COVID-19 Survival Guide: Commercial Leasing, Part 2

Laurie: Good morning everybody. My name is Laurie Sanderson. I'm a partner at Gowling WLG. Welcome to our second part of our COVID-19 Commercial Leasing Survival Guide. Let me say this. Our industry has been challenged both economically and philosophically. I think it's fair to say we're all scrambling to keep up with the information curve. Today, what we're hoping to do, is help you with that by addressing three discreet issues demanding our immediate attention. But first, and probably most foremost in everyone's minds is CECRA, the Canadian Emergency Commercial Rent Assistance program. Then we're going to switch gears and address the impact of the emergency construction work orders, or stop work orders, that were implemented across the country, in the context of landlord and tenant work and tenant exit obligations. Then, finally, we're going to polish up our crystal balls and attempt to make a few observations about the re-opening of closed work places in our various sectors. To do this today I'm joined by three senior, or should I say well-seasoned, lawyers from our commercial leasing practice group. Firstly, Julie Lanteigne, from our Montreal office. Darren Taylor, a partner in our Calgary office. Stacey Handley, a partner in our Vancouver office, and last, but certainly not least, we're pleased to be joined by a partner in our employment law group, Max Brunette, who hails from our Vancouver office. Before we get started, just a few housekeeping items. If you're logged in on your computer, and you don't see all the panelists on your screen, please go to the top right hand corner of your screen and select the gallery view. Also, please feel free to send us your questions throughout the webinar by using the Zoom Q&A feature. We're going to do our best to answer your questions, in the course of the program, and if we miss any we're going to do our best to answer them individually after the webinar. So, to get started.

Our first topic is CECRA, the Canadian Emergency Commercial Rent Assistance program. As you know this is a forgivable loan to the landlord that's going to cover 50%25 of the gross rent payable by small commercial tenants. Information about this program has been painfully slow to be released, putting commercial landlords and their tenants in a difficult situation. On the one hand, you have tenants who are extremely anxious for assurances from their landlords as to the scope of the rent relief they're prepared to give and on the other hand, you have landlords in a very difficult situation who aren't prepared to make those commitments without understanding, in a comprehensive way, the financial implications of seeking CECRA relief. Here to fill in some of the gaps is Darren Taylor.

Darren: Thanks, Laurie. In looking at the CECRA program I think you'll find some of the best information is available on the CMHC website. We found that very helpful and it answers a lot of the questions you'll have and tells a lot about the program. One of the challenges you may find is if it's not on that website it seems almost impossible to find the answer to it. So look on the website directly. You can also sign up to get updates from them. This program was announced quite some time ago. It was actually about mid-April it was announced and the portal for the applications through the CMHC website opened this week. Starting on Monday, people were able to apply and by today all property owners across the country have had an opportunity to apply, and then starting tomorrow it's open to everybody, its not categorized by the type or location of your property. While the information's been coming out a little bit by bit over time, there are still a lot of, I'd say questions unanswered, some of which will be answered in the application portal but some of them, hopefully, are going to come out over the next few days as well, or by specific reference to CMHC and asking them for assistance. Laurie mentioned the program itself, to a tenant it provides rent relief of up to at least 75%25 for qualifying small business tenants for the months of April, May and June. Applications are made by the landlord. It's not the tenant's reply, it's the landlords reply, and one thing to keep in mind is the applications are made by the landlord and they have to make all applications for a property at the same time. So they can't make an application for one tenant and then an application for another one at a later time. We believe that landlords can make different applications for different properties separately. The other details about the program, 75%25 reduction for the tenant, or up to at least that much, the tenant has does have to pay some of the rent. It depends on how much the landlord is willing to abate. The landlord has to give up at least 25%25 and then the government will pay that 50%25 difference. There has to be a legally binding agreement between the landlord and the tenant for the rent to be reduced over those three months of April, May and June, as put down by at least 75%25, and the landlord has to agree not to evict the tenant for the longer of 3 months after June or after the application is made. So the applications can be made as last as August 31^st. There could be a moratorium on evictions if the applications made then right through until end of November. So that is something to keep in mind as a landlord when making those applications. The landlord has to show that they qualify for it and so does the tenant. The tenants have to show that they're small business and the things that will be looked at, for example they have to show that they pay no more than $50,000.00 per month in gross rent, per location. So they could have more locations but in that one location it can't be above that rate. The tenant must have no more than $20,000,000.00 in gross annual revenues at the ultimate parent level. Again, this is a small business assistance, generally. The tenant must show that they've had at least a 70%25 decline in pre-COVID-19 revenues. There is some more information about how that'll be calculated, even for new businesses where you might not have had revenues, there is some information on the website about how to calculate that. So there were some prior concerns where the information hadn't come out. One of them is that it's now clear that the program does apply to landlords even if they don't have mortgages. There are some restrictions on what landlords can do with the money. There are two things they say the money has to be used for. First is if the tenants have paid rent then the landlord will have to pay it back or give them credit and then, second, it has to be used for expenses for the property. The implication, I guess, would be that the landlord can't be making a bunch of profit on this. Something that was a little confusing through the Ontario guidelines that initially came out. Seem a littler clearer now. So the program is administered by CMHC and they also have some assistance from other parties, MCAP and FCT are assisting with it. To the extent that you have questions, as I mentioned earlier, the website's probably the best place to look. There is an ability to email them and ask questions. I did do that last week. I haven't heard anything back. You can call them. I tried this morning. On hold for about an hour and a quarter. Had to get off for this call. Laurie said she got on the call yesterday. Only had to wait for 4 hours before somebody answered. So, they're frankly overwhelmed with this program just starting. So the key benefits to this program is badly needed financial relief for a lot of small businesses. That's probably the big thing. When you think of a tenant who really is down, at least 70%25 of their revenues, that's got to be pretty damaging to them. The tenant doesn't have to do a whole lot of due diligence. They don't have to show a whole of information as far as financial statements based on what we've seen. There is an attestation where the tenant says yes, this is true and they have this. Tenants going online and they found that there's an integrity verification to make sure they're being reasonable. We don't know how long it's going to take to for funds to be advanced. It's assumed that once the applications are made this will be a relatively quick source of funds. I think that's the intent. From the tenant's perspective it should be a relatively simple process. There are some negatives to the program. Some challenges with it. One of them is that there's still a lack of clarity on the elements of the program. There are some questions to be answered and the nature of the program that's coming down like this where you just don't know in advance. They're making it up as they go, to a certain degree. Landlords can't evict tenants for 3 months after the applications. So later that can be a challenge. Two other things. Landlords have to disclose a lot of information about their property and about their finances. So you'll see that on the portal where they give you a lot of information about it. It's really a lot of work for landlords. I think that's the biggest challenge here is it's a lot of work for the Landlord to go through this process. There is some difficulties about what the forms say, what the agreements say and some of this information is on the owner portal with CMHC. We frankly don't even have access to it. Although my clients have told me about it I have not been able to get on and go see it because you have to be a property owner to do that. Let's see. Our advice right now is that, yes, as a tenant you're certainly looking at this program and considering it. As a landlord you should certainly consider the program and you should look at it. You should make sure you understand it as well as you possibly can. It provides some very important assistance to your tenant. As a landlord you may lose 25%25 of the rent but perhaps 25%25 is a good deal compared to losing a tenant who just can't afford to pay anything and can't afford to stay in business. I would also say for tenants, be proactive. Look at the program. Get on the website to get what the information that's required, because it's not enough to call your landlord and say you need to do this, if you're not ready and you don't have the information they're going to need. One last thing for landlords is you should check with your lender, because in order to enter into a program like this, you need your lender's consent. I would expect lenders would be relatively cooperative with a program like this but you do need their consent so you should check with them in some way.

Laurie: Darren, I actually have a couple of questions. One was if we're able to get the final version of the CECRA documents without registering on the application portal. As far as I know, when I spoke with CMHC yesterday, they are not available except through the portal. The second question was, sorry I'm just trying to look here, I missed it. There was a question, I can't find it, there's a question about whether or not you can amend the rent relief agreement and the loan forgiveness. I know for certain, having spoke with CMHC, you cannot amend the loan forgiveness. It's going to be available in the portal and really it's a function of pressing accept. On the rent relief agreement, CMHC was being very clear that the form of agreement that's in the portal is a PDF that allows a little bit of modification, but they're telling us, anyway, to be very careful about not amending it, to the extent that you can.

Darren: Right. I did notice in looking at that they don't want you to amend it because you have to make sure you qualify for the program. So if you change it too much you might disqualify yourself. But it does say you need to make sure it's appropriate for the law in your Province and area and that it applies to your situation. They are downloading a lot of responsibility there onto the applicants but, yeah, it's not the first person to say it's kind of hard to find this information on the portal. It's hard for your lawyer to find it because we don't have access to it directly.

Laurie: Thanks, Darren. I really appreciate that. As you noted, only small tenants are actually going to be able to qualify for CECRA relief. What's happening with large tenants, Stacey?

Stacey: Large tenants are a different beast. I know many of you landlords have a number of these large tenants in your portfolio and the negotiating power is going to be quite different than that of a smaller tenant. As Darren went through, the smaller tenants are the ones that qualify for CECRA. If they're paying $50,000.00 per month, that's gross rent, it's going to be no more than that per month, at that location and they also need to generate no more than $20,000,000.00 in gross revenue, annually, and that's at the parent level. There a number of tenants that aren't going to qualify for this relief but also will be struggling. Landlords and tenants are looking at, in those situations, what they can do. This is what I'm seeing and some of the things that are going on. I'm sure that you out there, as landlords and tenants, have been seeing some of this as well. These larger tenants definitely have a definite bargaining strength and power with the landlords. They have got a large square footage for their premises and it would be really hard for landlords to re-let that premises if they were to terminate or leave the center. Landlords are going to give them probably a bit more leeway because of that, because they know that ultimately if they're not there, it's not going to be easy space to fill. They probably have a lot of financial leverage with the landlord as well because they also are probably a large component of the rental that comes in every month for that center. So landlords are also going to be well aware of the financial power that the larger tenants wield at that center. But they're going to be incented to work with those larger tenants and try to come up with some sort of arrangement. Hopefully, and we'll talk about this a little later, but the covenants of those larger tenants, in many cases are strong. So the landlords will also have some comfort that these are the tenants that are going to weather the storm. There are some exceptions to that. We'll be talking about that a little bit later, but hopefully they have a covenant that they have a bit more comfort in then maybe some of their smaller or more individual tenants, that may be struggling a bit more during this period. There are often repeat customers as well. So you landlords out there, you know you've got a number of tenants that it's not just one center, you've got them in your centers all across Canada. So that also makes a difference. You're not looking at this as a one off. This really is a larger kind of big picture analysis and discussion that you're going to be having with that tenant. You probably have a longer term relationship with them if you do have them in multiple centers. So that's also going to impact how you deal with that tenant and what sort of arrangement or negotiation you come up with them. I know a number of large tenants have taken some more aggressive stances as well during this period and I'm seeing many of the letters that I know that landlords have received letters from some larger tenants that basically said, "We're taking a look at this and at the moment here's what we're paying." So a number of these larger tenants have tried to dictate terms and that has put landlords in a difficult position because they do have real financial power often within those centers. So landlords had to come to the table often, and work with those tenants in order to come up with some sort of arrangement, hopefully on a temporary basis works for both. There are co-tenancy concerns. We'll talk about this a little bit more later but I just want to raise it now. Co-tenancy is an issue that comes up with large tenants, so as a Landlord you're going to want to know what co-tenancy rights you've given in your center, and if any of these tenants are named co-tenants in any of your other leases. What you don't want to have happen is taking an aggressive position with one of these tenants, and then have them stop cooperating or leave, and then that triggers a domino effect of other tenancies that then are affected in your center because they've got co-tenant rights. On the landlord's side, so it's not all tenant, on the landlord's side I think there are some things that you can look at. One thing I've been talking with my clients about, as landlords, is just to take a look at those leases and see what special rights those large tenants have in their leases. They often do have a number of special rights. Things like exclusive use rights, no bill covenants, various options to renew, expand, perhaps retract and often those are tied to some sort of required condition. So they aren't just out right rights. They may be tied to not being in default during the term. That will give you, the landlord, a little bit of leverage if you need to actually get that tenant to the table and say, "It's not all one sided. You actually need us too." So take a look at your leases on that because I think that will help. Then just a last thing, is cross-default provisions. Again, if you are a tenant that's in multiple centers, I think you need to be careful if you're taking sort of an aggressive position, or a position with your landlord that here's what you're paying, you need to make sure you don't have cross-default provisions in your other leases with that landlord that could trigger defaults in your other centers as well. Laurie, that's what I'm seeing on the large tenant front. They are in a different position. They don't, unfortunately, have at the moment anything to claim on, for the government programs. They are in a different position there. They do have some more bargaining power leverage but I think it is really coming down to the individual negotiations with their landlords.

Laurie: Thanks, Stacey. I'm going to now switch over to our second kind of discreet topic. So, across the country we've had non-essential construction projects in order to temporarily stop as governments grapple with trying to flatten the curve. This has, and will continue to have, a material consequence and suddenly force majeure, which we never heard of before really, is suddenly the word du jour. So, Julie, if we can switch to you and ask you exactly is force majeure and how does it relate to these particular construction delays?

Julie: Yes. So, hello everyone. Exactly, Laurie, my aim is actually to provide deciders with a clearer understanding of the force majeure concept in 3 minutes. It's not going to be over exhaustive legal explanation. But I find that it's not well understood and I also find that when making decisions to negotiate agreements you need to negotiate from a point of knowledge and strength. So understanding the force majeure provision, or concept, is going to help in those negotiations. Contrary to the pandemic mantra that we are all in this together, force majeure concept, like you said, is not a new concept and we're not all the same under the force majeure concept, even though ministerial decrees or pandemic applies to everyone. It's quite the contrary. Force majeure concept applies per person, per obligation, it's a very specific analysis that you have to go into it. In a nutshell, what is the force majeure concept? Well, it's simple. It's a valid legal excuse to not comply to your obligations. Simple as that. It's a legal excuse. I'm not going to comply to my obligation to do, to do in a certain delay or to pay. So when we're looking at construction delays, and impact on leases, and delivering premises when we're done or leaving premises and vacating, we're talking about delays to do in a certain delay and how does it work then? So we have what we have to do to be excused. The first thing we need to do is to look at the specific obligation we're looking at for this specific tenant. Then we have to look in the lease. Do we have a clause of force majeure that applies? In Quebec there's a provision in the civil code as well but it can be modified in a lease. Then it's not sufficient to say, "Oh, I have a clause of force majeure in my lease therefore an excuse." or the landlord's going to say, "Well, there's nothing I can do. It's not sufficient." You need to understand whether the specific obligation is affected, really, by this clause. Does it really tie into that clause? That also is not sufficient because you need to demonstrate, as the person who has to provide the obligation, that it was impossible to comply with the obligation. By impossible we do not mean really difficult, in the circumstances, or with a lot of troubles. I tried and I wasn't able in some way. Or very onerous. It would have cost a fortune in order to move out my stuff and store it in another place until my new space is ready. So onerous doesn't qualify. It really is impossibility and we need to remember that the courts are going to scrutinize your explanation as to whether did you do everything. Did you try to accommodate? Did you try to find ways to do it faster although there were delays? So you may be excused for a portion of the delay, not all of it. You will have the onus of proof. It's only then when you have the obligation, the cause, the link to it, the demonstration it was impossible and you did everything you could, at great lengths, that you will have a valid legal excuse. Beware landlords and beware tenants. It's not simple. It's not as easy as I have a clause, I'm not doing it. Case by case basis and now, Laurie, in your clauses you can give examples, a lot of them.

Laurie: So what I really take from what you're saying, Julie, and what I really like is your description of it as a legal excuse and that it's not a get out of jail free card. That it's actually quite difficult. With that in mind, let's talk about this in a context of landlord work and tenant work and extra obligations. As we all know, many commercial lease transactions are going to require the landlord to do certain work. That may be just readying the premises. Cleaning the carpets and refreshing the paint. But often that work is really significant. It can be a turn-key premises or it could even be building a building on a pre-construction lease. This raises a number of issues. For tenants who have received force majeure notices from their landlords, I think the two biggest issues are, "I understand the work is going to be delayed but surely my rent is delayed." The second is, oh my goodness, I have to vacate my existing space before my new space is going to be ready." To deal with the rent question first, there's a number of issues. In many leases the landlord will promise to do the work but it doesn't stipulate by when. Even if there's a deadline for the landlord to complete its work, and force majeure applies, that doesn't necessarily mean that the commencement date is extended. If it's not extended then the rent due date is not going to be extended either. So tenants really need to check your lease to see if the commencement date is likewise extended. For tenants with fixturing periods you need to see if the expiry date of any fixture period is going to be likewise extended. Most often it'll say that the fixturing period expires the day before the commencement date. So we're back to trying to decide if the commencement date is going to be extended. If not then this delay is going to encroach on your fixturing period. Even if you have a commencement date that extends, and you've got then the extension of the date by which you have to start paying rent, tenants need to deal with their existing space and, again, there's a number of issues. Most leases will include tenant exit obligations. Whether that's to remove their own trade fixtures, or certain leasehold improvements, or it may extend to reinstating their premises back to the landlord's then current base building condition. All of these involve construction. Most leases will require that those exit obligations be completed before the end of the term. The force majeure provisions in the lease may extend the tenant's obligation to complete it's exit obligation. But that doesn't necessarily protect them from the overholding provisions of the lease. This is an issue as well but tenants who are fortunate enough not to have any exit obligations. The force majeure provision isn't normally going to protect a tenant from the obligation to pay overholding rent if they withhold. Whether that's at a 150%25 or 200%25. The only time I've seen kind of an argument that you can use the force majeure for the overholding is if there's a specific clause in the lease, where the tenant is required to surrender, in which case that may open the door for arguing that because of force majeure you're not able to surrender on that expiry date. Finally, there was the Supreme Court case in 2014 called Bhasin. In that case the Supreme Court said that the common law imposes on every party to a contract, a legal obligation to act in good faith and a duty of honest performance that aligns with reasonable commercial expectations of the parties. That said, that protection doesn't create your obligations in the lease. But what it does do is it dictates how the parties have to exercise and abide by the existing terms. But there may be an argument under Bhasin to deal with if you're being delayed to get your exit obligations completed. Likewise, landlords are also grappling with construction delays. Generally speaking, they're going to be in a better position. Most leases that include landlord work will not stipulate a completion date. Those that do will almost always say that that obligation to complete the work by that date is subject to force majeure delay. In addition, most landlord leases release the landlord from liability if they're not able to deliver the premises to the tenant on the promised commencement date, if an existing tenant fails to vacate, or if the delay for force majeure. What we all need to understand, and I think what Julie was mentioning, is that when you give a party the legal excuse of force majeure, what you're doing is you're transferring risk. You're transferring the risk that that obligation isn't going to be performed to the other party. I've tried with a couple of large tenants to try to argue that it's unfair for the tenant to bear 100%25 of the risk of force majeure delay. But I've had really limited success. This is just the industry standard. Finally, when a landlord or a tenant claims force majeure, it's important you do so in accordance with the lease. Generally speaking, it's going to require you to give notice to the other party of the delay, and very often it's going to require you to provide a work around plan and then to follow that work around plan. My final comment, and I think Julie you're going to speak to this, is for landlords that are doing new deals right now, and there are happily some of those, the pandemic will have an unforeseeable event. So a work stoppage that the landlord can now foresee is not going to be an unforeseen event. It's a known fact. So they need to address it. Julie, you had some other thoughts on that as well.

Julie: Yes. You're right. We are already hearing that there may be a second wave of the pandemic, and with this will come potential additional restrictions on ability, may be to continue to pursue construction or in what manner or for what industry or regions. So it is expected. It is possible and when we look at the definition of force majeure, at least in the civil code, but common law concepts and force majeure clauses in leases pretty much all represent the same ideas, which is a force majeure has to be an unforeseeable event, it has to be irresistible and has to be external to us. So the question is valid as to whether knowing the potential second wave, and that we may expect further restriction, will it be easy to prove, because we are going to have the onus of proof that this is an unforeseeable event. But specifically, so we don't know yet if it's going to be an unforeseeable event or not. Would the courts consider that a person could not know that there would a ministerial decree at this moment in time in that particular situation? Or are they going to consider that like floods in the region, every year, that you know you should prepare for this because it's expected. So therefore, if we are negotiating new deals or agreements to deal with the present force majeure situation, what I've seen on my side is that the parties are largely taking the position to discuss what if in the future. My recommendations on that is actually if you're going to agree, like you said, Laurie, it's a shift of risk. The cost of doing business. The new normal. Who is going to take the risk of not receiving the rent or not paying its lender, not having the money for that? It's becoming like a business risk, a cost of doing business. There's a negotiation how you want to split. Can you split it? Do you feel strong in the position that it's not going to be foreseeable or will it? If you negotiate, and you agree to give some slack and share the risk, you want to circumscribe very much to that specific pandemic and create another order that you don't have in the lease normally. Because normally your lease already provides for a situation of force majeure.

Laurie: Legal excuse going forward is there any, before, you could say this was beyond our possible expectation, but going into these deals I think you're absolutely right. You have to be dealing with this now. That's there likely to be a second wave. Just before we leave this topic we did have a question asking for the citation for Bhasin and I will send it out after. But if you just Google, and the name is B - h - a - s - i - n, and Supreme Court of Canada, that's going to pick it up for you but we will send it out after. Our third and final topic to address is the re-opening of work places. Max, you're going to start us off with a high level summary of the guidelines and protocols, please. Then I'm going to ask our panelists to take out their crystal balls and give us your thoughts on the challenges facing the various sectors and what the new normal might look like. But, Max, let's start with you, please.

Maxwell: Thanks, Laurie. ... introduction is I'm an employment and labour lawyer so a little bit of a different specialty than the folks who have been chatting so far today. As you an imagine through the course of this pandemic there's been just a huge variety of employment issues. I think as they may be germane to today's topic I wanted to chat briefly about occupational health and safety obligations. This probably is not top of mind for many of you in a low risk office environment. It's obviously very live at industrial sites, mines, those types of facilities and you're probably not thinking about them to often in the normal course, as far as an office environment goes. But now what we're seeing is the occupational health and safety bodies across Canada, they're all Provincial, and have started to implement guidelines for return to work protocols. They're a little slow to do this. The calls I was taking initially were, "What do we do? We're still having our folks come into the office. What steps do we need to take? Give me advice." was, "Well, look. You've got to look at the public health authorities and see what they're doing and try to match that." The OHS folks are a little slow getting up to speed but now they're there. I think what you'll find in each Province is if you go to, in BC for example, if you go to the WorkSafeBC website you'll see their recommendations are laid out in ways of detail. BC's, for example, runs about 8 pages long. Now the good news is this, there has not been amendments yet to any of the legislation. These are recommendations. Okay? So you don't have to strive for perfection here but you do have to take these recommendations into account. The clause that I think is going to loom large for employers in all jurisdictions, in the office environment, is the general duty clause. What that, largely the same in all Provinces, requires you to take all precautions that are reasonable in the circumstances. The question then becomes what's reasonable in the context of COVID-19? That's where you've got to double back and check out what they're suggesting for their guidelines. I won't go into a high level of detail here but what are some of the examples you're seeing? Practice social distancing within the workplace. For your buildings, obviously, you're going to have access and egress issues with respect to the entrances and exits being segregated. You're going to have capacity recommendations for elevators. As far as the building itself is concerned, those are quite consistent across the board, for all the Provincial regulatory bodies. Then you're going to see a whole host of other recommendations. Your tenants will be asking, or be forced to ask, where do people congregate? Where can we create some space between people? What are we doing in terms of cleaning and hygiene for the office. That sort of stuff. Again, it's worth taking a look at these and it speaks to the importance of ensuring that your employers, your tenants, have a joint health and safety committee in place for their workplaces. The reason for that is they're going to have to do a hazard assessment that goes through exactly some of those items I mentioned. What have you done? What steps have you taken to ensure that you're minimizing the risk of transmission in the workplace? So, those will be important because to the extent that complaints are filed, you're going to want to make sure that you've documented your joint health and safety committee meetings. You can fall back on those notes. You can show the regulator that you've considered appropriate hazards and taken steps to try and minimize them. Again, recognizing that you're not striving for perfection, but you've got to take all reasonable precautions in the circumstances. A couple of things I wanted to flag for you, just what I'm seeing in my practice, and some of the types of complaints that I think people can expect to see now. One would be work refusals. Under each Provincial occupational health and safety piece of legislation, a worker has a right to refuse work where they perceive there are unsafe circumstances. The traditional way in which you're thinking about this is obviously fall protection, for example, at an industrial site. But already we're seeing a rise in claims where people are saying, "Look. I just don't feel comfortable coming back to the office." So the idea, if you get one of those after you've taken a number of precautions to show that you're doing what you can to minimize the risk, the idea is you try to work collaboratively with the employees to solve that problem. Really what you're going to be doing is saying, "Look. Here's what we've done. Here are the guidelines from the Provincial OHS authority. We feel we've done the best we can. We've taken all the precautions, that are reasonable in the circumstances, you should come back to work." If that employee continues to refuse you've then got an opportunity to involve the regulators, not that anybody wants to do that, but you can get a decision issued from a preventions officer at WorkSafeBC, for example, and then ultimately if you don't like the decision that that office gives you, you can appeal up. So the hope is that you don't have to go there but the idea is to work collaboratively with the employee. One thing that I've been advising my clients is don't jump too quickly to the termination letter that says, "Look, if you don't want to come back, that's fine. But you don't have a job with us anymore." So take some time to work collaboratively with those employees who are refusing to return. The other issue I think that you're going to see, from an employer perspective in the work refusal context, is there's going to be a lot of, I've seen a multitude of them already, requests for accommodation. Mostly it's going to be family status type requests because we don't know what's happening with schools, universities. Child care is going to loom large. People are going to be potentially unable to return to the workplace. I think you can expect an uptick in those sorts of complaints, and you've got to be prepared work flexibly with those people in the context of your overall return to work plan, which may have staged or staggered return built into it. Something to prepare for. I can tell you in the last 2 weeks I've seen already probably six or seven complaints like that coming forward to employers. Again, the key takeaway to keep in mind is have a look at those recommendations. You don't have to be perfect, but you've got to show that you've taken them into account and taken some reasonable steps, and document that process through your joint health and safety committee. Laurie, over to you.

Laurie: Darren, what are your thoughts on the new normal in the context of strategic or anchor tenants?

Darren: Well, I think a lot of the things that are going to affect these anchor tenants, strategic tenants, would be really just business going forward. What's going to happen to them? Are they financially strong enough to make it through the downturn now? Are people going to, if we're talking primarily about retailers as anchors, are they going to have enough business if they're going to be able to stay in business? Or, are they going to be consolidating locations? What are the sort of things that are going to happen? When we look at how some place like a mall is going to practice social distancing and how many people they're going to allow in. That can make a difference as to whether they're financially viable. When you look at these changes with the smaller retailers and then with anchors as strategic tenants, when one of the changes it changes the mix of a whole shopping center. It can change in the number of people that are brought in and the type of things people are looking for when they get there. So I think that clearly it's going to affect a lot of businesses. Things I think they're going to be look at, outside of pure finances, I think they're going to be looking at their leases closely. Some of the leases, particularly for these large tenants and anchors, have co-tenancy clauses. Or they have some provision that other tenants have to be there or that they have exclusive uses. They have protections built in. These are unique clauses. They're very specific to a lease. I don't think that a court is wiling to look at them broadly but they're going to look at what that very specific lease will say. So one of the things that they're going to be doing is looking at their leases. They're going to be seeing if anything has changed and maybe they'll be looking for rent relief or some times ways out of a lease. But if those anchors were to leave, or not be able to make it, that's going to affect the smaller tenants too. It's kind of a ripple effect. You look at these big shopping centers as an example. The big malls. They all kind of need each other. You may go there for The Bay or Nordstrom's but you enjoy the smaller retailers that are there as well. It's kind of lacking without both of them together. I had suggest this might be an area where force majeure is looked at by both the landlords and the tenants where a tenant says, "I can't do this because of this." and the landlord says, "Well I couldn't do it because of this." It's not the pure force majeure where you're looking at construction, or looking at rent, for rental purposes force majeure tends to be in the landlord's favour. It might be a little more creative at this point in time. For this sort of quotation.

Laurie: Thanks, Darren. Stacey, you act for many, many retailers and restaurateurs. What do you see on the horizon?

Stacey: In the retail space, and restaurant space, that's the group as a whole that's really been hardest hit by COVID-19. It's been quite devastating for many of those groups. Just to give you some stats, I'm sure some of you have seen, but they are quite sobering. In March, so not even in the bad month, we're still waiting for April's numbers, but March numbers 2020, for retail sales were down a record breaking 10%25 in Canada. April numbers are obviously expected to be worse because in early March most of those retailers were still open. Statistics Canada is projecting it's going to be closer to a 20%25 decline for April, once those numbers come out. These numbers are deceiving. So you think I actually thought it would be worse. These are propped up by those retail tenants that actually did better. So there's definitely a group of tenants that have done well during this pandemic because of what they sell. The obvious one, grocery stores, have done very well. I think grocery stores and liquor stores, combined, are up something like 25%25. It's significant. But you've got those sorts of tenants that are actually, I think, distorting those numbers that are in the 10, 20%25 range as a whole. There are sectors, as I've mentioned, that have done well. If you're a landlord, and if you've got tenants in some of these sectors, they probably should be paying their rent because they've actually gone up. So these are things, obviously, grocery stores, drug stores, liquor stores, anything to do with home improvement has done quite well during this period. Painting, gardening, landscaping. Home exercise equipment's gone through the roof for obvious reasons because all the gyms are closed. Electronics has held the realm. People are buying TV's, gaming devices, computers. Home office has done well. If you're in that space. Indoor/outdoor entertainment. Anything to keep the kids busy. Air hockey, pool tables, self-reward tables. Outdoor, getting a swing set or trampoline these days is like winning the lottery, if you've tried to do that, I know I have. Pet supplies, arts and crafts. It's really a very random range of things. But what they basically coined it as is comfort spending. So what people during this epidemic have been doing is spending on things that make them sort of feel safe or comfortable in their own home and make them happy. Just a fun fact, which made me laugh, the sale of bread makers is actually the top, I actually thought it would have been like ..., but bread makers has actually gone up the most. 600%25 increase in the sale of bread makers during this pandemic. It's super random but, again, that speaks to just this concept of comfort spending. The downside, unfortunately, is that other sectors of the retail industry have been absolutely devastated by this pandemic. So retail sales, and clothing/clothing accessories, were down 51%25 in March. Again, April numbers are expected to be worse because many of them were fully closed in April. Car dealerships reported a 40%25 decline in new car sales. Gasoline stations were down at 20%25 decline in sales. Again, these are March numbers. Now, online sales offered some relief for some of these tenants, but no nearly enough to make up the sizeable losses in many cases. Non-essential retail stores which were closed in March, April and May are starting to re-open across Canada and as Max has mentioned just now, they do have a number of limitations placed on them in those re-openings, to address social distancing and various work safe and health requirements. They've implemented new protocols, and a lot of things that they are required to do to re-open are going to increase their costs, at a time when they're actually struggling and have gone through a pretty difficult period. Even before COVID hit, I'm sure a number of you in this space know, that bricks and mortar retail has been struggling now for a number of years for various reasons. I was just speaking at a conference, pre-COVID, it was like early March, on this very topic and what's been termed the retail apocalypse by many in the media. Just this decline in how we're spending, our spending habits and how we're behaving as a consumer, and this was already well under way and has been increasing in the last number of years. A number of closures and bankruptcies of fairly sizeable retail companies, that have been a fixture in many of your malls, but then just things have changed and they're just not able to compete at the same level because of changes in consumer spending and needs. This has really hit at a horrific time for a number of these retailers. Anyone who was on the bubble, or who's having some struggles pre-COVID, this really is a black swan event and there's the perfect storm of what they didn't need, at this time. So recently credit ratings have been down graded for major retailers like The Gap. The Gap has been closing stores lately, as many of you know, but they've been down graded. Macy's, Nordstrom's on this list now which they hadn't been in the past. The parent companies for a number of these stores that are high profile stores in many of the outlet malls, like Michael Kors, Versace, Jimmy Choo, their parent companies been down graded. So has the parent company to Coach, Kate Spade and Stuart Weitzman and Elle brands, which is the parent company to Victoria Secret. So it's a list of very high profile, very well regarded companies that are feeling the impact of what's going on here. The concern is that retail tenants are going to have a difficult time rebounding from this. These are big losses and it's not expected to come back right away. There's concern, or just a thought that the spending habits that we've developed during this time, aren't going to fully rebound. Obviously online shopping has only been increasing in recent years. We've certainly gone to either more of that during this period. That's likely not going to all come back. Things like online grocery shopping, even, that many people didn't do is now the norm. Online liquor store shopping, which again, wasn't entirely norm has become quite popular. The idea is that some of our current habits are not going to change and that there will be a new reality for some of the retail tenants. This obviously is going to have a pretty significant impact on landlords that have a number of these tenants in their centers that are facing these struggles where their consumers just aren't behaving the same way as they used to, seeing them behave in the past. Restaurants also have just faced significant challenges during these times. They're now starting to re-open but again, like Max said, they've got requirements for social distancing, requirements with WorkSafe and the health authorities, that they're going to have to meet. In many cases those are going to cause increased costs for increased cleaning, increased improvements that they're putting in right now to allow for the capacity that they're allowed to bring back. Restaurants are only allowed to bring back 50%25 capacity at the moment. Those of you in the restaurant industry know that the margins were already tight on 100%25 capacity. 50%25, it's certainly not sustainable. The restaurants that are going to survive this are the ones that can sort of weather the storm or this period when they are under these restrictions. A number of them are trying to come up with different ways to increase their profits. Take-out has done well for a number of restaurants. Some of them have increased what they're selling and ... into grocery store sales, which I think they've done quite well at. But it really is not feasible for restaurants to be at a 50%25 capacity for a very long time. Some municipalities are looking at loosening current restrictions on outdoor space and patios, to allow for some increased space for those restaurants, to have more seating to make up some of this money. But it really is quite challenging for the restaurant industry right now to just make the numbers work. It's estimated that up to 30%25 of restaurants will not survive the re-opening under these new restrictions because they simply can't take those losses for the period that they could be operating at on these new rules and on these restricted seating. A number of people have looked to China to see, because they're a number of months ahead of us, just to see how retail's responded there and how restaurant industry responded there. It's been challenging there. So they've re-opened, they're a few months ahead of us. To date 15%25 of restaurants in China have gone bankrupt. So the concern is that our numbers here, in Canada, North America, aren't going to be that different. I think landlords are definitely looking at this very carefully because often landlords, in addition to large retail tenants, have a restaurant or two in their center as well, to accommodate the kind of entertainment feel and bringing people to the center for multiple reasons. I think everyone's looking very carefully just at the covenants of their tenant base and hoping that they're strong enough to be able to kind of weather the storm, and get through to when hopefully there's a vaccine or when there's a change in the basically landscape, so that people feel more comfortable going back to their old habits of going and sitting in a restaurant, or sitting in their local pub and living life and spending in the way that they were doing before March.

Laurie: Thanks, Stacey. Those are really sobering numbers.

Stacey: They're pretty sobering.

Laurie: The office tenant experience during the pandemic has really been very varied. For many, the transition to remote working has been much more seamless and successful than anyone would have anticipated. Part of the questions I think being bantered around is the extent to which the so called Zoom worker is going to want to continue to work remotely and to what extent employers are going to be able to accommodate that. For those returning to their offices there's significant practical challenges to be faced. In office buildings you consider, for the most part, are located in a central business district or a technology hub in a suburban neighbourhood. All of that requires staff to take public transit. Until the pandemic controllers, a vaccine or the herd immunity is achieved, many are going to be very reluctant to use public transportation. Then once you arrive at your building you're going to be really quickly reminded that these were built for high density use. As Max was mentioning, we have shared common areas, elevators, food courts, washrooms. How are landlords going to manage the social distancing? I know everyone's got their heads down trying to deal with this. There are suggestions about dictating arrival, departure and lunch times to try to deal with control congregating. Then we get to the larger question that's facing the industry as to whether tenants are going to upsize to deal with social distancing within their premises, and in fact you can't use bench seating or hotel offices, or are we actually going to see a downsizing in the requirement for office space as employers, office tenants, adopt remote working to a much more larger extent than we've seen previously? It all remains to be seen. I see that we're at 12:59. So let me just say that we thank you for your questions. I know we got to some of them and a number we did not so we will do our best to reply to those individually. Let me extend my thanks to our panelists. Julie Lanteigne, in Montreal. Darren Taylor, in Calgary. Max Brunette and Stacey Handley, in Vancouver. Thank you. Most importantly, thank you everyone for taking time out of your busy day to join us. Please feel free to reach out to any of the panelists or any of our many real estate leasing employment lawyers at Gowlings. We are definitely hear to help. Thank you very much for joining us. Stay safe.