Canadian Underwriter

‘Unavoidable delay’ lease clause does not mean retailer can delay paying rent during lockdown: Court

June 21, 2021   by Greg Meckbach

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Hudson’s Bay Company cannot use an “unavoidable delay” clause in a mall lease agreement to stop paying rent to the landlord during the COVID-19 pandemic, a B.C. Supreme Court judge has ruled.

COVID-19 was declared a pandemic on March 11, 2020, by the World Health Organization. Shortly thereafter, HBC closed its store at the Cherry Lane mall in Penticton, B.C. That HBC store did not re-open until mid-May 2020, Justice Christopher Giaschi of the B.C. Supreme Court wrote in Cherry Lane Shopping Centre Holdings Ltd. v Hudson’s Bay Company ULC Compagnie De La Baie D’Hudson Sri, released June 17, 2021. The Cherry Hill mall also put in place various restrictions and closed certain parts of the shopping centre.

“Many businesses have had no revenue for months and they’ve taken on huge amounts of debt,” said Corinne Pohlmann, senior vice-president of national affairs for the Canadian Federation of Independent Business, as quoted recently by The Canadian Press. The CP article is on federal aid programs and not on the dispute between HBC and Cherry Hill mall.

At the moment, various restrictions remain in place across Canada, as public health units continue to vaccinate hundreds of thousands a day. In Ontario, 323 COVID-19 patients are in intensive care and 202 of those patients are on ventilators, CP reported on June 21.

In Penticton’s Cherry Lane Shopping Centre, HBC did not pay its rent in April 2020, Justice Giaschi noted in his June 17 ruling. In 2020, the mall owner sent HBC several letters demanding payment and eventually asked the court for a writ of possession, which essentially means the mall could take possession of the space and evict the retailer.

HBC made several arguments in court, a key one being that an “unavoidable delay” clause in the lease agreement lets HBC delay rent payments, and that COVID-19 is an unavoidable delay.

Meanwhile, HBC and the mall owner entered into a consent agreement in which HBC paid half of its 2021 rent to the mall and the rest of the rent due to the trust accounts of HBC’s lawyers.

The lease requires HBC to pay rent of $936,437 for 2020 in 12 monthly installments of $78,036 each.

The June 17 ruling is a mixed result for both parties. HBC is not evicted because Justice Giaschi granted relief from forfeiture. So at the moment, the mall owner does not have a writ of possession that it requested from the court. But HBC’s relief from forfeiture is on the condition that HBC pays all rent past due, plus interest according to the lease — and on the condition that HBC continues paying rent in future according to the terms of the lease.

The lease defines unavoidable delay as:

“any prevention, delay, stoppage or interruption in the performance of any obligation of the parties hereunder due to strike, lockout, labour dispute, act of God, or the occurrence of fire or other casualty, condition or cause which is beyond the reasonable control of the party obligated to perform despite all reasonable efforts of such party to perform (but shall not include any inability to perform because of any lack of funds or any financial condition).”

But the unavoidable delay clause is preceded with the following statement: “Whenever in this Lease it is provided that any act or things to be done or performed is subject to Unavoidable Delay.”

This means the unavoidable delay clause does not apply to all terms in the lease, Justice Giaschi ruled. It only applies to the lease obligations which expressly state they are subject to “Unavoidable Delay.” The clause in the lease requiring the tenant to pay rent “without any abatement, set-off or deduction whatsoever except as specifically provided for in this Lease,” does not expressly say that is subject to unavoidable delay.

So Justice Giaschi ruled that HBC is in default of its obligation to pay rent pursuant to the terms of the lease and ordered HBC’s lawyers to pay the mall owner all money held in trust by lawyers from HBC on account of rent owed to Cherry Lane.

“The ‘Unavoidable Delay’ clause could also have been worded such that it was applicable to the payment of basic rent. The parties, however, chose not to do so and there is basis for departing from the agreement they made. HBC is essentially asking me to allocate the risks of force majeure type events in a way different from what was agreed. This would effectively be making a new agreement between the parties, something which the court cannot do,” wrote Justice Giaschi.

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