The new Commercial Tenancies Protection Act (Alberta) – still a lot of uncertainty

Bill 23: Commercial Tenancies Protection Act (the Act) received royal assent on July 23, 2020. Most of the provisions of the Act apply retroactively from March 17, 2020 until August 31, 2020 or such alternative date as may be set out in the regulations (the Emergency End Date). The Minister of Economic Development, Trade and Tourism is given broad powers to make regulations prescribing a wide range of matters, but to date no such regulations have been publicly proposed or are in force.

What or who does the Act apply to?

It applies:

• to tenancy agreements (other than residential tenancies or mobile home site tenancies) that were in effect in Alberta on March 17, 2020 or that were made effective during the period March 17, 2020 to the end of the state of public health emergency declared in Order in Council O.C. 80/2020 (the Emergency Period). There is not yet a definitive end date to the Emergency Period.  Tenancy agreement is broadly defined in the Act and includes a license to use commercial premises; and
• with respect to commercial premises, only if the conditions and requirements prescribed by the regulations are met. Since there are no regulations to date, these conditions and requirements remain largely undefined. Initial indications from the legislature, suggested that the focus of the Act may be on: (i) tenants that qualify for CECRA, but whose landlords have elected not to participate in the federal Canada Emergency Commercial Rent Assistance (CECRA) program (summary); (ii) tenants who have had to close their business due to the COVID-19 pandemic and that have had their business revenues decline by 25 percent of more due to the COVID-19 pandemic; and (iii) non-profits (not yet defined).  The Act broadly defines “landlord” and “tenant” and defines “COVID-19 pandemic” simply as that declared by the World Health Organization.  

Although the Act does NOT apply to an eviction or termination of a commercial tenancy agreement that took effect prior to the date of the first reading of the Act, being June 16, 2020, it appears that it does apply to other landlord remedies such as those pursuant to distraint notices or notices of default that were taken from and after March 17, 2020.

How does the Act purport to protect commercial tenants?

During the Emergency Period a landlord is prohibited from:

• giving a notice of default, distraining for rent, evicting a tenant or otherwise exercising any remedies under or terminating a tenancy agreement based not only on certain tenant defaults caused by the COVID-19 pandemic (eg: the failure of the tenant to pay rent due under the tenancy agreement or the breach of any continuous occupancy clause in the tenancy agreement), but also on the applicability of an act of God or force majeure clause in the tenancy agreement or the frustration of contract caused by the COVID-19 pandemic. The parties to a tenancy agreement cannot contract out of the application of such restrictions, but the Act does provide some exceptions for substantial breaches of a tenancy agreement as long as such breaches are identified in the agreement as causes for eviction or termination, which substantial breaches include (without limitation):
  • with respect to the premises, the common areas or the property in which they are located, the tenant significantly interferes with rights of the landlord or other tenants, carries on illegal acts or an illegal business, endangers persons or property, damages or permits significant damage to occur or fails to maintain;
  • the tenant fails to vacate at the end of the tenancy where the termination of the tenancy is not related to the COVID-19 pandemic;
  • the tenant repudiates the tenancy agreement by abandoning the premises without notice of its intention to reoccupy, assign or sublease; and
  • the tenant becomes bankrupt or insolvent, makes a bulk sale, or receives notice from one of its secured creditors that it intends to realize on security at the leased premises;
• obtaining any monetary benefit as a result of a tenant default.  A landlord who has charged and collected fees or penalties for late payment of rent or non-payment of rent from a tenant during the Emergency Period will be required to refund the amount of the fee or penalty that the tenant has paid, or credit the tenant for that amount.  Query whether this extends to the recovery of costs and expenses incurred by the landlord that are contemplated in the tenancy agreement as recoverable by the landlord; and
• increasing rent under a tenancy agreement during the Emergency Period. If a tenancy agreement is terminated or expires on or after March 17, 2020, and the landlord and tenant enter into a new tenancy agreement in respect of the same premises, then the rent payable under that new tenancy agreement during the Emergency Period is deemed to be the rent that was in force immediately prior to the date the parties entered into the new tenancy agreement.  Query whether this restriction applies to a rent step increase already contemplated in an existing tenancy agreement that naturally occurs with the passage of time or a rent increase provision in an existing tenancy agreement automatically triggered by the tenant’s exercise of its renewal or extension option?

How do the landlord and tenant deal with outstanding rent accrued during the Emergency Period?

The Act does not compel rent forgiveness or rent reduction, but appears to force the landlord and tenant to enter into a commercial arrangement (a payment plan) regarding the repayment of outstanding rent where the tenant was unable to meet its rent payment obligations during the Emergency Period due to the COVID-19 pandemic. The payment plan:

• can extend beyond the Emergency End Date;
• must account for any payment of fees, penalties or rent that the landlord was prohibited from charging and that has not been refunded to the tenant; and
• amends the tenancy agreement to the extent necessary to give effect to such plan.

If the tenant fails to adhere to the payment plan after the Emergency End Date, the landlord shall have all remedies available to it under the tenancy agreement, as modified by the payment plan. 

Query what happens if the landlord and the tenant are unable to agree to the terms of the payment plan.

Are there consequences for a breach of the Act?

A landlord who fails to comply with the provisions of the Act will be considered in substantial breach of the subject tenancy agreement and the tenant will be entitled to exercise all rights granted to the tenant under the tenancy agreement relating to substantial breach and any additional rights established by the regulations.

Although the Act grants broad powers regarding the scope of regulations that may be enacted, such powers do not include the power to create any offense for the breach of the Act.