Simon's Megalomaniacal Legal Resources

Landlord and Tenant (Commercial) - Relief from Forfeiture

. 6844987 Canada Inc. v. The United People of Canada/Les Peuple Unis du Canada

In 6844987 Canada Inc. v. The United People of Canada/Les Peuple Unis du Canada (Sup Ct, 2022) the court considers 'clean hands' in the context of a request for relief from forfeiture:

[70] Relief from forfeiture is an equitable remedy that a court has the discretion to grant when a party has breached its obligations, but fairness dictates that they should have the chance to remedy the deficiency. In considering whether a tenant should be relieved from the consequences of its failure to pay rent, for example, a judge would consider all of the circumstances of the case, including the history of the parties’ relationship, whether the tenant has breached other covenants of the lease, the gravity of its breaches, the tenant’s conduct or misconduct, and “their good faith or bad faith or lack of clean hands”: Green Solutions Industries International Inc. v. Clarke Holdings (London) Inc., 2022 ONSC 1505, at para. 70.

. Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI v. Oxford Properties Retail Holdings II Inc.

In Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI v. Oxford Properties Retail Holdings II Inc. (Ont CA, 2022) the Court of Appeal considered a COVID-originated commercial L&T relief from forfeiture issue:

[33] HBC sought relief from forfeiture under s. 20 of the CTA. The section reads:

Where a lessor is proceeding by action or otherwise to enforce a right of re-entry or forfeiture, whether for non-payment of rent or for other cause, the lessee may, in the lessor’s action, if any, or if there is no such action pending, then in an action or application in the Superior Court of Justice brought by the lessee, apply to the court for relief, and the court may grant such relief as, having regard to the proceeding and conduct of the parties under s. 19 and all the other circumstances the court thinks fit, and on such terms as to payment of rent, costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future as the court considers just.[1]

[34] Relief from forfeiture is a venerable remedy with a history reaching back over 300 years: Williams & Rhodes: Canadian Law of Landlord and Tenant, (6th ed.) Carswell, s. 12:56-12:58. An order granting relief from forfeiture allows a tenant who has breached the lease to escape termination of the lease, even though the terms of the lease provided for termination upon the tenant’s breach. Relief under s. 20 of the CTA only becomes necessary after the landlord has established the tenant’s breach and its right to forfeiture of the lease and possession of the property as a consequence of that breach: The Second Cup Ltd. v. 2410077 Ontario Ltd., 2020 ONSC 3684; 1397633 Ontario Inc. v. Oxford Properties Group Inc., 2003 Carswell Ont. 1291 (OSC).

[35] A tenant seeking relief from forfeiture must convince the court that it would be inequitable in the circumstances to permit the landlord to exercise its rights under the lease, terminate the lease and take possession of the property. Not surprisingly, relief from forfeiture is granted sparingly: Ontario (Attorney General) v. 8477 Darlington Crescent, 2011 ONCA 363, at 87; Hunt’s Transport Limited v. Eagle Street Industrial G.P. Inc., 2020 ONSC 5768, at 63.

[36] Relief from forfeiture is a discretionary equitable remedy which responds to the circumstances of the individual case. The case law has identified a variety of criteria to be taken into account in determining whether to grant relief from forfeiture in various contexts: e.g., see Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Company, 1994 CanLII 100 (SCC), [1994] 2 S.C.R. 490, at 504; Liscumb v. Provenzano (1985), 1985 CanLII 2051 (ON SC), 51 O.R. (2d) 129, at 137 (S.C.), aff’d 1986 CanLII 2595 (ON CA), 55 O.R. (2d) 404 (C.A.); The Second Cup Ltd. v. 2410077 Ontario Ltd., at 56-59. The relevant factors can be grouped into two broad categories. The first concerns the conduct of the parties and the second, the impact on the parties of either granting or refusing the request for relief from forfeiture.

[37] Given the equitable roots of relief from forfeiture, it is not surprising that the conduct of the parties will weigh heavily in the balance in the s. 20 analysis. For example, a tenant’s deliberate refusal to pay its rent obligations may well preclude any relief from forfeiture: e.g., 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 2003 CanLII 57436 (ON CA), 67 O.R. (3d) 161, at 80; Ross v. Eaton Co. (1993), 1992 CanLII 7470 (ON CA), 11 O.R. (3d), 115-125 (C.A.).

[38] Relief under s. 20 is also available when the landlord’s interests under the lease can be fully vindicated without resort to forfeiture. If the bargain as reflected in the lease can effectively be maintained without resort to forfeiture, the court will grant relief under s. 20: A.G. (Ontario) v. 8477 Darlington Crescent, at 87; 1497777 Ontario Inc. v. Leon’s Furniture Ltd., 2003 CanLII 50106 (ON CA), [2003] O.J. No. 3708, 67 O.R. (3d) 206, at 69.

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[41] The discretion in s. 20 must, however, be exercised in the context of providing the remedy contemplated by s. 20. Section 20 provides for a specific and narrow remedy. The tenant may gain relief from forfeiture of the lease. Any terms granted as part of the order are granted to make the relief from forfeiture an effective remedy.

[42] Section 20 allows the court to intervene and prevent the forfeiture of the lease, even though the landlord is entitled to forfeiture under the terms of the lease. In my view, relief from forfeiture does not contemplate a recalibration of existing rights and obligations under the lease on a go forward basis to reflect what the court sees as a fair arrangement in light of unforeseen developments. Nothing in s. 20 empowers the court to create what the court regards as a fair lease for the parties. Section 20(5) of the CTA specifically provides that when relief from forfeiture is granted the tenant holds the leased premises “according to the lease”.

[43] Section 20 aims to preserve the relationship between the parties as reflected in the lease. The broad discretion in s. 20 allows the court to impose terms that will bring and keep the tenant in compliance with the existing lease: see Clark Auto Body v. Integra Custom Collision Ltd., 2007 BCCA 24, at 30. To order that a tenant is not required to pay the agreed upon rent is not to grant relief from forfeiture of the lease, but is to grant relief from compliance with the terms of the lease. Nor does the abatement or reduction of the rent agreed upon in the lease preserve the lease. Instead, it alters a basic and fundamental term of the lease.

[44] HBC relies on s. 20(6) of the CTA to support its interpretation of the scope of the relief provided for in s. 20. Section 20(6) forecloses parties from contracting out of s. 20.

[45] I agree with counsel for Oxford’s submission that s. 20(6) does not advance the appellant’s argument. Oxford does not suggest the parties did, or could, contract out of s. 20(1) under the terms of their lease. Oxford submits that s. 20(1) does not contemplate rent reductions or abatements as terms of an order granting relief from forfeiture. I agree.

[46] HBC also argues that the scope of the relief available under s. 20(1) is limited only by the specific limitations found in ss. 20 (7) and 20(8) of the CTA. I cannot accept this argument. The question for this court is not whether a rent reduction or abatement is exempt from the remedial reach of s. 20, but whether granting a rent reduction or abatement as a term of granting relief from forfeiture is consistent with the rationale underlying that remedy. As explained above, it is not.

[47] The parties referred the court to two decisions from British Columbia involving HBC stores and applications for relief from forfeiture. The first, Hudson’s Bay Company ULC v. Pension Fund Investment Ltd., 2020 BCSC 1959, involved an application for interim relief by HBC. HBC sought to regain possession of its store in a mall.

[48] The motion judge granted relief from forfeiture under the Law and Equity Act, R.S.B.C. 1996, c. 253. She granted relief for two months on the condition that HBC pay 50 percent of the rent owing to the landlord and the other 50 percent into the trust account of HBC’s counsel, to be held pending further order of the court. In making her order, the motion judge referred to several cases but did not ultimately determine whether rent could be reduced or abated as a term of granting relief from forfeiture. She did, however, indicate at para. 59:

Further, Hudson’s Bay understandably places great emphasis on the extraordinary circumstances that the parties, and particularly Hudson’s Bay, are facing arising from the pandemic. I agree that those are extraordinary circumstances. In my view, it would be unimaginable that the circumstances would not be a factor to be considered by the court in the exercise of its equitable jurisdiction.

[49] In the second case from British Columbia, Cherry Lane Shopping Centre Holdings v. Hudson’s Bay Company ULC, 2021 BCSC 1178, the landlord sought to remove HBC for non-payment of rent. The motion judge determined that, under the terms of the lease, HBC was obliged to pay the rent without abatement or suspension. Subject to an order granting relief from forfeiture, the landlord was entitled to forfeiture of the lease and possession of the lease premises.

[50] The motion judge concluded HBC should receive relief from forfeiture of the lease. She rejected the landlord’s argument that it was an invariable condition of relief from forfeiture that all rent owing be paid within a specified time. She said, at para. 83:

I do not accept that relief from forfeiture must always be granted on terms that outstanding and ongoing rent be paid. That would seem an excessive and unreasonable limitation on the exercise of the court’s equitable discretion. However, I do accept that such a condition is common. In my view, that is all the authorities establish.

[51] Although the motion judge granted HBC relief from forfeiture, she also decided that HBC should be required to pay all outstanding and ongoing rent as a condition of relief from forfeiture. In the motion judge’s view, there was nothing “inequitable” about holding HBC, a highly sophisticated commercial entity, to the bargain it had struck with the landlord.

[52] To the extent the British Columbia cases can be read as accepting that rent abatements or reductions can be ordered as a term of granting relief from forfeiture, I must, with respect, disagree. I accept that the impact of COVID-19 and the restrictions on retail businesses that followed can be taken into account when setting the terms of relief for forfeiture. For example, the problems associated with COVID-19 may dictate a term allowing the tenant some additional time to bring itself into compliance with the lease. I do not, however, accept that the economic impact of COVID-19 can be taken as a basis for fundamentally altering the remedy from one of relief from forfeiture to one imposing new terms in the lease.

[53] Finally, while it would appear that the British Columbia cases may accept that a rent abatement or reduction is available as a term of relief from forfeiture, I note that in neither case did the court grant a rent reduction or abatement. The facts of those cases are similar to the facts of this case.

[54] My analysis to this point is sufficient to dispose of HBC’s appeal. For the sake of completeness, I would, however, add that I agree with Oxford’s submission that adoption of the broad interpretation of s. 20 favoured by HBC would have negative consequences. Certainty is important in commercial relations, as is the autonomy of the parties to settle the terms governing their commercial relationship. HBC’s reading of the remedial powers in s. 20 potentially generates considerable uncertainty in the ongoing relationship between the landlord and tenant. HBC’s interpretation of s. 20 would inevitably encourage litigation as a means of redefining a tenant’s obligations under a lease in response to unforeseen changed economic circumstances: see Clark Auto Body Ltd. v. Integra Custom Collision Ltd., 2007 BCCA 24, at paras. 27-29.

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[57] I accept that a judge making an order under s. 20 of the CTA which includes a term requiring the tenant to do something, e.g., pay rent, must give the tenant a reasonable time to comply with that term. Otherwise, the relief would be illusory. The time needed to comply with the terms of the order will depend on the entirety of the circumstances, particularly the nature of the term with which the tenant must comply: e.g., see Tauro v. Yu, 2018 ONSC 7319 (Div. Ct.). If the motion judge concludes that the tenant cannot bring itself into compliance with the lease within a reasonable, specified time period, relief from forfeiture will not be an appropriate remedy.

. Wittington Properties Limited v. Goodlife Fitness Centres Inc.

In Wittington Properties Limited v. Goodlife Fitness Centres Inc. (Ont CA, 2018) the Court of Appeal set out an element of the exercise of relief from forfeiture in a commercial lease:

[14] Relief from forfeiture is a highly discretionary, fact-specific remedy. We see no error in the application judge’s application of the relevant legal test to the evidence before her. Specifically, the evidence did not satisfy a necessary condition for relief from forfeiture, namely, evidence that “the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own”: see 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 2003 CanLII 57436 (ON CA), 67 O.R. (3d) 161 (C.A.), at para. 80.

. Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc. (Mr. Sub)

In Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc. (Mr. Sub) (Ont CA, 2016) the court considered a lease renewal, the landlord arguing that the tenant was in breach of an option-preconditioning term requiring it not to be in arrears. The issue was whether the tenant could avail itself of the court's relief from foreiture discretion (it couldn't):

[53] There appear to be conflicting authorities on whether a court can grant equitable relief from the failure to comply with a covenant that is a condition precedent to the renewal of a lease. In Re Pacella and Giuliana (1977), 1977 CanLII 1413 (ON CA), 16 O.R. (2d) 6, at p. 8, this Court concluded that the court “has power to relieve against forfeiture, but no power to excuse performance of conditions precedent.” While Re Pacella was a mortgage renewal case, the Court adopted the following statement from Sparkhall v. Watson, [1954] 2 D.L.R. 22 (Ont. H.C.), at pp. 25-26 – a lease renewal case – in support of its conclusion:

Counsel for the lessee also submitted that the order relieving against forfeiture wiped the slate clean and made it impossible to look at the prior default in the payment of rent in order to determine whether the right to renew was lost. The proposition is correct so far as the original term is concerned, but the order does not operate so as to excuse performance of conditions precedent to the right of renewal. The distinction is clearly made in Finch v. Underwood, 2 Ch. D. 310. The Court has power to relieve against forfeiture, but no power to excuse performance of conditions precedent. [Citation omitted.]

[54] More recently, the British Columbia Court of Appeal adopted a similar view in Clark Auto Body. At para. 30, Kirkpatrick J.A. said:

In my opinion, it is essential to distinguish between the court’s equitable jurisdiction to grant relief from forfeiture for the non-observance of covenants in an existing lease and from the failure to comply with conditions precedent to the exercise of an option to renew a lease. In the former, equity recognizes that a tenant may be permitted to cure its default and be relieved from forfeiture to allow it to retain the balance of the term of the lease. In the latter, there is no compulsion on the tenant to exercise the renewal option, but if it does so, the tenant must comply with the conditions precedent. If the tenant fails to comply, it does not suffer a penalty or forfeiture of an existing tenancy. Equity will not intervene.

[55] On the other hand, this Court has also concluded that the court does have jurisdiction to grant equitable relief in circumstances where there has been a failure to comply with a precondition to the renewal of a lease. But the jurisdiction to do so is a “narrow” or a “limited one”: see Ross v. T. Eaton Co. (1993), 1992 CanLII 7470 (ON CA), 11 O.R. (3d) 115 (C.A.), at pp. 124-25; 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., [1993] O.J. No. 2801 (Ont. C.A.), at para. 9; and Ole Miss Place Inc., at para. 80.

[56] It is not necessary to resolve the differences between these two lines of authority here because, in the circumstances of this appeal, Papa Kerollus is not entitled to the benefit of equitable intervention on either approach, in my view. The T. Eaton Co., 120 Adelaide Leaseholds, and Ole Miss Place Inc. line of authorities makes clear that one of the prerequisites for the exercise of any such equitable jurisdiction is that “the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own”: T. Eaton Co., at p. 125, cited in Ole Miss Place Inc., at para 80.

[57] That cannot be said in favour of Papa Kerollus here, for the reasons outlined above. It acknowledges that it was in default in payment of the admitted arrears of $251.92. This is a small amount, and had Papa Kerollus wished to preserve its position with respect to the renewal option, it could easily have paid it. Similarly, it could have paid the additional $1,017.00 monthly amounts for the period June 1, 2014 onwards – as the payment method in clause 3.C of the Lease required – and then sought a re-adjustment after receipt of the statement of actual expenses for the year 2014. But it did neither. Instead, it held tenaciously to its stance that it would pay nothing further until the dispute over the total amount of arrears owing was resolved. In my view, it was not entitled to do so under the terms of the Lease if it wished to preserve its option to renew.