Court File and Parties

COURT FILE NO.: CV-21-656952 DATE: 20220419 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Niagara Falls Shopping Centre Inc. Plaintiff

AND:

LAF Canada Company and Fitness International, LLC Defendants

BEFORE: Pollak J.

COUNSEL: Harvin D. Pitch & Adam Brunswick, for the Plaintiff Jeffrey Haylock, for the Defendants

HEARD: November 8, 2021

Endorsement

[1] The Plaintiff, Niagara Falls Shopping Centre Inc. (“Landlord”) is the owner of a small shopping centre in Niagara Falls, Ontario and is the Landlord of the fitness gym operated in a building located at the Centre.

[2] The Defendant, LAF Canada Company (“LAF”) is a Nova Scotia company with its head office in Halifax and is the Tenant operating its gym in the Building. LAF is the only Tenant in the Building. LAF owns and operates 31 fitness facilities in Canada, with 28 (including the subject Gym) in Ontario and three in Alberta.

[3] LAF is owned and controlled by the Indemnifier, Fitness International LLC. It operates a fitness gym at the premises, a large freestanding building in the shopping centre and is part of the LAF chain that owns and operates 700 fitness facilities across Canada and the U.S.A. (with 31 facilities in Canada).

[4] The Landlord commenced an action for payment of rent, with LAF defending and counterclaiming as a result of the restricted right to use the premises due to COVID-19 closures by the Ontario Government.

[5] On March 17, 2020, the Government of Ontario declared a Provincial State of Emergency due to COVID-19. On March 24, 2020, the Government mandated the closure of all non-essential workplaces in the Province, including LAF’s gym. The following is a summary of the relevant Government Closure Orders (the “Orders”) as they applied to the Gym:

1. The Gym was closed until July 24, 2020;
2. From July 24, 2020 to December 24, 2020 the Gym was allowed to open with a restricted capacity of 50 people.
3. On December 24, 2020, the Gym was required to close.
4. On March 1, 2021, the Gym re-opened with a restricted capacity of 10 people.
5. On April 2, 2021, the Gym was required to close.
6. On July 16, 2021, the Gym was to open with a maximum capacity of 50%. This status remains in place today.

[6] The Landlord’s claim in this action is for an Order for payment of rent of $105,820.62. If no rent is paid in October/November 2021, LAF will owe a total of $905,393.88, as of November 8, 2021.

[7] LAF defends and counterclaims for:

1. Damages from the Landlord in the amount of $618,824.51;
2. A declaration that during periods of government-mandated closure of the Gym, LAF is relieved of the obligation to pay rent and that during periods of government-mandated capacity limits for the Gym, LAF’s obligation to pay rent is reduced proportionately in accordance with those limits; and
3. The costs of the action and counterclaim.

[8] After the Province of Ontario’s lock down in March of 2020, the Parties entered into a rent deferral agreement in May 2020 whereby the Landlord gave limited rent relief to LAF for the months of April to June 2020. After the term of the rent deferral agreement expired, LAF paid the full rent for the balance of the year even though the Gym was only partially open.

[9] In January of 2021, the Government re-imposed the lockdown. The Tenant and Indemnifier have refused to pay any rent (other than some payments in July, August, and September 2021).

[10] The issues on these two motions for summary judgment before this court are:

• Is the Landlord entitled to full rent under the lease notwithstanding the closure/partial closure of the Gym by the Government Orders?
• Is LAF entitled to repayment of rent paid while the Gym was closed?
• In the case of partial closure in accordance with the Government Orders, is LAF entitled to an abatement of rent under the Lease?
• Is LAF entitled to rental abatement under Section 15 (Damage and Destruction clause) of the Lease?

[11] I agree with the parties agree that this is an appropriate action for summary judgment pursuant to Rule 20. There are no factual disputes. I find that the requirements for summary judgment set out by our Supreme Court of Canada and our Ontario Court of Appeal have been met and I can fairly adjudicate this dispute on its merits on the record before the Court.

[12] LAF’s position is that it is under no legal obligation to pay rent during the government-mandated closures, both at common law and under the terms of the Lease.

[13] LAF raises the following defenses:

1. Under the express terms of the Lease, LAF is entitled to an abatement.
2. LAF can rely on the “Force Majeure” (“FM”) clause in the Lease.
3. The Lease was frustrated during the closure periods.
4. Full payment of the total monthly rent would result in unjust enrichment.
5. COVID-19 caused damage and destruction to the building such that LAF is entitled to a full abatement of rent for the duration of the closures pursuant to section 15.4 of the Lease.

[14] LAF also plead that the Lease was frustrated during the periods of Government closure and therefore, no rent is owing during those periods.

[15] The FM clause provides as follows:

“22.3 FORCE MAJEURE. If either party is delayed or hindered in or prevented from the performance of any act required hereunder because of strikes, lockouts, inability to procure labour or materials, retraction by an Governmental Authority of the Building Permit once it has already been issued, failure of power, restrictive laws, riots, insurrection, war, fire, inclement weather or other casualty or other reason of a similar or dissimilar nature beyond the reasonable control of the party delayed, financial inability excepted (each, a “Force Majeure Event”), subject to any limitations expressly set forth elsewhere in this Lease, performance of such act shall be excused for the period of delay caused by the Force Majeure Event and the period for the performance of such act shall be extended for an equivalent period (including delays caused by damage and destruction caused by such Force Majeure Event). Delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events. Force Majeure Events shall also include, as applied to performance of Tenant’s acts, hindrance and/or delays in the performance of Tenant’s Work or Tenant’s obtaining certificates of occupancy (or their equivalent) or compliance for the Premises by reason of any of the following: (i) any work performed by Landlord in or about the Project from and after Delivery (including, but not limited to, the completion of any items of Landlord’s Work remaining to be completed); and/or (ii) the existence of Hazardous Substances in, on or under the Premises not introduced by Tenant.”

[16] The Landlord’s position is that the wording of the Force Majeure clause clearly exempts it from its quiet enjoyment obligations if it cannot perform them due to “restrictive laws” such as the Government of Ontario Declaration of a Provincial State of Emergency on March 17, 2020 as a result of COVID-19 and the Orders requiring the closure of non-essential businesses (such as fitness gyms). However, the clear wording in the Force Majeure clause does not allow the Defendants to avoid payment of rent in these circumstances as section 22.3 clearly states:

1. “Delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events.”
2. “If either party is delayed or hindered in or prevented from the performance of any act required hereunder because of strikes, lockouts, inability to procure labour or materials, retraction by an Governmental Authority of the Building Permit once it has already been issued, failure of power, restrictive laws, riots, insurrection, war, fire, inclement weather or other casualty or other reason of a similar or dissimilar nature beyond the reasonable control of the party delayed, financial inability excepted…”

[17] LAF is therefore not excused from paying rent and cannot rely on the FM clause. It is submitted that such is supported by the language of the clause and the weight of judicial authority.

[18] LAF’s position is that it does not have to pay rent because of the following:

1. The FM Clause does not expressly state that during the period of the “restrictive laws” rent shall be paid and
2. Two U.S. Circuit Court cases interpreted the FM Clause, which contained terms identical to the terms of the subject Clause, as relieving the Tenant from paying rent while being unable to occupy the premises.

[19] The Landlord relies on Canadian relevant jurisprudence.

The Canadian Jurisprudence

[20] The principles of contractual interpretation in Canada are set out in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, wherein the Court examined the words of the contract and the surrounding circumstances. Canadian Courts have not considered how the risk should be allocated in their interpretation of contracts.

[21] In the case of Durham Sports Barn Inc. Bankruptcy Proposal, 2020 ONSC 5938, 22 R.P.R. (6th) 235, the Court dealt with the obligation of a Tenant to pay rent during the COVID-19 lockdown, wherein it was held that under the FM Clause relieving the Landlord of its obligation to provide quiet enjoyment, the Tenant was required to pay rent, as there was no express clause in the Lease which relieved it of the rent obligation. The Landlord submits that such is the case in this Lease.

[22] In the case of Braebury Development Corp. v. Gap (Canada) Inc., 2021 ONSC 6210, 158 O.R. (3d) 256, the Court relied on the three-part test set out in Atcor Ltd. v. Continental Energy Marketing Ltd., 1996 ABCA 40, 38 Alta. L.R. (3d) 229, wherein it was held that both parties were impacted, the Landlord could not give vacant possession and the Tenant’s obligation to pay rent was affected. It was held that:

“The required impact pursuant to lease is:

…that either party hereto shall be delayed or hindered in or prevented from the performance of any act required under the lease by reason of…

Gap did not pay rent as required under the lease for the months of April and May when it was prohibited by the government’s COVID-19 restrictions from opening its retail space, and only made partial payments thereafter while certain COVID-19 restrictions remained in place.

Gap argues that while it has not satisfied its rent obligations since March 2020, rent payment is not an “act under the lease” and therefore, the COVID-19 restrictions did not have the required impact of delaying, hindering, or preventing performance of an act under the lease.

In its written submissions, Gap did not provide any support for the proposition that rent payment is not an “act” under the lease. At the hearing, counsel for Braebury argued that a common sense reading of the lease leads to the inevitable conclusion that payment of rent would be an “act” under the lease. Were it otherwise, it would be redundant for the force majeure clause to explicitly exclude rent payment from being an obligation excused by force majeure.

I agree with the plaintiff on this point. Furthermore, a review of any dictionary definition of the noun “act” discloses a range of meanings including “a deed or action”, “perform actions or functions”, “perform or carry out”, and “put into action”. The payment of rent is a central obligation which a tenant under a lease is required to perform or carry out. It is therefore an “act” within the meaning of the subject lease.”

[23] The court held that because the FM Clause expressly provided that the Tenant would pay rent notwithstanding the Government restriction, which would otherwise have excused the Tenant from carrying out that obligation, the Tenant had to pay rent. The Landlord submits that the FM clause in this Lease requires LAF to pay rent. The Clause includes a provision that:

“Delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events.”

[24] This Clause, it is submitted, applies to both parties —if the Landlord can through payment of money alleviate the obstacle preventing the performance of its obligation (e.g., obtain materials from another source or hiring workers not on strike (by making excessive payments)) that is not a FM Event. The Tenant can overcome its obstacle preventing it from performing its rental obligation by paying money. Since it can pay money to discharge its rental obligation — that “failure to perform its rental obligation”, which can be cured by the payment, is not a FM Event. It is submitted that there are some Tenant activities for which performance can be relieved by the FM Clause (e.g., if the Tenant was required under the Lease to carry out scheduled repairs within a specified time period, that obligation would be a FM event and the Tenant would be excused from performance while it was prevented from acting due to the triggering act (COVID-19 Government lockdown)).

[25] In Atcor Ltd., the Alberta Court of Appeal set out three questions for guiding an interpretation of a FM clause. Those questions are: (a) what are the triggering events under the clause? (b) what is the required impact on the party invoking the clause? and (c) what are the consequences of that impact on the invoking party’s contractual obligation?

[26] The required impact pursuant to the Lease is that “either party is delayed or hindered in or prevented from the performance of any act required” under the Lease. The closures unavoidably prevented the Landlord from performing its central obligation under the Lease: providing Premises that the Landlord had warranted could be used to operate a fitness gym. This is similar to the required impact contained in the FM clause in Windsor-Essex Catholic District School Board v. 231846 Ontario Ltd., 2021 ONSC 3040, 157 O.R. (3d) 288.

[27] LAF’s position is that the Landlord has been unable to fulfil its obligations, most notably by its failure to deliver the Premises for its use and operation as a fitness gym. LAF is therefore relieved from its correlative obligation to pay rent during the government closures and is partially relieved from that obligation for periods during which it is permitted to operate, but under heavy occupancy restrictions.

[28] It submits that the government closures due to the COVID-19 pandemic are a FM event within the definition of the Lease. The FM clause in the Lease has the effect of relieving both parties from their obligations under the Lease, including the Landlord’s obligation to provide usable Premises and LAF’s obligation to pay rent. It has the effect of relieving the parties of these obligations in respect of the periods of government-mandated closures and extending the term of the Lease to account for the periods of closure.

[29] LAF, however, submits that while the Lease states that delays or failures to perform which can be cured by the payment of money shall not be FM events, the cause of the delay, hindrance or prevention could not be cured by the payment of money as there is no amount of money that could have been paid to eliminate the FM event. It is argued that the FM clause does not state that LAF’s obligation to pay rent continues during a FM event, or that the delay of obligations the provision envisages cannot apply to rent. Even if LAF had paid rent during the government-mandated closures, the underlying problem would not have been solved: the government-mandated closures would still prohibit the Landlord from delivering premises that could be used as a fitness gym. Accordingly, the Premises were of no use to LAF, which should be relieved of its correlative obligation to pay rent.

[30] LAF, however, submits that the FM clause delays the parties’ obligations under the Lease, resulting in the Lease being extended for a period equivalent to the FM event, which is the cumulative length of the government closure orders. In this way, the FM clause allocates the risk of such events equally between the parties.

[31] It is argued that such result is similar to that in Windsor-Essex case, wherein the court held that the school boards had no obligation to pay rent. In that case, however, the lease specifically provided for relief from the payment of rent. The Lease in this case, it is argued, provides for a delay in the payment obligations.

[32] In the alternative, it is argued that if there is not an extension of both parties’ obligations under the Lease, the parties are excused from their obligations for the period of the FM event.

[33] LAF relies on two American decisions, BAI Century LLC v. Fitness International, LLC and ROIC Four Corner Square, LLC v. Fitness International, LLC, that are decisions of the Circuit Courts in Chicago and Seattle as support for their interpretation that the FM Clause entitles the Tenant to withhold rent.

[34] In these cases, the Landlord submits that it was held that the Court must “allocate risk” in these troubled times to both the Landlord and the Tenant.

[35] As referred to above, the Landlord relies on the Canadian jurisprudence in Hudson's Bay Company ULC v. Oxford Properties et al., 2021 ONSC 4515, 156 O.R. (3d) 427, where this allocation of risk approach was rejected:

“This case, along with many that are likely to follow, deals with the question of the effects of the COVID-19 pandemic on commercial tenancies where government-mandated closures have resulted in severe restrictions on retail operations. This motion raises the question of whether the Court should intervene and essentially vary the lease between the parties to allow relief from forfeiture and/or rental payments in the face of this public health crisis, or whether the Court should uphold the strict terms of the lease which, like most commercial leases, do not allow for any abatement or reduction in rent.

As will be set out below, the Court declines to rewrite private contracts between the parties even in the face of unforeseen and disastrous circumstances.”

[36] Our principles of contractual interpretation in Canada are set out in the Sattva case. The court must examine the words of the contract and the surrounding circumstances and does not consider how risk should be allocated.

[37] Our Courts have expressly rejected using “allocation of risk” as a method of contractual interpretation. In Victoria Wood Development Corporation Inc. v. Ondrey et al. (1978), 22 O.R. (2d) 1, wherein the buyer of land to be developed sought a Declaration that the Agreement was frustrated because prior to closing the Ontario Government enacted legislation restricting the use of that land to agricultural uses. The Agreement was unconditional, but the buyer claimed that the vendor knew of the buyer’s intention to develop the land. The buyer urged the court to adopt the “equitable allocation of risk test” with respect to whether or not the contract had been frustrated, i.e., who should bear the risk of the drastic governmental downsizing. The Court rejected this approach as an inappropriate method of contractual interpretation, explaining:

“In my view we must apply to a contract for sale of land the same principles respecting frustration of contracts as are applicable to any other contract. That exercise requires us to consider the terms of the contract and the factual background in which it was made, in order to see what the obligations under the contract were and whether the supervening event has so changed the nature of those obligations that to compel their performance, under the changed conditions, would be to order performance of something radically different from what the two parties agreed to under their contract. We cannot impose upon the parties an allocation of risk that is neither explicit in the contract nor implicit in its terms, when considered in the light of the circumstances in which it was made. I prefer to decide this case on the basis of the first test I have discussed.”

[38] The Landlord argues that the interpretation adopted by the two U.S. cases LAF relies on, would have the effect of the Landlord being obligated to extend the term of its Lease, which is commercially absurd. The time extension provision in the FM Clause is intended to deal with a time limited event in the Lease, as a repair of maintenance Landlord or Tenant obligation (e.g., 14 days to repair an air conditioning unit) which would be extended for a period and would be re-instated once the restrictive laws would be modified and work could start. I agree with this submission.

[39] The second position of LAF is that the government closure of fitness facilities had the effect of temporarily frustrating the Lease, thus relieving the parties of the obligation to perform under the Lease for the duration of the mandated closures.

[40] The Landlord emphasizes that frustration is only applicable if the complained of event which occurred, namely the presence of COVID-19 and the closure of the Gym as a result of Government restrictions contained in the Orders, was an unforeseen event. This FM clause clearly shows that the Parties to the Lease contemplated that an event could occur through no fault of the Parties, such as restrictive laws, which would prevent the performance of the Landlord’s obligations under the Lease. The defence of frustration arising out of the Orders of the government was rejected in the recent decision of Braebury. In that case, the Gap operated a store as a Tenant in Kingston and ceased paying rent when the Government declared a state of emergency and issued a lockdown of unessential stores on March 24, 2020. The Gap did not pay rent during the lockdown. The Gap raised two defences to a claim for unpaid rent—the FM clause and frustration. The FM clause was similar to the clause in this Lease. The court rejected the frustration defence, ruling that as the event (Government lockdown) was raised in the FM clause, it was clearly a contemplated event and therefore not applicable.

[41] The court held:

“In any event, I agree with the plaintiff that the existence of the force majeure clause clearly shows that the parties to the lease contemplated situations in which, due to circumstances beyond the control of the parties, performance of obligations under the lease would be delayed, hindered, or prevented, and made provision in their contract accordingly.”

[42] I agree with the Landlord that a contract is not frustrated by an event that is included in a FM clause, as its inclusion in the clause shows that the event was in the parties’ contemplation and they made provision for it. No frustration will be found when a possible event was contemplated by the parties and provided for in the agreement. LAF, however, submits, in the alternative, that there is no rule of law that eliminates the applicability of the law of frustration through the mere existence of a FM clause. If an event is not provided for in the FM clause, it truly was not within the contemplation of the parties and it is open for the Court to find that the unanticipated event has frustrated the contract. If the government closures are not encompassed by the terms of the FM clause in this case, they are a frustrating event. In either event, the end result is that LAF is relieved of the obligation to pay rent.

[43] LAF submits that in the normal course, when a contract is frustrated the parties will be discharged from performing all their duties under it. In the present case, LAF does not seek to be relieved from the contract as a whole, but instead submits that the parties’ obligations during the periods of the government closures should be suspended. Given the radical change to the commercial landscape in Ontario during the COVID-19 pandemic, fairness and commercial reasonableness warrant an incremental adjustment to the common law to recognize the fact of temporary frustration during the pandemic. It relies on Subsection 3(7) of the Frustrated Contracts Act, R.S.O. 1990, c. F.34 (“FCA”), which provides for partial frustration of a contract through severance of those parts of the contract which are impossible. That section provides:

Where contract severable

3(7) Where it appears to the court that a part of the contract can be severed properly from the remainder of the contract, being a part wholly performed before the parties were discharged, or so performed except for the payment in respect of that part of the contract of sums that are or can be ascertained under the contract, the court shall treat that part of the contract as if it were a separate contract that had not been frustrated and shall treat this section as applicable only to the remainder of the contract.

[44] As well, the Defendants submit that as they have been entirely prevented from using the leased premises for its contemplated use, there is a total failure of consideration. LAF pays rent to use the Premises as a fitness gym. During the government closures, it was entirely prevented from operating the Club. In light of the absence of consideration, the Landlord cannot enforce any obligation to pay rent.

[45] In addition to the argument that frustration is only available if the complained of event which occurred, namely the presence of COVID-19 and the closure of the Gym as a result of Government restrictions contained in the Orders, was an unforeseen event, the Landlord submits that frustration only applies if the supervening event is permanent, as opposed to “temporary setbacks.” In the Braebury case, the court held that the COVID-19 restrictions only applied to a shut down on specific occasions and the Tenant’s Premises could operate at other times with restrictions. The Court held that these temporary closings did not constitute Frustration.

[46] I agree with the Landlord’s submissions on all of these issues and find that it has met its burden of proving its entitlement to the unpaid rent claimed.

[47] LAF argues in its counterclaim that it is entitled to relief under the law of abatement and under s. 15.4 of the Lease. It provides for rent abatements in case of damage or destruction. The Defendants submit that the risk of COVID-19 constituted damage or destruction that entitles it to an abatement under s. 15.4 of the Lease.

[48] LAF submits that its use of the Premises is materially adversely affected, or reasonable access to the Premises is prevented because of an event of damage or destruction, its obligation to pay rent is abated until it is able to operate. Its use of and access to the Premises were materially affected by the risk of COVID-19, which risk led, in turn, to the restrictive government orders. It relies on its expert report of Dr. Raywat Deonandan, a professor of epidemiology at the University of Ottawa, which opines that COVID-19 is spread several ways, but most commonly via aerosols and droplet transmission. The threat of COVID-19 transmission in gyms is therefore particularly high, as the risk of transmission is increased by heavy breathing, shouting, inconsistent or improper mask-wearing during exercise, and, to a limited extent, touching surfaces shared by gym-goers, such as fitness equipment.

[49] It is submitted that the likely presence of COVID-19 and the risk of COVID-19 transmission constitutes damage or destruction within the meaning of the Lease and made the Premises unusable for the purpose of operating the Club during the closure and restriction periods. Whether particular circumstances will constitute damage materially impacting the use of the premises must take into consideration the purpose of the lease and the use to which the premises are put by the tenant. The language of the Lease focuses on the damage on potential material interference with “the operation of the Tenant’s business from the Premises”. LAF relies on the case of D.P. Murphy Inc. v. Laurentian Casualty Co. of Canada (1992), 99 Nfld. & P.E.I.R. 331 (P.E.I. S.C.), in which a gas leak in an adjacent property prevented a property from being used. The court held there was physical loss or damage under a policy of insurance. The parties’ agreed use of the Premises as a fitness gym meant that it was especially susceptible to the risk of COVID-19 being present in the Premises as well as the transmission of COVID-19 in the Premises, which resulted in the Premises being unusable for its intended purposes. On this basis, LAF submits there is damage as specified in s. 15.4. and it is therefore entitled to an equitable abatement of rent for the closure and restriction periods.

[50] The Landlord emphasizes that it was not the presence of COVID-19 that resulted in the closure of the gym, it was the Government Orders that closed the gym and when allowing it to open, limited its use. The abatement claim therefore, is a claim for recovery of rent due to the inability to use the gym and not as a result of the Government Orders. There is no microscopic “damage” to property due to the presence of COVID-19 in the air or on the interior surface of the Building. Such a claim for economic loss is not covered by section 15 of the Lease.

[51] I agree with the Landlord that our jurisprudence requires that the building be materially altered by COVID-19 and that the virus must cause harm to the building. On this record, there is no evidence that there is material or significant alteration such as corrosion to the walls, or damage to the exercise machines etc. The virus is inert. It does not harm the building but harms persons using the fitness gym (which harm is not covered by section 15 of the Lease). The fitness gym is closed (or attendance is limited) by Government Orders to prevent harm to people.

[52] Section 15 of the Lease requires physical damage and destruction to the Building and rent abatement is available during the period of the restoration of the Building:

1. Section 15.1 entitles a Party to terminate the Lease if 25% of the Building is damaged.
2. Section 15.2 requires the Tenant (not the Landlord) to repair the damage and reconstruct the Building in accordance with the working drawings.
3. Section 15.3 requires the Landlord to repair the common areas.
4. Rent abatement in section 15.4 is tied to when the restoration work is completed.

[53] In the Ontario Court of Appeal decision in MDS Inc. v. Factory Mutual Insurance Co., 2021 ONCA 594, 465 D.L.R. (4th) 294, it was held that where the Insurance Policy or Lease requires “Damage to the Property”, serious and harmful “alteration” to the property must be demonstrated. In that case, the Court found that there was no physical damage to the property and overruled the Trial Judge who held that inability to use the property constituted damage to property. The Appeal Court noted that the claim could not succeed where there was no physical damage and physical alteration of the property’.”

[54] Similarly, in the U.S. case of Gap Inc. v. Ponte Gadea N.Y. LLC, 524 F. Supp. (3d) 224 (S.D. N.Y. 2021), the court dismissed a similar claim.

[55] Finally, the Defendants plead unjust enrichment, claiming that if the Landlord received rent during the period when LAF was unable to operate its gym, the Landlord has been enriched and it has been deprived.

[56] I agree with the Landlord’s defence that the FM clause entitles the Landlord to receive rent when the Tenant’s access to the Gym is prevented by reason of “Government restrictions.” In the case of Hudson's Bay Company ULC, wherein the Tenant argued that it was entitled to an abatement of rent because it was denied the right of quiet possession, the court rejected this argument as follows:

“I agree with the Landlord that in order to grant an abatement based on a breach of the tenant’s right to quiet enjoyment, there must be a specific act by the Landlord (see Stearman v. Powers, 2014 BCCA 206, 373 D.L.R. (4th) 539). In this case, the Landlord did not do anything that caused the closure of the mall or the restrictions related to capacity. The actions of the Landlord in this case were taken in order to comply with provincial law. As such, HBC is not entitled to an abatement of rent.”

[57] LAF also submits that the full payment of rent would result in the Landlord being unjustly enriched, since there has been a total failure of consideration during the closure periods.

[58] The doctrine of unjust enrichment requires: (i) that the party was enriched; (ii) that the other party suffered a corresponding deprivation; and (iii) that the enrichment and corresponding deprivation occurred in the absence of a jurisdiction reason.

[59] As I have found above, the Lease provides a juristic reason for enrichment. LAF also argues that there has been a total failure of consideration: the Landlord has been unable to deliver useable Premises to LAF during the closure periods. It would be unjust to require LAF to provide consideration when it is getting nothing in exchange.

[60] The parties intended the Lease to govern their relationship. In exchange for receiving useable Premises fit for its purposes each month, LAF would provide monthly rent. The Lease makes clear that the parties recognized that the bargain depended on the provision of a Premises for the purpose of operating a fitness gym. Allowing the Landlord to retain 100% of the rent for months when LAF had limited or no use of the Premises would be unjust.

[61] Consequently, LAF is entitled to a proportionate abatement of any rent due to the Landlord. When the Club was required to close, LAF is entitled to a full abatement; when the Club is permitted to operate but only with limited capacity, LAF is required to pay only rent proportionate to the benefit it received under the Lease (that is, if the Club was permitted to open at 7 percent capacity, L.A. Fitness is only required to pay 7 percent of the monthly rent).

[62] LAF relies on the Windsor-Essex case, wherein the court ordered that the landlord repay rent collected during the periods of closure. I have already found that that case is not applicable, as the provisions of the Lease were different.

[63] LAF’s claim is for damages equal to its “overpayment” in the amount of $618,824.51. I find that section 22.3 of the Lease, the Force Majeure clause, entitles the Landlord to receive rent when the Tenant’s access to the Gym is prevented by reason of “Government restrictions.” This is a valid juristic reason which defeats the claim for unjust enrichment.

[64] Further, I do not accept LAF’s alternate argument that the Landlord cannot rely on the Lease as a juristic reason for the unjust enrichment “benefit” because there was no consideration. The consideration is being provided with the right to carry on its fitness gym in the Building. There is no pleading or allegation that the Lease is invalid due to a failure of consideration.

[65] As well, the evidentiary record is that while the gym was closed, the Landlord was required to pay its mortgage and all property taxes, maintenance, common area expenses, and manage the property. The Landlord made monthly payments of $25,761.87 for common area expenses, property taxes, and management fees (as allocated to LAF in the building). It also paid its monthly mortgage interest payments of $56,049.22 (of which a large portion was attributable to the LAF Building).

[66] For the above reasons, I grant the Landlord’s motion for summary judgment for its claim for payment of rent and dismiss LAF’s counterclaim for summary judgment.

[67] This court declares that LAF Canada Company and Fitness International. LLC are required to pay rent under the Lease, notwithstanding the government orders which required full and partial closure of the gym. Judgment for total monthly rent and deferred monthly rent owing from January 2021 until the date of this Judgment is hereby granted, with a service charge of 3% of the amount of overdue payment in accordance with section 5.5 of the Lease to be paid as additional rent.

Costs

[68] The successful party, the Plaintiff is entitled to costs on a partial indemnity basis in the amount of $65,000 as agreed by the parties. If the parties wish to make submissions that costs should be awarded on a substantial indemnity scale, the Plaintiff may serve and file cost submissions of no more than two pages double spaced, uploaded to Caselines by 12 p.m. on April 27, 2022. The Defendant may serve and file their cost submissions of no more than two pages, double spaced and uploaded to Caselines no later than 12 p.m. on May 4, 2022. No reply submissions will be accepted.

Pollak J.

Date: April 19, 2022