Through the lens of case law, this article will provide an overview of the issue of quiet enjoyment in the context of commercial leasing. It will explore some common scenarios that may give rise to a potential breach and also highlight recent jurisprudence regarding government imposed restrictions that interfered with tenants’ right to quiet enjoyment during the Covid-19 pandemic.
1. WHAT IS QUIET ENJOYMENT?
Quiet enjoyment refers to the right of a tenant to peacefully enjoy its premises without interference from a landlord. The case London Prestige Ltd v Wellington Harlech Centre Inc.,1 outlines the current test for quiet enjoyment. It holds that a landlord’s covenant to provide quiet enjoyment, whether express or implied in a lease, means that a landlord must not substantially interfere with its tenant’s enjoyment of the premises. To be actionable, a landlord’s interference must be grave and permanent such that it renders the premises substantially less fit for the purposes for which it was leased.2
2. HOW DOES QUIET ENJOYMENT ARISE?
In Ontario, landlords must provide tenants with quiet enjoyment of their premises. This covenant may be either implied or expressly mentioned in the lease.
A tenant’s right to quiet enjoyment has been codified in Ontario by Section 23 of the Conveyancing and Law of Property Act3, which states that conveyances for valuable consideration, such as payments of rent in the commercial leasing context, imply a covenant for quiet enjoyment.
The covenant for quiet enjoyment has also been held to be implied at common law due to the nature of the landlord and tenant relationship. The inclusion of words such as “let”, “demise”, “rent” or any equivalent word in the lease has been seen to imply quiet enjoyment. As such, tenants are entitled to quiet enjoyment4 even when the lease does not provide for it.
Most modern commercial leases contain an express covenant for quiet enjoyment, which allows the parties to contractually agree on the nature and extent of the tenant’s right. For example, often times this right is made conditional on the tenant not being in default of its obligations under the lease. Tenants should be aware that a qualified or narrowly worded clause in the lease will replace the implied covenants granted by the common law and statute and will limit their rights. In fact, the covenant for quiet enjoyment may also be excluded entirely. However, if the parties intend to exclude the tenant’s right, it must be done clearly and precisely as the Court will read the lease as a whole in determining the intent of the parties6. Parties should also be mindful of perceived unconscionability or inequality in bargaining power that may accompany an exclusion of the right.
3. WHAT CONSTITUTES A BREACH OF QUITE ENJOYMENT?
Breaches of a tenant’s right to quiet enjoyment must be addressed on a case-by-case basis. Courts will consider multiple factors, such as: (i) the language used in the lease, (ii) the degree of interference on the tenant’s use of the leased premises, (iii) the adverse consequences to the tenant’s business, and (iv) whether the interference with the tenant’s use is permanent or intermittent.
The following are some instances in which courts have explored a tenant’s right of quiet enjoyment:
a) The Case of Major Renovations: Bloor Street Diner v The Manufacturers Life7
In Bloor Street Diner, the tenant ran a restaurant from the leased premises. The landlord wished to renovate and redevelop the centre, which would result in the erection of a temporary hoarding wall along the length of the premises and later a glass facade that would intrude several feet into the premises, substantially reducing the size of the most desirable seating and obscuring its view from the street. The lease in question was heavily negotiated by the tenant and contained several amendments. The original lease limited the landlord’s right to modify the premises to only “minor changes”, and was subject to the following conditions, among others8:
- “The Minor Changes could not materially detrimentally affect access to, egress from, or visibility of the Leased Premises”; and
- “The Minor Changes could not materially affect the flow, continuity or design of the Leased Premises.”
The “minor changes” clause was subsequently amended to include a provision allowing the landlord to undertake a “Restoration Program” (“RP“), which allowed the landlord to make changes, alterations, renovations and/or improvements to the leased premises, without limitation. In return, the tenant received an allowance of $200,000.00. The RP clause did not alter or exclude the “minor change” clause with respect to prohibitions affecting visibility, flow, continuity and design of the premises.
The landlord carried out the first restoration program with the tenant’s cooperation. Years later, it proposed a major redevelopment, which the tenant objected to. The landlord argued that the RP provision did not contain qualifications regarding visibility or material disruption to the tenant’s business9. It also argued that the major renovation would enhance the premises and even increase the tenant’s revenues.
The court rejected the landlord’s arguments. It held that the scope of the RP clause did not expand to allow for major renovations. Also, potential benefits of the expansion could not influence the proper interpretation of the tenant’s rights under the lease11.
As a result, tenants should not underestimate the importance of a well-negotiated lease that contemplates and restricts future changes that a landlord may make to the premises and/or the common areas.
(b) Adverse Effects on Common Areas: 2072467 Ontario Inc. v Dr. Matthews PC12
In Dr. Matthews, the tenant signed a 5-year commercial lease for medical office space in a plaza, agreeing to take the premises on an “as is” basis. The tenant vacated the space after 15 months of occupying the premises and argued a breach of his right of quiet enjoyment for several reasons, including an insect infestation, mold, roof leaks, problems with the HVAC system, safety issues, and constant elevator breakdowns resulting in limited use of the common areas. The latter issue was especially important for the tenant since its patrons were often elderly or individuals with limited mobility.
The court, in applying the test for quiet enjoyment, found that the intermittent elevator and HVAC breakdowns were not so grave or permanent as to render the premises substantially unfit to be used13. The plaza and its facilities were old and the landlord promptly addressed elevator breakdowns and maintained them regularly. The lease permitted the landlord to take the elevator out of service for maintenance and repairs and stated that any diminution of the common areas would not result in liability for the landlord, “nor would the Tenant be entitled to any compensation or abatement of rent, nor would such alteration or diminution of such Common Areas and Facilities be deemed constructive or actual eviction, or a breach of any covenant for quiet enjoyment.”
The court also noted that the tenant only complained in writing to the landlord once and only in regard to the insect infestation, which the landlord promptly addressed. The court held that “a tenant who complains of interference with their right to quiet enjoyment must bring that matter to the landlord’s attention and…give the [landlord the] opportunity to remedy it.”14 The court ordered the tenant to pay damages to the landlord for rental arrears as well as the balance of the rent due and payable under the lease. This was due to the court’s finding that although the landlord was not successful in re-letting the premises, it had taken adequate steps to mitigate its damages up to the date of the trial15.
Therefore, it is important for tenants to remember that they must note any landlord defaults that may give rise to a breach of quiet enjoyment in writing. Accordingly, landlords should seek to address the issues raised by their tenants promptly and appropriately.
(c) Control of the Development vs. Quiet Enjoyment: Bryandrew Holdings Ltd v Sifton Properties Ltd16
In Bryandrew, the tenant purchased a hardware business that operated in the landlord’s mall. As part of the approval of the assignment of the lease to the tenant, the landlord amended the lease to allow for renovations and exclude liability for disruption due to construction. These changes, however, were “take it or leave it” propositions and at the time of the execution of the amending agreement, the tenant was unaware of the extent of the landlord’s renovation plans. The tenant claimed a breach of its right of quiet enjoyment as a result of the renovations undertaken by the landlord, which included the addition of a second storey to the mall.
The trial court held that the unilateral imposition of language by the landlord without disclosure of its plans amounted to gross unfairness that demonstrated that the parties were in unequal bargaining positions17. Both the trial and appeal courts found that the landlord’s construction constituted substantial interference to the tenant’s business in the premises, which breached the tenant’s right of quiet enjoyment and awarded damages against the landlord18.
While negotiating leases and amending agreements, parties should remember that courts can intervene and reach past the language of the negotiated lease documents if they perceive an inequality in bargaining power amongst the parties.
4. CASE LAW: QUIET ENJOYMENT AND THE PANDEMIC
With the advent of the Covid-19 pandemic, tenants explored their options to circumvent their rental obligations on the grounds that government-imposed lockdowns prevented them from fully exercising their right to quiet enjoyment of the premises. Two leading cases are outlined below which discuss this issue further.
(a) Hudson’s Bay Company ULC v Oxford Properties et al 19
HBC, the tenant under the lease, was forced to close its store in the shopping centre on numerous occasions throughout the Covid-19 pandemic to comply with government mandates. HBC argued that its right of quiet enjoyment was breached due to the landlord’s failure to operate a “first-class mall” during the pandemic lockdowns. It also alleged that the following factors led to the landlord’s breach of the lease: (a) since the first lockdown, the mall operated only 40 percent of the time; (b) the landlord had refused to make improvements to mitigate health risks, such as upgrading the HVAC system, and (c) the mall had changed in character due to the limited access by the public. HBC unilaterally decided to stopped paying rent and commenced an action for breach of quiet enjoyment. The landlord attempted to terminate the le ase and the tenant applied to the court for relief from forfeiture.
The court held that landlords should not be put in a position of having to ignore public guidelines and will not be in breach when the failure to provide quiet enjoyment results from compliance with government impositions20.
Consequently, it appears that landlords will not be held to be in breach of the lease when a failure to provide quiet enjoyment of the premises results from compliance with government mandates during the Covid-19 pandemic.
b) Durham Sports Barn Inc. (Re) 21
In Durham Sports, the tenant operated a fitness facility on the leased premises. As a result of the Covid-19 pandemic lockdowns, the tenant’s business was forced to close for the duration of the lockdowns. The tenant stopped paying rent and argued that its rent obligation must be abated proportionate to its ability to carry on its business in the leased premises. The tenant did not provide advance notice to the landlord regarding its decision to stop paying rent or to request rental abatements. The parties’ lease featured a force majeure clause that relieved the landlord from the obligation to provide quiet enjoyment in a scenario such as a governmental lockdown.
The court considered the interaction of the right to quiet enjoyment and the force majeure clause, holding that the latter was effective in allowing the landlord to breach the tenant’s right of quiet enjoyment but that it did not relieve the tenant from its obligation to pay rent. Moreover, the quiet enjoyment clause provided that the right was dependent on the tenant paying rent. The court seemed to imply that the outcome would have been different if the force majeure clause contained express language in favor of a rent abatement23.
An interesting comment in this case indicated that the court considered the lack of notice provided to the landlord as a relevant factor which negatively impacted the tenant’s claim. If the tenant had given notice regarding its claim for abatement of the rent to the landlord, the landlord would have had the opportunity to assist the tenant in mitigating the losses. It is unclear whether the court would have decided differently had notice been provided and the landlord continued to refuse to provide the tenant with any relief.
In sum, we learn that the terms of the lease (and specifically quiet enjoyment and force majeure clauses) are vitally important to the court in determining whether rent may be abated in a dispute arising from the pandemic lockdowns.
5. TAKEAWAYS
Tenants
If possible, a tenant should negotiate the terms of the landlord alteration, quiet enjoyment and force majeure clauses in their lease to address situations in which the tenant is prevented from using the premises for a prolonged period of time. Ideally, rent would abate or cease to be payable all together in such scenarios. Further, a tenant should provide the landlord with an opportunity to: (a) remedy any defaults by the landlord under the lease; and (b) assist the tenant, if possible, before taking any unilateral actions, including, but not limited to, vacating the premises or withholding rent.
Landlords
Where a landlord’s and a tenant’s rights are at odds – such as in the scenario where a tenant has a right to quiet enjoyment of the premises, but the landlord has an express right to make changes to common areas and remodel or renovate at its discretion, a landlord should take reasonable precautions to minimize substantial interference with the tenant’s operations in the premises. Such precautions may include providing the tenant with advanced notice or completing work at times and on days when the tenant’s business is closed. With regards to negotiating specific clauses in a lease: (a) a tenant’s obligation to pay rent should not be impacted by an event of force majeure and this should be specifically set out; (b) a tenant’s right to quiet enjoyment should be qualified by setting out that the tenant must not be in default of its obligations under the lease; and (c) landlord alteration clauses should remain as broad as possible without qualifications. That being said, landlords should remain wary and cognizant of inequalities in bargaining power when negotiating or amending a lease, as court intervention may occur if the lease is ever brought into question
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[1] 2019 ONSC 2364.
[2] Ibid at para 31.
[3] R.S.O. 1990, c. C.34.
[4] Ibid at 202, citing Budd-Scott v Daniell, [1902] 2 K.B. 351 (Eng. K.B.) at p. 358; Mostyn v West Mostyn Coal and Iron Co (1876), 1 C.P.D 145 at p. 152.
[5] Robert D. Malen, “The Landlord’s Covenant for Quiet Enjoyment” in Harvey M. Haber ed, Tenant’s Rights and Remedies in a Commercial Lease (Toronto: Canada Law Book Inc., 2014), 206-207.
[6] Malen, supra note 2 at 205, citing Bryandrew Holdings Ltd. v. Sifton Properties Ltd. (1993), 38 R.P.R. (2d) 95 (Ont. Gen. Div.).
[7] 2016 ONSC 440.
[8] Ibid at para 24.
[9] Ibid at paras 44-46.
[10] Ibid at para 71.
[11] Ibid at para 53.
[12] 2020 ONSC 2739.
[13] Ibid at para 144.
[14] Ibid at para 141.
[15] Ibid at para 166.
[16] (1994), 45 ACWS (3d) 1293 (Ont Ct J).
[17] Ibid at para 19.
[18] Sifton Properties Ltd v Bryandrew Holdings Ltd, 1997 CanLII 1174 (Ont CA).
[19] 2021 ONSC 4515.
[20] Ibid at para 52.
[21] 2020 ONSC 5938.
[22] Ibid at paras 54-55, 57.
[23] See Windsor-Essex Catholic District School Board v 2313846 Ontario Ltd (cob Central Park Athletics), 2021 ONSC 3040.
This publication is intended for general information purposes only and should not be relied upon as legal advice.
