Public health regulations serving to stop the spread of COVID-19 have been an ongoing challenge for brick-and-mortar businesses that have struggled to remain afloat in the face of numerous closures. As a result, the courts continue to see a slew of cases relating to relief from forfeiture. In a previous blog, we discussed the specific case of Cherry Lane Shopping Centre Holdings Ltd. v Hudson’s Bay Company ULC Compagnie De La Baie D’Hudson Sri, where 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. As we continue to see such relief from forfeiture cases, in this blog we consider the state of the law and the factors the courts consider in deciding whether to grant this equitable remedy.
What is Relief from Forfeiture?
Relief from forfeiture is an equitable remedy. It gives the court the power to excuse a party from the application of forfeiture which would otherwise operate against that party as a result of their failure to perform a covenant or a condition in a contract, or when a mistake has been made. In the commercial tenancy context, this failure to perform is typically the inability to pay rent.
The Power to Grant Relief from Forfeiture
In Ontario, the court’s authority to grant relief from forfeiture is found in subsection 20(1) of the Commercial Tenancies Act, which states:
Relief against re-entry or forfeiture
20 (1) Where a lessor is proceeding by action or otherwise to enforce a right of re-entry or forfeiture, whether for non-payment of rent or for other cause, the lessee may, in the lessor’s action, if any, or if there is no such action pending, then in an action or application in the Superior Court of Justice brought by the lessee, apply to the court for relief, and the court may grant such relief as, having regard to the proceeding and conduct of the parties under section 19 and to all the other circumstances, the court thinks fit, and on such terms as to payment of rent, costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future as the court considers just.
The court also has jurisdiction to grant relief from forfeiture pursuant to section 98 of the Courts of Justice Act which provides:
Relief against penalties
98 A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.
Factors Considered in Granting Relief
In assessing this form of relief, courts look at the entirety of the relationship between the parties, with regards to three primary criteria:
- The conduct of the applicant and the gravity of the breaches
- Whether the object of the right of forfeiture in the lease was essentially to secure the payment of money
- The disparity or disproportion between the value of the property forfeited and the damages caused by the breach
Courts will also consider the following factors:
- The history of the relationship
- Breaches of other covenants of the lease by the tenant
- The tenant’s conduct or misconduct
- Its good faith or bad faith or want of clean hands
In British Columbia, the court has also considered whether there are any intervening third-party rights.
In considering all of the above factors the court has previously stated:
What should not be lost sight of is that a landlord undoubtedly is always going to be able to point to misconduct by the tenant, else there would be no grounds for forfeiture in the first place, but the ultimate question is whether the court should exercise its equitable jurisdiction to relieve against the forfeiture imposed by the common law because it is an excessive remedy in all the circumstances.
Relief from Forfeiture for Non-Payment of Rent
In a situation where the default is based upon non-payment of rent, the court has stated it should consider the following criteria: (a) whether the tenant comes to court with clean hands; (b) whether there has been an outright refusal to pay rent; (c) whether the rent has been in arrears for a short or long time; and (d) whether the landlord has suffered a serious loss by reason of the moving party’s delay in paying rent
In situations of non-payment of rent, a court will generally grant relief from forfeiture if the tenant can make full payment of their arrears and continue payment of rent. As Justice Laskin has previously stated:
Assuming power in the Court to relieve against forfeiture for non-payment of rent in the present case, there is no good reason to refuse such relief when the landlord can be made whole by money payments and terms can be imposed, as they were, to require regularity in making payments on the due dates.
In one of the first cases in the pandemic dealing with relief from forfeiture, the courts demonstrated a willingness to consider rent defaults in the context of the pandemic in deciding whether to exercise their discretion to grant relief. While courts have been sympathetic to commercial tenants who have suffered as a result of the pandemic, they generally will not grant relief from forfeiture where such tenants were already in default pre-pandemic and where the tenants were not able to demonstrate that they could continue to meet their obligations under the lease.
Serious Equitable Remedy to be Used Only Where Necessary
The courts have recognized that forfeiture is a very serious remedy. It is purely discretionary, fact-specific, and should be avoided where appropriate unless the tenant’s behaviour has been “persistent, substantial or reprehensible.”
A landlord, therefore, cannot terminate a lease for just any breach. Rather, a tenant’s misconduct must be of sufficient gravity to warrant termination.
Contact the Commercial Real Estate Lawyers at Baker & Company in Toronto for Assistance with a Commercial Lease
Closures due to the COVID-19 pandemic continue to present unique challenges for businesses. At Baker & Company, our team of commercial real estate lawyers has significant experience advising both landlords and tenants with respect to issues arising from commercial leases. To speak with a lawyer, contact us online or by phone at 416-777-0100.
