HBC's Efforts To Withhold Rent Due To Landlords' Failure To Maintain "First Class" Shopping Centres

• Published date: 10 December 2020
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Trials & Appeals & Compensation, Landlord & Tenant - Leases
• Law Firm: Gardiner Roberts LLP
• Author: Mr James Cook

During the COVID-19 pandemic, with consumers leery of indoor shopping and retailers being forced to keep their doors closed due to health regulations, many commercial tenants are staring down the barrel of eviction due to their failure to pay rent. One retailer in Canada, Hudson's Bay Company ("HBC"), which professes to be North America's oldest company, has decided to go on the offensive by filing a Statement of Claim in the Ontario Superior Court of Justice against a number of affiliated companies (the "Landlords") who own shopping centres in Canada in which HBC operates.

HBC's failure to pay rent during the pandemic has been widely reported. There can be little doubt that the revenue from bricks and mortar retail stores has been dramatically impacted by the pandemic. According to HBC's Statement of Claim, however, negotiations with the Landlords regarding the payment of rent were halted when the Landlords "surreptitiously commenced litigation against HBC in Québec." The Globe and Mail has reported that the Québec lawsuit is part of a pattern of HBC's Landlords seeking court orders for unpaid rent including cases in West Vancouver and Miami. Recently, an interim decision of Justice Hainey in Ontario prevented HBC's eviction from Hillcrest Mall in Richmond Hill. Instead, Justice Hainey split the difference and ordered that 50% of the outstanding rent (or approximately $660,000) to be paid to the Landlord.

It is perhaps not surprising, then, that a commercial tenant in HBC's position may attempt to turn the tables and blame its landlord for its inability to pay rent. HBC's Statement of Claim seeks, amongst other things, a declaration that HBC does not have to pay rent until certain breaches in the lease agreements are cured, a disgorgement of rent paid since April 2020 (for three locations in which they paid rent under "protest"), an order permitting HBC to access the air handling systems of the shopping centres, and an interim order preventing the landlords from evicting HBC.

HBC alleges that customer traffic in the shopping malls has been down by 70% since reopening and sales have fallen by just as much. The claim highlights some facts that every retailer knows to be true, that "(c)ustomer traffic levels and dwell time have fallen precipitously".

At the heart of the claim lies an accusation that the Landlords have failed to provide "first class shopping centres" and the corresponding benefits of customer traffic. HBC alleges that a "first class...