COVID-19 Update: Rent Payment and Commercial Lease Enforcement During the Pandemic
The cornerstone of the global response to COVID-19 is social distancing. The effect of social distancing is perhaps nowhere more evident than in the halls of industry. Business, in all its forms, has or is in the process of being shuttered, and economic activity has largely ground to a jarring halt. One of the many interrelated aspects of this problem is the fact that industry’s contractual obligations persist, even during this period of unprecedented economic derailment. Commercial leases are no exception.
The COVID-19 pandemic is already causing significant stress on commercial tenancy relationships across the country as businesses choose or are forced to close as part of a national social/physical distancing policy. Governments and industry leaders are encouraging landlords to be flexible and work with their tenants to find practical solutions in order to bridge the gap through this difficult time. While it is reasonable to expect that many and even most landlords and tenants will make satisfactory arrangements during the crisis, some will undoubtedly not – especially where a commercial leasing dispute arose prior to the current crisis. Normally, where a commercial tenant fails to pay rent or is otherwise in serious breach of its lease obligations, a landlord has several remedies. While this varies somewhat across provinces, generally, a landlord can: (a) affirm the lease and sue for rent or for performance of an obligation (not available when rent distress is in progress) and commence an action in the applicable court; (b) affirm the lease and re-enter and re-let the premises (only if the landlord has reserved a right of re-entry in the lease or has received a court order to the same effect); (c) affirm the lease and exercise rent distress rights (seizure of property assets); or (d) accept the repudiation of the lease, terminate and re-enter, and sue for the rent that would otherwise have been payable for the balance of the lease term.
In this brief update, we consider the last of the above remedies, being the landlord’s ability to terminate a commercial lease, re-enter and re-let the premises, in the context of the COVID-19 pandemic. As courts across the country continue to limit their operations to only urgent matters, the ability for commercial landlords to effect lease terminations will be greatly constrained legally, practically and by virtue of public policy considerations.
We will revise this update as the situation develops and additional information becomes available from the provinces – watch this space. For further information concerning other effects of the pandemic on commercial leases we suggest you review, for example, our recent updates on the effect of force majeure clauses or potential insurance coverage issues in the wake of COVID-19. In the context of potential insurance coverage, of particular relevance to commercial landlords and commercial tenants is the fact that - in addition to business interruption insurance coverage - some insurance policies may also include broadly worded enough ‘loss of attraction’ or even ‘pollution’ provisions (the latter being mostly applicable to industrial businesses) that could also potentially trigger insurance protection, thereby assisting with, for example, rent obligations during the pandemic. This of course all depends on the language of the relevant policy/policies – for example, whether biologic agents are excluded from the coverage. Where tenants have such provisions, and where polices cover the landlord as co-insured, identifying such provisions early on could be critical to the insured parties, especially given standard insurance policy notice provisions.
In a March 16, 2020 announcement, the Ministry of the Attorney General of Ontario (“MAG”) stated that, in response to the COVID-19 pandemic, the Landlord and Tenant Board (“LTB”) would not consider nor issue eviction orders in relation to residential tenancies and that the Sheriff’s Department would postpone all scheduled eviction enforcements until further notice.
Commercial tenancies in Ontario are subject to the Commercial Tenancies Act (“ONCTA”). Section 18 of the ONCTA provides that a commercial landlord may repossess a leased premises 15 days after the tenant fails to both (i) pay rent and (ii) remedy the failure in the interim. Importantly, repossession by virtue of non-payment of rent does not require judicial sanction. However, it is always prudent for such an action to be backed by a court order. The resolution of all other disputes is to the Superior Court of Justice of Ontario (“ONSC”), rather than the LTB.
However, on March 15, 2020, the ONSC announced that all operations are suspended effective March 17, 2020, until further notice. With respect to civil matters, only “urgent matters” will be heard. “Urgent matters” are defined as:
- Urgent and time-sensitive motions and applications in civil and commercial list matters, where immediate and significant financial repercussions may result if there is no judicial hearing; and
- Outstanding warrants issued in relation to Small Claims Court or Superior Court civil proceedings.
If the current proceeding or proposed proceeding fails to qualify as one of the above, it is likely to be adjourned. Even if an action could be commenced in the ONSC, and the landlord could receive a writ of possession, the writ of possession needs to be executed by the Sheriff’s Department, and the Sheriff’s Department has been instructed not to carry out such orders until further notice.
The Alberta government has yet to issue a moratorium on evictions, commercial or otherwise. Alberta does not have a Commercial Tenancy Act like Ontario or BC, and, as such, there is no statutory right of repossession in Alberta. Repossession is therefore determined according to the common law or a specific lease provision. Disputes arising from commercial tenancies are resolved through civil actions in the courts of Alberta. However, effective March 16, 2020, both the Provincial Court of Alberta and the Alberta Court of Queen’s Bench (“ABQB”) have restricted judicial resources to “urgent” matters, which have been defined as:
- Orders relating to the pandemic, including quarantine orders;
- Injunctions, where there is prima facie urgency, including refusal of treatment/end of life matters;
- Civil Restraining Orders;
- Preservation Orders; and
- Urgent Orders (in the nature of habeas corpus, certiorari, mandamus and prohibition).
Absent a lease provision entitling a landlord to repossession on the occurrence of some specified event, for the time being, it would appear that landlords cannot receive judicial sanction to evict commercial tenants, other than where such eviction falls under one of the above-noted exceptions. In any event, it is most prudent to receive a court order prior to effecting any eviction procedures.
On March 25, 2020, the British Columbia government announced, among other things, a moratorium on residential evictions – i.e., the Residential Tenancy Branch (“RTB”) will not consider nor issue eviction orders until further notice.
Commercial tenancies in BC, however, are not subject to the jurisdiction of the RTB. Evictions of commercial tenants in BC are subject to the Commercial Tenancy Act (“BCCTA”). The BCCTA does not provide for a right of repossession absent court order. Rather, a commercial landlord’s right of repossession arises by virtue of the common law or a specific provision in the lease itself. On occasion, a commercial landlord may nevertheless seek judicial sanction, in which case the landlord must apply to the British Columbia Supreme Court (“BCSC”) and use the repossession options available in court. However, as of March 18, 2020, the BCSC has also ceased regular operations in the same way as its other superior court counterparts, as noted above.
The Government of Saskatchewan has not placed a moratorium on evictions, commercial or otherwise. Section 9 of Saskatchewan’s Landlord & Tenant Act is similar in operation to section 18 of the ONCTA, above, with the noteworthy exception that a landlord’s right to repossess for non-payment of rent only crystallizes after two full calendar months following the tenant’s failure to both pay the rent and remedy the failure in the interim. As in the other provinces, it is advisable to proceed with eviction only after supported by court order, especially during the current crises. Apart from that, the resolution of commercial tenancy disputes must be referred to the Saskatchewan Court of Queen’s Bench (“SKQB”). The SKQB, however, as of March 20, 2020, has ceased regular operations, subject to equivalent exceptions as those provided for by the ABQB (detailed above).
For more information about the content of this update, please contact one of the authors.
Should you wish to discuss other legal issues arising in your organization’s response to COVID-19, please contact Lara Nathans or Trevor Lawson.