Commercial Leases and Relief From Forfeiture: A Second Chance For Tenants During COVID-19?

Nick P. Poon, B.Sc. (Hons.), B.A., J.D.Business Disputes, Commercial, Commercial and Contract Litigation, Commercial Contracts, Commercial Leasing, Commercial Litigation, Contract Disputes, Contract Termination, Real Estate Litigation, Shopping Mall Lease Disputes, Shopping Mall Lease Litigation0 Comments

Today is the first day landlords can apply for the Canada Emergency Commercial Rent Assistance Program (CECRA) as reported in our blog last week entitled COVID-19 | Ontario-Canada Emergency Rent Assistance Program – Part 2.

Although commercial rent relief is now finally available for the months of April, May and June 2020, it has been over two months since non-essential businesses in Ontario were required to close.  The gradual re-opening of some non-essential businesses, under strict guidelines, was only announced over the last few weeks.  According to a recent survey by CFIB, 48% of Ontario small businesses suffered a drop in revenue of 70% or more, and 77% of Ontario small businesses suffered a drop in revenue of 30% or more.  It is highly unlikely that these small businesses will survive the COVID-19 pandemic without further assistance.

In addition, it has been widely reported that some commercial landlords will not participate in the CECRA program for various reasons.  Furthermore, the forgivable loan of up to 50% of the gross monthly rent is not payable until final approval of the application, and there has been no indication as to when the funds for the forgiveable loan will be transferred.

Termination of Lease for Non-Payment of Rent

As a result, it is not surprising that many small business tenants failed to make their rent payments on April 1, 2020 and May 1, 2020 (and are unlikely to make their rent payments on June 1, 2020), and they have requested various forms of rent relief from their landlords such as rent deferral, rent reduction, rent abatement, loan conversion, etc.

While some landlords have taken a flexible approach to rent payments during the COVID-19 pandemic, there have been other landlords that have strictly enforced their legal rights for non-payment of rent by exercising their rights to terminate the lease and evict the tenant.

Under s. 18(1) of the Commercial Tenancies Act, the landlord may re-enter and take possession of the leased premises, without notice, if the tenant has not paid the rent for a period of fifteen days after the rent is due (provided the lease does not expressly address an alternative procedure and remedy for non-payment of rent).

Relief From Forfeiture – General Principles

Where the landlord has terminated the lease agreement for non-payment of rent (and/or other breaches of the lease), the tenant may bring an urgent application for relief from forfeiture to “reverse” the eviction.

The Ontario Superior Court of Justice has the authority to grant relief from forfeiture on an equitable basis under s. 98 of the Court of Justice Act and s. 20(1) of the Commercial Tenancies Act.  Relief from forfeiture is a purely discretionary remedy which the court may grant, having regard to the circumstances, and may set terms as the court deems just such as requiring the tenant to pay the rent arrears and the landlord’s costs and expenses related to the eviction.

In exercising its discretion as to whether to grant relief from forfeiture, the court should consider all of the circumstances, including:

1.     The history of the relationship between the landlord and the tenant;

2.     The tenant’s conduct or misconduct, including breaches of other covenants of the lease by the tenant, and gravity of the breaches;

3.     The tenant’s good faith or bad faith or want of “clean hands”;

4.     Whether the object of the right of forfeiture in the lease was essentially to secure the payment of money; and

5.     The disparity between the value of the property forfeited and the damage caused by the breach.

When the default is merely for non-payment of rent and the tenant is capable of making full payment of the rent arrears plus interest, then the court will usually grant relief from forfeiture.  The terms of the relief will usually require the tenant to bring the lease back into good standing and to pay the landlord’s expenses and costs with respect to the termination of the lease.

However, in most cases during COVID-19, small business tenants are unlikely to be able to bring the lease back into good standing by paying the rent arrears.  The COVID-19 pandemic and its effects are, after all, the main reason for the non-payment of rent.  The court will have to consider other factors in determining whether relief from forfeiture is just and reasonable under the circumstances.  For example, the tenant may have been a perfect tenant and never missed a rent payment in the last five years but was unable to pay the rent recently because Ontario issued an Emergency Order mandating the closure of non-essential businesses during the COVID-19 pandemic, and/or other government policies required physical and social distancing which caused the tenant to suffer a steep decline in revenue.  The court should also consider the consequences of declining to grant relief from forfeiture including putting the tenant out of business with the associated loss of jobs to employees and other negative effects on the local community.  The landlord may be fully capable of withstanding the effects of COVID-19 and has the ability to easily pay its expenses without the rent payments or, in contrast, the landlord may also be a small business struggling with its own financial obligations to meet such as mortgage payments and other expenses related to the property.

Urgent Applications for Relief From Forfeiture

In a recent decision, Campbell v. 1493951 Ontario Inc., 2020 ONSC 2942, Justice Meyers commented on the large number of urgent applications for relief from forfeiture handled by the court during COVID-19, stating:

It is not always clear in such cases that the tenant is suffering from the effects of the pandemic or whether the tenant actually cannot pay its rent or, by contrast, whether a landlord may be using a tenant’s financial predicament as a convenient basis to remove an otherwise pesky tenant … What is clear however, is that these cases are always urgent.  Re-entry by the landlord shuts down a business on the sudden.  Irreparable harm is rarely in issue where injunctive relief is sought along with relief from forfeiture.

Justice Myers noted that the court had called on counsel and the parties to cooperate during these unprecedented times, and under the circumstances, landlords should be taking a flexible approach with respect to rent payments because “it is difficult to understand how the landlord is harmed if it accrues the tenant’s rent obligation as a legal entitlement rather than having an empty unit”.  Justice Myers wrote, “Generally speaking, now is the time for understanding and empathy rather than strict enforcement of one’s legal rights just because an opportunity has presented itself”.

How Can We Assist You?

Our lawyers have expertise and experience in commercial lease matters and real estate litigation matters and can assist you in resolving your legal issues in a timely and cost-effective manner.  Please contact us for an initial consultation through our Request Consultation Form, email to or by telephone (416) 979-2020.

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About the Author
Nick P. Poon, B.Sc. (Hons.), B.A., J.D.

Nick P. Poon, B.Sc. (Hons.), B.A., J.D.

Practitioner in Civil Litigation with a focus in insurance defence, real estate litigation, condominium disputes and commercial litigation. Bio | Contact

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