In the first few months of the pandemic, the Canada Emergency Commercial Rent Assistance program was established to provide support for commercial tenants, small businesses hard hit by the preventive measures put in place to combat the spread of the virus.
Under the terms of the program, the commercial rent was shared as follows:
- Tenant: 25%
- Landlord: 25%
- CMHC: 50%
While the terms and conditions of eligibility for the CECRA program raised a number of questions when first introduced, the fact that participation in the program was entirely dependent on the willingness of landlords to take part was also the subject of much discussion.
Indeed, many tenants have argued that a landlord who is eligible but refuses to participate should not be able to demand full payment of rent from his tenants.
In a decision rendered on March 9, 2022 regarding 9098-5722 Quebec Inc. vs. 9302-6573 Quebec inc. (Bar Lucky 7), the Court of Quebec certainly settled part of that debate by determining that when an eligible landlord chooses not to participate in the CECRA program, it is not an act of bad faith and that, consequently, the tenant is obliged to pay the rent in full.
In its analysis, the Court clearly stated the choice facing the landlord:
 9098 (the lessor) was thus faced with the choice of accepting a 25% loss of income for a period of time, or running the risk of losing everything should the tenant be unable to pay due to the precarious economic situation.
By choosing the second option, the lessor was simply making a decision and taking a business risk. Indeed, given the entirely voluntary nature of the program, that choice, according to the Court, cannot be equated with bad faith on the part of the landlord. The Court saw no intention to harm, rejecting the tenant's argument that the landlord did not minimize his damages, a notion closely related to the notion of good faith.
Accordingly, the Court concluded that the rent agreed upon in the lease was payable in full by the lessee. It also noted that all stakeholders in the real estate industry had been affected by the pandemic, and that landlords also have financial obligations to meet.
As for other aspects of the landlord's civil action, the Court terminated the lease on the grounds that the tenant's failure to pay almost $29,500 in rent (even though he had received a government subsidy for 75% of the rent) constituted a sufficiently serious prejudice that merited this ultimate sanction.
Finally the Court, after assessing the jurisprudential validity of the penalty clause in the lease, ordered the tenant to pay the legal fees incurred by the landlord. Note that such a clause, when properly drafted, can be a very useful tool.
Given that the CECRA program was voluntary and not mandatory in nature, landlords were free to decide whether or not to participate. Thus, according to the law, the landlord was not acting in bad faith.
Let’s hope that this decision offers some comfort to lessors, even though the Court did leave the door open for tenants in cases where a landlord refuses to participate in a government program simply to spite the tenant.
An upcoming judgement may provide a concrete example, which of course we will endeavour to share with you!
 2022 QCCQ 1473