Entire Agreement Clause Insufficient to Protect Landlord’s Negligent Misrepresentations
Tuesday, January 31, 2023Daniel KuhnreichBusiness Law, Corporate LawCommercial Real Estate, Lease Agreement
In its January 12th 2023 decision of Spot Coffee Park Place Inc v Concord Adex Investments Limited 2023 ONCA 15 (CanLII), the Ontario Court of Appeal upheld a lower court judgment granting the plaintiff over $1 million dollars for damages resulting from a landlord’s negligent misrepresentations about customer parking. This award was granted despite an entire agreement provision stating there were no representations outside of the terms of the lease.
In 2010, the Defendant sought to rent its retail premises to the Plaintiff, Spot Coffee. Prior to signing the lease, the Defendant assured Spot Coffee that ample customer parking was available in the complex, provided them with blueprints depicting the retail customer parking lot and gave a tour of the customer parking area to Spot Coffee representatives. In late 2010, a lease was signed.
Once the coffee shop opened, customer parking became an issue. The elevators to the parking lot were sometimes locked, customers were forced to park in different buildings in the complex and some had to check-in with a concierge to enter. Spot Coffee eventually vacated the building in 2013 citing losses caused by inadequate parking. The trial judge found that the Defendant’s misrepresentations about the parking lot had induced Spot Coffee to lease the premises, and their reliance on such inducements was reasonable in the circumstances.
Both the offer to lease and the lease contained an entire agreement clause disavowing representations made which were not included in the documents. The entire agreement clause in the lease was 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 or in the Offer to Lease, if any. In the event of any inconsistency or contradiction between the provisions of any Offer to Lease and the terms and conditions of this Lease, this Lease shall prevail. [Emphasis added.]
Although the lease discussed the rental of employee parking, it contained no mention of customer parking. Therefore, the trial judge determined that the entire agreement clause did not operate in respect of customer parking, since it did not relate to the lease’s subject matter.
In Saatva Capital Corp v Creston Moly Corp 2014 SCC 53 (CanLII), the Supreme Court of Canada said that contractual interpretation is a question of mixed fact and law requiring a deferential standard of review, except to the extent there is an extricable question of law. Following this approach, the Court of Appeal could not find an extricable error of law or a palpable and overriding error in the trial judge’s decision. The Court said it was reasonable for the trial judge to determine that customer parking was outside of the ”subject matter” of the lease. The court of appeal explained their reasoning succinctly in paragraph 37 by stating that:
… deference is owed to the trial judge’s interpretation that customer parking was not the “subject matter” of the Lease and that the entire agreement provision did not preclude the respondent’s claim.
This decision means that developers and landlords should be weary of what is said to induce prospective tenants to enter into a lease, even when the lease contains an entire agreement clause. Lawyers and other lease drafters should consider the wording of the entire agreement clause carefully, as it may not be sufficient to cover representations not part of the “subject matter” of the lease. A PDF version is available to download here.
Noah Bonis Charancle
(This blog is provided for educational purposes only, and does not necessarily reflect the views of Gardiner Roberts LLP).