Fire, Flood, or a Shutdown Order: Does a Commercial Tenant Still Owe Rent? In Ontario, the Statute Books Are Almost Silent — Your Lease Decides

Most commercial tenants assume that when disaster strikes, the law will step in and pause the rent. In Ontario it works the other way around: the statutes say almost nothing, and the answer lives in the fine print of your own lease.

I am Arthur Zhao. Somewhere in the commercial lease you signed, buried between the rent schedule and the assignment provisions, sits a paragraph headed something like Damage and Destruction. You almost certainly skimmed it. It was dense, hypothetical, and about a catastrophe that felt like it would never land on your business.

Here is the part worth knowing before it does: on the day a fire guts your unit, a flood shuts you down, or a public order seals off the street, that skimmed paragraph stops being fine print and becomes very nearly the entire answer. Most tenants assume some law will step in and pause the rent when the loss was not their doing. In Ontario the statutes are almost silent, and the one that could apply steps aside in favour of whatever your lease already says. Your right to abate rent, or to walk away, was in effect decided the moment you signed — you just did not read it that way.

This piece is not about any single court case. It is a guide to reading that one paragraph in context: what order the law actually works in when disaster strikes, which clauses your lease should carry, what each of them governs, and which lines to fight for before you sign.

The myth to drop first: an act of God does not cancel the rent

The most expensive misconception in commercial leasing is that a disaster you did not cause automatically frees you from rent. It does not.

Rent under a commercial lease is a contractual obligation, and it does not switch off because the building did. Whether the rent pauses, whether you can leave, and whether the landlord must rebuild are not decided by fairness or by fault — they are decided by what your lease says, and, where the lease is silent, by a default rule that is far less tenant-friendly than most people expect.

So the real question is never “was this my fault?” It is “what did I sign?” Everything below is about answering that second question before it costs you.

Two thin statutes, and what each one actually does

Ontario really only has two statutes in the frame here, and it helps to see exactly what each one does — and does not — do.

The Commercial Tenancies Act (c. L.7) is silent on disaster. Its current text says nothing about casualty, destruction, rent abatement, fire, or any landlord duty to rebuild. What it does govern is a different track entirely: distress (seizing goods for unpaid rent), re-entry, and overholding. None of that helps a tenant whose premises just burned down.

The Frustrated Contracts Act (c. F.34) is the only backstop — and it defers to your contract. Under s.2(1) it applies to any contract governed by Ontario law that has become impossible to perform or otherwise frustrated. Its s.2(2) carves out only three categories — certain charterparties and carriage of goods by sea, contracts of insurance, and sales of specific goods that have perished. Leases are not carved out, so a lease falls within the Act. But here is the hinge: s.3(6) directs the court to give effect to any clause in the contract meant to operate on frustration, and to apply the Act’s own machinery only to the extent consistent with that clause. Translation: write the clause, and the court follows your clause. Leave it out, and you are at the mercy of a statutory reckoning under s.3 that is neither predictable nor necessarily in your favour.

Same disaster, two very different outcomes — depending on one paragraph

A well-drafted casualty clause answers five questions — check yours against them

Want to know right now whether your lease is fit for purpose? Open the damage-and-destruction clause and see whether it answers these five questions clearly. These are exactly the lines I read one by one.

• Trigger: How much damage sets the clause in motion? It is usually measured by the share of the premises rendered unusable — where that line sits decides whether a smaller loss even counts.
• Rent abatement: Does rent stop in full or in proportion to the unusable space or time? From what date, and until when?
• Rebuild decision and deadline: Must the landlord decide whether to rebuild, and complete it, within a set number of days? What happens if that deadline blows past?
• Termination rights for each side: On what conditions can the tenant walk, and on what conditions can the landlord decline to rebuild and end the lease?
• Insurance and deductibles: Who insures what, and who eats the deductible and any shortfall? This ties directly back to s.3(5) of the Frustrated Contracts Act, which tells a court to ignore insurance proceeds in the reckoning unless the lease or a statute imposed a duty to insure — and almost every lease imposes exactly that duty.

If half of these have no clear answer in your lease, then when disaster actually strikes you fall back to a default that keeps the rent running, or to a judge’s after-the-fact accounting. Neither is a good place to be.

Force majeure is not a rent holiday

Plenty of tenants believe a force majeure clause is their get-out-of-rent card. In Ontario it usually is not.

A force majeure clause typically suspends or delays certain obligations when an extraordinary event strikes — but many of them carry a line stating that obligations that can be satisfied by paying money are not excused. Rent is a money obligation. During the pandemic, tenants who assumed a shutdown order plus a force majeure clause equalled no rent frequently found precisely that carve-out staring back at them, and the rent obligation survived.

So read yours literally. A force majeure clause more often excuses things like a deadline to build out or open by a certain date — not the rent itself. If you want rent relief when the space is unusable, that has to come from the casualty clause, not the force majeure clause.

Frustration: the escape hatch that blows up the entire lease

If the lease is silent, some tenants reach for the doctrine of frustration to argue the whole contract is over. Two warnings before you do.

First, the bar is very high. Frustration is not “this got harder” or “this got unprofitable” or “I can’t trade for a while.” It requires an unforeseen event that strikes at the root of the contract and fundamentally changes its nature. Economic hardship, even a temporary inability to operate, usually does not clear it.

Second, think about what winning actually gets you. A successful frustration argument generally terminates the entire lease and discharges both sides — it is not a temporary pause. If you actually want to stay in the space and simply not pay while it is being repaired, frustration is the wrong tool: it is closer to burning the contract down than pressing pause. The pause you want lives in the rent-abatement language of a casualty clause.

Before you sign or renew, push for these lines

Since the answer lives in the contract, the highest-value move is to get the words right before you sign. Here is what I steer clients to insist on at negotiation or renewal.

• Insist on a real casualty clause, with rent that abates automatically in proportion to the unusable space — not “the landlord may, at its discretion, grant a reduction.”
• Secure a termination right so that if the landlord will not commit to rebuild within a stated number of days, or rebuilding is bound to run past a set deadline, the tenant can end the lease and leave.
• Treat force majeure and rent as separate questions. Know exactly whether your clause touches rent, and do not assume that having one means you can stop paying.
• Align the insurance clause with the casualty clause — who insures, how proceeds are applied, and who owns leasehold improvements — so the two paragraphs do not contradict each other.
• Have a lawyer who does commercial leasing read these exact paragraphs. Casualty clauses look identical until a disaster reveals they are not; one professional review usually costs a fraction of the litigation it prevents.

Arthur Zhao

Real Estate Broker · FRI · ABR · SRS · PSA · MCNE · E-PRO · CLHMS & GUILD Elite · REAIS

VP & Branch Manager, Bay Street Group Inc.

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