The spread of COVID-19 affects the abilities of both the tenant and landlord to fulfill their respective obligations under commercial leases. In particular, if a tenant must close its business at the leased premises because of preventive measures ordered by the government, it may not have enough money to pay its rent to the landlord. Also, failure to operate from the leased premises continuously can be considered as a non-monetary breach of the lease. At the same time, if enough tenants at the landlord's property do not pay their rent, the landlord may become unable to pay its bills for utilities serving the leased property.

If a party expects that it will fail to perform lease covenants, first, a full review of the lease should be performed to determine whether such an inability amounts to a default during a pandemic. If the landlord included a health emergency provision in the lease, such a clause usually deems certain failures to satisfy obligations because of the pandemic, such as failure to maintain and repair, not to be a landlord's default. For the tenant, a force majeure clause may give a tenant some relief for a breach of a non-monetary covenant. However, the force majeure provisions rarely excuse non-payment of rent.

If a tenant cannot pay rent under its lease and the lease does not provide any relief for payment during a pandemic, the tenant should try and negotiate with the landlord for a rent abatement or deferral. Although the landlord does not have an obligation to agree to the tenant's request, it can be a better option for the landlord than to start looking for a new tenant during the pandemic. Any agreement between the landlord and tenant on deferral or reduction of rent should be documented in writing.

Most commercial leases include default provisions describing the landlord's rights and remedies when a tenant default occurs. Usually, before exercising any remedy for a tenant default, the landlord must provide the tenant with prior written notice describing the default (requirement differs for a monetary breach and a non-monetary breach) as well as the cure period to rectify the default.

The Ontario government has halted any new evictions for residential tenancies. However, there has been no express prohibition on evictions for commercial tenancies. If the landlord wants to evict the tenant, the most common way is to deliver a written notice of termination to the tenant and to change the locks at the premises. Another alternative is to apply to the court for a writ of possession. This way is often applicable if physical re-entry is not possible or if there is a question as to whether the landlord is legally allowed to evict a tenant. However, due to the suspension of the Superior Court of Justice regular operations during the pandemic, it can be difficult to obtain a writ of possession promptly.

If you have any legal questions about your commercial lease, please do not hesitate to contact the lawyers of Kormans LLP

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