2021 seems to have begun as badly as 2020 ended.
While that is true for everyone in Quebec (all of us plunged into another lockdown), it is equally true (if not more so) for some tenants struggling to minimize their losses.
Only a few weeks after the highly publicized ruling handed down in the Hudson Bay affair (which ordered the latter to pay the full rent due every month), the Quebec Superior Court in its decision regarding Groupe Dynamite Inc. vs. Deloitte Restructuring Inc. slightly increased the pressure on major commercial tenants currently undergoing restructuring.
As many of you are aware, Groupe Dynamite Inc. (a fashion retailer known mainly for its Dynamite and Garage banners) filed for creditor protection in September 2020 under the Companies' Creditors Arrangements Act (CCAA).
Note that the Act provides a range of measures to assist a company with debt in excess of $5 million to help it restructure. In particular, it allows for the suspension of any proceedings instituted by creditors against the debtor, and upholds the debtor's right to terminate any contract to which it is a party, including any commercial lease. On the other hand, Article 11.01(a) of the CCAA states that the debtor remains bound, in all cases, to discharge without delay the obligations relating to the "use of leased premises" where such use continues after filing for creditor protection.
As part of its restructuring under the CCAA, Groupe Dynamite Inc. applied to the court to be relieved of its obligation to pay rent for some of its stores in Ontario and Manitoba. It claimed that the closing of non-essential businesses imposed in those provinces since November 2020 prevented the firm from said "use" of those rental premises.
In that regard, it demonstrated that the stores in question were not used to process customers' online orders, while in-store pick-up of products purchased online (which is always possible in those premises), represented only 0.5% of the company's sales. Thus the firm should be relieved of its obligation to pay rent until health protection measures are lifted and public access to its premises restored.
The court, however, refused to accept that argument. While it recognized that Groupe Dynamite Inc. was unable to operate the leased premises to their full potential, it underscored its decision not to terminate the leases on those premises, as authorized under the CCAA, and therefore to retain possession of them. The court noted that the strategic location of the leased premises and their decisive contribution to the possible relaunch of the banner were not unrelated to its decision. It thus decided that simple possession of the leased premises, currently exercised without the tenant's full enjoyment of the premises, is sufficient to trigger the tenant's obligation to pay rent in accordance with the leases.
In conclusion, it is interesting to note that the judge who rendered that decision, the Honourable Peter Kalichman, is the same judge who made one of the most important decisions in 2020 regarding commercial leasing in the context of a pandemic, i.e. Hengyun International Investment Commerce Inc. vs. 9368-7614 Quebec Inc..
In that ruling, Judge Kalichman accepted the appeal for full rent reduction from March to June 2020 for a tenant operating a gym, on the grounds that the lockdown imposed by the Quebec government had completely deprived the tenant of peaceable enjoyment of the rented premises.
Chances are that some litigants will be imaginative in invoking the Hengyun International decision in favour of tenants, or the Groupe Dynamite inc. and Hudson Bay decisions in favour of landlords, in an attempt to draw inferences from them.
The courts will most likely be called upon to settle disputes and rule in many cases as we enter the second year of the pandemic.
To be continued…