Fitness Centres and Force Majeure Clauses
Written by Kaeten Wadwa
Introduction
In Niagara Falls Shopping Centre Inc. v. LAF Canada Company, the Ontario Court of Appeal considered the application of a force majeure clausein a commercial lease agreement between a landlord and a commercial tenant. The landlord, Niagara Falls Shopping Centre Inc., owned a shopping plaza located in Niagara Falls, which included a fitness facility leased by the tenant, LAF Canada Company. Force majeure clauses are contractual provisions designed to discharge a contracting party when an event beyond the control of either party makes performance impossible.[1] The term itself has no specific meaning, and whether an event triggers the operation of a force majeure clause depends on the nature of the event and wording of the clause.[2]
Background
During the peak of the COVID-19 pandemic in March 2020, the Canadian government mandated the closure of all non-essential businesses, including all fitness facilities. This caused a major disruption to LAF Canada Company’s business operations, and as a result, financial difficulties arose. A few months later, in May 2020, the landlord and tenant entered into a rent deferral agreement that provided limited rent relief from April to June 2020.[3] Under the terms of the agreement, 50% of the base rent was forgiven, and 25% was deferred. Following the agreement’s expiration, LAF Canada Company paid rent up to the end of 2020, even though the fitness facility was permitted to re-open only with limited capacity.[4] However, when the government reinstated the lockdown in December 2020, the tenant refused to continue paying rent. Consequently, Niagara Falls Shopping Centre Inc. brought an action for all unpaid rent and various associated costs.[5] The tenant sought relief and argued that the force majeure clause in the lease agreement should excuse them from paying rent during the period of government-mandated closures. In contrast, Niagara Falls Shopping Centre Inc. asserted that, under the lease, the force majeure clause only exempted them from making the premises available during the closures; however, it did not absolve LAF Canada Company from paying rent. After the Ontario Superior Court decided in favour of the landlord, the tenant appealed and maintained that the motion judge erred in their interpretation of the force majeure clause.
Decision
At the Court of Appeal, particular attention was given to the force majeure clause and the lower court judge’s interpretation of it. While both parties recognized that the pandemic hindered their ability to fulfill their obligations under the lease, the issue at bar was the interpretation of the excusing and curative provisions. LAF Canada Company contended that the force majeure clause required the lease to be extended, pointing to the excusing provision, which specified that “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.”[6] The Court of Appeal emphasized that the effect of this clause was to “excuse” performance of the act only for the duration of the delay caused by the force majeure event, underscoring the time-limited nature of the excuse to fulfill performance obligations. Furthermore, the curative provision explicitly stated that “delays or failures to perform resulting from lack of fund or which can be cured by the payment of money shall not be force majeure events.”[7] Despite LAF Canada Company’s financial difficulties due to the government-mandated closures, the Court of Appeal stressed that this clause clearly excluded financial inability as a force majeure event. Thus, this provision strengthened the tenant’s obligation to pay rent throughout the closure periods. As a result, the Court of Appeal allowed the appeal and ruled that the force majeure clause excused Niagara Falls Shopping Centre Inc. from fulfilling their obligations under the lease to make the premises available to LAF Canada Company during the closures. However, the Court of Appeal also ruled that the lease term should be extended to account for the closure period, ensuring that LAF Canada Company would receive the full benefit of the lease term. Although LAF Canada Company could not rely on the force majeure clause to be excused from paying rent during the closure periods, they were not required to pay rent during the extension period, as it had already been paid during the closure periods.[8]
Conclusion
This decision is particularly significant for businesses because it emphasizes the complexity of contractual interpretation and highlights the fact that the specific language in a force majeure clause will define the obligations of each party. Careful attention to legal drafting is crucial in commercial contracts and agreements because courts will give effect to all elements of the clause, including any excusing and curative provisions. Thus, businesses should always ensure that the various components of their force majeure clauses accurately reflect the intended allocation of risk.
[1] Niagara Falls Shopping Centre Inc. v. LAF Canada Company, 2023 ONCA 159 at para 27.
[2] Ibid.
[3] Ibid at para 11.
[4] Ibid.
[5] Ibid at para 12.
[6] Ibid at para 35.
[7] Ibid at para 40.
[8] Ibid at para 49.
The views and opinions expressed in the blogs and case reporter are the views of their authors, and do not represent the views of the Desautels Centre for Private Enterprise and the Law, the Faculty of Law, or the University of Manitoba. Academic Members of the University of Manitoba are entitled to academic freedom in the context of a respectful working and learning environment.