October 2008
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How-To Brief: How To Prepare Closing Documents in a Commercial Real Estate Transaction
The Real Estate Group at Lang Michener LLP has just completed the "How-To Brief: How To Prepare Closing Documents in a Commercial Real Estate Transaction" for the Law Society of Upper Canada. This is a real estate How-To Brief for the Law Society's online resources. These resources have been designed to assist lawyers and articling students in performing key day-to-day tasks in major practice areas. The How-To Briefs are intended to provide a step-by-step procedural guide and to raise substantive issues to consider in relation to these tasks. The How-To Briefs are available on the Law Society's website.
As a senior real estate practitioner in Ontario, Bruce McKenna was approached by the Law Society earlier this year and agreed to prepare this material. He was assisted throughout this preparation process by Matthew German. In addition, every other lawyer, clerk and student in Lang Michener LLP's Real Estate Group made some contribution to and enhanced the final product. We are proud that the Lang Michener LLP forms will be used in commercial real estate transactions across Ontario.
As with the O'Brien's Encyclopedia of Forms Division on Leases prepared by Bill Rowlands and others, the Real Estate Group at Lang Michener LLP continues to provide leadership in the Ontario Real Estate bar.
October 30, 2008 in Leasing | Permalink | Comments (0)
Continuous-Operation Clauses: Longwood v. Coast Capital
It is not uncommon to find a continuous-operation covenant in a commercial lease, particularly in a lease for retail space. Typical drafting requires the tenant to operate its business in the premises continuously, actively and diligently throughout the Term.
Canadian courts have traditionally been unwilling to enforce such clauses as to do so would require the court to perform an ongoing supervisory role. However, some American decisions, as well as a British Columbia case, suggest that in certain circumstances, the courts’ position on the availability of mandatory injunctions to enforce such clauses could change.
The issue recently came before the British Columbia Supreme Court in Longwood Station Ltd. v. Coast Capital Savings Credit Union (2007 BCSC 1564). There, the plaintiff was the landlord of a commercial mall and the defendant a credit union tenant at the mall (a non-anchor tenant). The tenant had abandoned the leased premises but had undertaken to pay rent due under the lease until its termination. The landlord sought an interlocutory mandatory injunction requiring the tenant to continue its business in the premises until the expiration of the lease.
The lease between the parties required the tenant to “continuously, actively and diligently” carry on business in the Premises, and further stated:
The tenant acknowledges […] any failure to so continuously operate will entitle the landlord to obtain an injunction or order compelling the tenant to continuously operate its business in the premises, and the tenant hereby consents to such injunction or order in addition to any other remedies to which the landlord may be entitled at law or in equity.
The test to be satisfied on an interlocutory application requires (i) a preliminary assessment of the merits of the case to ensure there is a serious issue to be tried, (ii) a determination of whether the applicant would suffer irreparable harm if the application were refused, and (iii) an assessment as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits.
The court also noted the line of cases which have consistently refused to make orders requiring a business to be carried on and holding damages to be an acceptable remedy. A number of them involved financial institutions as did Longwood.
In Longwood, the court found that as the tenant had ceased operations at the premises with express knowledge of the lease, the first aspect of the test noted above was met. However, the landlord’s arguments failed on the second and third rungs of the test. The court was not convinced that any harm could not be compensated for in damages and further concluded that the balance of convenience did not favour the landlord. On the basis of these conclusions, as well as a consideration of the supervision necessary to enforce a mandatory injunction, the court held that such an order was not appropriate.
The Longwood decision is important because it is a recent affirmation that continuous-operation clauses will not be enforced by the courts. This was true even though the lease contained a consent provision entered into freely by sophisticated parties.
However, Justice Bauman does not entirely close the door on enforcing continuous-operation clauses. The court notes the invitation of Justice Esson in A.L. Sott Financial (Newton) Inc. v. Vancouver City Savings Credit Union (2000 BCCA 143) to revisit the enforceability of such clauses (though not finding this the case to do so). The claim in Longwood was dismissed because it failed the test for an interlocutory injunction but also because the landlord’s proposed order was flawed, in that the tenant had not carried out the permitted use in its entirety during the term and the landlord may therefore have waived strict compliance.
October 24, 2008 | Permalink | Comments (1)
Subrogated Claims by Insurers in Commercial Leases (Part V)
This post follows the entries of Bill Rowlands on
The court looked to the express language of the Offer and found it to be similar to that at issue in Lee-Mar Developments Ltd. v. Monto Industries Ltd. ([2000] O.J. No. 1332 (S.C.J.)). Following the reasoning in Lee-Mar, the court found: (1) there was no covenant in the Offer obliging the landlord to take out insurance on the property; (2) the only express insurance obligation in the Offer was on the tenant, requiring the tenant to maintain commercial liability insurance; (3) the Offer contained an “entire agreement” clause and therefore there were no collateral agreements of obligations outside those in the Offer; and (4) the description of the Offer as “completely carefree” supported the landlord’s position.
In addition to offering guidance as to when a tenant
may not be protected from a subrogated claim, this case is also a reminder that
it may be useful to pursue the formal lease and not live under any offer to
lease. The lease negotiations may have resulted in some language that might
have impacted the decision. For example, there may well have been a covenant of
the landlord to insure in the formal lease
October 7, 2008 in Leasing | Permalink | Comments (0)