Legal Insights / Fraser Valley / Commercial Leases during Covid – you still need to pay rent (unless you don’t)

Commercial Leases during Covid – you still need to pay rent (unless you don’t)

Aug 25 2021

The pandemic has not been easy on anyone, including many businesses. The costs of operating a business continue, though many stores are struggling with declining sales and now BC is facing greater restrictions again as we grapple with the “4th wave”. Many commercial landlords and tenants have struggled with whether the tenants should (or can) continue to pay rent during these unprecedented times.

A Canadian icon – Hudson’s Bay – refused to make its rent payments for its Prince George location and blamed Covid-19. Like many commercial tenants, Hudson’s Bay felt it shouldn’t have to bear “the entire economic burden of an unprecedented public health and economic crisis”.

The Court found otherwise in a recent judgment. Kind of.

Hudson’s Bay refused to pay its rent during Covid. Here’s what happened:

Hudson’s Bay had been a long-time tenant of the Cherry Lane Shopping Centre in Prince George. For 25 years, Hudson’s Bay had made its monthly rent payments pursuant to a commercial lease agreement that required Cherry Lane to provide a high-quality shopping centre.

When Covid-19 struck, Hudson’s Bay informed Cherry Lane that it would not be making its rent payments. Cherry Lane took the position that this was in breach of the lease and, after eight months without receiving rent, attempted to evict Hudson’s Bay.

Who was right?

Neither. And Both.

The Court confirmed that Cherry Lane’s failure to provide a high-quality shopping centre was a breach of the lease.

Despite this, Hudson’s Bay was still required to pay rent. The courts have long held that even if a landlord breaches the lease, the tenant is not allowed to stop paying rent unless the lease agreement specifically provides for this.

BUT, the Court looked at who, on balance, would be more negatively impacted by the eviction, how difficult it would be for the tenant to find new premises, the length of the rental relationship, whether the tenant would be able to pay the arrears with interest, the detrimental impact of Covid-19 on the tenant’s business, and the possible damage to reputation if evicted.

The Court refused to find that Hudson’s Bay needed to vacate. The Court decided that in the circumstances, it would be unfair and unjust to force Hudson’s Bay to vacate. The Court effectively reinstated the lease and allowed Hudson’s Bay to retain the use of the premises. The Court ordered that all outstanding and ongoing rent be paid with interest.

Lessons Learned

  1. Even if a commercial landlord is in breach of the lease agreement, the tenant is still required to pay rent.
  2. The failure to pay rent is grounds for eviction.
  3. Depending on the wording of your commercial lease, and depending on all of the circumstances, the Court might relieve a tenant from the harsh consequence of eviction.
  4. If the Court permits the tenant to continue in the premises, it will likely order a full repayment of the outstanding amounts, with interest.
help with your Commercial Lease

Wondering whether you have the right to evict a commercial tenant for failure to pay rent? Or maybe you’re a commercial tenant that failed to pay rent during the Covid-19 pandemic. Either way, we have lawyers that can help you assess your risk and take the next steps. Contact a member of our experienced commercial litigation team at 604.853.0774 to set up a consult.

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