The Canada-US trade war is squeezing commercial tenants and landlords alike. Tariffs, retaliatory measures, and the resulting uncertainty are disrupting supply chains and forcing companies across sectors to restructure. Add higher borrowing costs, elevated operating expenses, and softening consumer demand in some sectors, and the result is predictable: a growing number of commercial tenants cannot pay rent in full and on time, and a growing number of landlords are being asked to help carry them through it.
This is not a new problem. It is the same problem Canadian landlords and tenants faced during the pandemic, recurring now with a different trigger. Some of these conversations will happen through formal negotiation. Others will happen quietly. A tenant falls behind on rent and the landlord chooses, for the moment, not to exercise its strict enforcement rights. Either way, the question is the same. How well-prepared will the parties be when enforcement is finally on the table?
Canadian courts have developed a substantial body of case law on rent relief arrangements arising out of the last period of economic disruption, offering guidance on what works, what fails, and where the risks lie. This bulletin draws on that experience to set out practical recommendations for landlords and tenants navigating rent and cost relief in the current environment.
Key Takeaways
- Silence is not a waiver. Concessions that are not expressly documented can usually be reasserted later by either party.
- Specificity protects both sides. Rent relief arrangements with clear dollar amounts, dates, and consequences for non-compliance are far easier to enforce than open-ended understandings to catch up when things improve.
- Force majeure clauses almost never excuse an inability to pay rent, and do not exist at all unless the lease provides for them.
- Rent deferral, forgiveness, and restructuring are different arrangements with different consequences. Knowing which one is being negotiated, and on what terms, avoids unpredictable and costly disputes later.
- Rent relief should come with valuable consideration in return.
- Timing and documentation discipline benefit both the higher and lower leverage party, and early legal advice materially improves the range of options available to each.
What You Say and Do Not Say Matters
The gap between concessions that are agreed to versus those that are merely discussed without formal resolution is a recurring and often costly problem in rent relief litigation. When a lease obligation is not expressly modified or waived as part of a relief arrangement, the other party retains the right to reassert it later, even after a long period of informal accommodation. A party that assumes a right has been implicitly conceded because it was not raised during negotiations is taking a significant and usually costly risk. Even where a waiver has arisen, the party that granted it can later revert to its strict legal rights, but doing so effectively requires clear and reasonable notice, including an opportunity for the other party to cure any resulting default.
The Lease Should be Read and Drafted Carefully
Every lease must be read closely to determine how landlord rights and remedies are impacted by the provision of informal economic concessions. When drafting, parties will want to ensure that acceptance of partial payments is not construed as acquiescing to permanently reducing the payment obligations, and that default costs can be reimbursed through all appropriate avenues, such as a set-off right or resorting to a deposit on hand.
A force majeure (aka “unavoidable delay”) clause, which relieves timely performance for events outside a party’s control, almost always excludes an inability to pay. Moreover, force majeure does not exist at common law, so if the lease contains no such clause, the right to delay performance likely does not exist.
Best Practices for Negotiating Relief
- Formalize the deal to have its existence “litigation proofed”. A handshake, an email chain without resolution, or a vague understanding that the tenant will “catch up when things improve”, creates risks for both parties. Commitments to perform “within a reasonable time” or open-ended extensions that never re-establish a deadline are difficult to enforce and easy to dispute. Courts have consistently enforced rent relief and force majeure language exactly as written, for better or worse for the party relying on it, which means precision at the drafting stage is what determines the outcome later.
- Put the deal terms in clear, written form, with specific deadlines and consequences. A written agreement with specific dates, dollar amounts, and consequences for non-compliance protects everyone. It also provides a clear evidentiary record if the arrangement breaks down and enforcement becomes necessary. Key questions arise such as the following:
- Does the deferred/restructured amount bear interest, and if so, at what rate?
- How will the counterparty’s viability be monitored through new or enhanced financial reporting obligations going forward?
- What happens if these new concessions fail to save the counterparty from breaching their ongoing obligations?
- How will these concessions be treated if the property or the tenant’s business is sold to a more financially viable third party?
- Know what you are agreeing to and why. Rent deferral, rent forgiveness, and rent restructuring are distinct arrangements, so the parties must be precise about which one they are entering into and under what conditions. Before agreeing to any form of relief, each party should assess the nature of the underlying problem. A temporary liquidity issue, a more structural deterioration in the tenant’s economics, and a fundamentally uneconomic location each call for a different response and conflating them is a common and costly mistake.
- Be prepared to negotiate creatively. Rent relief should not be a one-dimensional discussion. A party granting meaningful concessions is entitled to ask for something in return that reflects the other side’s improved position, whether financial, operational, or otherwise. Such return consideration also supports the enforceability of the concession agreement.
Looking Ahead
Whether you are a landlord facing tenants in difficulty, a tenant navigating newfound financial pressure, or a stakeholder assessing portfolio risk across a broader footprint, early legal advice from counsel experienced in both lease negotiation and lease litigation makes a material difference to the outcome and the options available.
For the higher leverage party, typically the landlord, collecting something beats collecting nothing or a vague promise of future collections that goes unfulfilled. Any accommodation should be documented deliberately and with a clear view to what happens if the relief strategy does not work. Recall that virtually all bankruptcy and insolvency proceedings stay enforcement rights against the insolvent party, so prompt and deliberate action is prudent.
For the lower leverage party, typically the tenant, coming to the table early, with a realistic and transparent proposal, will usually produce a better outcome than waiting for the other side to react to defaults.
For all parties, the cost of getting it right at the outset is a fraction of the cost of unwinding an arrangement that was poorly documented, inadequately considered, or addressed too late to matter. If you are facing, or anticipate facing, a rent relief conversation, we encourage you to contact the authors to discuss your options.
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.
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