Introduction
There has recently been a significant increase in commercial lease disputes between landlords and tenants as a result of the COVID-19 pandemic and the many government-mandated stay-at-home orders and business lockdowns. As a result, courts have become inundated with disputes between commercial landlords and tenants over unpaid rent.
The Federal government has approved a series of bills to support commercial landlords by providing supplemental income and providing a layer of security for commercial tenants. The Ontario Provincial government has also enacted several measures to safeguard commercial landlords and tenants, including Bill 192, Protecting Small Business Act, 2020, Bill 204, Helping Tenants and Small Businesses Act, 2020, and , Bill 229, Protect, Support and Recover from COVID-19 Act (Budget Measures), 2020,.
Bill 229 implemented several notable changes to the Commercial Tenancies Act, 1990. Notably, Sections 81, 82 and 84 of the Commercial Tenancies Act, 1990 now state as follows:
Eviction orders for rent arrears not effective during the non-enforcement period
81(1) despite anything in this or any other Act, a judge shall not order a writ of
possession that is effective during the non-enforcement period that applies in respect of a tenancy referred to in subsection 80 (1) or (2) if the basis for ordering the writ is an arrears of rent.
No re-entry during the non-enforcement period
82 No landlord shall exercise a right of re-entry in respect of a tenancy referred to in subsection 80 (1) or (2) during the applicable non-enforcement period.
No distress during the non-enforcement period
84 No landlord shall, during the applicable non-enforcement period, seize any goods or chattels as a distress for arrears of rent in respect of a tenancy referred to in subsection 80 (1) or (2).
What this means is that during a non-enforcement period, judges are prohibited from issuing eviction orders for non-payment of rent, and landlords are prohibited from re-entering and terminating leases due to any type of default by the tenant and from distraining on the goods of a tenant. These new restrictions may provide relief to some commercial tenants struggling to pay rent, and significantly limit a commercial landlord's rights upon a tenant's breach or non-compliance with a lease.
While these new restrictions prevent a commercial landlord from exercising their right to eviction and distress, the provisions do not prevent landlords from suing to recover rent arrears.
Relief from Forfeiture
Relief from forfeiture refers to the power of the court to protect a person against the loss of an interest or a right because of a failure to perform a covenant or condition in an agreement or contract. In the context of commercial leases, relief from forfeiture is an equitable remedy that gives the court broad power to set aside any landlord termination of the lease and to reinstate the evicted tenant to the leased premises.
In deciding whether to grant a commercial tenant relief from forfeiture, a court will consider the conduct of the applicant and gravity of the breaches, whether the object of the right of forfeiture in the lease was essentially to secure the payment of money, and the disparity or disproportion between the value of the property forfeited and the damage caused by the breach.1
Courts will consider these criteria in the default of a tenant, specifically, if there is non-payment of rent:
- The rental arrears were significant;
- The tenant refused to pay rent outright;
- The landlord suffered a severe loss from the delay in paying rent; and
- The tenant acted honestly and in good faith.2
What to Consider as a Commercial Landlord or Tenant
Two recent Ontario decisions reflect the different possible outcomes in an application for relief from forfeiture.
In The Second Cup Ltd. v. 2410077 Ontario Ltd., the Court declared that the termination was unlawful, reinstated the lease, and restored Second Cup's rights as they existed prior to the landlord's notices and termination of the lease. The Court considered the above factors due to the non-payment of rent by Second Cup and found the tenant's rental arrears amounting to 25% of the rent to be insignificant in light of what was happening in the world as a result of the COVID-19 pandemic, specifically considering that the tenant did not have a history of default.
In Ontario International College Inc. v. Consumers Road Investments Inc., the Court dismissed an application for relief from forfeiture after finding that the tenant-applicant had acted unreasonably. The tenant ultimately failed to meet the test for relief from forfeiture.
Both cases are significant in showing how the Courts consider a number of factors, including the tenant's ability to bring the lease into good standing, length of tenancy, and any history of defaults.
Footnotes
1 Jungle Lion Management Inc. v. London Life Insurance Company, 2019 ONSC 780 at para 34.
2 Jungle Lion Management Inc. v. London Life Insurance Company, 2019 ONSC 780 at para 34.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.