Can a Commercial Tenant Break Rent During the COVID Pandemic? Beware of Tenant Breach
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As you are likely aware, the COVID pandemic has been really tough for commercial tenants across Ontario. Declining revenues have made it more and more difficult for commercial tenants to pay rent. For a lot of small to medium size businesses, a loss of revenues, and a recalculation of budgeting money, has been extremely difficult. Meanwhile, tenant businesses unfortunately, have been faced with situations where their commercial landlords have either refused to engage in rent reduction, or have only minimally decreased rent (sometimes deferring rent payments till a later date). Regardless of the scenario that a commercial tenant faces itself with, many are wondering if there is any way that either (a) their commercial lease can be reworked or (b) if there's any way they could get out of their lease. Although there are certainly ways that a commercial lease can be reworked, and in some cases, excused (i.e. discontinued), commercial tenants need to be wary of the following two words: Tenant Breach.
What is Tenant Breach you might ask? A Tenant Breach, roughly occurs when the commercial tenant decides to no longer pay its rent, or pays only partial rent. Basically, a Tenant Breach goes to the heart of contract law. In a commercial contract/agreement, both the Tenant and the Landlord have obligations. For the Landlord, an obligation that it might have is to provide the Tenant with quiet enjoyment, or the right to a habitable tenancy free of disturbances (i.e. excessive noise by others, unreasonable leaks not caused by the Tenant, etc.). For Tenant obligations, one of the most obvious is the need for Tenants to pay rent to its Landlord. In fact, case law has shown that even when a Landlord has not upheld its part of the bargain (i.e. has failed to fulfill its obligations), if a commercial Tenant decides to not pay rent, a court could also find the Tenant in breach. This would therefore cut into the compensation that a Tenant would have originally been entitled to.
Other examples of possible Tenants breaches could include using the premises for purposes not stipulated in the landlord-tenant agreement (ex: using the leased premises for residential purposes and not commercial) or for making too much noise (i.e. noise complaints). This being said, if a commercial Tenant is possibly in breach, such a breach will likewise, not excuse or nullify a Landlord's breach of the Lease.
In sum, despite tough times and the government's recent attempts to alleviate the financial burden felt by commercial tenants over the last year (i.e. CECRA), several commercial tenants have no doubt wondered if not paying rent is an option if a Landlord is in potential breach of the Lease - or just in general due to the pandemic. The short answer is pretty clear: even when the Landlord is in fundamental breach of the Lease, a commercial Tenant should still go to lengths to ensure rent is being paid. Even attempts to work out a modified payment plan with the Landlord would look good in the eyes of a judge, were something ever to go to litigation.
Do you have any commercial landlord-tenant issues? Are you a commercial tenant or a commercial landlord? Send me a message. I would love to hear from you!
Aaron Miller is the founder of Aaron Miller, Barrister & Solicitor. Aaron is an Ontario based lawyer whose passions, aside from the law, include soccer, hockey, fishing, and hiking with his beautiful partner, Courtney. Aaron can be reached at 416-659-6665 and at firstname.lastname@example.org.