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In Spot Coffee Park Place Inc. v Concord Ades Investments Limited, the Ontario Court of Appeal dismissed a landlord’s appeal of a decision relating to a claim for misrepresentation. This commercial leasing dispute centred on the wording of the “entire agreement” clause in the lease and whether that wording barred a claim from the Tenant, Spot Coffee Park Place Inc., with respect to representations made by the Landlord, Concord Ades Investments Limited, in pre-contract negotiations which were not contained in the lease.

Tenant leases commercial premises to operate a coffee shop in a condominium development

The Tenant is a coffee chain based in the United States of America. The Landlord is a residential condominium developer who had built a development called Concord Park Place in North York, Ontario.

The parties executed an offer to lease in September 2010, followed by a formal lease in October 2010, for a ten-year term. The Tenant extensively renovated the premises and then began operations.

Tenant abandons premises and sues Landlord for negligent misrepresentation

The Tenant abandoned the premises in May 2013 with over seven years left in its lease and only a year after the coffee shop had opened. The Tenant claimed it had suffered losses because customers did not have free or accessible parking. The Tenant alleged that because finding a parking spot was so tricky, customers often had to park at a different building and walk over to the coffee shop. Further, the Tenant claimed that it was challenging to access the coffee shop as customers had to gain access to the building and, therefore the coffee shop, by registering with the condo’s concierge.

The Landlord terminated the lease in June 2013.

Tenant claimed that the Landlord provided brochure with misinformation about premises

The Tenant alleged that the Landlord’s agent had promised easily accessible and plentiful customer parking. This information was also contained in a brochure which was provided to the Tenant before the lease was signed. In addition, Coffee Spot representatives were taken on a site tour where they were shown an underground parking garage. The Landlord’s representatives admitted at trial that this was done to assure the Tenant that ample and convenient parking would be available.

The Tenant sued the Landlord for negligent misrepresentation and damages, arguing that it had reasonably relied on the Landlord’s pre-contractual representations about the availability of parking for customers. Neither the offer to lease, nor the lease, explicitly included any provision related to parking for customers, only parking for employees, for which the Tenant paid rent, and which were located in an area separate from the retail customer parking.

Special relationship between Landlord and Tenant created duty of care

The Landlord denied making any negligent misrepresentations, but the trial judge found in favour of the Tenant.

The Court referred to the five-part test for negligent misrepresentation from the Supreme Court of Canada’s decision in Queen v Cognos, Inc.:

  1. Is there a duty of care based on a “special relationship” between the representor and the representee?
  2. Was the representation untrue, inaccurate, or misleading?
  3. Did the representor act negligently in making the alleged misrepresentation?
  4. Did the representee rely on the negligent misrepresentation and was that reliance reasonable?
  5. Was the reliance detrimental to the representee in the sense that damages have resulted?

The trial judge noted that the relationship between a landlord and a tenant, even a prospective tenant, is already recognized in law to meet the “special relationship” required to give rise to a duty of care.

Trial judge found that negligent misrepresentations made by the Landlord had been reasonably relied on by the Tenant

The trial judge subsequently considered the representations made by the Landlord to the Tenant and whether they were inaccurate or misleading. The trial judge found that inaccurate representations were made by the Landlord, specifically:

  • The Tenant’s customers would have access to free customer retail parking without restrictions in P1 of the complex’s parking garage (with 150 parking spots for all retail customers); and
  • The Tenant’s customers would be able to access the coffee shop from the P1 retail parking using an elevator that provided direct access to the retail lobby next to the Tenant’s premises.

For these inaccurate statements to also be negligent, the Landlord must not have exercised due diligence or reasonable care in making the representations. The trial judge held that the Landlord knew at the time that it was making the representations that a concierge would control entry into P1. Additionally, the Landlord knew it would have no control over how the concierge carried out their duties. The Landlord was negligent in not disclosing that the condominium corporation would exercise control over access to P1 and to the elevator leading to the retail lobby.

The trial judge found that the Tenant had reasonably relied on these misrepresentations, and they helped induce the Tenant to enter into the 10-year lease at a very early stage of the condominium development. This reliance also caused a detriment to the Tenant, because the Tenant undertook the complete building of the premises, including installing a ceiling, floors, tiles, two washrooms, fixtures, furniture, as well as incurring ongoing operating costs of staff and inventory among other things.

The “entire agreement” clause did not shield the Landlord from liability for pre-contractual negligent misrepresentations

Tort liability, such as negligent misrepresentation, can be excluded or limited by the terms of a contract such as an exclusion or “entire agreement” clause. In this case, the Landlord argued that the “entire agreement” clause in the lease precluded the Tenant’s negligent misrepresentation claim.

The lease’s entire agreement clause read as follows:

“This Lease contains all of the terms and conditions of the agreement between the parties relating to the matters herein provided and supersedes all previous agreements or representations of any kind, written or verbal, made by anyone in reference thereto, with the exception of any written and executed offer to lease or agreement to lease (“Offer to Lease”) which may exist between the parties and pursuant to which this lease has been entered into. There are no covenants, representations, agreements, warranties or conditions in any way relating to the subject matter of this Agreement expressed or implied, collateral or otherwise, except as expressly set out herein …” [emphasis added by the Court]

The trial judge identified the key language of the entire agreement clause as “there are no … representations … in any way relating to the subject matter of this Agreement, expressed or implied, collateral or otherwise except as expressly set out here.”

Due to the lease’s silence on customer parking, the representations made by the Landlord did not relate “in any way” to the “subject matter” of the lease agreement. Therefore, the Tenant’s claim was not precluded by the entire agreement clause because it did not fall under the ambit of that clause.

Tenant entitled to significant damages

When a claimant is successful in a claim for negligent misrepresentation, they are entitled to be put back in the position they would have been in, but for the misrepresentation. A successful claimant is not entitled to receive future damages for anticipated future profits.

In this case, the trial judge held that the Tenant was entitled to its operating cost losses of $269,296 as well as the $757,755.34 that it spent building out the premises.

Ontario Court of Appeal dismissed the Landlord’s appeal

The Landlord appealed the decision to the Ontario Court of Appeal on the basis that the trial judge failed to consider the lease agreement as a whole when analyzing the entire agreement clause.

The Court of Appeal dismissed the appeal and ordered that the Landlord pay the Tenant $20,000 for costs of the appeal.

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