Case: Niagara Falls Shopping Centre Inc. v. LAF Canada Company, 2023 ONCA 159 (CanLII)
Keywords: force majeure clause; commercial tenancy; non-essential workplace
Synopsis:
The Respondent (“Landlord”) owns a shopping plaza in Niagara Falls, Ontario. The Appellant (“Tenant”) is a Nova Scotia company that owns and operates 31 fitness centres across Canada. (See paras. 6-7).
On March 24, 2020, the Ontario government mandates the closure of all “non-essential workplaces”, including “fitness facilities”. (See para. 10; O Reg 82/20). The Tenant’s business is disrupted by restrictions which prevent reopening and/or impose capacity limits. (See para. 10).
The Landlord and Tenant enter a rent deferral agreement for the period of April to June, 2020. Pursuant to the agreement, 50% of the base rent is forgiven and 25% is deferred. The Tenant is required to pay rent until the end of 2020, even though its fitness facility is only permitted to reopen with limited capacity. (See para. 11).
The Ontario government then imposes a further “lockdown”, effective December 26, 2020. The Tenant then refuses to continue paying rent. The Landlord brings an action for all unpaid rent. The Tenant’s defence is based on, inter alia, a force majeure clause in its lease agreement. (See para. 12).
The Motion Judge (Pollak J.) finds the force majeure clause exempts the Landlord from performing its obligation to provide the leased premises during closure periods, and requires the Tenant to pay the rent without providing an extension of the tenancy for an equivalent period. (See para. 2). The Court of Appeal (Gillese, Tulloch, and Roberts JJ.A.) disagrees; allowing the Tenant’s appeal and declaring that the Landlord “shall perform its obligation to provide the Tenant with the leased premises for a period equivalent to the closure periods…and that the [T]enant is not obliged to pay rent during the Extension Period.” (See para. 5).
Importance:
This Court of Appeal decision is important because it addresses the rights and obligations of landlords and tenants during the global COVID-19 pandemic. In this case, determining those rights and obligations depends on the interpretation of the parties’ force majeure clause.
As succinctly stated by the Court of Appeal, “[f]orce majeure clauses are contractual provisions designed to discharge a contracting party when an event beyond the control of either party makes performance impossible”. (See para. 27; Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp and Paper Company Limited, 1975 CanLII 170 (SCC), at p. 583).
The Motion Judge and the Court of Appeal were in agreement that a government-ordered closure of the Tenant’s fitness facility would qualify as an event triggering the operation of the parties’ force majeure clause. (See para. 28; Windsor-Essex Catholic District School Board v. 2313846 Ontario Limited o/a Central Park Athletics, 2022 ONCA 235 at para. 3). The two decisions part ways on the implications of that finding. For the Motion Judge, the force majeure clause provides a contractual exemption to the Landlord. On this reading of the clause, the Tenant’s position (i.e. that a rent-free extension should be provided to the Tenant equivalent to the period of time in which the Landlord was excused from its obligations) would be “commercially absurd”. (See para. 30).
The Court of Appeal addressed whether the lease agreement in question was a “standard form contract”, subject to correctness review. (See paras. 19-25; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37). The Court determined that it was not. (See para. 23). However, the Court of Appeal determined that the Motion Judge made two “extricable legal errors” in her interpretation of the lease, and so the usual appellate deference outlined in Sattva was “not warranted”. (See paras. 23-25; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at paras. 52-54). For the Court of Appeal, the Motion Judge’s interpretation “does violence to the clear language and intent” of the force majeure clause by reading in an exemption for the Landlord and re-writing the parties’ agreement on the consequences of a force majeure event. (See paras. 33-37).
Ultimately, the Court of Appeal concluded that the Tenant could not rely on the clause to excuse it from paying rent during the closure period. The Court did find, however, that the clause provides for an extension period, during which the Tenant “shall not be obligated to pay rent…having already been required to pay it during the closure periods”. (See para. 49).
Counsel for the Appellant: Jeffrey Haylock and Emily Young (Polley Faith LLP, Toronto)
Counsel for the Respondent: Harvin Pitch and Adam Brunswick (Teplitsky LLP, Toronto)