“On this appeal and cross-appeal, the court is asked to determine the extent to which the remedy of relief from forfeiture, and in particular s. 20 of the Commercial Tenancies Act, R.S.O. 1990, c. L.7 (‘CTA), can be used to spread the economic pain arising out of the pandemic between retail store tenants and their landlords,” Justice David Doherty wrote in his reasons in Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI v. Oxford Properties Retail Holdings II Inc., 2022 ONCA 585, released Aug. 12.
In 2020, following government-imposed restrictions on businesses owing to the COVID-19 pandemic, HBC ceased to pay rent on stores it was leasing across Canada. The case heard by Ontario’s appellate court in April concerned the HBC anchor store in Hillcrest Mall in Richmond Hill, Ont.
“Between March 2020 and June 2021, when the motion giving rise to this appeal was heard, HBC and Hillcrest Mall went through a series of government imposed lockdowns, followed by partial, but significantly restricted re-openings, followed by yet another lockdown,” the court noted.
By June 2021, there were 16 vacancies in the Hillcrest Mall, 10 or which had occurred after the COVID19-related lockdowns and restrictions began. Foot traffic within the mall was substantially reduced, and “HBC sales between March 2020 and April 2021 were down 60.5 percent compared to sales during the period from March 2019 to February 2020,” Justice Doherty wrote.
Shortly after the first closure, in April 2020, HBC stopped paying rent to its landlord, Oxford Properties, of which Hillcrest Mall is an affiliate, “unilaterally, and without any notice to Oxford,” according to the decision. Nor, the court noted, was there any evidence that HBC was unable to pay the rent.
“After HBC stopped paying rent, it attempted to negotiate a compromise with Oxford that would take into account the effects of the pandemic. Those attempts failed,” the court noted. Counsel for Oxford Properties argued that the tenant HBC had stopped paying rent as a pressure tactic to get a reduced rent.
Although HBC did receive some assistance from the federal government by way of a wage subsidy, its revenues and the quantum of its rent payments made it ineligible for government programs to assist retailers in paying their rent.
In September 2020 HBC sought a declaration that Oxford was in breach of the lease agreement by failing to meet “first-class shopping centre standards.” Oxford responded the following month “by serving HBC with a Notice of Intention to forfeit the HBC lease on the property in the Hillcrest Mall. In seeking the forfeiture, Oxford relied on HBC’s failure to pay rent for some seven months. The arrears totalled over $1.3 million.”
Also in October 2020, “the late Justice G. Hainey granted an interim injunction enjoining Hillcrest from terminating the HBC lease, or interfering with HBC’s quiet enjoyment of the leased premises. The order was made pending the outcome of the proceedings and was specifically made subject to any further order, and without prejudice to the rights of the parties and the ultimate determination of all of the claims on the merits,” the Court of Appeal noted.
Section 20 of the Commercial Tenancies Act (CTA) provides for relief against re-entry or forfeiture. Justice Hainey gave no reasons for his interim order, which did not identify the statutory source on which it was based.
Further, Justice Hainey ordered, “as a term of granting interim relief, that HBC immediately pay 50 percent of the unpaid rent arrears that accrued since April 2020 ($659,394.83). He also ordered that, on a go forward basis, HBC should pay 50 percent of the monthly rent as it came due.”
HBC complied with the interim order, and in June 2021 the motion for relief from forfeiture was heard by a motion judge on its merits.
The motion judge found that i) Oxford was not in breach of any of the terms of the lease; ii) HBC was in default for non-payment of rent, but in the circumstances was entitled to relief from forfeiture pursuant to s. 20 of the CTA; iii) the remedial power in s. 20 did not extend to orders abating or reducing the rent agreed upon by the parties in the lease; and iv) s. 20 did, however, extend to orders deferring payment on rent owing.
“Although the motion judge granted HBC relief from forfeiture,” Justice Doherty wrote, “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” in its lease.
“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,” he continued.
“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,” such as rent abatements or reductions, as the appellant/tenant wanted.
Justice Doherty added that he agreed with Oxford’s counsel 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.”
Addressing Oxford’s cross-appeal as to whether the motion judge had erred in deferring HBC’s rent payments as a term of granting relief from forfeiture, the court decided that she had.
“The motion judge erred in deferring HBC’s rent obligations for reasons unrelated to HBC’s ability to bring itself into compliance with the terms of the lease relating to rent payment,” the appellate court judge wrote. “The length of any deferral should have reflected the time needed by HBC to bring itself into compliance with the lease.”
As Oxford was successful on both the appeal and its cross-appeal, the court ordered costs of the appeal be paid to it in the amount of $30,000.
Counsel for the parties were not immediately available for comment.
Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI, the appellant and respondent to the cross-appeal, was represented by Jonathan C. Lisus and Carter Liebzeit of Lax O’Sullivan Lisus Gottlieb LLP.
Oxford Properties Retail Holdings II Inc. and the respondents and appellants on the cross-appeal, Montez Hillcrest Inc. and Hillcrest Holdings Inc., were represented by Deborah E. Palter and Alexander Soutter of Thornton Grout Finnigan LLP.
Editor’s note: An earlier version of this story incorrectly listed and reversed the names of counsel for the parties, and misspelled the name of the firm representing Oxford Properties and its affiliates.
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