The Ontario Superior Court of Justice has considered recent changes to the Commercial Tenancies Act (the "CTA") in a new decision. The decision looks at the applicability of a newly-established non-enforcement period in the CTA to assist commercial tenants that are eligible for COVID-19 emergency relief programs. Please see our article covering those changes for more information.
In 2487261 Ont. Corporation v. 2612123 Ont. Inc., 2021 ONSC 336, the court considered these new provisions in deciding to grant a commercial tenant relief from forfeiture and restore possession of leased premises.
The tenant, 2487261 Ontario Corporation, operating as Symphony Banquet Hall (the "Tenant") rented commercial space from its landlord 2612123 Ontario Inc. (the "Landlord") for use as a banquet hall. The Tenant paid rent on time each month until March 2020, when the Tenant was forced to stop operating its business as a result of the COVID-19 pandemic and consequent provincial restrictions.
In April 2020, the Ontario government introduced the Canada Emergency Commercial Rent Assistance Program ("CECRA"), which allowed qualifying businesses to apply to reduce rent owed to the landlord to 25% and have the remaining rent subsidized by the Ontario government. The CERCA program was optional for landlords.
The Landlord never applied for the CECRA program, but it asked the Tenant to sign a partial application and a blank rent reduction agreement in support of the Landlord's application for rent assistance. The Landlord also sent the Tenant several emails which implied that it had applied or intended to apply for the program and had agreed to paying the March rent when the Tenant resumed its operations in the Premises.
The Tenant failed to pay rent in March, October, and November 2020 and it paid 25% of its rent from April to August 2020. Full rent was paid for the month of September 2020. On October 19, 2020, the Landlord entered the premises and locked the Tenant out of its banquet hall for non-payment of rent. The Tenant commenced an application for relief from forfeiture.
In granting the Tenant's application, the court looked at the email correspondence between the parties and determined that the Tenant and the Landlord had reached an agreement to allow the Tenant to pay the March rent when the Tenant resumed its business operations and to pay 25% of the rent for April to September 2020. The Landlord's emails confirmed that it accepted the 25% payments and never expressly rejected the Tenant's statements about this agreement. While the lease contained a term that all waivers must be in writing and signed by the Landlord, the court held that an email sent by the property manager satisfied this criterion. The Tenant was therefore entitled to a credit for 75% of the rent it paid in September 2020.
Justice Lemon stated that the new section 83 of the CTA established a non-enforcement period during which commercial landlords were not entitled to exercise a right of re-entry for failure to pay rent. However, the non-enforcement period established by section 82 and section 83 of the CTA provides a blanket prohibition on re-entry for any reason, not just rent defaults.
The Landlord re-entered the premises on October 19, 2020, even though the non-enforcement period had been extended to October 30, 2020 at that time. For that reason, Justice Lemon held that there was "no doubt" that the Landlord must restore possession of the premises to the Tenant.
With respect to the Tenant's application for relief from forfeiture, the court considered the usual applicable factors. Namely:
- 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;
- the disparity or disproportion between the value of the property forfeited and the damage caused by the breach;
- whether the tenant comes to court with clean hands;
- whether there has been an outright refusal to pay rent;
- whether the rent has been in arrears for a short or long time; and
- whether the landlord has suffered a serious loss by reason of the moving party's delay in paying rent.
In applying these factors, Justice Lemon held:
- the Tenant was reasonable in assuming that, based on the Landlord's conduct, it would not expect full payment of rent and would be making an application to the CECRA program. While the Landlord was not obligated to apply for the program, it was unreasonable for them to lull the Tenant into thinking otherwise. The Landlord showed bad faith in not making its intentions clear, while the Tenant showed good faith in making payments during the pandemic;
- there would be little damage to the Landlord if the rental payments were paid up to date, and if they were not paid, the lease would be terminated on other grounds in any event. The Tenant alleged it had considerable goodwill in the premises and that its loss would be substantial if relief from forfeiture was not granted. Thus, granting relief to the tenant might benefit the Landlord and at least "would certainly not make things worse";
- the Tenant generally came to court with clean hands, despite breaching some terms of the lease; and
- the Tenant never denied owing rent. The rent had only been owing for about three weeks before the Landlord began taking steps to enforce the lease.
Justice Lemon held that these factors favoured the Tenant and that forfeiture of the lease would be an excessive remedy. The Tenant's application for relief from forfeiture was therefore granted, and it was permitted to re-enter the premises to carry on pursuant to the terms of the lease.
Notably, Justice Lemon's reasons did not address the new section 86 of the CTA, which provides that a landlord will be liable to the tenant for any damages sustained as a result of their unlawful re-entry. This is likely because the Tenant in this case did not sustain any damages as they were not operating at the time.
Furthermore, the new CTA provisions do not provide that a lease will automatically be reinstated if a landlord breaches section 82 and terminates the lease. Therefore, the court had to deal with the relief from forfeiture analysis even though it found that the Landlord acted contrary to section 82 in exercising its right of re-entry. This suggests that it may also be possible for a tenant to be unsuccessful in its application for relief from forfeiture of the lease but may still successfully recover damages.
This decision shows that courts are willing to enforce the new provisions of the CTA and provide tenants relief during non-enforcement periods. However, this decision only deals with failures to pay rent. Whether courts will be as sympathetic and provide relief to tenants for non-rent defaults remains to be seen.
Originally Published by Pallett Valo, January 2021
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