Commercial Leases During Moratorium Period: 8443220 Canada Inc. v. V.G.R Investments Ltd. 2021 ONSC
As the new infectious disease variant animate the headlines, businesses will again be under pressure to maintain their contractual obligations in the face of a likely slow-down in business activity and, resultantly, decreased profitability.
For commercial landlords and tenants, the pandemic has been extremely difficult. A recent case demonstrates this and how the Courts are reacting.
The tenant sought relief through a government program styled as Canada Emergency Rent Subsidy (“CERS”). While the tenant was receiving subsidies to which it paid it as rent to the landlord, that amount did not cover the whole rent. The CERS programme required the tenant to cover the rest of the rent.
The landlord posited that the tenant fell further and further into arrears by not paying the full rent.
The landlord re-entered the leased property after the tenant breached the lease for non-payment of rent. This re-entry was during the moratorium period laid out in the Commercial Tenancies Act (“CTA”). Most of the rent arrears accumulated during the moratorium period.
The tenant sought an injunction restraining the landlord from re-entry.
Most of the battle between the parties was if the landlord can re-enter the property during the non-enforcement period prescribed in the CTA. The landlord argued that the tenant was not paying the full rent as it was required to meet in exchange from receiving the subsidy from the government.
Further, the landlord viewed that the tenant filed “false attestations” under the subsidy programme. The landlord argued the principle of ex turpi causa should prevent the tenant from
relying on its “fraudulent” conduct in seeking to obtaining equitable relief. In the alternative,
the landlord argues the tenant fails to come to the court with “clean hands”; a precondition for equitable relief.
The Court first held that the first part of the test of the three-part test must be modified as the tenant was seeking a mandatory injunction. Therefore, the tenant must prove that it has a prima facie case rather than a serious issue to be tried.
The Court found that section 79-85 of the CTA expressly prohibits commercial landlords from locking out their tenants who receive the subsidy for non-payment of rent during the moratorium period stated in the CTA.
The CTA goes as far as requiring the landlord to restore the possession and compensate for re-entry.
The Court held that though the forms signed by the tenant imply that full rent payment will be made by commercial tenants receiving CERS funds, the terms of the CTA and O.Reg 762/20 do not set out that requirement.
The Court further held thus far the government is not taking issue with tenant’s eligibility and the landlord is not acting as an agent for the CRA to enforce the programme.
The landlord knew it was likely breaching the Act and still went ahead to re-enter on the hope that the tenant would not fight back or “ask forgiveness than permission”. The Court found the tenant proved a prima facie case.
On the irreparable harm and the balance of convenience parts of the test, the Court found that tenant’s business would be out of business if the injunction is not granted. Further, the tenant was willing to pay a significant sum per month to get the rent arrears back into good standing. On those bases, the Court held granted an injunction allowing the tenant to take back possession on terms.
The Court took a peculiar approach in this case. The tenant was not holding up its end of the bargain. The tenant was receiving subsidies but was required to pay the rest of the rent to the landlord.
The Court’s position is taken that the CRA was not taking issue with the tenant’s ineligibility. However, the disentitlement or taking away of a contractual right to enforce through statute, at least, in my view, should require the benefactor, the tenant, comply strictly with the conditions. Especially, if the condition is one that impacts the landlord (i.e., the landlord entitled to receive full rent but the tenant not paying it).
Indeed, the tenant was benefitting from not paying the entire rent is enjoying the tenancy as a great discount.