Relief From Forfeiture (Commercial Tenancy)

Commercial Tenancies Act, R.S.O. 1990, c. L.7

79 In this Part,

“non-enforcement period” means the period that begins on the day subsection 2 (1) of the Protecting Small Business Act, 2020 comes into force and ends on the day this section is repealed. 2020, c. 10, s. 2 (1).

80 (1) Subject to subsection (2), this Part applies to a tenancy in respect of which the landlord satisfies either of the following criteria:

1. The landlord is eligible to receive assistance under the Canada Emergency Commercial Rent Assistance for small businesses program.

2. The landlord would be eligible to receive assistance under the Canada Emergency Commercial Rent Assistance for small businesses program if the landlord entered into a rent reduction agreement with the tenant containing a moratorium on eviction. 2020, c. 10, s. 2 (1).

(2) If a landlord described in subsection (1) is approved to receive assistance under the Canada Emergency Commercial Rent Assistance for small businesses program in respect of the tenancy, the following paragraphs apply:

1. Section 81 does not apply in respect of an action or application by the landlord for a writ of possession, if the action or application was commenced after the landlord was approved to receive the assistance.

2. Sections 82 and 83 do not apply in respect of an exercise of a right of re-entry by the landlord, if the right was exercised after the landlord was approved to receive the assistance.

3. Sections 84 and 85 do not apply in respect of a seizure of goods or chattels as a distress for arrears of rent by the landlord, if the seizure was done after the landlord was approved to receive the assistance. 2020, c. 10, s. 2 (1).

(3) This Part applies despite any other Part of this Act or any provision in an agreement or any common law rule. 2020, c. 10, s. 2 (1).

81 (1) Despite anything in this or any other Act, a judge shall not order a writ of possession that is effective during the non-enforcement period in respect of a tenancy described in section 80 if the basis for ordering the writ is an arrears of rent. 2020, c. 10, s. 2 (1).

(2) Subsection (1) applies in respect of an action or application that was commenced before, on or after the day subsection 2 (1) of the Protecting Small Business Act, 2020 comes into force. 2020, c. 10, s. 2 (1).

82 No landlord shall exercise a right of re-entry during the non-enforcement period. 2020, c. 10, s. 2 (1).

83 (1) If a landlord exercised a right of re-entry during the period that begins on May 1, 2020 and ends immediately before the day subsection 2 (1) of the Protecting Small Business Act, 2020 comes into force, the landlord shall, as soon as reasonably possible,

(a) restore possession of the premises to the tenant unless the tenant declines to accept possession; or

(b) if the landlord is unable to restore possession of the premises to the tenant for any reason other than the tenant declining to accept possession, compensate the tenant for all damages sustained by the tenant by reason of the inability to restore possession. 2020, c. 10, s. 2 (1).

(2) If a landlord restores possession of a premises to a tenant under subsection (1), the tenancy is deemed to be reinstated on the same terms and conditions unless the landlord and the tenant agree otherwise. 2020, c. 10, s. 2 (1).

84 No landlord shall, during the non-enforcement period, seize any goods or chattels as a distress for arrears of rent. 2020, c. 10, s. 2 (1).

85 If, during the period that begins on May 1, 2020 and ends immediately before the day subsection 2 (1) of the Protecting Small Business Act, 2020 comes into force, a landlord seized any goods or chattels as a distress for arrears of rent, the landlord shall, as soon as reasonably possible, return to the tenant all of the seized goods and chattels that are unsold as of the day subsection 2 (1) of the Protecting Small Business Act, 2020 comes into force. 2020, c. 10, s. 2 (1).

86 (1) A landlord who contravenes section 82 or 84 or who fails to comply with clause 83 (1) (a) or section 85 is liable to the person aggrieved for any damages sustained by the person aggrieved as a result of the contravention or non-compliance. 2020, c. 10, s. 2 (1).

(2) For greater certainty, subsection (1) applies in addition to any other remedy available by law to the person aggrieved. 2020, c. 10, s. 2 (1).

Bill 192, Protecting Small Business Act, 2020

Current status: Royal Assent received. Statutes of Ontario 2020, chapter 10

June 18, 2020 | Royal Assent received

COVID–19: CECRA for small businesses

ELIGIBILITY

To qualify for CECRA for small businesses, the commercial property owner must:

• Own commercial real property which is occupied by one or more impacted small business tenants
• Enter (or have already entered) into a legally binding rent reduction agreement for the period of April, May and June 2020, reducing an impacted small business tenant’s rent by at least 75%
• Ensure the rent reduction agreement with each impacted tenant includes:
  • a moratorium on eviction for the period during which the property owner agrees to apply the loan proceeds, and
  • a declaration of rental revenue included in the attestation
  • The commercial property owner is not:

holding federal or provincial political office controlled by an individual holding federal or provincial political office CECRA will not apply to any federal, provincial, or municipal-owned properties, where the government is the landlord of the small business tenant.

Exceptions Where there is a long-term lease to a First Nation, or Indigenous organization or government, the First Nation or Indigenous organization or government is eligible for CECRA for small businesses as a property owner.

Where there are long-term commercial leases with third parties to operate the property (for example, airports), the third party is eligible as the property owner.

Also eligible are post-secondary institutions, hospitals, and pension funds, as well as crown corporations with limited appropriations designated as eligible under CECRA for small businesses.

NOTE:

Small businesses that opened on or after March 1, 2020 are not eligible.

Properties with or without a mortgage are eligible under CECRA for small businesses.

Defining commercial real property

We define commercial real property as a commercial property with small business tenants.

Commercial properties with a residential component and multi-unit residential mixed-use properties would equally be eligible with respect to their small business tenants.

Impacted small business tenant? Impacted small business tenants are businesses — including non-profit and charitable organizations — that:

pay no more than $50,000 in monthly gross rent per location (as defined by a valid and enforceable lease agreement) generate no more than $20 million in gross annual revenues, calculated on a consolidated basis (at the ultimate parent level) have experienced at least a 70% decline in pre-COVID-19 revenues (at the entity level) NOTE: Eligible small business tenants who are in sub-tenancy arrangements are also eligible, if these lease structures meet program criteria.

Calculating the 70% reduction in revenues There are 2 scenarios by which to calculate your 70% reduction in revenues:

If your small business was operating during April – June 2019, then compare your gross revenues from April, May and June of 2020 to your revenues of April, May and June of 2019. If your small business was not operating during April – June 2019, then compare your average gross revenues from April, May and June of 2020 to your average gross revenues for January and February 2020. NOTE: Your revenue must consist of revenue earned from ordinary activities in Canada. Calculate your revenue using your normal accounting method and exclude revenues from non-recurring items.

For registered charities and non-profit organizations, the calculation would include most forms of revenue, excluding revenues from non-arm’s length persons.

Your June forecast must be supportable by the variables at play for your business. The result is to be guided by the average revenue reduction for April and May and the forecasted change given your respective province or territory’s guiding principles for reopening the economy (i.e. where the impacted business falls in the staged approach).

The Second Cup Ltd. v. 2410077 Ontario Ltd., 2020 ONSC 3684 (CanLII)

[56] In light of my finding that the Lease was not lawfully terminated by the landlord, there is no need to grant relief from forfeiture to Second Cup. However, even if the Lease had been lawfully terminated, I would have granted Second Cup relief from forfeiture. The court has the discretion to do so under s. 98 of the Courts of Justice Act, R.S.O. 1990 c. c.43 and s. 20 of the Commercial Tenancies Act, R.S.O. 1990, c. L.7

[57] The equities of this case would favour granting relief from forfeiture. In Jungle Lion Management Inc. v. London Life Insurance Company, 2019 ONSC 780, at para. 34, this court considered the following three criteria:

(a) the conduct of the applicant and gravity of the breaches;

(b) whether the object of the right of forfeiture in the lease was essentially to secure the payment of money; and

(c) the disparity or disproportion between the value of the property forfeited and the damage caused by the breach.

[59] The landlord defendants argue that when a party seeks to be relieved from forfeiture based on a non-payment of rent the court should consider criteria from Michele’s Italian Ristorante Inc. v. 1272259 Ontario Ltd., 2016 ONSC 4888, at paras. 35-36. In that decision, the court set out criteria for relief from forfeiture generally at para. 35, and separate, more specific criteria at para. 36, where the alleged default is based upon the non-payment of rent:

a. the tenant comes to court with clean hands;

b. whether there is an outright refusal to pay rent;

c. the extent of the rental arrears; and

d. whether the landlord has suffered serious loss due to the delay in paying rent.

See also: 2324702 Ontario Inc. v. 1305 Dundas, 2019 ONSC 1885, aff’d 2020 ONCA 353

[60] I have considered these additional factors, and they all favour the plaintiffs.

a. The fact that there was one prior dispute in 2015 about the payment of rent that led to an amendment to the Lease does not suggest a pattern of default or lack of clean hands. The rental arrears were not significant as of the beginning of May, especially when considered in light of what was happening in the world as a result of the COVID-19 pandemic.

b. Nor was the March 25 letter from Second Cup indicating that it and its franchisees would not be able to pay April rent on the first of the month an outright refusal to pay rent as the landlord defendants suggest. It was a reasonable and transparent communication to landlords by a responsible corporate tenant of numerous premises across the country.

c. Further, the landlord defendants claim that they have significant mortgage carrying costs but have not put in any evidence about actual prejudice that they have suffered as a result of not having been paid the balance of April’s rent and May’s rent under the Lease.

[63] While the landlord’s motivation may not be relevant (see 149777 Ontario Inc. v. Leon’s Furniture Ltd. (2003), 2003 CanLII 50106 (ON CA), 67 O.R. (3d) 206 (C. A.), at para. 74), its conduct may be relevant in the exercise of the court’s equitable jurisdiction to grant relief from forfeiture. The sequence of events indicates that the landlord entered into arrangements with 143 and BOD that disregarded the plaintiffs’ rights in respect of the premises, including that:

a. On May 4, 2020, after Second Cup had offered to bring the Lease into good standing, the landlord instead immediately after receiving that offer signed a lease for the premises with BOD that granted a significant rent-free period.

b. On May 6, 2020, knowing that 273 had an RSA application pending for a cannabis store at the premises and that the plaintiffs were disputing the termination of the Lease, the landlord nonetheless wrote directly to the AGCO to advise of its termination of the Lease. Since there cannot be two licences for the same premises, this would have paved the way for an RSA application by 143 for adjacent premises in the Building Envelope under the 143 Lease that the landlord then proceeded to finalize on May 7, 2020.

c. The landlord had conditionally agreed to the 143 Lease on April 7, only 5 weeks after granting Second Cup exclusive cannabis retail rights at the Building Envelope (and accepting $33,9000 in exchange for said rights). This conditional 143 Lease contemplated cannabis exclusivity being granted to another tenant in the Building Envelope only 4 days after the April 3 notice, when the landlord was in receipt of 75% of April’s rent and days after the province-wide business shutdown due to the COVID-19 pandemic.

2324702 Ontario Inc. v. 1305 Dundas W Inc., 2020 ONCA 353 (CanLII)

[22] The Commercial Tenancies Act, R.S.O. 1990, c. L.7, allows the court to grant “such relief as […] the court thinks fit”, having regard to all the circumstances, where a landlord seeks to enforce a right of re-entry or forfeiture following a tenant’s breach: ss. 19, 20(1). The Saskatchewan River Bungalows case also established the test for granting relief from forfeiture. In granting the discretionary and equitable remedy of a relief from forfeiture, a court is to consider the conduct of the applicant, the gravity of the applicant’s breaches of the lease, and the disparity between the value of the forfeited property and the damage caused by the breach: Saskatchewan River Bungalows, at p. 504.

[23] Although the failure to renew the lease is not a breach of the lease, the court may grant relief from forfeiture where a party seeks to renew the lease but has not complied with the formal requirements or preconditions for doing so. However, this relief is available only in circumstances more narrowly confined than the three-pronged test from Saskatchewan River Bungalows. As recently restated in McRae Cold Storage Inc. v. Nova Cold Logistics ULC, 2019 ONCA 452, at para. 10:

With respect to the renewal of a lease, a precondition for the exercise of any such equitable discretion is that the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own: 120 Adelaide Leaseholds Inc., at para. 9; Ross v. T. Eaton Co. (1992), 1992 CanLII 7470 (ON CA), 11 O.R. (3d) 115 (C.A.), at pp. 124-125; 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 2003 CanLII 57436 (ON CA), 67 O.R. (3d) 161 (C.A.), at para. 80; Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc., 2016 ONCA 93, 344 O.A.C. 363, at paras. 55-56.

[24] The application judge found that equitable relief was not warranted here because of the appellant’s conduct. First, the appellant had not made diligent efforts to comply with the renewal term, but instead hedged its bets by seeking to negotiate without committing to renew. Second, the appellant’s failure to pay its rent on time, including one time when it delivered an NSF cheque, was not the type of reasonable conduct that a court looks for as the basis to grant equitable relief. Although the appellant has a large investment in the premises which it stands to lose, this consequence is effectively a result of its own decisions regarding its conduct in relation to the respondent.

[25] The appellant argues that in assessing its conduct, the application judge misapprehended the evidence by stating that the appellant had experience in exercising a renewal option for the premises. In fact, the appellant says, it had not previously exercised a renewal option but rather, entered into a lease amending agreement. We reject this argument. The application judge’s point was that the appellant had a level of sophistication in dealing with the lease of the premises, which was partly based on its prior dealings with the respondent’s predecessor in negotiating and concluding the lease amending agreement. That experience spoke against any misunderstanding of the renewal requirements.

Campbell v. 1493951 Ontario Inc., 2020 ONSC 2942 (CanLII)

[2] The court is receiving numerous applications for relief from forfeiture of commercial tenancies during the current pandemic crisis. 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. There is always a factual story which drive the equities or the justice of the case.

[4] In virtually all of these cases that have been dealt with during this crisis, at the first case conference the parties have agreed upon interim terms to allow the tenant to resume occupation of the premises pending determination of the issues between the parties at a more opportune time.

[5] The court has been calling for extraordinary cooperation among counsel and parties alike since the release of the Notice to the Profession on March 15 2020. Nowhere is this more important than in the commercial landlord and tenant sphere. The stakes are extremely high for all. Tenants have been deprived of their revenue but, by not receiving rent, so too have landlords. Would that there were other paying tenants lined up to pay the landlord for its space. Absent regular market forces, 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. However, each case has its own facts.