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Commercial Real Estate

Court of Appeal Issues Ruling on Commercial Lease Expiry Date Ambiguity

In a recent Ontario Court of Appeal decision, the court allowed a landlord’s appeal, finding that the application judge had erred in finding ambiguity in a lease where none existed.

Parties Go to Court over Term of Lease

A grocery store signed a lease in a shopping mall in March 1979 with an initial term of 25 years. The expiry date was February 28, 2004. The store also had a right to five successive renewal periods of five years each. As such, the ultimate expiry date was to be February 2029, or a maximum of 50 years from the date the lease commenced. 

However, in 1999, when the store was planning the construction of an addition, the parties negotiated an amendment to the lease which, among other things, extended the term of the lease by ten years, commencing on March 1, 2004 and expiring on February 28, 2014. The amendment gave the store the option to extend the term of the lease for three additional periods of five years each for a total of five options or 25 years. 

The landlord brought an application for a declaration that the maximum term of the lease was 50 years, expiring in 2029. The store argued that the lease extended until February 2039, at the latest.

There was also an issue raised regarding the replacement of the property’s roof, which will not be covered here.

Lower Court Finds in Favour of Tenant

The application judge dismissed the landlord’s application on the lease issue, finding in favour of the store and declaring that the lease would expire in 2039 at the latest. He found that the lease was ambiguous because there were two reasonable interpretations of the lease term clauses. 

The first interpretation, advanced by the landlord, was that the maximum 50-year term of the lease was not altered by the amendment. As such, it argued that the lease would expire in 2029 at the latest. 

However, the second interpretation, advanced by the store, was that the parties had wanted to extend the length of the lease and the amending agreement had added an additional ten years to the maximum potential length of the lease. Therefore, the lease would expire in 2039 at the latest.

Faced with such differing interpretations, the application judge held that the factual matrix did not help resolve the ambiguity in the lease. As a result, the application judge examined the extrinsic evidence presented. He found that the extrinsic evidence, including the notice of lease registered on title and an estoppel certificate (both of which stated that the lease could be extended to 2039), supported the store’s position that the amendment extended the maximum length of the lease by ten years.

The landlord appealed, arguing, among other things, that the application judge had erred in determining the lease was ambiguous by failing to consider the lease as a whole.

Court of Appeal Finds in Favour of Landlord

At the outset of its decision, the court stated plainly: “A contract must be interpreted as a whole.” 

The court then reviewed the terms of the lease and the amendment, following which it explained:

“The application judge committed an error of law by failing to consider the wording of the provisions in the context of the agreement as a whole. If he had not committed this error, he would have come to the conclusion that there was no ambiguity….

When the 1999 amendment is read within the context of the original lease, there is no ambiguity…

In short, the application judge fell into error in failing to consider the actual wording within the context of the lease as a whole, which led him to find that the provision was ambiguous. This was an extricable legal error…”

As part of its reasoning, the court explained that if the application judge’s interpretation was given effect, it would have led to an overall term of 60 years rather than 50, which had been specifically precluded by the original lease. However, the parties had not amended the 50-year limit provision. The court opined that if the parties had intended to vary the maximum lease term they would have done so, but did not.

As such, the court allowed the landlord’s appeal and declared that the expiry date of the lease was 2029, and not 2039 as the store had argued.

Get Help

Real estate transactions represent some of the largest financial transactions in the life of any individual or company. Whether you are a first-time homebuyer or a large corporation acquiring a new space to grow your business, it is important to retain a law firm with the experience and skill necessary to ensure your interests are protected and the transaction closes without issue.

At Bader Law, we have an extensively experienced business law team and regularly represent our corporate clients in various real estate matters. We work with business clients ranging from small family-run operations to large enterprises, helping our clients manage their real property interests with an eye toward growth. Our business and real estate teams work closely together to provide thorough and strategic representation on all commercial real estate transactions, including commercial leasing issues affecting landlords and tenants.

The Mississauga real estate lawyers at Bader Law represent individual and corporate buyers and sellers in both residential and commercial real estate transactions in Mississauga and throughout Greater Toronto Area. We will advise you on your options, help secure your interests, and protect your financial investments. Contact us online or at (289) 652-9092to learn how we can help.

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Commercial Real Estate

Roundup of Court Decisions on Commercial Rent Relief Cases in Canada

In April 2020, the Canadian government introduced the Canada Emergency Commercial Rent Assistance for small businesses, which provided relief for small businesses experiencing financial hardship due to COVID-19. It was later replaced by the Canada Emergency Rent Subsidy.

Despite these programs, courts have now seen several cases in which commercial tenants have asked the court to excuse them from paying rent as a result of the COVID-19 pandemic and related government shutdowns.

In most cases, courts have refused to accede to the tenants’ requests, with one notable Quebec exception, as set out below.

Hengyun International Investment Commerce Inc. c. 9368-7614 Québec inc. (2020)

In this Quebec case, the commercial tenant operated a gym. However, because of the Quebec government’s emergency decree on the COVID-19 pandemic, the tenant had been forced to close its business from March to June 2020, when it went to court. The tenant thus asked for a reduction in rent during the period it had been closed. The tenant argued that the COVID-19 pandemic constituted superior force (which is a statutory principle under Quebec law, which is similar, but not identical, to force majeure principles in common law provinces). 

The court sided with the tenant and concluded that it was not liable for unpaid rent for the months of March, April, May and part of June, 2020. While the court rejected the tenant’s argument that it had been prevented from paying rent due to superior force, it held instead that superior force caused by the COVID-19 pandemic had prevented the landlord from fulfilling its part of lease and its obligation to provide the tenant with peaceable enjoyment of the premises, thus relieving the tenant from its obligation to pay rent.

 Durham Sports Barn Inc. Bankruptcy Proposal (2020)

The commercial tenant had closed its business from March to May 2020, due to public health mandated closures related to COVID-19 in Ontario. The tenant asked the court to relieve it of its obligation to pay rent during the shutdown period. The tenant argued frustration and force majeure.

The court held that the force majeure did not relieve the tenant from its obligation to pay rent. It held that because the tenant had not paid rent, the landlord’s obligation to provide quiet enjoyment had not arisen. As a result, the court rejected the tenant’s application.

Dorval Property Corporation c. Hudson’s Bay Company (2020)

The commercial tenant, Hudson’s Bay Company (“HBC”), had ceased paying rent in six different locations in Quebec beginning in April 2020. The landlords went to court seeking safeguard orders forcing HBC to pay rent. HBC argued that the burden posed by the pandemic should be shared fairly by both landlords and retailers.

In six separate decisions, HBC was ordered to pay 100 percent of its rent to the landlords for six months. This resulted in HBC paying over $1.8 million in unpaid rent to the landlords. 

(Note: The Quebec decisions were issued on the same day an HBC department store in B.C. was shuttered for non-payment of rent, and two weeks after an Ontario judge ordered HBC to pay half the rent owing at a Richmond Hill, Ont., store to stave off eviction.)

Quest University Canada (Re) (2020)

The tenant was a British Columbia university. It had filed for restructuring in the context of the COVID-19 pandemic and sought to defer the payment of rent owing on four of its student residences because its ability to use them had been limited by government decree.  

The court rejected the tenant’s argument, holding that the lack of physical occupation of the residences was not a determining factor, and that the word “use” had a more expansive meaning than that which the debtor had proposed.As a result, the court dismissed the tenant’s application for rent relief.

Groupe Dynamite inc. c. Deloitte Restructuring Inc. (2021)

In a more recent Quebec case, a company that had filed for restructuring sought a court order relieving it of its rent obligations in Manitoba and Ontario. The tenant argued that it was not “using” the premises due to government shutdowns and should therefore be relieved of its rent obligations.

The court rejected the tenant’s argument, finding that, while the tenant had limited use of the premises due to government shutdowns, it was still “using” the premises and was therefore liable for its rent obligations. 

Get Help

Real estate transactions represent some of the largest financial transactions in the life of any individual or company. Whether you are a first-time homebuyer or a large corporation acquiring a new space to grow your business, it is important to retain a law firm with the experience and skill necessary to ensure your interests are protected and the transaction closes without issue.

At Bader Law, we have an extensively experienced business law team and regularly represent our corporate clients in various real estate matters. We work with business clients ranging from small family-run operations to large enterprises, helping our clients manage their real property interests with an eye toward growth. Our business and real estate teams work closely together to provide thorough and strategic representation on all commercial real estate transactions, including commercial leasing issues affecting landlords and tenants.

The Mississauga real estate lawyers at Bader Law represent individual and corporate buyers and sellers in both residential and commercial real estate transactions in Mississauga and throughout Greater Toronto Area. We will advise you on your options, help secure your interests, and protect your financial investments. Contact us online or at (289) 652-9092 to learn how we can help.

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Real Estate Residential Real Estate

Court Orders Return of Deposit Due to Misrepresentation of Size of Home

In every real estate listing, there is generally a reference to the size of the home. In a recent Ontario Court of Appeal decision, the court highlighted the importance of accuracy in this detail when it granted a home buyer’s request for rescission of a sale agreement and return of a $50,000 deposit because the real estate agent had misrepresented the square footage of the home.

Real Estate Agent Misrepresents Size of Home

In January/February of 2017, the then 26-year-old home buyer contacted a real estate agent about buying a house in Ontario. It was the home buyer’s first time buying a home. The real estate agent had worked in real estate for 11 years.

The real estate agent proceeded to show the home buyer approximately 10-15 different properties. The home buyer made offers on several properties, some of which were between 2,500 and 3,000 square feet, but none of the offers were accepted.

Then, on March 15, 2017, the real estate agent showed the buyer a property in Stouffville. During the visit, the homeowner was also present. The home buyer asked the real estate agent about the size of the home; the real estate agent told him that the house was approximately 2,100 square feet. Additionally, during the visit, there were copies of the real estate listing in the kitchen which indicated that the approximate square footage of the property was 2,000‑2,500 square feet.

Following a second visit of the home, the home buyer put in an offer for $730,000 which was accepted by the homeowner. The following day, on March 16, 2017, the buyer provided the real estate agent with a deposit cheque in the amount of $50,000.

In late May/early June, the buyer received an appraisal on the property that was carried out in connection with his mortgage application. The appraisal indicated that the square footage of the property was in fact 1,450 square feet. This appraisal report also appraised the value of the property at $730,000.

In an email dated June 5, 2017, the home buyer wrote to the real estate agent and asked for clarification as to why the appraisal report showed the square footage of the property at 1,450 when the property was advertised as being between 2,000-2,500 square feet. The real estate agent did not provide an explanation.

The buyer then informed the real estate agent that he was not prepared to close the transaction given the true size of the house.

Subsequently, the home buyer sued for a declaration that the agreement of purchase and sale dated March 15, 2017, was null and void and sought rescission of the agreement. He also sued for the return of the $50,000 deposit plus accrued interest. 

At trial, the judge granted rescission of the agreement of purchase and sale and ordered that the home buyer be provided with the return of the $50,000 deposit plus any accrued interest. The judge concluded:

“In this case I do not find that [the home buyer]’s inspection of the subject property determined his expectations. He was given representations from both [the real estate agent and the home owner] that the property was 2000 or greater than 2000 square feet and as well relied upon the […] agreement which set out 2000 to 2500 square feet. His inspections did not override his expectation that this was the size of the property. (I take his young age, inexperience with square footage,  and being a first time home buyer into account when considering the reasonableness of his belief.)”

The real estate agent appealed the decision, arguing that the trial judge had erred by not accepting the proposition that where a purchaser inspects a property, their reliance on a misrepresentation as to the size of the property is displaced.

Court of Appeal Dismisses Real Estate Agent’s Appeal

The Court of Appeal rejected the real estate agent’s argument, explaining that the remedy of rescission of a contract can be obtained on the basis of misrepresentation where the defendant made a false statement that was material and induced the plaintiff to enter into the contract. It found that the trial judge had not erred by concluding that the real estate agent’s misrepresentation concerning the size of the home was material to the home buyer’s decision to purchase.

The court found that the real estate agent had made misrepresentative statements to the home buyer regarding the square footage of the home. It further found that the discrepancy between the negligently communicated size of the home and the actual size was substantial. It also found that the home buyer had relied on the real estate agent and the homeowner’s representations about the size of the home. Finally, the court found that the trial judge had not erred in taking into account the home buyer’s age and inexperience in home buying, as they were relevant contextual factors.

As a result, the court dismissed the real estate agent’s appeal.

While several factors, including the age and sophistication of the buyer and the significance of the discrepancy, were considered in the final decision, the case highlights the need for accuracy in describing a property’s size. If, for example, a listing claimed the floors were carpeted when they were not, this would be easy for the buyer to see upon inspection. However, the square footage of a home is not something most people could determine for certain just by viewing the property. For this reason, a buyer would be much more likely to rely on the representations of the agent and the seller.

Get Advice

The real estate law team at Bader Law has decades of experience in real estate matters. We are thorough, efficient, and focused on delivering the best possible outcome for every single client. Contact us online or at (289) 652-9092 to discuss your matter with a member of our team. 

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Real Estate

Illegal Substances Clauses in Real Estate Agreements

The Ontario Court of Appeal recently issued a decision about the interpretation of an “illegal substances clause”, which is commonly used in Ontario Real Estate Association/Toronto Real Estate Board Agreements of Purchase and Sale.

What Happened?

The purchaser and a couple (the “sellers”) entered into a standard form Ontario Real Estate Association/Toronto Real Estate Board Agreement of Purchase and Sale dated May 15, 2016 (the “agreement”) for a residential home in Toronto, for the purchase price of $916,000. The purchaser submitted a deposit of $30,000. Closing was scheduled for August 22, 2016.

The agreement consisted of a standard, pre-printed section, to which were attached two schedules.Schedules A and B formed part of the agreement. Both contained, as an additional term, an identical illegal substances clause (the “Illegal Substances Clause”), which stated:

“The Seller represents and warrants that during the time the Seller has owned the property, the use of the property and the buildings and structures thereon has not been for the growth or manufacture of any illegal substances, and that to the best of the Seller’s knowledge and belief, the use of the property and the buildings and structures thereon has never been for the growth or manufacture of illegal substances. This warranty shall survive and not merge on the completion of this transaction.”

About a month after the execution of the agreement, the purchaser’s real estate agent conducted internet searches and came across information that suggested the property had been used as a grow-op before being purchased by sellers. Subsequently, the Toronto Police Services confirmed to the purchaser that in 2004 the property had been used to produce marijuana. By letter dated July 8, 2016, the purchaser’s counsel conveyed this information to the sellers’ counsel and stated: 

“As a result of the stigma from the fact the home was a previous marijuana facility, my client is not willing to complete the transaction and demands return of his deposit.”

The sellers refused to terminate the agreement. Instead, they commenced an application seeking declarations that the purchaser had breached a binding agreement by refusing to close, the forfeiture of the deposit to them, and damages for any loss they might suffer as a result of the delayed re-sale of the property.

The purchaser responded by seeking a declaration that he was not required to complete the purchase of the property, together with the return of the deposit and damages resulting from the sellers’ breach of the agreement.

The sellers ultimately sold the property to another purchaser for $86,100 less than the price stipulated in the original agreement.

Lower Court Decision

The application judge dismissed the sellers’ application but granted the purchaser’s, holding that the purchaser was entitled to rescind the agreement and to the return of the deposit. 

The application judge found that the purchaser’s discovery after the execution of the agreement that the property previously had been used to grow marijuana and the purchaser’s communication of that information to the sellers meant the sellers’ representation was false. He reasoned that since the sellers would be obliged to disclose such information if they discovered it after signing the agreement, then upon acquiring the information from the purchaser, “the Sellers could no longer honestly give the representation in the Illegal Substances Clause.” 

The application judge found that the purchaser was induced to enter into the agreement on the basis of the sellers’ misrepresentation and, as a result, the purchaser could rescind the agreement. 

Court of Appeal Decision

The court focussed on the meaning of the representation and warranty given by the sellers in the second part of the Illegal Substances Clause, which stated: “[T]o the best of the Seller’s knowledge and belief, the use of the property and the buildings and structures thereon has never been for the growth or manufacture of illegal substances.”

Applying the general principles of contractual interpretation, the court found that the sellers’ representation and warranty that the use of the property had never been for the growth or manufacture of illegal substances was limited to their knowledge and belief as it existed when they executed the agreement. 

As a result, the court allowed the appeal,declaring that the purchaser had breached the agreement by failing to close and the sellers’ were entitled to the deposit in the amount of $30,000.

Get Advice 

At Bader Law, our team of knowledgeable Mississauga real estate lawyers has been advising clients on real estate matters since 1999. We provide a wide range of legal services related to buying and selling property.

The Mississauga real estate lawyers at Bader Law represent buyers and sellers in both residential and commercial real estate transactions. We help clients in Mississauga, Oakville, and throughout areas west of Toronto. We are thorough, efficient and focused on delivering the best possible outcome to every single client. Contact us online or at (289) 652-9092. We look forward to speaking with you and being on your side.

Categories
Commercial Real Estate Real Estate

Residential Real Estate Deal Gone Wrong at Former Canadian Trump Hotel

The Ontario Court of Appeal recently decided a case about a residential real estate deal, centred on issues of rescission and receivership, involving a former Trump International Hotel.

What Happened?

The buyer purchased a residential unit in the former Trump International Hotel by agreement of purchase and sale (“the agreement”) with the seller dated November 20, 2006, and took interim occupancy in July 2012. 

The purchase price was $1,392,000, with a required deposit of $278,400.

On December 20, 2012, the seller set a unit transfer date of February 7, 2013. On February 5, 2013, the buyer claimed the agreement was not binding because the seller had failed to deliver a current disclosure statement. In the alternative, he provided a notice of rescission pursuant to s. 74(7) the Condominium Act (“the Act”) because there were material changes that the seller had failed to disclose. 

The alleged material changes included the fact that the Trump International Hotel would have only 60 stories instead of 70 and would not be connected to the PATH (a network of underground walkways in downtown Toronto). 

The seller responded by bringing an application under s. 74(8) for a determination of whether the changes were material. 

The buyer then issued and served a statement of claim, alleging he was entitled to rescind the agreement and have his deposit returned because of the material changes. 

The seller defended and counterclaimed, alleging that the buyer breached the agreement and forfeited the deposit.

Receivership

However, on November 1, 2016, a receiver was appointed after the seller had run into financial difficulty.

The receiver conveyed the residential unit to the seller’s main creditor. When the stay of proceedings expired, the buyer moved for summary judgment for the return of his deposit plus interest.

Lower Court Decision

The motion judge explained that “[o]n February 5, 2013 [the buyer] sent [the seller] a notice of rescission demanding a current disclosure statement and seeking the return of his deposit based on material changes in the disclosure.” She found the seller had no obligation to close the sale of the residential unit while he was asserting his right of rescission under the Act. The assertion of a right of rescission did not amount to a breach of contract.

In addition, the motion judge found that the agreement for purchase and sale of the residential unit was repudiated through no fault of the buyer when the receiver sold the unit to a third-party creditor. 

As a result, the motion judge granted summary judgement on the basis that the agreement stated the deposit would be returned with interest should the agreement be terminated “through no fault of the [p]urchaser”. 

Court of Appeal Decision

The court rejected the many arguments raised by the seller on appeal and concluded:

“The motion judge’s finding that the agreement was terminated as a consequence of the receivership, and not through any fault of [the buyer], was amply supported by the record. There is no basis for interfering with that finding. I would therefore dismiss the appeal from her judgment ordering the return of the deposit plus interest for the residential unit.”

Get Advice

Buying or selling a piece of property is likely the biggest financial transaction you will make in your life. Skyrocketing real estate prices can make what is an already stressful process even more stressful. In today’s market, buyers and sellers may be tempted to forego consulting with a lawyer to save some money. However, a real estate transaction should never be undertaken without the advice of a knowledgeable real estate lawyer who regularly handles such matters.

Whether you are buying your first home, purchasing a cottage or investment property, or selling your home to downsize to a condo, the real estate lawyers at Bader Law can guide you through every step of your residential real estate transaction. We will explain your options, review all relevant paperwork and contracts, negotiate on your behalf, and defend your interests in any potential disputes that may arise.

At Bader Law we understand that that the majority of real estate transactions occur in the evenings or on weekends. One of our lawyers would be happy to meet with you, by appointment, at a time and date that works best with your schedule. To learn more about how we can make the buying and selling process less stressful, contact us online or at  (289) 652-9092. We look forward to speaking with you.