Impact of COVID-19 on the payment of commercial rent

A judgment rendered by the Superior Court of Québec last July 16 may have a considerable impact on the payment of rent by certain tenants during the pandemic.¹  Under the specific circumstances of this case, the judgment confirms that a tenant may be relieved of its obligation to pay rent due to superior force where the event prevents the landlord from providing peaceable enjoyment of the leased premises.

Context

Hengyun International Investment Commerce Inc. (Hengyun) was leasing premises to 9368 7614 Québec Inc. (Québec Inc.) to operate a gym. Hengyun sued Québec Inc. for unpaid rent, while Québec Inc. sought damages and a rent reduction for the numerous problems that had cropped up since it began occupying the leased premises.

The Superior Court examined several issues, including whether or not Québec Inc. was entitled to a rent reduction for the March 24 – June 22,  2020, period during which Québec Inc. was forced to shut down its gym due to the COVID-19 pandemic after the Québec government issued order-in-council no. 223 2020 (the decree).²

Québec Inc. argued that because its inability to operate and generate revenue during that period resulted from an event of superior force, it should be released from its obligation to pay rent for that period.

Hengyun argued the situation faced by Québec Inc. did not qualify as superior force. In any case, according to Hengyun, paragraph 13.03 of the lease required Québec Inc. to pay rent notwithstanding an event of superior force:

13.03 Unavoidable delay

Notwithstanding anything in this Lease to the contrary, if the Landlord or the Tenant is delayed or hindered in or prevented from the performance of any term, obligation or act required hereunder by reason of superior force […] then the performance of such term or obligation or act is excused for the period of the delay, and the party so delayed shall be entitled to perform such term, obligation or act within the appropriate time period after the expiration of such delay, without being liable in damages to the other.

However, the provisions of this Section 13.03 shall not operate to excuse the Tenant from the prompt payment of the Base Rent or Additional Rent of any other payments required by this Lease.

Decision

Without accepting all of Québec Inc.’s claims, the court did relieve Québec Inc. of the obligation to pay rent for the period during which the decree prevented it from operating its gym. 

The court first examined the two essential criteria of an event of superior force: unforeseeability and irresistibility.

The court was satisfied that the criterion of unforeseeability had been met, as the COVID-19 pandemic could not reasonably have been  foreseen at the time of the lease’s signing. 

As for the requirement of irresistibility, the court dismissed Québec Inc.’s argument that it had been prevented from fulfilling its obligation to pay rent because it was unable to generate revenue due to the decree. The court specified that the event of superior force must prevent the performance of the obligation by anyone, not just by the debtor. The event must also make the performance of this obligation impossible, not just more onerous or difficult. 

In the court’s view, even though the COVID-19 pandemic did not prevent Québec Inc. from fulfilling its obligation to pay rent during the period in question, it did prevent Hengyun from fulfilling its obligation to Québec Inc. to provide it with peaceable enjoyment of the leased premises. While Québec Inc. still had access to the leased premises and benefitted, to some extent, from certain services, the lease provided that the leased premises were to be used solely as a gym, an activity that was prohibited by virtue of the decree. As a result, the court was of the view that Québec Inc. did not have peaceable enjoyment of the premises from March 24 to June 22, 2020.

As Hengyun was prevented by superior force from fulfilling its obligation of providing Québec Inc. with peaceable enjoyment of the leased premises, it could not exact Québec Inc.’s correlative obligation pursuant to article 1694 of the Civil Code of Québec. Hengyun therefore could not insist on the payment of rent for the period between March 24 and June 22, 2020. 

The court then examined paragraph 13.03 of the lease to determine its impact on the parties’ rights and obligations. The clause stipulates that a party unable to perform an obligation due to superior force is only excused for the period of the delay and must perform the obligation at a later time. The court concluded that the paragraph only covers obligations the performance of which have been delayed by an event of superior force, not obligations that cannot be performed at all. As the landlord’s obligation to provide peaceable enjoyment during the period in question had not been delayed but simply could not be performed, paragraph 13.03 of the lease did not apply.

The court added that the landlord could not, at any rate, fully and completely relieve itself of its obligation to provide the tenant with peaceable enjoyment of the leased premises.

Under the circumstances, the court concluded no rent could be claimed from Québec Inc. for the March 24 – June 22, 2020, period.

Take-aways

This judgment suggests that tenants may, under certain circumstances, be relieved of their obligation to pay rent due to an event of superior force if that event makes it impossible for the landlord to perform its correlative obligation of providing peaceable enjoyment of the leased premises, even if the event does not, per se, make it impossible for the tenant to pay rent. 

Note that at the time of writing, the deadline to appeal this judgment has not expired.

Each situation must be examined on a case-by-case basis to consider, among other things, the intended use of the premises under the lease, the impact of the superior force on the tenant’s activities and the scope of any superior force clause contained in the lease, if any.

The parties would be wise to consult their legal advisors to develop thoughtfully considered positions that reflect the complex considerations that need to be addressed to prevent any misunderstanding.