Do government-ordered closures free a commercial tenant from its obligation to pay rent?
9056-6316 Québec Inc. (the “Landlord”) was a corporation specialized in real estate management. It owned two large commercial buildings on Saint-Antoine West Street in downtown Montréal, and the adjacent parking lot. Safeway Parking Canada Ltd. (the “Tenant”) was a corporation specialized in operating parking spaces. It managed approximately 35 parking lots and garages in the greater Montréal region, most of which were downtown. In 2016, the parties entered into a 4-year Lease for the Landlord’s parking lot on Saint Antoine Street West, with a beginning date of July 1, 2016 and an end date of June 30, 2020.
The Lease was freely negotiated between them. Each had the opportunity to seek legal counsel and modify the Lease before signing it. Until the pandemic, relations between the parties were harmonious. Rent was paid to the Landlord and the Tenant operated its parking business. The situation changed in March 2020.
On March 13, the government of Québec adopted an order-in-council declaring a public health emergency in the province, a declaration that was renewed numerous times, such that there was a state of emergency for the duration of the Lease. Regular business in the province came to a halt. On March 25, the Tenant informed the Landlord that it was “obliged to temporarily suspend rental payments”, that it intended to “continue to operate” the parking lot on Saint Antoine Street West and to remit “80% of gross sales in lieu of rent”. The proposal was never accepted.
On April 13, the Landlord, through its lawyer, reminded the Tenant of its obligation to pay rent, and of the resiliation and penalty clauses in the Lease. On April 30, the Landlord advised the Tenant that the Lease was resiliated and informed the Tenant of its intention to “claim a penalty of 12 months of rent provided for in the lease”. After paying full rent for March 2020, the Tenant remitted to the Landlord—instead of the full rent of $13,797.00—$770,41 payable on May 15, $1,363.25 payable on June 15, and $1,128.82 payable on a date not specified. By June 30, 2020, the last day of the Lease, the Tenant had vacated the parking lot. It complied with its obligations under the Lease to remove all its installations on the lot.
The issue before the Court was whether the Tenant was freed from its obligation to pay rent for April, May and June 2020 because the pandemic and government-ordered closures constituted a superior force. A superior force is an “unforeseeable and irresistible event” which may free a party of its legal obligations. The COVID-19 pandemic and government decrees which led to a halt in the normal activities of the province satisfied the unforeseeable criteria. When the parties entered into the Lease in 2016, they could not have reasonably predicted that downtown Montréal would close down in April, May and June 2020.
However, in this case, the irresistibility criterion was not satisfied. There was no evidence that the Tenant was prevented from paying the rent. The evidence demonstrates that the Tenant’s sales at the parking lot dropped drastically during the three-month period in question, but this did not lead to the conclusion that the Tenant was unable to pay the rent. The fact that fulfilling an obligation may be difficult and onerous is not enough to satisfy the irresistibility criterion of superior force.
The Tenant explained that its finances were exceptionally precarious at the beginning of the pandemic and that the corporation was at serious risk of becoming insolvent. The Court held that such difficulties were insufficient to satisfy the irresistibility criterion. As such, the Tenant was not freed from its obligation to pay rent for April, May and June 2020 which it contracted pursuant to the Lease.
A tenant may, in some situations, be freed from its obligation to pay rent if it is not provided with the peaceable enjoyment of the leased premises for its intended purpose. In this case, the Tenant did, in fact, have the peaceable enjoyment of the leased premises during the three-month period during which it did not pay full rent. It actually operated the parking lot during the relevant time. As such, the Court concluded that it was not freed from its obligation to pay rent for this period.
The Court also considered whether the Tenant was freed from its obligation to pay rent for April, May and June 2020 because of the drastic reduction in business traffic. The Tenant argued that an important source of clients for the parking lot on Saint Antoine Street West was reduced drastically in April, May and June 2020 because access to the Landlord’s two adjacent buildings was restricted. The Court acknowledged that there was an important reduction in clients during the three-month period at issue. However, given the language in the Lease, this reduction had no bearing on the Tenant’s obligation to pay rent. The Lease did not create an obligation for the Landlord to provide clients to the Tenant. As such, the limited access to the Landlord’s buildings was irrelevant.
The Court ordered the Tenant to pay three months’ worth of rent, totaling $41,391.
Judge: The Honourable Geeta Narang J.S.C.
Counsel: Alexandre Franco of Crochetière Pétrin Avocats for the Plaintiff; Michael Aspler of Aspler & Associés for the Defendant
By Matilda Lici