The Alberta government is moving forward with Bill 23, the Commercial Tenancies Protection Act (“CTPA”). The Bill was tabled in the Legislative Assembly on June 16, 2020 and passed First Reading the same day. This is a government Bill, so is likely to be pushed through the legislative approval process and come into force within days, or a few weeks at the latest. You can read the draft CTPA by clicking here.
While residential tenancies have been regulated by government for generations, it has been decades since Alberta has had any significant legislation regulating commercial tenancies. The CTPA has been put forward in response to the commercial tenancy problems arising from the COVID-19 pandemic and resulting public health orders. As the CTPA says in its preamble: “commercial tenants should not be subject to undue consequences, eviction or other termination of their tenancy because of circumstances beyond their control caused by the COVID-19 pandemic.”
Which landlords and tenants are affected?
The CTPA will designate a class of landlords and a class of tenants to whom the CTPA will apply. Many aspects of the CTPA will be set out in the regulations, which have not yet been made public, so we don’t know how broadly the CTPA will apply. Will it apply only to single location tenants? Small footprint tenants? Tenants with smaller revenues or payrolls? Institutional landlords? Multiple location landlords? Landlords without mortgages? We simply don’t yet know. The only clue we have so far comes from Hansard. The MLA who tabled the Bill stated in the Legislature that “We must continue to support our small and medium-sized businesses as we relaunch our economy.”
Which leases are affected?
The CTPA, once in force, is retroactive to June 16, 2020, and will apply to leases (in the classes to be prescribed by the regulations) in effect on March 17, 2020 (when the provincial public health emergency was declared) or which were entered into before March 17, 2020 and made effective while the public health emergency order is in effect.
The CTPA will not apply to an eviction or lease termination which took effect before June 16, 2020 (when the Bill was presented to the Legislative Assembly).
How are tenants protected?
The CTPA states that a landlord cannot give a notice of default, distrain for rent, evict a tenant or otherwise exercise remedies under or terminate a commercial lease during the period beginning on March 17, 2020 and ending on the emergency end date (August 31, 2020 or another date if the government chooses) in relation to:
- the non-payment of any rent, rent arrears or both by a tenant due to circumstances beyond the tenant’s control caused by the COVID-19 pandemic,
- the applicability of an act of God or force majeure provision of a lease or frustration of contract caused by the COVID-19 pandemic, or
- the breach of any continuous occupancy clause of a lease caused by the COVID-19 pandemic
(collectively, “Pandemic Effects”). Subject to the regulations, any provision in a lease to the contrary is declared void during the emergency period.
Landlords can still evict and terminate for “substantial breaches”
Subject to the regulations, the prohibition on lease enforcement and termination does not affect landlords' rights for a specified list of “substantial breaches”, if such a breach is identified in the lease as a cause for eviction or termination. The “substantial breaches” are, for the most part, a repeat of those found in the Residential Tenancies Act (Alberta) (“RTA”), including interfering with other tenants, illegal activities, endangerment of persons or property, doing significant damage, and failing to maintain the premises in reasonably clean condition. The full list is set out in subsection 3(3) of the CTPA, which you can read by clicking here.
Reliance on the RTA substantial breaches to terminate a lease is problematic because these breaches are not “bright line” breaches (unlike a failure to pay rent), include problematic and difficult to prove words such as “significant” or “reasonable”, and will be fact and situation specific. Due to the risk of wrongful termination by the landlord (and resulting liability of the landlord), a prudent landlord will not rely on these breaches to terminate a lease and evict a tenant, except with the protection of a court order, which to obtain will add time, cost and complexity to any attempt to enforce a lease.
In addition to the RTA substantial breaches, the CTPA also includes as substantial breaches:
- the tenant failing to vacate the premises at the expiration of the tenancy, if the expiration is unrelated to Pandemic Effects;
- the tenant repudiating the lease by abandoning the premises without notifying the landlord of any intent to reoccupy, assign or sublease the property;
- the tenant making any bulk sale or becoming bankrupt or insolvent or taking the benefit of any Act in force for bankrupt or insolvent debtors;
- the tenant receiving from any of its secured creditors a notice under the Bankruptcy and Insolvency Act (Canada) advising the tenant that the secured creditor intends to realize on security located at the leased commercial premises; and
- if the tenant is a corporation, any order being made for the winding-up of the tenant or other termination of the corporate existence of the tenant.
While the CTPA preserves the landlord’s rights to terminate due to a tenant’s bankruptcy or insolvency, these rights are ironically of not much use because the Bankruptcy and Insolvency Act (Canada) and the Companies' Creditors Arrangements Act (Canada) both suspend a landlord’s rights to enforce its lease remedies.
No payment of late fees or penalties in emergency
Landlords cannot charge a fee or penalty for late payment of rent or non-payment of rent by a tenant during the period beginning on March 17, 2020 and ending on the emergency end date. If a tenant has paid such a fee or penalty, the landlord must refund the amount of the fee or penalty or provide the tenant with a credit for that amount.
No rent increases
Despite what a lease might say, landlords cannot increase the rent payable under an existing lease during the period beginning on March 17, 2020 and ending on the emergency end date. This applies also where a landlord and tenant enter into a replacement lease for a lease which expired or was terminated on or after March 17, 2020.
If a landlord has increased the rent payable under an existing lease during the period beginning on March 17, 2020 and ending on the emergency end date, or has entered into a replacement lease for the same premises with the same tenant, the landlord must refund or credit the tenant for the rent increase.
If a tenant is unable to meet the tenant’s rent obligations under a lease and this is caused by the COVID-19 pandemic, the landlord and tenant must enter into a payment plan for the payment of rent. The CTPA is silent about what happens if the parties can’t agree on a payment plan. A payment plan has the effect of amending the lease to the extent necessary to give effect to the payment plan. If the tenant fails to adhere to a payment plan after the emergency end date, the landlord then has all remedies available to the landlord under the lease as modified by the payment plan.
Landlord’s liability for non-compliance
Subject to the regulations, non-compliance with the CTPA is deemed to be a substantial breach of the lease by the landlord, and the tenant will be entitled to exercise all rights
of the tenant relating to a substantial breach that are set out in the lease and any additional rights established by the regulations. Commercial leases rarely contain tenant remedies, so we must await the regulations to know the extent of landlords’ liabilities and tenant remedies against landlords.
No waiver of the CTPA
Any waiver or release by a tenant of the rights, benefits or protections under the CTPA is deemed void.
We won’t know the full effect of the CTPA until the regulations are issued. To the extent the CTPA applies to a commercial lease, it substantially restricts the landlord’s lease enforcement rights and remedies.
Given the high probability that the CTPA will be passed and come into law very soon, with retroactive effect, and until more is known about which leases, landlords and tenants will be affected, prudent landlords should not do any act of lease enforcement which might be prohibited by the CTPA.
For more information about the CTPA, Canada Emergency Commercial Rent Assistance (CECRA), or lease enforcement generally, please contact a member of our Commercial Real Estate Law Team.