According to this recent pronouncement by the Ontario Court of Appeal, commercial tenants faced with eviction because of non-payment of rent induced by Covid-19 shutdowns can seek relief from forfeiture from the courts; however, if the court grants the relief, and permits the tenant to remain in possession of the tenanted space, the full amount of the rent owing must eventually still be paid: most likely under a deferred payment schedule ordered by the court.
The central issue in this recent case was the extent to which the court could interfere with the contractual lease terms negotiated between commercial landlords and tenants when a party seeks relief from forfeiture (or in simple terms, in the context of a lease, relief from eviction). In this case, the tenant defaulted when they deliberately stopped paying rent during the Covid-19 shutdowns. The tenant brought a court application to stop the eviction, and to have the court grant some manner of abatement or rent reduction due to the provincial and municipal shutdown ordinances that the tenant said frustrated the lease. The landlord was wiling to allow the tenant to remain, but insisted that the doctrine of relief from forfeiture did not permit the court to rewrite the contractual terms, such that the court was powerless to lower the rental rate, or alter the term of the lease, etc. The appellate court essentially agreed with the landlord.
Relief from forfeiture is an equitable doctrine that allows the court to stop or stall the consequences of a contractual default. Sometimes the relief from forfeiture is found in a statutory provision that governs the parties in question, but even if there is no specific statutory provision, the courts generally have an overarching power to grant relief from forfeiture under section 98 of the Courts of Justice Act, RSO 1990, c C.43.
In this interesting case, a prominent tenant in many locations throughout Canada (called Hudson’s Bay) stopped paying rent, and relied on the relief from forfeiture provisions of section 20 of the Commercial Tenancies Act, R.S.O. 1990, c L.7 (“CTA“), which reads as follows:
“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 s. 19 and 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.”
Here are the takeaways from this case:
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- A landlord’s compliance with government imposed Covid-19 restrictions does not breach the landlord’s obligation to provide “quiet enjoyment;”
- In the case of a mall type landlord, following government imposed Covid-19 restrictions does not breach the mall owner’s obligation to operate the mall “in accordance with first-class shopping centre standards;”
- Relief from forfeiture is a discretionary equitable remedy which responds to the circumstances of each individual case;
- When considering whether to grant relief from forfeiture, the court will generally look at two primary factors: first, the conduct of the parties (ie: does one party have clean hands and the other dirty?), and second, the impact on the parties of either granting or refusing the request for relief from forfeiture (ie: will one party be crushed while the other party remains relatively immune to any significant negative impact?);
- A tenant’s deliberate refusal to pay its rent obligations may well preclude any relief from forfeiture (ie: this may be considered coming to court with “dirty hands:” a deliberate breach of the covenant to pay rent);
- If the landlord’s interests under the lease can be fully vindicated without resort to forfeiture, then relief from forfeiture is a good option;
- Relief from forfeiture does not allow the court to rewrite the bargain or recalibrate the existing rights and obligations under the lease – the goal is to look at the bargain as reflected in the lease and to determine if it can effectively be maintained without resort to forfeiture, because if so, then the court will be more willing to grant relief from forfeiture;
- The broad discretion for relief from forfeiture still requires the court to make orders that will bring, and keep, the tenant in compliance with the existing lease;
- Nothing in section 20 of the CTA empowers the court to create a new lease or a lease that is perceived to be “fairer.” Indeed, section 20(5) of the CTA specifically provides that when relief from forfeiture is granted the tenant holds the leased premises “according to the lease” (and not according to any “revised lease”);
- Granting a rent abatement or reduction is tantamount to relief from compliance, which is very different and distinct from relief from forfeiture: the former completely alters the basic covenants in the lease whereas the latter completely preserves the basic covenants in the lease;
- The impact of COVID-19 and the restrictions on retail businesses that followed can be taken into account when setting the terms of relief for forfeiture, but it does not permit the court to rewrite the essential terms of the lease. The court can, however, assess the extent to which the problems associated with COVID-19 impacted the tenant and then fasten a set of court imposed terms allowing the tenant some additional time to bring itself into compliance with the lease; and
- Finally, it would lead to a very high degree of commercial uncertainty if the courts had the ability to re-write contracts every time a party had occasion to default during changing economic circumstances, as this would simply encourage litigation as a means to try and redefine obligations under the lease (after the fact).
Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI v. Oxford Properties Retail Holdings II Inc., 2022 ONCA 585
www.canlii.org/en/on/onca/doc/2022/2022onca585/2022onca585.html