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Background
COVID-19 devastated Canadian retail. Forced closures and lockdowns reduced sales for many retailers to a fraction of pre-pandemic levels. Hudson’s Bay Company ULC (“HBC”), once Canada’s oldest company and anchor tenant at Hillcrest Mall in Richmond Hill, Ontario, had paid rent in full and on time since 1978. Beginning in April 2020, HBC unilaterally withheld rent from its landlord, Oxford Properties Retail Holdings II Inc. (“Oxford”), accumulating arrears exceeding $1.3 million. Critically, there was no evidence HBC was financially unable to pay; it withheld rent deliberately as a negotiating strategy to obtain a pandemic-driven rent reduction. Oxford responded by serving HBC with a Notice of Intention to forfeit the lease.
The Parties’ Positions
Facing forfeiture, HBC sought relief under section 20 of Ontario’s Commercial Tenancies Act (“CTA”). HBC argued that section 20’s broad equitable language — “as the court thinks fit” and “the court considers just” — empowered courts to reduce, abate, or defer rent to achieve fairness in light of the pandemic’s extraordinary economic impact. Oxford countered that section 20 is a narrow, preserving remedy: its purpose is to protect a tenant from losing its lease for breach — not to rewrite the commercial terms the parties freely negotiated.
The Court’s Holding
The Ontario Court of Appeal unanimously sided with Oxford. Section 20 of the CTA does not authorize courts to abate or reduce agreed rent, regardless of the circumstances underlying the tenant’s default. Section 20(5) of the CTA expressly provides that a tenant granted relief holds the premises “according to the lease.” The court found this provision squarely dispositive: relief from forfeiture preserves the lease as written. An order abating rent does not preserve the lease — it alters one of its most fundamental terms, and is therefore unavailable under section 20.
Rationale: Freedom of Contract and Judicial Restraint
The court grounded its decision in principles of commercial certainty and party autonomy. As sophisticated commercial entities, HBC and Oxford freely negotiated their lease obligations. Courts are not empowered to redistribute economic losses from unforeseen events by recalibrating contractual terms under the guise of equitable relief. Doing so would undermine freedom of contract, invite litigation as a renegotiation tool, and destabilize commercial relationships that depend on enforcing contracts as written. Permissible deferrals under section 20 must reflect the time needed for compliance with the lease — not economic recovery. The court applied this reasoning equally to interest: the contractually agreed rate of TD prime plus 4% could not be reduced. Varying a negotiated interest rate is qualitatively no different from reducing rent itself; courts have no authority to do either under section 20.
Practical Implications
This decision has been consistently considered and applied in Canadian courts since its release in 2022. Lawyers advising landlords and tenants should include carefully negotiated force majeure clauses, business interruption provisions and explicit rent abatement or deferral mechanisms.
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