Schrager, Moore, Weitzman

Appeal from a judgment of the Superior Court granting an action claiming rent, taxes, and contractual penalties ($222,464). Allowed in part ($164,264).

The parties were bound by a commercial lease regarding premises used to operate a restaurant-café. The lease was to end on March 31, 2021, but the appellant MTY Franchising Inc. ceased operating its café after the Government of Quebec adopted public health measures in March 2020 in the context of the COVID-19 pandemic.

The appellants primarily argue that these orders in council and ministerial orders constitute a legal disturbance within the meaning of article 1858 of the Civil Code of Québec (S.Q. 1991, c. 64) (C.C.Q.) because they deprived them of the enjoyment of the premises, such that they were entitled to stop paying their rent, which they did. They further argue that the cumulative application of the two penalty clauses in the lease makes them abusive.

Legal disturbances: public health measures

Article 1858 C.C.Q. imposes on the lessor an obligation to warrant the lessee against legal disturbances to the enjoyment of the leased property. This warranty is intended primarily to protect the lessee against eviction by a third party who asserts a right over the leased property. The jurisprudence and the doctrine, however, have interpreted this provision in such a way as to broaden the notion of “legal disturbance” to include acts by the public authority that have the effect of prohibiting the use of the premises for certain purposes, such as zoning by-laws.

The nature of the limitation arising from the public health orders is distinguishable from that arising from a zoning by-law. Indeed, the latter refers directly and exclusively to the immovable, by imposing a lasting and direct limitation on its use – just like a real right. Public health orders aim instead to restrict certain activities of the population and gatherings to protect public health, not manage the built-up area on a given territory. Impacts, if any, on immovables, are merely incidental.

Moreover, extending legal disturbances to public health orders would constitute a break in the very nature of this notion, because they are not a [translation] “purely legal” disturbance, but the consequence of a purely factual situation, in this case, COVID-19, and the resulting public health emergency. Certainly, it is also not a disturbance caused by the act or omission of a third party, but together, the nature of the event, its one-off character, and the fact that it arose after the contract work to distance it from the ambit of article 1858 C.C.Q. and transform that provision into one that places a broad array of contractual risks on the lessor’s shoulders.

A situation such as the one in this case appears instead to be governed by the notion of “superior force” and the general obligation of enjoyment of the premises set out under article 1854 para. 1 C.C.Q.

Penalty clauses

The trial judge committed a palpable and overriding error in concluding that the penalty equal to 44% of the base rent, in addition to an interest rate of 5.45%, was not abusive. The fact that the penalty clauses had been negotiated does not prevent the application of article 1623 C.C.Q., which applies to all contracts and not just contracts of adhesion. The application of this provision does not rest on the quality of the consent, but on a consideration for contractual fairness.

Moreover, the comminatory aspect of these clauses does not prevent the penalty from being reduced insofar as this reduction preserves the intention of the parties and does not reduce the penalty to injury alone, which is the case here. In addition, the penalties claimed are abusive in the exceptional circumstances of the health crisis. The penalties are therefore reduced to a total rate of 15%.

Legislation interpreted: article 1858 C.C.Q.

Text of the decision: http://citoyens.soquij.qc.ca