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Quebec landlord-tenant considerations during COVID-19

Tuesday, April 14, 2020 @ 11:43 AM | By Laurent Debrun

Laurent Debrun %>
Laurent Debrun
Parts one and two of this three-part series examined a few of the questions to ask in determining how a superior force event can affect landlord-tenant relationships in Quebec. Other questions naturally ensue.

Insurance considerations 

Does the landlord’s or tenant’s insurance policy require notice to the insurer that the premises are closed and not occupied for an unspecified period of time?

Does the landlord’s policy cover the tenant’s losses for business interruption caused by an event of force majeure? Does the landlord have coverage for loss of rent during a force majeure event?

If the landlord’s lease provides for the landlord to receive, as additional rent, a percentage of the tenant’s sales above a certain amount, are those losses recoverable under the landlord’s policy?

Should both the landlord and tenant issue a notice of claim to their insurer to reserve and protect their rights? Brokers are recommending that this be done systematically, even if the insured believes that it is not covered. Policies are complex, a pandemic of such magnitude may qualify under some type of coverage that you are not aware of or misapprehended and, even if it does not cover the loss, a written denial of coverage by the insurer may prove necessary should governments provide some indemnification at a later stage while requesting proof that the person was not otherwise indemnified or had insurance coverage.

Is the landlord maintaining essential security services to the building and to the tenants’ premises during the shutdown?

Did the tenant take all necessary measures to secure the premises during this closure? If an insurance policy or the lease requires regular monitoring of the premises while a store or office is closed, the tenant or landlord should make sure that this is respected.

Pro-active business considerations 

Has the landlord reviewed its mortgage obligations, fixed costs and other expenses during the force majeure event? Has it made a contingency plan in the event this crisis lasts more than two or three months?

Does the landlord have the ability to withstand on its own one or more months of delayed rent payments or worse, non-payment of rent by some or all of its tenants?

Even if a force majeure protects the landlord, is the landlord prepared to defer rent payment and to capitalize the deferred rent over the balance of the term of the lease or under some other formula such as a back-end loaded lease or progressively increasing rental payments or an extension of the term of the lease?

Is the landlord willing to settle with the tenant for additional rent, including business taxes, municipal taxes and maintenance costs during the shutdown period and waive entitlement to rent payment? Do the landlord’s mortgage or loan obligations permit it to settle without the lender’s approval?

Is an amendment to the lease required to reflect such an agreement? If so, it would be useful to consider obtaining a complete release of all claims stemming from the force majeure event as consideration for a business solution, including future losses or business interruption.

When normality returns, will the landlord have an obligation to take certain measures to ensure the continued safety and health of the occupants of the building or mall? Will this impact other tenants?

Can the landlord or through him, the tenant, obtain a reduction of business taxes, waste collection or other municipal taxes? Municipalities may have to do their part to be part of the solution.

Under the Civil Code of Quebec, both the landlord and tenant are expected to act reasonably, in good faith, using contractual means and legal rights with proportionality and without intent to harm. In this time of international pandemic, this duty is even more important.

As soon as the government order imposing the shutdown and confinement measures is lifted in Quebec, tenants should resume occupancy forthwith. The landlord will want to monitor this return to normality. Some tenants may continue to face a situation amounting to force majeure (i.e. the tenant’s sole or primary source of products sold at retail is in a country which continues to be on lockdown).

No situation is similar to another and each case must be carefully reviewed.

This is part three of a three-part series. Part one: Landlord-tenant checklist for Quebec during COVID-19. Part two: Further landlord-tenant considerations during COVID-19

Laurent Debrun specializes in civil and commercial litigation, domestic and international arbitration, estate law, franchise law, aviation law, real estate law, intellectual property law and e-commerce law with Spiegel SohmerHe has a vast experience in the optical industry and the representation of manufacturers in relation with their liability for consumer, industrial products and equipment.

Photo credit / Feodora Chiosea ISTOCKPHOTO.COM

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