In a recent Quebec case, the court concluded that a commercial tenant did not owe rent to its landlord during the COVID-19 pandemic because its operations had been shut down due to a government decree.

What Happened?

The landlord owns a commercial building in Montreal, Quebec.

In 2017, a company entered into a lease with the landlord to operate a gym in the building. The lease was for a period of five years. However, on December 5, 2017, that company made an assignment in bankruptcy.

After the lease was assigned in January 2018, a new company (the “tenant”) began operating a gym in the premises under a different name.

Since that time, the parties had been in constant conflict over a variety of issues.

COVID-19 Context and Issue

Both parties raised a number of issues before the court. One of the many orders sought by the tenant was a reduction in rent for various periods; its claim for the period of March 2020 to June 2020 was based on the COVID-19 pandemic.

Parties’ Positions

The tenant was forced by government decree to close the gym as of March 24, 2020 due to the COVID-19 pandemic. Pursuant to the decree, fitness facilities such as the gym were not on the list of services that were deemed essential and the tenant was thus unable to operate.

The tenant argued that its inability to operate and, thus to generate revenue, was caused by superior force (force majeure) and that it should therefore be relieved of its obligation to pay rent for this period.

The landlord did not agree that the tenant’s situation qualified as superior force. Additionally, the landlord argued that such a situation was contemplated by paragraph 13.03 of the lease which required the tenant to pay rent notwithstanding an event of superior force.  Paragraph 13.03 of the lease stated:

“13.03 Unavoidable delay

Notwithstanding anything in this Lease to the contrary, if the Landlord or the Tenant is delayed or hindered in or prevented from the performance of any term, obligation or act required hereunder by reason of superior force, strikes, lockouts, labour troubles, riots, accidents, inability to procure materials, restrictive governmental rules, regulations or orders, bankruptcy of contractors, or any other event whether of the foregoing nature or not which is beyond the reasonable control of the Landlord or the Tenant, as the case may be, then the performance of such term or obligation or act is excused for the period of the delay, and the party so delayed shall be entitled to perform such term, obligation or act within the appropriate time period after the expiration of such delay, without being liable in damages to the other.

However, the provisions of this Section 13.03 shall not operate to excuse the Tenant from the prompt payment of the Base Rent or Additional Rent or any other payments required by this Lease.”

The landlord also argued that the tenant had applied for and received a government emergency loan of $40,000 in the context of the COVID-19 pandemic, and could not therefore argue that it was prevented by superior force from paying the rent. Accordingly, the landlord maintained that even if paragraph 13.03 did not apply, the tenant was not prevented from paying rent; it simply chose not to. Either way, the landlord argued that it had every right to insist on the payment of rent for those months.

In response, the tenant explained that the proceeds of the loan were used primarily to pay legal fees in connection with its court case and that no part of the loan was used to pay rent.

Decision  

The court began its analysis by reviewing the definition of superior force as set out in Art. 1470 of the Civil Code of Québec (the “CCQ”):

“1470. A person may free himself from his liability for injury caused to another by proving that the injury results from superior force, unless he has undertaken to make reparation for it.

Superior force is an unforeseeable and irresistible event, including external causes with the same characteristics.”

While the tenant had argued that it had been prevented from fulfilling its obligation to pay rent because it was unable to generate revenue due to the decree, the court stated in order to qualify as superior force, the event at issue must prevent anyone in the tenant’s situation from paying its rent and not just those who lack sufficient funds.

On the issue of superior force, the court concluded:

“In the Court’s view, it is the Landlord that was prevented by superior force from fulfilling its obligation to [the tenant] to provide it with peaceable enjoyment of the Premises. While it is true that [the tenant] still had access to the Premises, continued to store its equipment there and benefited, to some extent, from services, the Lease provides that the Premises are to be used “solely as a gym” and this activity was prohibited by virtue of the Decree. As a result, it is the Court’s view that [the tenant] had no peaceable enjoyment of the Premises during this period.

According to Article 1694 [of the] CCQ, a “debtor released by impossibility of performance may not exact performance of the correlative obligation of the creditor”. Consequently, while the Landlord was prevented by superior force from providing peaceable enjoyment, it could not insist that [the tenant] pay rent.”

Additionally, the court rejected the landlord’s argument relating to paragraph 13.03 of the lease, stating:

“There is no doubt that paragraph 13.03 of the Lease refers to situations of superior force. However, in the Court’s view, the clause contemplates obligations, the performance of which is delayed; not obligations that cannot be performed at all. According to the language of paragraph 13.03, the party unable to perform an obligation is only excused for the period of the delay and is entitled to perform it at a later time.

The Landlord’s fulfilment of its obligation to provide peaceable enjoyment of the Premises from March through June of 2020 has not been delayed; it simply cannot be performed. Consequently, the Landlord cannot insist on the payment of rent for that period and paragraph 13.03 of the Lease does not apply.”

As a result, the court concluded that no rent could be claimed from the tenant for the months of March, April, May and part of June, 2020. The reduction of rent for those months equalled $26,950.

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At Cherkowski Marsden LLP, we draw upon our extensive corporate law and real estate law experience to assist our business clients with all aspects of negotiating and finalizing their lease agreements. We take care of the fine print, logistics, and negotiations to secure an optimal space for your venture so that you can run your business stress-free. We can assist on a one-time transactional basis, or we can be retained on an ongoing basis to help with multiple lease agreements as your business grows, re-negotiating terms if your business needs change, and assisting with dispute resolution if any problems arise with your landlord.

The business lawyers at Cherkowski Marsden LLP work with business professionals at all levels and across a wide range of industries. We look forward to utilizing our considerable experience in commercial leasing to protect the rights and interests of your business. We can be reached online or by phone at 250-308-0338 (Vernon office) or 250-803-9171 (Salmon Arm office).