Aug 6, 2020

Can a tenant escape the requirement to pay rent as a result of COVID?

Hengyun International Investment Commerce Inc. c. 9368-7614 Québec inc., 2020 QCCS 2251 (CanLII)

1. The Landlord and VFC entered into a five-year lease to operate a gym in premises located on the entire second floor of the building (the “Premises”). Soon after signing, VFC asked the Landlord to change the name on the lease to Quebec Inc. but the change was never made.

2. On December 5, 2017, VFC made an assignment in bankruptcy. As of January 2018, after completing renovations, Quebec Inc. began operating in the Premises. Since that time, the parties had been in constant conflict over a variety of issues. The Landlord argued that Quebec Inc. had no right to occupy the Premises. According to the Landlord, VFC did not transfer the lease to Quebec Inc. and could not have transferred it due to its bankruptcy. The Landlord sought eviction as well as compensation for its loss of revenue. Quebec Inc., on the other hand, claimed that the lease was assigned to it and that it had every right to occupy the Premises. It also claimed rent reductions for different periods over the course of its occupation of the Premises, including the period of March to June 2020.

3. Quebec Inc. was forced by government decree to close the gym as of March 24, 2020 due to the Covid-19 pandemic. Fitness facilities were not on the list of services that were deemed essential and were thus unable to operate. Quebec Inc. argued that its inability to operate and, thus to generate revenue, was caused by superior force (force majeure) and that it should therefore be relieved of its obligation to pay rent for this period.

4. The Landlord argued that the situation did not qualify as superior force. In the alternative, it argued that such a situation was contemplated by paragraph 13.03 of the lease which required Quebec Inc. to pay rent notwithstanding an event of superior force. The Landlord also noted that Quebec Inc. applied for and received a government emergency loan of $40,000 in the context of the Covid-19 pandemic, and could not argue that it was prevented by superior force from paying the rent.

5. The Court concluded that no rent could be claimed from Quebec Inc. for the months of March, April, May and part of June, 2020. Article 1470 of the Civil Code of Quebec defines superior force as an unforeseeable and irresistible event. An event is unforeseeable if it could not reasonably have been foreseen at the time that the obligation (in this case, the lease) was contracted. In the context of the Covid-19 pandemic, the Court was satisfied that this criteria was met. As for the requirement of irresistibility, the event must prevent the performance of the obligation by anyone and not just by the debtor. The fact that the obligation may be more onerous or difficult, does not satisfy the criteria of irresistibility.

6. In order to qualify as superior force, the event at issue must prevent any tenant in Quebec Inc.’s situation from paying its rent and not just those who lack sufficient funds. The Court held that the Landlord was prevented by superior force from fulfilling its obligation to Quebec Inc. to provide it with peaceable enjoyment of the Premises. While Quebec Inc. still had access to the Premises, continued to store its equipment there and benefited, to some extent, from services, the lease provided that the Premises were to be used “solely as a gym” and this activity was prohibited by virtue of the government decree. As a result, Quebec Inc. had no peaceable enjoyment of the Premises during this period.

7. The Landlord correctly pointed out that in commercial leasing, the provisions of the Code, including the obligation to provide peaceable enjoyment, are not of public order and the parties are therefore free to limit their impact. However, the Court found that the force majeure clause contained in the lease contemplated obligations whose performance was delayed, not obligations that could not be performed at all. The Landlord’s fulfilment of its obligation to provide peaceable enjoyment of the Premises from March through June of 2020 had not been delayed—it simply could not be performed. Consequently, the Landlord could not insist on the payment of rent for that period.

8. The Court reduced the rent for the months of March through June 2020 and deduct $26,950.65 from the Landlord’s claim.