Prime Minister Justin Trudeau announcement on April 16 that the federal government will be providing rent support to small and medium-sized businesses. The program, about which there are still few details, will be called Canada Emergency Commercial Rent Assistance.
Perhaps counterintuitively, while the program will help some commercial landlords, it will put others in a difficult position.
The reason for this is the Canada Emergency Wage Subsidy benefit. This program, another new one aimed at assisting employers experiencing the strain of the economic shutdown, provides a 75 percent wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15. One of the points of eligibility is that the employer must have suffered a drop in gross revenue of 15% in March, and 30% in April and May.
Landlords may find that they have qualified for the Emergency Wage Subsidy benefit until now because they have experienced this drop in revenue. However, if the Emergency Commercial Rent Assistance program assists them with their rent, they may not qualify anymore, and will have to decide between the two programs by assessing which will help them more.
Finance Minister Bill Morneau’s announcement later on April 16 that the government will be offering forgivable loans to commercial landlords who offer rent reductions to businesses adds to the complex financial landscape for the landlords, which will in turn contribute to an unpredictable litigation environment coming out of the COVID-19 shutdown. As a matter of standard practice, commercial leases are typically ironclad when it comes to the requirement of a tenant to pay rent, even if the landlord owes the tenant money. In that case, the tenant would generally be required to pay rent and then claim the owed funds back, not simply deduct those funds from the rent.
The current environment raises the prospect of a tenant arguing the defense of relief from forfeiture, potentially allowing commercial tenants to claim a deferral or even an exemption from certain months’ rent during the societal lockdown. The Ontario Court of Appeal expressed the principle of relief from forfeiture in 497777 Ontario Inc. v Leon’s Furniture Ltd. (2003), 2003 CanLII 50106 (ON CA), 67 OR (3d) 206, where it quoted from a leading English case, as follows: “[Relief] involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach.”
It seems possible that a tenant that doesn’t have the cash flow to meet its rent may be granted relief, while a tenant that does not pay rent because it has prioritized some other expense may not be granted relief. But which direction the courts will take in the post-pandemic legal environment is still an open question. All of this is to say that the various government programs and the various dangers of the current economic environment must be navigated carefully by businesses, with the most current legal information.
By Jennie Brodski