COVID-19 and Force Majeure – Commercial Lease Agreements
When the COVID-19 outbreak was declared a pandemic, many individuals looked to their contracts to see if force majeure provisions would provide them with relief. More specifically, tenants looked to their commercial lease agreements to see if force majeure provisions would impact their obligation to pay rent.
Although there is a sparse amount of Canadian case law on this topic, three recent decisions provide some clarity.
Force Majeure Provisions and their Impact on Contractual Obligations
Force majeure provisions relieve parties from performing their contractual obligations when there are circumstances beyond their control which makes the performance of the contract impossible, illegal, or impractical.
There are various types of force majeure provisions. Some provisions are drafted narrowly, while others are drafted broadly where the parties get to decide what constitutes a force majeure event.
Examples of force majeure events include war, natural disasters, and pandemics.
The Application of Force Majeure Provisions in Commercial Lease Agreements
In Durham Sports Barn Inc Bankruptcy Proposal, 2020 ONSC 5938, the Ontario Superior Court of Justice considered the application of a force majeure provision in a commercial lease agreement. The Court found in favour of the landlord, deciding that the force majeure provision did not excuse the tenant of its obligation to pay rent even though they were restricted from operating their business as a result of the COVID-19 shutdown.
In Braebury Development Corporation v Gap (Canada) Inc, 2021 ONSC 6210, the Ontario Superior Court of Justice cited and agreed with the Durham Sports decision. The Court held that the force majeure provision in the commercial lease agreement was triggered because of the COVID-19 restrictions, and while the tenant was relieved of other obligations under the lease, they were not excused from paying rent.
In Windsor-Essex Catholic District School Board v 231846 Ontario Limited, 2021 ONSC 3040, the Ontario Superior Court of Justice considered the Durham Sports decision in determining whether the force majeure provision in a commercial lease agreement relieved the tenant from its obligation to pay rent. The lease had a rent abatement provision if there was a force majeure event. The Court held that the COVID-19 restrictions was a force majeure event which prevented the landlord from providing the tenant with the leasable space. As a result, the landlord was excused from its contractual obligation to provide the leased space and the contractual rent obligation of the tenant was abated.
Jurisprudence is expected to evolve over the next few years as pandemic-related cases reach the courts.
The Wording of Force Majeure Provisions
The courts place great importance on the wording of force majeure provisions when determining the legal obligations of a party. It is crucial to pay close attention to these provisions when drafting commercial lease agreements.
For more information about force majeure provisions and commercial lease agreements, please contact the experts at Brown Beattie O’Donovan LLP.
Blog written by Mohammad Soltani.