To answer this question, you must determine whether COVID-19 is an event that triggers the force majeure clause in your lease, and whether COVID-19 directly impacted your ability to perform your obligations. This is determined by the wording of the force majeure clause in your specific contract, and how COVID-19 has impacted your business. It is also important to note that a court will not add a force majeure clause into a lease if it was not previously included, and will also be reluctant to change the specific terms of a previously agreed-to force majeure clause.
An example of a force majeure clause in a commercial lease is the following:
"Notwithstanding anything in this Lease, if either party is bona fide delayed or hindered in or prevented from the performance of any term, covenant or act required hereunder by reason of strikes, labour troubles; inability to procure materials or services; power failure; restrictive governmental laws or regulations; riots; insurrection; sabotage; rebellion; war; act of God; act of terrorism; or other reason whether of a like nature or not which is not the fault of the party delayed in performing work or doing acts required under the terms of this Lease, then the performance of that term covenant or act is excused for the period of the delay and the party delayed will be entitled to perform that term, covenant or act within the appropriate time period after the expiration of the period of the delay. However, the provisions of this Section do not operate to excuse the Tenant from the prompt payment of Rent.
Is COVID-19 a force majeure event?
In order to rely on the force majeure clause, COVID-19 must be an event that triggers the clause. Where a force majeure clause explicitly enumerates the events that are intended to be covered a Canadian court is unlikely to read-in an additional event/term that is not included. Accordingly, key terms to look for that may encompass COVID-19 are "public health emergency", "pandemic", "epidemic", "communicable disease outbreak", and other similar terms. Other key terms that may also include COVID-19 are "act of God", "war" (should Canada declare war on COVID-19), or "restrictive governmental laws or regulations" (for areas that have enacted such laws and regulations). Additionally, where a force majeure clause includes more broadly worded language it is even more likely that a Canadian court will consider COVID-19 a force majeure event. Key language to look for is "other reason whether of a like nature or not which is not the fault of the party", and other similar language.
Did COVID-19 directly impact your business?
In order to rely on the force majeure clause, COVID-19 must have impacted your ability to perform your obligations under the lease. Again, review the wording of the force majeure clause to determine the level of disruption necessary in order to rely on the clause. Terms such as "delayed or hindered", "restricted", "inability", or "prevented" will instruct how disruptive COVID-19 must be. Clearly, "delayed or hindered" is a lower threshold compared to "prevented" or "inability". In the former, a party seeking relief may simply have to show that COVID-19 reduced its cash flow and therefore "delayed or hindered" payment of rent; in the latter, a party may have to show that COVID-19 reduced its overall cash flow and that despite efforts to find other sources of income it is outright "prevented" from paying rent.
The example of prompt payment of rent is a particularly relevant one in light of the common commercial impacts of COVID-19. This example does, however, highlight the importance of reviewing your specific force majeure clause to determine if it includes any explicit exclusions to its applicability. A common exclusion is one that does not excuse the tenant from prompt payment of rent despite the occurrence of a force majeure event (see the sample force majeure clause above). In such circumstances, a Canadian court may hesitate to change the plain reading of the contract and excuse late payments of rent. Therefore, in these situations, it is wise to consider alternatives to relying on the force majeure clause.
Invoking a force majeure clause
It is good practice to give notice of an intent to rely on a force majeure clause as soon as possible and to note how an event has impacted ability to meet contractual obligations. Given early notice, a landlord may have more flexibility in reaching an agreement on how to proceed. If a landlord ultimately pursues litigation, early notice may have similarly provided more opportunities for the landlord to mitigate its damages, therefore minimizing the amount the landlord is entitled to pursue.
Conclusion
A clear and thorough strategy will help businesses mitigate the effects of COVID-19. Parties who seek to rely on a force majeure clause must carefully review their contract with legal counsel and stay up-to-date on all relevant COVID-19 related news.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
