Ontario courts have heard cases of commercial tenants seeking to rely on force majeure clauses to abate rent owed under a commercial lease throughout the pandemic. While courts have reached varying conclusions on the specific facts and the contractual wording between the parties, the Ontario Court of Appeal in Windsor-Essex Catholic District School Board v. 2313846 Ontario Limited o/a Central Park Athletics recently ruled in favour of commercial tenants.
School board rents space from sporting facility
The Windsor-Essex Catholic District School Board rented space from a commercial multi-purpose sporting facility. As a result of the province-wide lockdowns arising from COVID-19, the Sports Facility was unable to open its doors from March 17 to August 11, 2020, and the School Board was, therefore, unable to use the facility. The School Board brought an application for a decision that the force majeure clauses in the commercial lease between the parties was to apply to decrease the rent during the relevant period.
The application judge ruled in favour of the School Board, holding that the force majeure class applied, and rent should be abated during the relevant period. The Sports Facility appealed the application judge’s decision to the Court of Appeal.
What was the effect of the force majeure event on the parties’ contractual obligations according to the lease?
Force majeure means “greater force.” It is a contractual concept related to an act of God, an uncontrollable event for which no party can be held accountable, such as a hurricane, a tornado, or a war. The special force majeure clause in the parties’ contract read as follows:
In the event the Landlord claims a Force Majeure has prevented the Landlord from enabling the Tenant to make use of the Leased Premises or operate its programs in the Centre, Rent and Additional Rent shall fully abate during such period until the Landlord has restored the ability of the Tenant to use the Leased Premises and operate its programs in the Centre. [Emphasis added.]
In this particular case, there was no dispute that the application judge was right in finding that the government lockdowns triggered a force majeure event, as defined in the parties’ leases. There was also no dispute that the appellant Sports Facility could not provide the respondent School Board with the leased space for its intended and contracted use because of the government lockdowns. When the facility was closed, the Sports Facility “could not and did not provide the respondents with the leased space.” According to the force majeure clause, once the space could not be provided as such, the rent had to decrease during the relevant period fully.
The parties agreed that the application judge accurately summarized their positions on the application as follows:
[The appellant] argues that under the lease provisions, the triggering event excused the landlord from providing the leased premises but did not excuse the tenants from paying rent. The school boards’ obligation to pay rent was not impacted by any pandemic order. Consequently, under the lease, there is no basis to cease paying rent. To bolster this position, [the appellant] emphasizes the language in Clause 15.14: ‘In the event the Landlord claims a Force Majeure has prevented the Landlord from enabling the Tenant to make use of the Leased Premises or operate its programs…” (emphasis added), asserting that [the appellant] does not claim and never has claimed a force majeure. This fact, according to [the appellant] negates the following rent abatement provision.
The matter at the heart of the appeal was the triggering event’s effect on the parties’ contractual obligations. The application judge rejected the appellant’s argument, finding that the appellant, because of the government lockdown orders, was prevented from performing a lease term, providing the leased space for its contracted use. The application judge determined that the consequences were twofold under the lease: (1) the landlord was excused from its contractual obligation to provide the leased space, and (2) the contractual rent obligation of the tenants was decreased during the relevant period.
The Sports Facility argued that the application judge erred committed an error of law by not agreeing to the phrase “the Landlord claims” in the contract’s force majeure clause. They further submitted that despite the lockdowns being recognized as a force majeure event, they did not claim a force majeure event. Only such a claim would decrease the rent, so the rent could not be abated.
The court rejected the Sports Facility’s position, rejecting its position that the application judge ignored “the Landlord claims” wording in the contract. The court found that the application judge was, in fact, alive to those words “but rejected the submission that they held the meaning” that the Sports Facility claimed.
The court ruled that a contractual interpretation case involves questions of mixed fact and law and therefore engages the standard of palpable and overriding error. In reviewing the applicant judge’s reasoning, the court of appeal found no such error. It was open to them to consider the Sports Facility’s contractual interpretation argument and reject it. In dismissing the appeal, the court awarded all-inclusive costs of $15000.
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COVID-19 has presented complex issues for both commercial tenants and landlords. It’s essential to consult with a lawyer when drafting and entering into a commercial tenancy contract to ensure that your rights, in all circumstances, are best protected. It is also prudent to speak with a lawyer before unilaterally abating rent payments.
At Campbells LLP, our knowledgeable team of commercial real estate lawyers have extensive experience with the drafting and interpretation of commercial tenancies and complex real estate litigation that may arise out of a commercial real estate transaction. To speak with a lawyer about your commercial real estate needs, contact us online or at 905-828-2247 to schedule a consultation.