It must be one of the most-overlooked clauses in commercial leases – the clause, drafted in favour of the landlord, that says something along the lines of “rent shall be due and paid without any set-off, deduction or abatement whatsoever”.
This clause appears commonly in commercial leases, and yet often goes entirely without consequence.
The purpose of the clause is to ensure that tenants will continue to pay full rent notwithstanding an allegation of landlord’s default. It represents the parties’ agreement that, if the tenant has a complaint of landlord’s breach, the tenant will bear the burden of suing to claim damages, rather than forcing the landlord to sue to recover unpaid rent. In short, the clause opts the parties out of the exception for inexecution, something that is perfectly consistent with the language of the Civil Code:
1591. Where the obligations arising from a synallagmatic contract are exigible and one of the parties fails to perform his obligation to a substantial degree or does not offer to perform it, the other party may refuse to perform his correlative obligation to a corresponding degree, unless he is bound by law, the will of the parties or usage to perform first.
Yet tenants often do stop paying rent, notwithstanding the presence of this clause in their leases. And when the landlord is forced to sue, the clause is seldom invoked to support the range of outcomes that it could theoretically achieve for landlords in litigation.
This is especially relevant where the tenant’s defence for non-payment of rent seems more of a stall tactic than a good faith complaint.
In Carrefour Laval Leaseholds inc. v. Jean Blue, 2010 QCCS 1403 (at paras. 17-18), affirmed on appeal, 2010 QCCA 782 (at para. 6), the court upheld the non-abatement clause in the parties’ commercial lease as a basis to exceptionally order the payment of rental arrears on a safeguard motion. That seems right. But can the clause further be used to bar a counterclaim set up by the tenant to the rent recovery proceedings?
Doing so doesn’t deprive the tenant of any substantive rights under the lease, but requires them to bring any genuine claim in separate proceedings. This arrangement holds the parties to the bargain they struck: pay rent first, sue for damages later.
Why does it matter? The clause potentially offers a serious leg up to landlords whose tenants force them to sue, only to launch a complicated defence and counterclaim to the lawsuit that prolongs the proceedings into a matter of years, rather than months. Notably, absent a convoluted defence and counterclaim, commercial leasing disputes of less than 3 days can currently be scheduled for trial via an expedited mechanism in room 2.08 (per sections 95 and 96 of the Directives de la Cour supérieure pour le district de Montreal).
Counterclaims can meaningfully delay a landlord’s recovery. Meanwhile, landlords have ongoing obligations like taxes, common area expenses, etc. that they continue to be required to meet without the benefit of the income from regular rental payments.
If a counterclaim is defined as a procedural mechanism that permits a defendant, who is sued for a debt, to demand set-off or reduction of the plaintiff’s claim, then why shouldn’t a non-abatement clause, which specifically precludes set-off or reduction, apply to prevent this in the right circumstances?
Yet, I was hard-pressed to find a single Quebec decision that dealt with the clause in this way.
The argument has been successfully made in the common law. In KKBL No. 348 Ventures Ltd. v. Vancouver Tech Park Corp. et al., 2003 BCSC 164 and British Columbia (Attorney General) v. Malik, 2009 BCCA 202, both courts held that where the parties’ contract contained clear wording to exclude the rights of set-off or deduction, the defendants were precluded from bringing counterclaims to the plaintiff’s recovery proceedings. Defendants could bring their own actions for damages, but the plaintiff’s recovery proceedings were not to be stayed pending the outcome of those claims.
The courts reserved equitable jurisdiction to refuse to enforce the clause in inappropriate circumstances.
Something to consider…
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