HBC ordered to pay back rent in pandemic dispute with landlord Oxford Properties

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Hudson’s Bay Company was ordered to pay the full rent it owes landlord Oxford Properties Group on Friday in a ruling by the Ontario Superior Court of Justice in which the court declined to “rewrite” a private contract despite “unforeseen and disastrous circumstances” of the COVID-19 pandemic.

The judge also rejected HBC’s argument that its rent should be reduced because the landlord had “failed to provide a first-class shopping centre” as required by the lease, due to a series of government-mandated restrictions on mall and store access and capacity.

However, the ruling did allow for some deferral of rent by the retailer in light of the circumstances and as gradual reopening takes place. HBC must resume full payment of rent on Nov. 1, and must ultimately fulfill all its rental obligations, including arrears, by early 2022.

“We are pleased with the court’s thoughtful decision,” said Daniel O’Donnell, vice-president of communications at Oxford, which is owned by the Ontario Municipal Employees Retirement System (OMERS).

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He noted that in addition to ordering the full payment of rent, the court found that HBC’s complaints about the operation of Hillcrest Mall in Richmond Hill, Ont. were without merit and would have led “to a commercial absurdity in that the landlord would be put in a position of having to ignore provincial laws and public health guidelines.”

A spokesperson for HBC said the retailer was disappointed in the court’s decision, adding that non-essential retail remains highly restricted in Ontario, a situation that is having “devastating” impacts on business as well as workers.

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“This is another example of non-essential retail bearing the brunt of government lockdowns in Ontario and an approach that is arbitrarily creating winners and losers,” the spokesperson said in an emailed statement. “As the court notes, Hudson’s Bay has been a model tenant. HBC maintains that retailers and landlords should equitably share the burden of the pandemic, and we are reviewing all our available options from that perspective.”

HBC has turned to the courts several times during the pandemic as it, along with other retailers, tried to navigate a series of openings and closings as governments grappled with outbreaks of COVID-19.

Last December, during the crucial holiday shopping season, the company lost a bid to have pandemic restrictions lifted to allow its stores to be open to customers like big-box retailers Walmart and Costco, rather than only open for curb-side pickup outside.

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HBC’s decision to stop paying rent in some cases, as early as April 2020, led to speculation it was in financial trouble. But HBC chief executive Richard Baker, who led a buyout of the retailer last year that closed just before the pandemic was declared in March, has said the company made that decision and turned to the courts only after some landlords refused to share its financial impact.

“The issue with landlords doesn’t have anything to do with our liquidity or our financial capability,” Baker said Monday “Ninety-five per cent of our landlords shared the damage from the pandemic with us as good partners.”

The latest court ruling rejected Oxford’s argument that HBC lacked “clean hands” in its conduct, which included refusing to pay rent, failing to disclose its online sales, and admitting that it was withholding rent to preserve cash.

“I do not agree,” Justice Cory Gilmore wrote. “HBC was a model tenant until the pandemic hit. It attempted to negotiate with the Landlord and even attempted to have itself characterized as an essential retailer.”

What’s more, she noted, HBC paid 50 per cent of arrears a day after being ordered by another court to do so.

“Like all retailers, it was attempting to navigate an unprecedented public health crisis,” the judge wrote.

— Additional reporting by FP Staff