The Supreme Court of Canada has interpreted a force majeure clause as a contractual provision that can discharge a party to a contract when an “unexpected event, something beyond reasonable human foresight and skill” makes performance of the contract impossible by a contracting party.[1] As one could imagine, the COVID-19 Pandemic and the resulting government closures of non-essential workplaces has brought force majeure clauses to the forefront of the post-pandemic Ontario legal discourse. This is particularly the case with regards to commercial lease agreements.
In March of this year, the Ontario Court of Appeal made a significant decision that established a framework when addressing commercial lease disputes where a contract includes a force majeure provision and part of the performance took place during government closures. In Niagara Falls Shopping Centre Inc. v. LAF Canada Company,[2]the Court of Appeal ruled that under these circumstances, the parties’ rights and obligations depend on the terms of each individual contract read as whole together with the force majeure clause.
Niagara Falls Shopping Centre Inc. is a corporation that owns the premises which were leased to a fitness centre operated by LAF Canada Company. In 2020 when the Ontario government declared a provincial state of emergency and mandated the closure of all non-essential workplaces, the Shopping Centre was unable to perform its obligations under the lease agreement – to provide the leased premises to its tenant, LAF Canada. While the fitness centre initially paid its rent, in December when the Ontario government reimposed closures, LAF Canada refused to pay. As a result, the Shopping Centre brought action against the LAF Canada and made a motion for summary judgement. Both parties referenced the force majeure clause as justification for their non-performance, however the motion judge ruled in favour of the Shopping Centre. The motion judge explained that the force majeure provision in their lease agreement exempted landlord from providing the tenant with the leased premises but required the tenant to pay rent during these closure periods because the provision read, “delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be force majeure events.” As the LAF Canada’s contractual obligation was to pay rent, their failure to perform was not excused by theforce majeureclause.
When LAF Canada appealed the decision, the Ontario Court of Appeal ruled that the motion judge erred in their interpretation of the force majeure clause. Justice Gillese explained that there were “extricable legal errors” as the motion judge failed to interpret the lease agreement as a whole and consider relevant provisions of the clause. While there was no dispute that the government closures activated the operation of the force majeure clause, LAF Canada had rights and the Shopping Centre had obligations that went unaddressed by the motion judge.
The Court of Appeal found that the words in the contract were not given their ordinary and grammatic meaning because the motion judge did not interpret the lease agreement in its entirety. First, there was the erroneous interpretation of the word “excuse” in the force majeure clause to mean “exempt”. Secondly, the motion judge restricted the performance of post-force majeure obligations to time limited events. This led to the motion judge creating, “violence to the clear language and intent of that clause and effectively rewrites the parties’ agreement on what is to happen in the case of a force majeure event.”
Upon proper interpretation of the lease agreement and the force majeure provision, the Court of Appeal found that while the fitness centre was obligated to pay rent during the closure periods, the lease agreement provided that the Shopping Centre was obligated to extend the lease by an equivalent period and that the tenant was, “not be obligated to pay rent during the extension period, having already paid rent during the closure periods.”
We hope that this blog serves as a notice to Niagara-based landlords and tenants in commercial lease agreements affected by the pandemic. The Ontario Court of Appeal made it clear that your rights and obligations vary depending on the terms of your individual contract. Please contact Daniel & Partners LLP for a consultation on the rights that may be available to you under these circumstances. Our team can offer you expert legal advice when entering into these agreements and can ensure that your interests are protected when the unexpected occurs.
Blog post written by NCA Candidate Dylan Nadeau
[1] Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp and Paper Company Limited, [1976] 1 S.C.R. 580.
[2] 2023 ONCA 159.
