
In response, the tenant claimed that the COVID-19 pandemic justified its failure to pay rent and invoked the force majeure defence.
On the date of the hearing, the total arrears was $277,201, representing seven months of past rent, charges and taxes.
At the outset, the Superior Court stated:
“During a global pandemic, should a commercial tenant be ordered to pay rent while the parties wait for a trial on the merits? This is the question the Court must answer.
As is so often the case, the answer is: It depends.
It depends on the facts and the particular circumstances of the case. Whether the tenant is occupying the premises and how the premises are being used are important considerations.”
Lower Court Rejects Tenant’s Claim of Force Majeure
In response to the tenant’s claim regarding the COVID-19 pandemic, the court stated that the sole existence of the pandemic did not excuse the tenant from its obligation to pay rent. The court explained that, while the Civil Code of Quebec may entitle a person to be freed from their legal obligations where there is proof of a superior force (or “force majeure”), the tenant’s situation did not meet the relevant criteria. The court further explained that a force majeure defence requires proof of both an unforeseeable and irresistible event.
While the court accepted that the COVID-19 global pandemic was unforeseeable, it did not find that the pandemic met the criterion of an “irresistible” event, stating:
“For [the tenant’s] COVID defense to work, at the very least, it must prove that, as a result of the pandemic, there is nothing it can do to pay its rent because, no matter what it does, it cannot operate a business center on the premises and generate revenue.
[The tenant] has made no such proof.”
While the court acknowledged that the tenant had offered evidence of a decrease in its revenues due to the pandemic, it stated that such a decrease was not enough to free the tenant of its legal obligations following the doctrine of superior force.
As a result, the court issued a safeguard order compelling the tenant to pay the landlord $79,200 for the rent of April and May 2021 within 10 days and to further pay the landlord $39,600 in rent on the first of every month, beginning on June 1, 2021 and for a period of six months up to and including the rent for November 2021.
The tenant applied for leave to appeal to the Quebec Court of Appeal.
Court of Appeal Refuses to Hear Tenant’s Appeal
On appeal, the tenant claimed that the lower court had erred in law by ruling that the COVID-19 global pandemic was unforeseeable, but that the tenant had not satisfied the irresistibility requirement in its force majeure defence. The tenant further claimed that the lower court had made palpable and overriding errors by not giving proper weight to its loss of revenues.
However, the Court of Appeal held that the lower court had applied the correct legal test and conducted a careful analysis of the circumstances. It therefore dismissed the tenant’s application for leave to appeal.
Contact Baker & Company for Experienced Advice on Commercial Leasing Matters
At Baker & Company in Toronto, our real estate lawyers take the time to speak with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential. We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of leasing issues. Call us at 416-777-0100 or contact us online for a consultation.