Bill 23: The Commercial Tenancies Protection Act
Bill 23, the Commercial Tenancies Protection Act (the “CTPA”), passed first reading in the Legislative Assembly of Alberta on June 16, 2020. The CTPA proposes to protect commercial tenants from evictions, related fees and penalties for the late- or non-payment of rent, and rent increases between March 17, 2020 and the COVID-19 public health emergency end date, currently presumed to be August 31, 2020 (the “Emergency Period”). If passed, the CTPA will apply retroactively and for the duration of the pandemic, significantly altering the rights of commercial landlords in Alberta. In this brief update, we discuss the most important aspects of the anticipated forthcoming CTPA.
When does the CTPA come into effect?
The CTPA has only received First Reading in the Alberta Legislature and therefore must still go through Second and Third Reading and receive Royal Assent prior to becoming law. The fact that the CTPA is not yet law should not be seen as an opportunity. The CTPA will apply retroactively and undo remedial action initiated by landlords during the Emergency Period, subject to the below qualifications. We will update this article as the CTPA progresses through the Legislature.
Who Will the CTPA Apply to?
The CTPA will apply to classes of landlords and tenants specified by forthcoming regulations. The CTPA’s preamble offers initial indications and comments made by legislators at the first reading suggest that the Act is focused at tenants struggling to meet their lease obligations because of circumstances beyond their control, such circumstances caused specifically by the COVID-19 pandemic.
The CTPA will apply only to commercial tenancy agreements that were in effect in Alberta on March 17, 2020 or that were made effective during the Emergency Period.
There are certain nuances with respect to the CTPA’s retroactive application, particularly as they relate to the moratorium on evictions, fees and penalties, and increased rent:
- The CTPA will not undo, or give rise to a cause of action for, a termination of a tenancy agreement and the eviction of a tenant that occurred between March 17 and June 16, 2020.
- Landlords that charged and collected fees or penalties for late- or non-payment of rent after March 17, 2020, regardless of whether the tenancy agreement was terminated prior to June 16, 2020, will need to refund the fees and penalties to the tenant, or provide a commensurate rent credit if the tenancy persists.
- Landlords will only need to refund rent increases charged and collected after March 17, 2020, if the tenancy agreement persisted beyond June 16, 2020.
What Will the CTPA do?
Prohibition of Contractual Remedies
Landlords to whom the CTPA applies cannot give a notice of default, distrain for rent, evict a tenant, or otherwise exercise remedies under or terminate a tenancy agreement during the Emergency Period in relation to:
- the non-payment of any rent, rent arrears, or both;
- the applicability of a force majeure provision or frustration of a contract; or
- the breach of any continuous occupancy clause of a tenancy agreement.
The above prohibitions apply only in situations where the tenant’s problems were caused by factors outside the tenant’s control by reason of the COVID-19 pandemic. The proposed legislation does not specify which party bears the onus of proving or disproving the requisite causal link between the pandemic and the tenant’s difficulties.
Prohibition on Late Fees and Penalties
Landlords to whom the CTPA applies cannot charge a fee or penalty for late - or non-payment of rent by a tenant during the Emergency Period. The CTPA also voids all provisions in the tenancy agreement related to the enforcement and collection of said fees and penalties. In other words, while these fees and penalties may theoretically be charged to the tenant after the Emergency Period expires, the landlord is thereafter prevented from contractually enforcing and collecting those fees and penalties. Nor can a landlord retain the fees and penalties already collected. The landlord must either reimburse the tenant for these amounts, or provide a commensurate rent credit.
Prohibition on Rent Increases
Landlords to whom the CTPA applies cannot increase the rent payable by a tenant during the Emergency Period. Where a landlord: (i) increased rent payable after March 17, 2020, collected that rent, and the tenancy agreement is still in effect; or (ii) charged and collected an increased rent pursuant to a new tenancy agreement with the same tenant for the same premises as the tenancy agreement that was in effect prior to the new agreement, the landlord must refund the difference or provide a rent credit to the tenant. However, where the tenancy agreement was terminated prior to June 16, 2020, a landlord can retain any amounts received as increased rent.
Failure by the landlord to adhere to the provisions of the CTPA will constitute a substantial breach of the tenancy agreement and provides the tenant with the ability to pursue recourse under the terms of the lease agreement or any additional rights established by regulations.
The CTPA will not compel rent forgiveness or rent reduction. Rather, where the tenant is unable to meet its rent obligations for reasons related to the COVID-19 pandemic, the CTPA obliges the landlord and tenant to enter a payment plan. The specific term of a payment plan may extend beyond the Emergency Period and must account for any fees, penalties, or increased rent that have not otherwise already been refunded to the tenant. A landlord has full recourse to remedies under the lease (as amended by the payment plan) where the tenant fails to adhere to the payment plan agreed to by the parties. However, the Act does not establish consequences for a failure to agree on a payment plan.
Who Will be Excluded from the CTPA?
The CTPA does not affect a landlord’s right to terminate a tenancy in all instances. Where one of the circumstances listed below exist, and the occurrence thereof constitutes a substantial breach under terms of the lease, the landlord may terminate the tenancy and evict the tenant. However, the landlord is still prevented from exercising other common remedial rights under the lease, such as distrain, additional fees, etc.
The CTPA does not prevent a landlord from terminating the tenancy and evicting a tenant where the tenant:
- interferes with the rights of the landlord or the other tenants;
- performs illegal acts, carries on an illegal trade, or endangers persons and property;
- damages the premises;
- fails to maintain the premises;
- fails to vacate the premises at the expiration of the tenancy, if the expiration is not related to COVID-19;
- abandons the premises without notifying the landlord;
- becomes insolvent or engages in a fire sale;
- receives notice pursuant to s. 244 of the Bankruptcy and Insolvency Act; or
- is a corporation and an order is made for the winding-up of the tenant.
For more information about the content of this article, please contact one of the authors.