Introduction

Over three years after the Covid-19 outbreak, is the pandemic or its effects still relevant to the commercial landlord-tenant relationship? More specifically, do they still justify any reduction or non-payment of rent?

On January 9, 2023, the Hon. Justice Christian Immer of the Superior Court of Québec addressed this issue in Scott S. Real Estate LP et al. c. Allô Mon Coco Development Inc. et al.1 (the "Allô Mon Coco Judgment"). This decision echoes the one rendered by the Hon. Justice Christian Brossard, J.S.C., in Cresmont Inc. v. ARM Authentique Pub Australien Inc.2 (the "Cresmont Judgment") on March 24, 2022, that is, 10 days after the Québec government lifted most sanitary measures.

The verdict is without appeal. As of March 14, 2022, at the very least, arguments that rely on the detrimental effects of the Covid-19 pandemic no longer hold up in matters of commercial leasing.3 A tenant can no longer claim to be suffering any loss of use of the leased premises due to this pandemic in light of the fact that the state of emergency as it pertains to health issues has been lifted and there are no longer any operational limits imposed by the government.4

Takeaway

Arguments regarding loss of peaceable enjoyment due to the Covid-19 pandemic may still apply to arrears accrued in the period prior to the lifting of the health measures on March 14, 2022. However, such arguments no longer justify reduction or non-payment of rent as of March 14, 2022, at least, whether in terms of future rent or arrears accrued since the lifting of health measures.

Summary of the Relevant Facts

Since January 16, 2018, Scott S. Real Estate LP (the "Landlord") and Allô Mon Coco Development Inc. (the "Tenant") are bound by a commercial lease for a 16-year term. Two additional defendants guarantee the obligations of the Tenant (the "Guarantors"). On August 29, 2018, the Tenant subleases its premises to 9383-6625 Québec Inc. ("9383").

As of March 2022, 9383 ceases to pay its rent, which leads to the filing of legal proceedings by the Landlord on June 16, 2020.

On July 28, 2020, the Hon. Justice Jeffrey Edwards J.S.C., orders the tenant to pay 25% of its rent. Taking into account government programs covering 50% of the rent, this safeguard order splits the balance of the burden between the Landlord and 9383.

On January 12, 2021, the Hon. Justice Tiziana Di Donato, J.S.C., hears the parties again and acknowledged that 9383 agrees to pay an additional 50% of rent upon receipt of the government grants. The Court further notes that the pandemic has caused "an exceptional situation in which the economic benefits should be shared equitably between tenants and landlords."

In October 2022, 9383 filed for protection under the Bankruptcy and Insolvency Act, and the Landlord therefore filed an application for a safeguard order in order to obtain payment of the rent by the Tenant and the Guarantors.

Applicable Criteria

Safeguard orders are discretionary and exceptional measures that require a careful analysis of their criteria. Based on section 49 of the Code of Civil Procedure, such an order seeks to safeguard the rights of the parties and maintain the status quo until the dispute is resolved.

A safeguard order does not cover payment of arrears. This question will only be resolved at the conclusion of a trial or by agreement between the parties. Thus, the safeguard order only covers the payment of future rent until resolution of the dispute. As part of its order, the Court may take into account the context and the grounds raised by the Tenant to adjust the rent payable.

The criteria to be met are the same as those of the provisional interlocutory injunction (although their application by the courts differs in some respects), namely: (1) appearance of right, (2) serious or irreparable harm, (3) balance of convenience, and (4) urgency. These criteria are cumulative.

Analysis

In their defence, the Tenant and the Guarantors each point out that they no longer have peaceable enjoyment of the premises given the consequences of the state of emergency decreed by the Québec government. The Tenant pleads the difficulties related to hiring employees and low foot traffic. The Guarantors add the argument of exception for non-performance5 to the foregoing, and suggest that the Hengyun International Investment Commerce Inc. v. 9368-7614 Québec Inc.6 decision rendered on July 16, 2020, by the Hon. Justice Kalichman, J.C.S. (as he then was, at the outset of the pandemic) is still applicable.7

In the Allô Mon Coco Judgment, the Court declares this reasoning inapplicable from now on.

Indeed, the difficulties associated with hiring employees and those associated with low foot traffic do not amount to a loss of peaceable enjoyment of the premises for which the Landlord would be responsible, but rather concerns economic difficulties. The exception for non-performance is therefore inapplicable here.

In reaching his conclusion in the Allô Mon Coco Judgment, Justice Immer, J.S.C., relies on judgments detailing the principles upon which rest safeguards pertaining to the payment of rent, including Soltron Realty, l.p. v. Syndicat de la papriation Les cours Mont-Royal (Tour Sud), 2016 QCCS 4138 and Pontegadea Canada Inc. v. Gap (Canada) Inc., 2020 QCCS 2803 which was argued by Fasken in the early stages of the Covid-19 pandemic on August 5, 2020.

The conclusion of Justice Immer, J.S.C., in the Allô Mon Coco Judgment is perfectly in line with that of Justice Brossard, J.C.S., in Cresmont Judgment where the latter asks:

"Is it necessary to point out that ability to pay is not the measure of the landlord's right to the payment of rent?"9

The safeguard application for payment of rent is therefore granted and the Tenant is ordered to pay the full amount of rent owed to the Landlord.

Footnotes

1. (January 9, 2023) S.C. 500-17-112907-202 (not indexed as of this publication date).

2. 2022 QCCS 1387 (in French only).

3. Cresmont, at para. 19.

4. Allô Mon coco, at para. 20.

5. Art. 1591 C.C.Q.

6. 2020 QCCS 2251.

7. As you will recall, this judgment established the rules applicable between commercial landlord and tenants with respect to payment of future rent throughout the pandemic, emphasizing that this issue is not one of "force majeure", but rather an exception for non-performance. In other words, given that the landlord was unable to provide peaceable enjoyment of the leased premises, the tenant's obligation in favour of the landlord were reduced in a corresponding and equivalent manner.

8. Application for leave to appeal dismissed in Syndicat de la Condominium Les cours Mont-Royal (Tour Sud) v. Soltron Realty, l.p., 2016 QCCA 1010.

9. Cresmont, at para. 17.

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.