On March 8, 2023, the Ontario Court of Appeal ("ONCA") released a concerning decision in the case of Niagara Falls Shopping Centre Inc. v. LAF Canada Company, 2023 ONCA 159 ("Niagara Falls"). It focused on a force majeure clause in a commercial lease between a retail landlord and a fitness facility tenant. The tenant was forced to stop all of its business operations in the leased premises by government-mandated shutdowns related to the COVID-19 pandemic (the "Pandemic") for periods of closure totaling approximately nine months. The Court interpreted the force majeure clause as having the following effects:

  • It excused the landlord for its breach of the covenant for quiet enjoyment.
  • The tenant had to pay rent to the landlord for the shutdown periods.
  • The term of the subject lease had to be extended for a period equivalent to the shutdown periods (i.e., nine months).
  • The tenant would not be required to pay rent to the landlord for the extension period.

The result should ring alarm bells for commercial landlords and tenants alike. Although it is ostensibly a welcome result for tenants, it creates a great deal of commercial uncertainty in the industry and is very difficult to reconcile with previously-established Ontario jurisprudence that appeared to confirm that landlords are not placed in breach of the covenant for quiet enjoyment as a result of government-mandated Pandemic restrictions.


In response to the Pandemic, the Ontario government enacted laws compelling non-essential workplaces to fully shutdown or severely limit their business operations. The wavering governmental policies in response to the Pandemic created an unpredictable environment where many retail tenants experienced a series of shutdowns punctuated by periods of stringent operational limitations (e.g., capacity limits). The restrictions negatively impacted retail tenants of different sizes and uses. The group most acutely affected by these restrictions included "big box" tenants who paid expensive rents for large spaces designed to accommodate large numbers of people, such as cinemas, entertainment/recreational facilities, gyms, and fitness facilities.

The result was a truly unforeseeable event that could not reasonably be ascribed to the fault of any single landlord or tenant. It was the most quintessential example of a force majeure event. In Canada, a force majeure clause is a contract provision designed to relieve a contracting party from a contractual obligation when a supervening event beyond its control makes performing that obligation impossible. Prior to the Pandemic, the force majeure clause (nearly universal in Canadian commercial leases) was relegated to the realm of boilerplate contract provisions over which most lawyers did not care to argue; but the Pandemic transformed force majeure into a hot topic in the legal community. We knew that most, but not all, of these force majeure clauses said that a force majeure event does not relieve a tenant of its rental obligations. Nevertheless, due to the unprecedented shutdowns caused by the Pandemic, lawyers questioned whether the Courts might be convinced to interpret force majeure clauses as relieving a tenant of its rental obligations to some extent, especially where the clause did not expressly preclude such relief.

Litigators quickly jumped into the fray and brought these very questions directly before the Courts. Ultimately, in Ontario, the resounding legal consensus appeared to be as follows:

  • A landlord was not in breach of its lease (including the covenant for quiet enjoyment) just because its tenant was subjected to government-mandated Pandemic restrictions on business operations.
  • Absent some express contract provision to the contrary, a tenant will not be relieved of its rental obligations as a result of a force majeure clause.

However, Niagara Falls has re-problematized the interpretation of force majeure clauses in the context of the Pandemic.

The Lower Court Decision (2022 ONSC 2377)

The tenant experienced approximately nine months of shutdowns throughout 2020 and 2021, with some intervening periods when it was permitted to operate subject to capacity limits. The tenant stopped paying rent when the Ontario government instituted a new Shutdown on December 26, 2020.

The landlord initiated a legal action to recover all unpaid rent. As part of its argument, the landlord said that the shutdowns were "restrictive laws" within the meaning of the force majeure clause, so it was exempted from its obligation under the lease to provide the tenant with quiet enjoyment of the leased premises. The judge accepted this submission.

The tenant argued that it was not obligated to pay rent during the shutdown periods because of frustration and unjust enrichment, abatement at common law and under the terms of the lease, and the force majeure clause. In particular, the tenant argued that: (i) during the periods that the fitness facility was shutdown, it was relieved of its rental obligations; (ii) during the period of the government-mandated capacity limits for the fitness facility, its rental obligations were reduced in proportion to those restrictions; and (iii) the extension provision in the force majeure clause [bolded in the excerpt below] (the "Force Majeure Extension Provision") required the term of the lease to be extended for a period equivalent to the shutdown periods (the "Force Majeure Extension Argument").The force majeure clause read as follows:

The force majeure clause read as follows:

"22.3 FORCE MAJEURE. If either party is delayed or hindered in or prevented from the performance of any act required hereunder because of strikes, lockouts, inability to procure labour or materials, retraction by a Governmental Authority of the Building Permit once it has already been issued, failure of power, restrictive laws, riots, insurrection, war, fire, inclement weather or other casualty or other reason of a similar or dissimilar nature beyond the reasonable control of the party delayed, financial inability excepted (each, a "Force Majeure Event"), subject to any limitations expressly set forth elsewhere in this Lease, performance of such act shall be excused for the period of delay caused by the Force Majeure Event and the period for the performance of such act shall be extended for an equivalent period (including delays caused by damage and destruction caused by such Force Majeure Event). Delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events. Force Majeure Events shall also include, as applied to performance of Tenant's acts, hindrance and/or delays in the performance of Tenant's Work or Tenant's obtaining certificates of occupancy (or their equivalent) or compliance for the Premises by reason of any of the following: (i) any work performed by Landlord in or about the Project from and after Delivery (including, but not limited to, the completion of any items of Landlord's Work remaining to be completed); and/or (ii) the existence of Hazardous Substances in, on or under the Premises not introduced by Tenant [emphasis added]."

The judge rejected all of the tenant's defences. In particular, she held that the force majeure clause did not relieve the tenant of its rental obligations during the shutdown periods. Further, she dismissed the Force Majeure Extension Argument because: (i) accepting it would lead to a "commercially absurd" result; and (ii) the Force Majeure Extension Provision was intended to deal with only a time-limited event in the lease, such as a repair obligation, not the landlord's covenant for quiet enjoyment.

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