Court File and Parties

Date: 2017-06-07 Superior Court of Justice - Ontario

Re: Canadian Language Leadership Centre – CLLC Inc., Plaintiff – AND – 20 Eglinton Commercial Centre Inc., Defendant

Before: E.M. Morgan J.

Counsel: Jeffrey Kriwetz, for the Plaintiff Alanna Brogan, for the Defendants

Heard: June 7, 2017

Reasons for Judgment

[1] The Defendant is the Plaintiff’s landlord under a commercial lease dated September 1, 2012 (the “Lease”).

[2] The Plaintiff has brought an action for damages for business interruption losses resulting from roof leaks. It has also claimed for damages resulting from a non-operational gas line.

[3] The Lease expressly provided that the Plaintiff was taking the premises in “as is” condition. Further, the lease contained a covenant to insure under which the Plaintiff was required to purchase and maintain all-risk and business interruption insurance covering the term of its tenancy under the Lease. These clauses in the Lease were accompanied with a waiver of liability clause, in which the Plaintiff released the Defendant from any liability resulting from the state of the building and the leased premises.

[4] The Defendant moves for summary judgment under Rule 20.01(3) of the Rules of Civil Procedure. It submits that the terms of the Lease provide a complete answer to the Plaintiff’s claims, and that, accordingly, this is the kind of “clearly unmeritorious” claim for which there is no genuine issue requiring a trial: Hryniak v Mauldin, 2014 SCC 7, [2014] 1 SCR 87, at para 36. This is not a case where the extent of damages, or one or the other party’s conduct, or other such intensely fact-specific matters are in issue, see John Forsyth Shirt Co. Ltd. v Savage Holdings Inc., 2009 CarswellOnt 6864 (SCJ). Rather, it is a case that turns on contract interpretation and is a quintessentially document-based case. The evidence in the case is the Offer to Lease leading to the Lease, the Lease itself, and, to a lesser extent, some email correspondence between the parties.

[5] Both parties were represented by lawyers in negotiating the Lease. There is no issue as to the validity of the Lease; rather, the dispute centres on its interpretation.

[6] Counsel for the Defendant observes that the question of who bears the risk under a commercial contract is an appropriate one for summary judgment: Delaurier Custom Cabinets Inc. v 1728106 Ontario Inc., 2016 ONCA 246, at para 17. This includes the interpretation and application of covenants to insure in the commercial landlord-tenant context: Sanofi Pasteur Ltd. v UPS SCS Inc., 2015 ONCA 88, at paras 23, 26, and 34. Here, as in Orion Interiors Inc. v. State Farm Fire and Casualty Co., 2016 ONCA 164, at paras 13-15, there is no need to consider the respective parties’ conduct as landlord and tenant, since their reciprocal rights and obligations are explicitly laid out in the Lease.

[7] It has been held on numerous occasions that the contractual undertaking by one party to obtain property insurance is a benefit accorded to the other party and effectively allocates the risk of loss or damage caused by an insured peril: Sanofi, supra, and DLG & Associates Ltd. v Minto Properties, 2015 ONCA 705, at para 19. In the context of a commercial lease, this applies whether the obligation to insure against specified perils is that of the landlord or the tenant: Deslaurier, supra, at para 35.

[8] This allocation of risk applies notwithstanding a covenant to repair by the other side who is the beneficiary of the covenant to insure: Madison Developments Ltd. v Plan Electric Co., [1997] OJ No 4249, at para 9 (CA). Counsel for the Plaintiff highlights certain email correspondence from the Defendant’s manager indicating that the Defendant spent some effort attempting to repair the roof, and that it was taking responsibility for the repairs. He submits that this correspondence demonstrates that the Defendant viewed the legal obligation to cover the roof leaks as being its own, and not the Plaintiff’s. I cannot agree with this submission.

[9] A landlord’s covenant to repair, or even one to indemnify the tenant, cannot be construed to deny it the benefit of the covenant to insure: Deslaurier, supra, at paras 62-66. It is clear under the Lease that the roof was not exempted from the all-risk insurance which the Plaintiff was obliged to obtain, and that obligation of the Plaintiff’s to insure is not countered by the fact that the Defendant had certain repair and maintenance obligations. Even where damage occurs due to a landlord’s failure to fulfill its obligation to keep the premises in good repair, a tenant’s covenant to insure allocates the risk of such loss to the tenant: Orion, supra, at paras 39-40.

[10] The Court of Appeal has held that a covenant to insure provides immunity to the party that is the beneficiary of the covenant even if the covenantor, as with the Plaintiff here, fails to purchase the required insurance, so long as the loss being claimed falls within the bounds of the covenant to insure: Active Fire Protection 2000 Ltd. v BWK Construction Co., [2005] OJ No 2892, at paras 19-20. It is the tenant who must bear the loss if the tenant is underinsured or has failed to obtain the insurance which it had covenanted to obtain: Orion, supra, at paras 39-40.

[11] In addition to the covenant to insure and the release of the Defendant from all liability, the Lease contains an express waiver of subrogation rights which the Plaintiff’s insurers may have against the Defendant, a clause obliging the Plaintiff to use the proceeds of its insurance to repair and restore the premises and leasehold improvements, a provision requiring the Plaintiff to indemnify the Defendant and to save it harmless from any claims arising out of any property damage, and a specific clause stating that the Defendant shall have no liability to the Plaintiff by reason of any “injury to or interference with the [Plaintiff’s] business or property” arising from fire or other casualty, howsoever caused…” In other words, the Lease, taken in its entirety, allocates to the Plaintiff the risk of the very type of damage claimed here.

[12] The Plaintiff’s affiant states that when the roof leaks began he made a telephone call to an insurance broker and inquired about purchasing insurance, but was advised that a roof in that condition might not be insurable. Plaintiff’s counsel submits that in these circumstances, the Defendant should not get the benefit of a situation that it has put the Plaintiff in.

[13] Counsel for the Defendant responds that the entirety of efforts apparently made by the Plaintiff is one casual phone call, not followed up by anything in writing or an inquiry to any other company. Furthermore, to state the obvious, had the Plaintiff obtained insurance at the outset of its tenancy as it was supposed to do, this problem would not have arisen. The Plaintiff signed a covenant to insure; no one who really intends to purchase insurance coverage waits until the damage already occurs. It was the Plaintiff’s obligation to obtain insurance when it was available, and not to roll the dice with a wait-and-see position in respect of the need for coverage.

[14] As already noted, the covenant to insure contained not only an obligation for the Plaintiff to purchase all-risk insurance, but also specified business interruption insurance. In this respect, the Plaintiff’s position is that the losses suffered by it resulted in it being delayed in opening for business rather than in an interruption of its ongoing business. Plaintiff’s counsel submits that the risk of business delay (as opposed to business interruption) is not allocated to the Plaintiff by virtue of the covenant to obtain business interruption insurance.

[15] In my view, the distinction between business delay and business interruption is a distinction without a meaningful difference. Counsel for the Plaintiff offered no authority for this point, and it is difficult to see one in logic. Whether the business losses from roof leaks occur at the outset of a new business and are therefore literally characterized as business delay, or occur a week after a new business gets underway and are therefore literally characterized as business interruption, the losses are of the same nature.

[16] In any event, counsel for the Defendant points out that the Plaintiff’s business had indeed already commenced at the time of the roof leaks. It had an administration in place, it had hired personnel who had started working, it had students registered for its language school, etc. The language classes themselves had not yet started, but the Plaintiff’s business itself was up and running.

[17] In terms of the damage claimed by the Plaintiff in respect of a non-working gas line, the Defendant relies on the fact that the Lease contains an “as is” provision. The enforceability of clauses in leases with this type of language has been affirmed by the courts on a number of occasions: see First Gulf Development Corp. v Alfa Laval Inc., [2006] OJ No 1688; Busse Farms Ltd. v Federal Business Development Bank, [1998] SJ No 786 (CA), leave to appeal to SCC refused, [1999] SCCA No 73.

[18] Schedule D of the Lease states expressly that, “The Tenant [i.e. the Plaintiff] acknowledges that the 5th Floor premises is being transferred on an ‘as is’ basis.” It goes on to say that, “The Tenant agrees to accept the entire 5th floor on an ‘as is’ basis”. These clauses are not limited to any specific aspect of the leased premises, and cover the entirety of the leased premises.

[19] Counsel for the Plaintiff submits that the “as is” language does not apply to the gas line defect in issue here. He submits that the gas line was solely within the Defendant’s knowledge, and that the Plaintiff cannot be expected to know what it was getting into in this regard.

[20] While I understand the Plaintiff’s complaint about not knowing about the non-working gas line, this argument disregards the all-encompassing meaning of “as is”. The entire point of this kind of clause is that the landlord is not detailing for the tenant each and every defect or non-working system in the premises or the building. A tenant in the position of the Plaintiff here, taking a premises in “as is” condition, takes on itself the risk of defects and problems regardless of which of those defects it was aware of at the outset: See Stearman v Powers (c.o.b. Walkabout Casual Wear), 2014 BCCA 206, at para 23.

[21] In assessing a summary judgment motion, I take it as a given that both parties have put their best foot forward: Sweda Farms Ltd. v Egg Farmers of Ontario, 2014 ONSC 1200, at para 26, aff’d 2014 ONCA 878. On the record before me, and especially given the specific terms of the Lease, the Plaintiff’s claim cannot succeed.

[22] The Defendant’s motion for summary judgment is granted. The action is dismissed.

[23] The Defendant has submitted a Bill of Costs seeking a total of $31,850.95 for the entire action on a partial indemnity basis. In my view, this is not an unreasonable amount for a matter that has gone through the discovery stage, and that includes a summary judgment motion that not only required the compiling of an evidentiary record but a substantial amount of legal research. Given the principle of indemnity, Rule 57.01(1) (0.a), the complexity of the proceeding, Rule 57.01(1)(c), and the importance of the issues to the parties, Rule 57.01(1)(d), the Plaintiff ought not be surprised by a costs request in this amount: Rule 57.01(1)(0.b).

[24] Rounding off the Defendant’s request, the Plaintiff shall pay the Defendant $31,800 in costs for the entire action, inclusive of fees, disbursements, and HST.

Canadian Language Leadership Centre v 20 Eglinton, 2017 ONSC 3542

Case Summary

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Cited By (1 case)

Indell Corporation v. Axiom Real-Time v. MMC Marketing, 2022 ONSC 213

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