COVID-19 Leads to New Types of Commercial Rental DisputesJanuary 11, 2022
As we enter 2022, yet another variant of COVID-19 is making significant impacts on the everyday lives of Canadians. Headlines in the news tend to focus on how personal rights are changing in the face of the pandemic, but the rights of corporations and businesses are also changing, leading to new types of corporate and commercial litigation. A recent decision from the Ontario Superior Court of Justice serves as a good example of this.
Commercial tenant fell behind in rent due to COVID-19 financial hardship
In the recent case of 8443220 Canada Inc. v. V.G.R. Investments Ltd., the commercial tenant in question (the numbered company) entered into a lease with the landlord (V.G.R. Investments) in 2014. The lease stipulated the tenant was to pay $25,000 per month in rent. The tenant told the court that up until the COVID-19 pandemic, it had paid its rent on time every month (the landlord disputes this), and it was only once the pandemic hurt the tenant financially that it fell behind on rent.
Shortly after the pandemic first hit, the Canada Revenue Agency implemented a rental subsidy program called the Canada Emergency Rent Subsidy (CERS) that allowed tenants to apply to have a portion of their rent subsidized by the government. Prior to this, the Canadian government offered what was called the Canada Emergency Commercial Rent Assistance program. Unlike CERS, this program required landlords to opt-in, something the tenant, in this case, said the landlord chose not to do. During the months between the two programs, the tenant started to fall behind in rent and, by September 2020, was in arrears of $51,388.82.
While the CERS program allowed the tenant to opt-in on its own, the landlord said the tenant only paid the rent contributed by the government and failed to pay its own portion, resulting in further arrears. The landlord stated that by October 2021, the tenant owed $108,325 in unpaid rent.
On September 1, 2020, the government-imposed moratorium prohibiting commercial landlords from locking out tenants expired. The landlord locked the tenant out of the building around September 3, 2020. The moratorium came back in on October 1 of that year, however, and the tenant was allowed to take occupancy of the building once more.
Landlord entered premises and locked tenant out during eviction moratorium
While the landlord allowed the tenant to take re-possession of the building, the tenant alleges the landlord entered the premises without the tenant’s permission following the reinstatement of the eviction moratorium. Making matters more complicated, the landlord locked the tenant out once more on October 6, 2021, a year after the moratorium was re-introduced, citing the lease as the authority to do so.
The landlord argued that the terms of the CERS payment scheme require tenants to pay their rent in full (i.e. by using the government subsidy and then paying the remainder). It alleged that the tenant had lied in its statements to the CERS program by stating that it was meeting the CERS requirement for full payment. Therefore, the landlord stated that the tenant should be prevented from relying on its “fraudulent” conduct to obtain the injunction.
In return, the tenant argued that the rent arrears should be set off by the damages it alleged were caused to the property by the landlord during the first lockout.
Tenants sought injunction to re-enter premises pending trial
The tenant sought an interlocutory injunction allowing it back into the building pending a full trial. The Ontario Superior Court of Justice applied the legal test for an injunction established in 1994 by the Supreme Court of Canada, which required the tenant to demonstrate that:
- There is a serious issue to be tried
- The tenant will suffer irreparable harm without the order
- A balance of convenience is in the tenant’s favour
Serious Legal Issue to be Tried
The court found that the eviction moratorium presumably prevents commercial landlords from locking out tenants who are receiving CERS benefits on the grounds of non-payment of rent. Similarly, courts cannot order the eviction of such tenants.
The court found that there was some ambiguity in regards to whether a tenant who is not making full rent payments is entitled to continue receiving CERS benefits. The court noted that the Canada Revenue Agency clearly still felt the tenant was entitled to receive CERS, and the landlord had breached the terms of the moratorium by entering the premises without permission. As a result, it found there was a serious legal issue to be tried.
With respect to the second step of the injunction test, the court found there was little doubt that the tenant would suffer irreparable harm if the eviction was allowed to stand as the tenant would be put out of business.
Balance of Convenience
The last step of the test looks at which party would suffer a greater inconvenience or harm if the injunction is granted or denied. This determination is referred to as the “balance of convenience.”
The tenant argued the balance of convenience favoured it since it was the victim of the landlord’s improper behaviour in locking it out and that the tenant would go out of business if not allowed back in the building. In response, the landlord stated it is the party that has been losing rent payments each month and that the tenants would have paid rent if they intended to do so.
The court ruled in favour of the tenant, noting that the landlord has not shown that it has another tenant ready to pay rent and that its needs will be met if the tenant follows through with its commitment. As a result, the interlocutory injunction requested by the tenant was granted.
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