As the COVID-19 pandemic continues, so does the economic impact on small businesses in B.C. Unfortunately, this may lead to some commercial tenants struggling to make their monthly rent payments and can lead to tenant-landlord disputes. 


We have previously discussed commercial lease disputes that small business owners should avoid, but given the uniqueness of 2020, let’s take a look at some potential scenarios and solutions for both the tenant and landlord. 

How commercial tenants can deal with rent defaults during COVID-19

Earlier in the year, we wrote an article entitled “COVID-19 and your Lease”, which outlined some potential clauses in existing tenant lease contacts, such as Force Majeure, that may provide some relief. We encourage business owners to revisit their commercial lease agreements and review the language used. 


If you anticipate defaulting on your commercial lease payments, then communicate with your landlord. Failing to pay rent will constitute a breach of your lease, but considering the current situation your landlord may prefer to negotiate with you and allow a discounted rent rather than lose a good tenant. Try to work something out with the landlord.

Commercial lease resources for small business owners

The Government of Canada recently announced that it would continue to help eligible small businesses until June 2021 by implementing their new Commercial Emergency Rent Subsidy program (“CERS”). CERS will pick up where the previous rent program left off and deliver direct support to qualifying organizations that have been impacted by COVID-19. 


What does CERS mean for eligible organizations?

  • CERS offers financial support to businesses, charities and non-profits that have suffered a revenue drop due to COVID-19.
  • The program will subsidize a percentage of their expenses, on a sliding scale, up to a maximum of 65% of eligible expenses until December 19th, 2020. 
  • Organizations will be able to make claims retroactively for the period that began September 27th and ends October 24th, 2020. 
  • An additional subsidy of 25% could be available for organizations that have had to temporarily shut down due to mandatory public health orders. This is in addition to the 65% rent subsidy.


If your business has experienced a loss in revenue, then you may qualify for CERS. We recommend exploring these government-issued aids. While you look into these options, be transparent with your landlord about your situation, as this will only strengthen your business relationship. 

Considerations for commercial landlords facing rent defaults during COVID-19

As a commercial landlord, you’ve likely already witnessed tenants struggling to pay their rent and may continue to do so as the pandemic continues into next year. 


In order to establish your long-term financial stability, you need to be prepared for tenants that may default on paying their monthly rent. Evaluate each tenant individually and consider their unique situations.


You may also consider the reduced market for commercial premises during this period so as to not make any rash decisions before assessing the potential remedies available to you and your tenants. 

Common solutions to rent defaults for commercial landlords: 

  • Application of security deposit to arrears. Some lease agreements allow a landlord to request the tenant’s security deposit for missed rent payments, provided that the tenant replenishes the deposit in the future. This allows landlords access to existing funds immediately to satisfy current rent obligations or money owed. 
  • Negotiate. If your tenant is a great tenant and you’re worried about the reduced market for commercial properties, consider renegotiating the terms of the current lease with the tenant. You could lower the rent payments for a certain period of time or push payments out further in exchange for an extension of the lease term for an equal number of months. 
  • Look into government assistance. As a landlord, you may also be eligible for CERS. Look into government relief programs before taking extreme action. 
  • Termination of the lease. As a landlord, you have the right to terminate the lease in the case that the tenant defaults on their payments, provided you give the tenant written notice. Often, the lease will give the tenant a “cure period”. A cure period gives the tenant the opportunity to cure their breach by paying any rental arrears. If the tenant fails to pay monies owed, then of course, you may terminate the lease. 


Whatever action you decide to take, ensure you document it in writing so that all parties are clear on the new terms.


Are you a landlord or tenant that has questions about commercial leases? We can help with that! Contact our small business lawyers today for a free consultation.