Court of Appeal confirms that COVID-19 Does Not Excuse a Failure to Pay Rent
The Ontario Court of Appeal (“Court”) recently clarified the scope of what terms are appropriate when granting relief from forfeiture pursuant to the Commercial Tenancies Act. When a tenant is granted relief from forfeiture, the terms of such relief must give the tenant an opportunity to cure its default and to preserve the landlord-tenant relationship between the parties. The terms are not intended to recalibrate the parties’ existing rights under the lease but rather to preserve the relationship between the parties existing before the tenant’s default.
In Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI v Oxford Properties Retail Holdings II Inc, 2022 ONCA 585, the Court heard the tenant HBC’s appeal from an order refusing to grant it a rent abatement as a term of relief from forfeiture. Following Ontario’s COVID-19 lockdown measures, HBC withheld all or part of its rent under its lease of several big box stores. After months of non-payment at one such store at Hillcrest Mall, the landlord terminated the lease. HBC obtained an interim order temporarily enjoining that termination.
HBC subsequently sought an order granting it relief from forfeiture on terms that included an abatement of rent. HBC’s position was that s.20(1) of the Commercial Tenancies Act permitted the Court to grant a rent abatement as a term of granting relief from forfeiture.
That section provides,
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.
The Ontario Superior Court of Justice (Commercial List) granted relief from forfeiture without granting a rent abatement. The lower Court did, however, defer the payment of rent arrears and future rent not yet due under the lease pursuant to a schedule reflecting the Ontario government’s anticipated re-opening schedule. The lower Court also reduced the interest rate payable on arrears under the lease by 2%.
HBC appealed the refusal to grant a rent abatement. The landlord cross-appealed on the basis that the lower Court erred in permitting long-term deferrals of rent payments due under the lease and reducing the interest payable on arrears.
The Court dismissed the appeal and allowed the cross-appeal. The Court confirmed that relief from forfeiture is a discretionary equitable remedy, granted sparingly, that permits a defaulting tenant to escape termination of the lease, even where the lease provides for termination upon breach (paras 34-36). The Court confirmed that any terms granted as part of a relief from forfeiture order must promote the objective of the remedy: bringing the tenant back into compliance with the lease. The section “does not contemplate a recalibration of existing rights and obligations under the lease to reflect what the court sees as a fair arrangement in light of unforeseen developments” such as the COVID-19 pandemic (paras 41-43).
The Court rejected the proposition that rent abatements or reductions can be ordered as a term of granting relief from forfeiture (paras 43 and 52). The Court accepted that when a judge grants relief from forfeiture that includes a term requiring the tenant to do something, e.g., pay rent, the tenant must be given a reasonable time to comply with that term. If the tenant cannot bring itself into compliance with the lease within a reasonable, specified time period, relief from forfeiture will not be an appropriate remedy. It was an error for the lower Court to set a schedule for payment of rent and arrears based on mitigating the economic effects of the COVID-19 pandemic on HBC and that had nothing to do with HBC’s ability to meet its rent obligations. Appropriate terms of relief from forfeiture should not extend beyond those necessary to give meaningful effect to the order (ie. to restoring the parties to their pre-default relationship under the lease). Such terms should not be geared at doing economic justice in the broader sense between the landlord and tenant (paras 57-60). Finally, the Court held that it was an error for the lower Court to have reduced the interest rate applicable to arrears. That order failed to preserve the landlord-tenant relationship and was not an appropriate term of relief from forfeiture (para 62).
Deborah E. Palter and Alexander Soutter of TGF argued the case for the landlord.