On July 13, 2020, the Superior Court of Quebec rendered a decision in Hengyun International Investment Commerce Inc. v. 9368-7614 Québec Inc., 2020 QCCS 2251 in which it held that a tenant was relieved from its obligation to pay rent under its lease for a gym for the months of March, April, May and part of June 2020. The court reasoned that, during that period, the landlord had been prevented from fulfilling its correlative obligation to provide peaceful enjoyment of the premises during that period by an event of superior force (force majeure).
The event of superior force in question was not the COVID-19 pandemic itself, but rather the March 24, 2020 Order in Council 223-2020 of the Government of Québec suspending certain non-priority business activities (“Decree”). Because gyms were not among the priority services listed in the schedule to the Decree, the Decree prevented the tenant from operating a gym in the premises from March 25, 2020 through June 19, 2020, when facilities such as gyms were allowed to reopen.
Importantly, the tenant’s lease had a very narrow permitted use clause which stated that the premises could be used “solely as a gym”, and it was this activity that was prohibited (among others) by the Decree. As a result, despite the fact that the tenant still had access to the premises, continued to store its equipment there and benefitted to some extent from services, the court took the view that the landlord had provided no peaceful enjoyment of the premises to the tenant during this period.
Where performance of an obligation is rendered impossible by an event of superior force, Article 1694 of the Civil Code of Quebec (“CCQ”) provides that the “debtor released by impossibility of performance may not exact performance of the correlative obligation of the creditor”. Having determined that the landlord was entirely prevented from providing peaceful enjoyment during the period that gyms were required to close, the court declared that the landlord could not extract any rent from the tenant for that period.
The relevant part of the lease read as follows:
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, strikes, lockouts, labour troubles, riots, accidents, inability to procure materials, restrictive governmental rules, regulations or orders, bankruptcy of contractors, or any other event whether of the foregoing nature or not which is beyond the reasonable control of the Landlord or the Tenant, as the case may be, 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 or any other payments required by this Lease. [emphasis added]
The court noted that, although Section 13.03 of the lease referred to performance of obligations being delayed, hindered or prevented by superior force, it only excused delays in performance. The landlord’s fulfillment of its obligation to provide peaceful enjoyment was prevented from March through June 2020, not delayed. Accordingly, the court concluded that Section 13.03 did not alter the general regime set out in Article 1694 CCQ or require that the tenant pay rent during that period.
The court went on to say (in obiter) that, even if Section 13.03 had been drafted in a more typical fashion and had excused non-performance in addition to delay, it could not have completely relieved the landlord of its principal obligation under the lease, which is to provide peaceful enjoyment. Again, because the only permitted use of the premises (operation of a gym) was rendered impossible by the Decree, the court was of the view that the tenant had been provided with no peaceful enjoyment during the relevant period.
As of this writing, Hengyun hasn’t been cited in any other published court decisions. It also hasn’t been appealed, but the period within which an appeal may be brought has not yet expired (all deadlines for civil procedures were suspended until the expiry of the period of the declaration of a state of health emergency set out in in Order in Council 177-2020 dated 13 March 2020, as subsequently renewed). That said, the facts in Hengyun are not especially conducive to appeal. Even before the outbreak of the pandemic, there had been a long history of failures on the part of the landlord to provide peaceful enjoyment that might incline a court to again rule in the tenant’s favour. Also, as noted above, Section 13.03 of the lease was drafted in a less than optimal way.
Although it remains to be seen whether Hengyun will be of broad or narrow application, a key consideration of the court appears to have been that the use clause in the lease allowed only an activity that was prohibited by the Decree. It is difficult to see how the court could have come to similar conclusions if it had been faced with a lease for office space that had provided that the premises could be used “solely for office purposes”, for instance, since the Decree did not prohibit all office uses.
Also, unless there are further forced business closures in response to a second wave of COVID-19, the relevant period during which tenants might be able to obtain relief from the obligation to pay rent on the basis of this decision has, in most instances, passed. Many landlords, particularly those operating enclosed malls, voluntarily gave tenants rent reductions or abatements during this period. Accordingly, the number of similar cases that are brought before the courts may be limited.
For tenants seeking rent abatements or reductions for the periods during which they could not operate normally within their premises due to governmental orders, the Hengyun decision will serve as a powerful negotiation tool unless and until it is successfully appealed or distinguished on its facts in subsequent cases.
The obvious lesson for landlords is to more carefully draft force majeure clauses and to resist the temptation to narrowly define permitted uses.
By Stefan Fews, Stikeman Elliott
- Corporations Canada and new transparency about federal non-profit corporations under the CNCA and new fees for certain documents - December 21, 2022
- How much should a Canadian registered charity spend on administration? - November 30, 2022
- Finance proposes changes to disbursement quota for charities and some increased transparency - November 11, 2022