PANDEMIC – Lesses may be exempt from paying rent during social confinement on the grounds of force majeure

Do the businesses that were forced to close during social confinement have to pay rent even though they couldn't operate? The question is on the mind of many lessors and lessees, and yet there are very few rulings on the issue.

On July 16, 2020, the Honourable Peter Kalichman of the Superior Court of Québec rendered a decision that qualified the pandemic as force majeure in the context of the application of a commercial lease and consideration of a claim for the payment of rent for the months covered by the health emergency decree and confinement (Hengyun International Investment Commerce Inc. v. 9368-7614 Québec inc., 2020 QCCS 2251(CanLII)).

The Court concluded that the lessor could not demand rent for the months covered by the decree during which the lessee could not operate its business, which, in the case at hand, is a fitness centre. The Court was of the opinion that the decree prevented the lessor from fulfilling its obligation to ensure the enjoyment of the leased premises. Justice Kalichman added that the decree constitutes a legal disturbance under Article 1858 of the Québec Civil Code, against which the lessor is bound to warrant the lessee. The lessee is therefore relieved from its correlative obligation to pay rent for the period during which the decree was in effect.

It is especially interesting to note that the Court reached its decision even though the lease includes a clause stating that the lessee must still pay rent in the case of force majeure. Justice Kalichman turned to a textual argument. Indeed, in the Court's opinion, the clause pertains to obligations that are delayed by force majeure, not those that are prevented by force majeure, and is therefore not applicable. The Court noted that the literature and caselaw of the Court of Appeal stipulate that while the parties may limit the obligations of the lessor with regard to its obligation to provide the lessee with the peaceable enjoyment of the property, this obligation cannot be entirely excluded.

The ruling will certainly be cited by lessees that refuse to pay rental arrears from the past months. Lessors may then seek to make the distinctions to assert that the judgement does not apply to their leases. However, the ruling may still be appealed.

To discuss your rights and obligations with regard to your commercial lease, contact a member of our corporate law team. Our experts are available to guide you.