Pandemic Does Not Permit Courts To Rewrite Commercial Leases: Ontario Court Of Appeal

• Published date: 25 August 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Real Estate and Construction, Contracts and Commercial Law, Trials & Appeals & Compensation, Landlord & Tenant - Leases
• Law Firm: Torys LLP
• Author: Mr Jeremy Opolsky, H. Graham Rawlinson, Tristan McLeod and Julie Lowenstein

As Justice Doherty put it in the opening line of the Court's decision in Hudson's Bay Company ULC Compagnie de la Baie D'Hudson SRI v. Oxford Properties Retail Holdings II Inc., "[t]he arrival of COVID-19 in March 2020 changed everything"¹. But do unforeseen events, such as the business disruption from the COVID-19 pandemic, allow courts to reduce rent previously agreed upon in a commercial lease? Hudson's Bay confirms that they do not.

What you need to know

• The Court of Appeal for Ontario held that the equitable remedy of relief from forfeiture'codified in section 20 of the Commercial Tenancies Act'does not include rent abatement or reduction. Relief from forfeiture may in some circumstances include rent deferral, but only to the extent necessary to give meaningful effect to the relief and the tenant's ability to bring itself into compliance with the lease.
• If, even with a deferral of rent, a tenant cannot bring itself into compliance with the lease within a reasonable and specified period of time, relief from forfeiture will not be an appropriate remedy.
• The Court confirmed that orders granting relief from forfeiture cannot be used to rewrite commercial leases according to what the court views as "fair", even in the face of unforeseen extraordinary events like COVID-19.
• Hudson's Bay reinforces the reluctance of courts to rewrite commercial leases, especially those between highly sophisticated parties.

The details

Background

This case directly addresses the impact of the pandemic on the retail sales sector.

Hudson's Bay Company ULC (HBC) leases multiple properties from the landlord, Oxford. The HBC store here is in Hillcrest Mall in Richmond Hill, Ontario. The mall is owned by affiliates of Oxford. From the beginning of its lease in 1978, HBC was a model tenant and always paid its rent on time.

When COVID-19 struck in March 2020, HBC was forced by the government to shut its doors. Like many retail establishments across the country, HBC suffered significant economic losses: between March 2020 and April 2021 HBC sales were down 60.5%². Following the first COVID-19 government-imposed lockdown, HBC, unilaterally and without notice to Oxford, withheld payment of rent to Oxford, beginning with rent payable for April 2020. There was no evidence to suggest that HBC was financially unable to pay rent.

After HBC commenced proceedings against Oxford'alleging that Oxford had breached its obligation under the lease to operate the mall in accordance with...