Recent decisions dealing with commercial leases in the context of a pandemic

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Litige, main tenant une balance, Litigation, Hand holding balance

This article is a review of some recent decisions made by Québec courts regarding commercial leasing during this pandemic. These can provide interesting tools for landlords or tenants currently affected by the closure of certain businesses, as recently decreed by the provincial government.

Last July, in the case of Hengyun International Investment Commerce Inc. v. 9368-7614 Quebec Inc. [1], the Québec Superior Court had to decide on the following question: can a tenant be released from his obligation to pay rent because of the force majeure represented by the Covid-19 pandemic and the closure of businesses forced by government decree?

In this case, the tenant, who operated a fitness center, claimed that he did not have to pay the rent for March, April, May and June because of the forced closure of his business, which he likened to a case of force majeure. This is a notion that Catherine Demers has already discussed in our blog. At the end of her analysis, she noted that the government’s decree and the consequences we know correspond to a case of force majeure. Therefore, the Court states that the tenant does not have to pay the rent for the period covered by the forced closure of his business. It concludes thusly, not because of the tenant’s arguments, but because of the landlord’s obligation to provide to the tenant the peaceful enjoyment of the premises.

As the Court points out, this obligation, which can be contractually adapted, is a result of it. Applying the principle of section 1694 of the Civil Code of Québec, the Court states that: since the landlord is relieved of his obligation to provide the tenant with the peaceful enjoyment of the premises, due to a case of force majeure, the tenant, in return, is not bound by his correlative obligation to pay the rent for that period.

While the closure of some businesses has again been ordered by the government, this decision offers some guideline for landlords and tenants regarding their respective obligations.

In addition, the federal government announced earlier this month that the Canada Emergency Commercial Rent Assistance program for small businesses (CECRA) will be extended again for September. Requests for an extension can be made no later than October 30 on the portal set up for this purpose.

Although the application to the CECRA is entirely at the landlord’s discretion, refusing to apply may have adverse consequences for a landlord struggling with a tenant in payment difficulty. This may turn out to be the case for some in the coming weeks with the announcement of the forced closure of some businesses by a new government order.

Indeed, on July 13, in the G. Lazzara Real Estate Investments Inc. v. 9224-5455 Quebec Inc. [2], the Superior Court was to rule on the landlord’s application for a safeguard order, in which he sought payment of the unpaid rent, the termination of the lease and the eviction of his tenant.

However, in the months prior to the hearing, the tenant had suggested that the landlord apply for the CECRA, which would have allowed the landlord to obtain payment of 75% of the rent for the period covered by the program and the tenant to receive a significant relief from his obligation. He would have only had to pay 25% of the rent for the same period. The landlord nevertheless refused. Despite his difficulties, the tenant had agreed to pay 25% of the rent for the entire period covered by the CECRA.

In its judgment, the Court reiterated that the purpose of the safeguard order was to strike a balance between the parties. It added that the landlord, by choosing to forgo 75% of the rent by not benefiting from the CECRA, is placing itself in an unfavorable position to ask the Tribunal to exercise its discretion to issue a safeguard order.

The Court therefore concludes that the application for a safeguard order be rejected and, although the landlord refused to apply to the CECRA, it allows the tenant to pay only 25% of the rent for the period during which the CECRA will be in effect.

These judgments, although they are the first to be rendered in this regard, remind us of the importance of the existence of balance that must exist in landlord-tenant relations, which is certainly accentuated in the context of a pandemic.

By Mathieu Tremblay

[1] Hengyun International Investment Commerce Inc. c. 9368-7614 Québec Inc., 2020 QCCS 2251.

[2] Investissements immobiliers G. Lazzara inc. c. 9224-5455 Québec inc., 2020 QCCS 2176.