Summer 2021 Newsletter - Recent Developments In Property Leasing Part 1

• Published date: 02 October 2021
• Subject Matter: Real Estate and Construction, Coronavirus (COVID-19), Landlord & Tenant - Leases, Government Measures, Litigation, Contracts and Force Majeure
• Law Firm: Minden Gross LLP
• Author: Mr Stephen Posen, Christina Kobi, Michael S. Horowitz and Melodie D. Eng

When the government ordered the closure of all non-essential businesses, tenants quickly turned to their leases to see if the pandemic would qualify as force majeure and discharge them from their rent obligations. Hengyun International Investment Commerce Inc. v. 9368-7614 Québec Inc., 2020 QCCS 2251, ("Hengyun") was one of the first Canadian cases to consider force majeure in the context of COVID-19 government-mandated shutdowns. It sparked hope for tenants that rent relief was possible.

In Hengyun, the Landlord and the original Tenant, VFC, entered into a five-year lease to operate a gym. VFC soon made an assignment in bankruptcy and 9368-7614 Québec Inc. ("Québec Inc.") began operating on the premises. At issue was whether Québec Inc. had a right to occupy the premises and a right to reduced rent as a result of problems in the premises and the COVID-19 pandemic.

The lease contained a superior force (force majeure) clause, but it provided that it would not operate to excuse the Tenant from the prompt payment of rent. Québec Inc. argued that despite the language in the lease, it should be relieved from its obligation to pay rent because its inability to operate was caused by superior force. The Landlord argued that the pandemic did not qualify as superior force, and even if it did, the superior force clause obligates Québec Inc. to pay rent notwithstanding an event of superior force.

The Court concluded that Québec Inc. did not need to pay rent for March, April, May, and part of June 2020 (the period of the government-ordered closure). The Court relied on Article 1470 of the Civil Code of Québec ("CCQ"), which defines superior force as "an unforeseeable and irresistible event," and found that the COVID-19 pandemic was a superior force because: (i) it could not reasonably have been foreseen at the time the lease was contracted; and (ii) the requirement of irresistibility was satisfied as the government-mandated closure prevented any tenant in Québec Inc.'s situation from paying its rent and not just those who lacked sufficient funds. The Court determined the Landlord was prevented by superior force from fulfilling its obligation to Québec Inc. to provide it with peaceable enjoyment of the premises and, as a result, the Landlord could not insist on the payment of rent for this period in accordance with Article 1694 of the CCQ.

Because this decision was rendered under the civil law in Québec, its application to the common law provinces was uncertain until...