Economic effects of COVID-19 restrictions have impacted commercial landlords and tenants, court said
The Ontario Superior Court has ruled that while a force majeure clause had excused a landlord from performance of certain obligations under a lease contract due to restrictive governmental laws or regulations, it did not relieve a tenant from the obligation to pay rent.
In Braebury Development Corporation v. Gap (Canada) Inc., 2021 ONSC 6210, the plaintiff was a landlord in a lease contract with the defendant, a retail clothing store. The lease contract contained a force majeure clause stating that the parties would be excused from performance of their certain obligations in the event that either party was prevented from doing so or hindered by “restrictive governmental laws or regulations” or other reason “of a like nature” beyond control. It also provided that if the force majeure clause was triggered, the defendant would not be excused from prompt and timely payment of rent.
In March 2020, the government ordered to temporarily close all non-essential businesses to limit the spread of COVID-19. As a result, the defendant did not pay rent for the months of April and May 2020 and only made partial payments thereafter, while COVID-19 restrictions remained in place. It closed the store and vacated the lease premises in September 2020.
The plaintiff sought to recover rent arrears from the defendant. It contended that the COVID-19 restrictions qualified as restrictive government laws or regulations, such that the force majeure clause was triggered. The defendant alleged that the pandemic and resulting government restrictions were not contemplated when the lease was entered and thus, did not trigger the force majeure clause.
In its decision, the Superior Court held that the COVID-19 restrictions, specifically the shutdown of non-essential facilities, qualified as restrictive governmental laws or regulations and triggered the force majeure clause under the lease contract.
The court said that since the force majeure clause was triggered because of the COVID-19 restrictions, the defendant, while relieved of other obligations under the lease, was not expressly excused from paying rent, despite the fact its ability to operate was significantly impeded.
The defendant could not rely on the plaintiff’s inability to provide quiet enjoyment of the leased premises during the lockdown, because unlike rent, the force majeure clause relieved the plaintiff of that obligation, the court said.
The defendant argued that the legal doctrine of frustration of contract applied to excuse it from paying rent and the COVID-19 restrictions prevented it from operating its store at the leased premises. The court disagreed.
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The court noted that non-essential retail locations were only ordered to shut down between March 2020 and May 2020, but at all other times, the defendant would have been able to operate its store subject to remaining public health measures. While this was a significant disruption to the defendant’s retail operations, it did not appear that such disruption occurred to the extent that the lease was frustrated, the court added.