Court of Appeal Applies Force Majeure Clause to COVID-19 Business Closure
In a recent decision, the Court of Appeal for Ontario has confirmed that a contractual force majeure clause may be triggered without fault, breach, or intentional interference by the party whose performance is affected.
In LAF Canada Company v. Woodbine Highway 7 Retail Inc. the Court dismissed a landlord’s appeal from a decision holding that COVID-19 closure orders prevented it from providing premises for use as a fitness facility. The lease was extended by 348 days, with no additional rent payable during the extension.
LAF leased premises in Markham to operate an LA Fitness club. During the COVID-19 pandemic, government restrictions required the facility to close for 348 days. LAF continued paying rent during that period.
The lease contained a force majeure clause that excused delayed performance and extended the period for performance where a force majeure event, including “restrictive laws,” delayed, hindered, or prevented a required act. The Superior Court held that the clause extended the lease for the closure period and that no rent was payable during the extension because LAF had already paid rent during the closures.
On appeal, the landlord argued that the clause was not triggered because it continued to provide access and did not interfere with LAF’s use. It also argued that LAF could have offered virtual programming from the premises.
The Court rejected both arguments. Reading the lease as a whole, it found that the landlord was required to provide premises for use as an in-person health club, not simply access to physical space. The landlord’s proposed alternative of virtual programming was inconsistent with the language and commercial purpose of the lease.
Importantly, an independent breach of the lease by the landlord was not required for the force majeure clause to apply. Instead, two requirements had to be met:
- a party had to be delayed, hindered or prevented from performing an act required under the lease; and
- that failure had to result from a force majeure event.
Those requirements were met because the closure orders were “restrictive laws” and prevented the landlord from providing premises that could be used as an in-person fitness facility.
The Court also held that its similar decision in Niagara Falls Shopping Centre Inc. v. LAF Canada Company was determinative. The fact that the landlord had not itself imposed the closure or intentionally interfered with the business did not change the analysis.
The result turned on the wording of this lease. It extended the performance period by the length of the force majeure delay; because LAF had already paid rent for those 348 days, it did not have to pay rent during the corresponding extension.
LAF Canada reinforces that force majeure disputes turn on the terms of the parties’ agreement, not on the fault of a particular party. The result in other cases will depend on the particular wording of the contract and whether a particular event meets the contractual definition of force majeure. Commercial landlords and tenants should consider not only which events qualify as force majeure events, but also which contractual obligations may be affected and what the lease says will happen when performance is prevented.
