ONTARIO – A judge does not have discretion to fundamentally alter the relief from forfeiture remedy, such that, new terms of the lease are imposed by the court upon the parties, even during a pandemic. If a tenant cannot bring itself into compliance with the lease within a reasonable, specified time period, relief from forfeiture is not the appropriate remedy.

Hudson’s Bay Company ULC v Oxford Properties Retail Holdings II Inc.
2022 ONCA 585 (CanLII), August 15, 202
ONCA ( Doherty, Harvison Young and George JJA. )

This appeal and cross appeal asked the ONCA to determine the extent to which the remedy for relief from forfeiture under section 20(1) of the Commercial Tenancies Act R.S.O. 1990, c.L.7 (“CTA”) can be used to ease economic pain arising from the pandemic between retail store tenants and their landlords. (para.3)

HBC stopped paying Oxford rent at Hillcrest Mall, in April 2020 during the first pandemic lockdown. By June 2021 there were 16 vacancies at the Mall and HBC’s sales were down 60.5%.

HBC alleged Oxford was in breach of the lease by failing to make necessary health and safety upgrades in response to the pandemic and commenced this proceeding seeking a declaration that Oxford was in breach of the lease. In return Oxford served a Notice of Intention to forfeit the HBC lease at the Mall for failure to pay rent.

HBC sought and was granted an interim injunction to prevent Oxford from terminating the HBC lease or interfering with HBC’s enjoyment of the leased premises. The late Hainey J. granted the interim injunction and ordered that HBC immediately pay Oxford 50% of the rent arrears and going forward that HBC pay 50% of the rent as it came due. Hainey J. said, “ At that time, I concluded that equity requires that there be a sharing of the effects of the Covid-19 pandemic” (para.23) The ONCA found that Hainey J. made the order pursuant to s. 101 of the Courts of Justice Act. (para.24)

In June 2021, Gilmore J. heard the relief from forfeiture motion and found that Oxford had not breached the lease, that HBC was in default of the lease for non-payment of rent and was entitled to relief from forfeiture, that the remedial powers set out in the CTA s. 20 did not extend to abating or reducing rent agreed to by the parties in the lease but did extend to deferring rent payments. (para. 27) Gilmore J. then ordered the remaining arrears be paid by HBC on January 31, 2022, and that commencing in July 2021 HBC must pay 65 % of the monthly lease payment with increasing payments each month until November 2021 when the full monthly rent payments were to resume. The judge also reduced the interest owing on rent arrears by 2 percentage points.

The text of section 20 of the CTA is set out at para.33 . The court’s discretion is , “….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 sees just.”

Relief from forfeiture is a discretionary remedy that allows a tenant who has breached a lease to escape termination of the lease even though the terms of the lease provided for termination upon the tenant’s breach. (para.34) The remedy under section 20 of the CTA becomes available once the landlord establishes the tenant’s breach. The conduct of the parties is part of the analysis and the court will review the conduct of the parties and the impact of granting or refusing the remedy on the parties. (para.36).

In this case the parties agreed that relief from forfeiture was properly ordered. They disagree on the scope of relief available pursuant to s. 20 CTA.

Doherty J.A. said, “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.” ( para.42). Rather it aims to preserve the relationship between the parties as reflected in the lease.(para.43)

Doherty J.A. referred to Clark Auto Body v. Integra Custom Collision Ltd., 2007 BCCA 24, at para. 30 and said “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. It instead alters a basic and fundamental term of the lease.” (para. 43).

The ONCA went on to review two cases involving HBC in British Columbia during the pandemic and disagreed that the pandemic was a basis for fundamentally altering the remedy and imposing new terms into the lease.( para. 52)

The ONCA dismissed HBC’s appeal. As to Oxford’s cross appeal for payment of the arrears of HBC’s rent arrears, ONCA held that the motion judge erred in deferring the rent obligations and that any deferral should reflect the time needed by HBC to bring itself into compliance.( para.60).

The ONCA noted that there was no evidence that HBC could not pay the rent. Doherty J.A. noted that that the time a tenant needs to comply with the terms of the order will depend on the circumstances. Doherty J.A. held that if the motion judge concluded that the tenant cannot bring itself into compliance with the lease within a reasonable, specified time period, relief from forfeiture will not be the appropriate remedy.(para.57)

Further, the ONCA held the motion judge erred in reducing the interest rate on arrears. HBC had not asked the judge to reduce the interest rate and there was no justification for varying the interest rate agreed upon between sophisticated parties to the lease. The interest rate on the arrears set out in the lease was applicable. (para.61-63)