This blog is a critical update to our previous article.
On June 17, 2020, the Ontario government passed the Protecting Small Business Act, 2020 (the "Act") to prohibit commercial landlords from evicting certain commercial tenants for non-payment of rent. Landlords also are barred from seizing those tenants' property for the purpose of sale in order to pay existing rent arrears. This type of seizure is called "distress" and, but for the Act, is a permitted means of collecting rent arrears. The Act prohibits commercial landlords from enforcing these rights between June 18, 2020 and September 1, 2020 (or on an earlier day to be named by proclamation of the Lieutenant Governor) (the "Non-Enforcement Period"). 1 The Act does not prevent commercial landlords from terminating leases for tenant defaults other than rent arrears.
The Act applies to landlords who are or would be eligible to receive assistance under the Canada Emergency Commercial Rent Assistance (the "CECRA Program") for small businesses program. 2 However, if the landlord is approved to receive the CECRA Program, then the Act does not apply and landlords are free to enforce their remedies as permitted by the CECRA Program if their tenant fails to pay rent. 3
The Act prohibits the following conduct by commercial landlords:
- No Writ of Possession: Ontario Courts are prohibited from ordering a writ of possession during the Non-Enforcement Period if the basis for ordering the writ is an arrears of rent. 4 This applies to any court proceeding for a writ of possession that was commenced before, on or after June 18, 2020. 5
- No Right of Re-Entry and No Distress: Landlords are prohibited from exercising their right of re-entry, 6 and from seizing any goods or chattels as a distress for rent arrears 7 during the Non-Enforcement Period.
Landlords Must Restore Possession of the Premises and Return Seized Goods
The most notable sections of the Act are sections 83 and 85, which apply to enforcement steps taken by landlords between May 1, 2020 and June 17, 2020.
- Restore Premises: If a landlord exercised a right of re-entry between May 1, 2020 and the start of the Non-Enforcement Period, the landlord must restore possession of the premises to the tenant or, if unable to do so, must compensate the tenant for damages. 8 The tenancy will be deemed to be reinstated on the same terms and conditions unless the parties agree otherwise. 9
- Return Seized Goods: If a landlord seized a tenant's goods or chattels between May 1, 2020 and the start of the Non-Enforcement Period as a distress for rent arrears, the landlord must return any unsold goods and chattels to the tenant as soon as reasonably possible. 10
Liability for Landlords
If a landlord contravenes or fails to comply with the sections of the Act, they will be liable to "the person aggrieved for any damages sustained by the person aggrieved as a result of the contravention or non-compliance." 11 "The person aggrieved" is a broader term than "tenant" and it appears that the government wants to preserve the rights of shareholders and maybe even employees who are affected by an illegal lease termination so that a landlord cannot be certain to avoid liability even if a tenant goes out of business. 12
What's Next for Landlords and Tenants?
The Act allows tenants to carry on business without the immediate fear of eviction for non-payment of rent. It also provides additional remedies to tenants who had their goods or chattels seized as a distress for rent arrears on or after May 1, 2020; and who had been evicted on or after May 1, 2020. As tenants may continue to carry on business without paying rent, landlords now have an incentive to apply for rent assistance which is available under the CECRA Program.
Landlords' exposure to liability has increased significantly. Decisions which were otherwise legal enforcement steps taken by landlords on or after May 1, 2020, must now be reversed. If those decisions are irreversible, then the landlord is required to compensate the tenant or "the person aggrieved".
The day of reckoning will come on September 1, 2020 when the Act no longer applies and the tenant is faced with the obligation to pay all of the deferred rent. If a landlord has made use of the CECRA Program, that obligation will be reduced from the full rent obligation contained in the lease. However, there will still be a significant rent accrual during a time when business is likely slow.
If you have any questions about how the Act affects you, please feel free to contact us.
1 Act, s. 79
2 Act, s. 80(1)
3 Act, s. 80(2)
4 Act, s. 81(1)
5 Act, s. 81(2)
6 Act, s. 82
7 Act, s. 84
8 Act, s. 83(1)
9 Act, s. 83(2)
10 Act, s. 85
11 Act, s. 86(1)
12 Act, s. 86(2)
Originally published June 18, 2020
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.