Court of Appeal for Ontario

Date: July 4, 2019 Docket: C66040

Justices: van Rensburg, Hourigan and Huscroft JJ.A.

Parties

Between

Nissa Corporation Respondent (Appellant in Appeal)

and

Enviro Park Solar Ltd. Applicant (Respondent in Appeal)

Counsel

Peter R. Jervis and Golnaz Nayerahmadi for the appellant, Nissa Corporation

Jeffrey Levine and Nicole Rozario for the respondent, Enviro Park Solar Ltd.

Heard: March 26, 2019

On appeal from the order of Justice Jill M. Copeland of the Superior Court of Justice, dated October 1, 2018, with reasons reported at 2018 ONSC 5750.

Huscroft J.A.:

Overview

[1] The appellant, Nissa Corporation ("Nissa"), inherited a lease between the respondent, Enviro Park Solar Ltd., (the "Tenant") and 1809765 Ontario Limited ("180 Ontario"), the original landlord, when it purchased two properties in Napanee, 61A and 60A Enviro Park Lane ("61A" and "60A") from the Business Development Bank of Canada, the mortgagee in possession of the property.

[2] The lease governed the rooftop and certain rights of way at 61A for the purpose of operating a solar power generation project. The Tenant and 180 Ontario were both controlled by Karl Hollett when the lease was entered into.

[3] Nissa disputed the validity of the lease and the Tenant brought an application seeking declarations that: (i) the lease was effective and binding on the parties to the lease and their successors; (ii) the Tenant was the owner of certain equipment on the premises; and (iii) Nissa had wrongly prevented the Tenant from accessing the property. Nissa took the position that the roof lease had been terminated prior to its purchase of the property, or in any event, after the expiry of the cure period.

[4] On November 14, 2017, Myers J. granted all three declarations, and in addition awarded damages caused by Nissa's failure to allow the Tenant to access the property and resulting loss of solar power production.

[5] Subsequently, Nissa took the position that the manner in which the solar generation system had been installed did not comply with the terms of the lease and that additional rent was therefore owing. This led to a second application and the decision that is the subject of this appeal.

[6] On the second application, the application judge ordered that Nissa was required to maintain the Tenant's connection to the local electrical utility system via the transformer in the building across the street, at 60A Enviro Park Lane – a building not mentioned in any part of the lease – and that it was not entitled to receive any additional rents for that connection. The application judge ordered, further, that the Tenant had the right to install inverters in the electrical room of the building at 61A.

[7] Nissa argues that the application judge erred by reading a positive covenant into the lease, requiring it to provide the Tenant with access to the transformer at 60A Enviro Park Lane. She erred, further, in interpreting the lease as permitting the Tenant to install and operate inverters inside the building at 61A, in essence allowing conduct of the former landlord to overwhelm the express terms of the lease.

[8] In my view, the application judge erred in law by reading the lease as requiring that a connection to the transformer at 60A be maintained. However, her interpretation of the lease as permitting the Tenant to install inverters inside the building at 61A reveals no error and is entitled to deference.

[9] I would allow the appeal in part for the reasons that follow.

Background

[10] The application judge was required to decide only two questions. First, is the Tenant entitled under the terms of the lease to connect to the local electrical utility system via the transformer located on the property at 60A Enviro Park Lane? Second, is the Tenant entitled under the terms of the lease to have inverters, which are part of the solar power generating system, located in the electrical room of the building at 61A Enviro Park Lane rather than on the roof?

[11] The relevant provisions of the lease are set out in the appendix to these reasons.

The Application Judge's Decision

[12] Concerning the first issue, the application judge noted that the lease was entered into when 180 Ontario owned both 61A and 60A Enviro Park Lane. She concluded that although the lease did not refer specifically to 60A, read in context it supported the Tenant's submission that it had the right to connect to the electrical utility system via the transformer that was located at 60A. The solar project was central to the lease, as demonstrated by the provision in s. 5(a) that the Tenant satisfy itself of the ability to connect to the electrical utility system as a Tenant's condition in the lease. Section 11(b) limited the landlord's activities not only on the Roof or other parts of the Building or Property, but also on any lands adjacent to the Property, and the application judge found that 60A was properly considered "adjacent" for purposes of the lease.

[13] On the second issue, the application judge agreed with the Tenant that s. 2 of the lease, which defines the right of way that is leased to the Tenant pursuant to s. 6(a), is clearly not limited to the Roof Area as it includes "(i) such rights, interests, rights-of-way, easements and privileges in any way pertaining thereto and set forth in greater detail herein and (ii) such rights of ingress and egress to the Property as may be reasonably necessary for the Tenant's use of the Roof Area in accordance with the terms hereof, to have and to hold for and during the Term."

[14] The application judge concluded that, although the definition of "Roof Equipment" requires that it is to be "located on the Roof Area" and includes inverters, "Connecting Equipment" in s. 2(b)(i) is not limited to the rooftop location. Because the inverters are also included in the definition of "Connecting Equipment", the lease does not limit their installation to the Roof Area. The application judge rejected Nissa's argument that the Tenant had a right only to use or travel across the Property other than the Roof, because the lease necessarily contemplated the connection of some equipment/wires from the solar panels on the Roof and out of the Building in order to join the local electrical utility system, and this equipment would necessarily be installed permanently. The application judge also considered that the separate listing of rights to access to the Roof Area and the Connecting Rights of Way in s. 2(b)(ii) supported the argument that the rights in s. 2(b)(i) were more than just access rights.

[15] The application judge therefore granted the Tenant's application.

Discussion

[16] It is now well established, following the decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, that contractual interpretation of non-standard form contracts is properly characterized as a mixed question of fact and law and is subject to deferential review on appeal. The standard of review is palpable and overriding error, unless it is possible to identify an extricable question of law, in which case correctness review applies.

[17] Sattva emphasizes that questions of law are relatively rare, but the Supreme Court identified three examples of legal errors that may occur in the course of contractual interpretation: "the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor": Sattva, at para. 53 (citing King v. Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80, 270 Man. R. (2d) 63, at para. 21). Nissa does not argue that the application judge made a palpable and overriding error. Accordingly, the burden is on Nissa to establish an error on a question of law, as contemplated in Sattva.

(1) The Right to Connect at 60A

[18] Nissa argues that the lease is restricted to 61A Enviro Park Lane; that by its terms it does not and cannot grant access to or use of any other property; and that the application judge erred in law by implying a term into the lease essentially granting the Tenant a license to use the transformer at 60A Enviro Park Lane. Nissa describes s.11(b) as a negative covenant of non-interference that does not create positive obligations, and argues that the application judge erred in interpreting the word "adjacent" as including a building across the road from the leased premises.

[19] I agree that the application judge erred in interpreting the lease as it relates to this issue.

[20] The application judge concluded that, read as a whole, the lease supported the Tenant's right to connect to the electrical utility system via the transformer at 60A. She focused on s. 6(d), which gives the Tenant a right to make necessary connections to the local electrical utility system, and s. 11(b), which provides that the landlord covenants "not to initiate or conduct or carry on maintenance or other activities" that it knows or reasonably should know would adversely affect the solar energy project.

[21] The application judge noted that when the lease was signed, both 60A and 61A were owned by 180 Ontario, and that both properties are now owned by Nissa.

[22] The application judge treated ss. 6(d) and 11(b) as extending the leasehold interest to include 60A, but in doing so she failed to give effect to all of the relevant provisions in the lease, including the definitions of Property, Building, Roof, Roof Area and Project. These definitions operate to clearly limit the leasehold interest to 61A. Section 6(a) specifically provides that the Tenant leases the Roof Area and rights, interests, rights-of-way, easements and privileges and rights of ingress and egress to the Property, which is defined as "lands municipally known as 61A Enviro Park Lane… together with all easements, rights-of-way and other interests and appurtenances relating thereto."

[23] In addition, the negative language in s. 11(b), which precludes the Landlord from engaging in activities that adversely affect the solar energy project, cannot be construed as creating an easement, right-of-way or other interest in land not subject to the lease. The application judge erred in relying on the language of this negative covenant to enlarge the description of the leasehold interest to include 60A, despite the definitions in the lease that clearly limit the leasehold interest to 61A.

(2) The Placement of the Inverters

[24] Nissa argues that the application judge erred in law by failing to apply the correct test for contractual interpretation. Specifically, Nissa says that, although the application judge correctly set out the principles in Sattva, she erred by excluding Mr. Hollett's evidence, which should have been admitted as objective evidence of the circumstances surrounding the negotiations. The application judge erred, further, in failing to consider the practical consequences of her interpretation of the lease, which Nissa asserts undermines its use of the inside of the Building and its commercial interests, contrary to the principle of commercial reasonableness.

[25] I would reject these arguments.

[26] First, the application judge had concerns about the reliability of Mr. Hollett's evidence, but ultimately rejected it on the basis of her finding that it went beyond what Sattva permitted. She made no error in doing so. Although in the unusual circumstances of this case the lease was entered into by related corporations, both of which were controlled by Mr. Hollett, his affidavit is evidence about the subjective intentions of the parties, and is impermissible on this account: see Sattva, at para. 59. It was also opinion evidence as to how the lease ought to be interpreted.

[27] The application judge specifically instructed herself concerning the need to interpret the lease in accordance with sound commercial principles, as set out in the leading decisions of this court, at para. 30 of her decision. In essence, the Landlord is advancing on appeal the same argument that was rejected by the application judge – that s. 2(b) does not permit inverters to be installed anywhere other than the Roof.

[28] The application judge provided cogent reasons in support of her conclusion rejecting this argument. By its terms, s. 2(b)(i) provided that Connecting Equipment, which included inverters, may be connected in places other than the Roof. The language of s. 2(b) was very broad and included provisions designed to facilitate the operation of a solar power system, which necessarily involved the connection of the solar panels on the Roof to equipment that exited the Building in order to connect to the electrical utility system. Thus, the application judge interpreted the right of way broadly rather than narrowly – as more than simply a right of access to the Roof.

[29] In summary, the application judge's interpretation of the lease with respect to the issue of inverters reveals no legal error and is reasonable. There is no basis for this court to intervene on appeal.

Conclusion

[30] I would allow the appeal in part.

[31] The Tenant is not entitled under the lease to connect to the electrical utility system via the transformer at 60A Enviro Park Lane. The Tenant is entitled to have inverters located in the building at 61A Enviro Park Lane.

[32] In light of the divided success, I would order the parties to bear their own costs of the appeal. I would vacate the application judge's costs order, and order the parties to each bear their own costs of the application.

Released: "C.W.H." July 4, 2019

"Grant Huscroft J.A."

"I agree. K. van Rensburg J.A."

"I agree. C.W. Hourigan J.A."

Appendix

1. Definitions

"Access Right-of-Way" has the meaning ascribed to it in Section 2 hereof.

"Building" means, collectively, the building or buildings located on the Property.

"Connecting Equipment" has the meaning ascribed to it in Section 2 hereof.

"Connecting Rights-of-Way" has the meaning ascribed to it in Section 2 hereof.

"FIT Contract" means the agreement no. F-003012-SPV-508 dated July 23, 2013 entered into between 1809765 Ontario Limited, and the OPA under the FIT Program with respect to the Roof Area and the Project, as such agreement may be amended, restated, replaced, renewed, assigned or otherwise amended from time to time.

"FIT Program" means the Renewable Energy Feed-In Tariff Program established by the OPA.

"Project" means the renewable energy generation project to be constructed on the Roof Area, and other areas defined in Section 6 hereof, and owned by the Tenant, for the purposes of solar power electricity generation and distribution pursuant to the FIT Program.

"Property" means the lands municipally known as 61A Enviro Park Lane, Napanee, Ontario and legally described in Schedule 'B' attached hereto[1], together with all easements, rights-of-way and other interests and appurtenances relating thereto.

"Roof" means the roof of the Building, including the roof membrane and roof structure.

"Roof Area" means the area on the Roof, as shown on the sketch attached hereto as Schedule 'A'.[2]

"Roof Equipment" means the solar power generating panels and other related equipment located on the Roof Area, including, but not limited to, one or more inverters, which is used for the generation, metering and distribution of electricity from the Project, and includes such equipment as is required to secure, support, maintain and protect the solar power generating panels.

"Utility System" means the electricity distribution system owned and operated by the local electricity distribution company that provides electricity supply service to the Building.

2. Roof Area

Subject to the terms and conditions contained herein, the Landlord hereby grants to the Tenant:

(a) an exclusive lease of the Roof Area; and

(b) one or more rights-of-way to be shared in common with the Landlord and others entitled thereto, in, over, under, across and through the Building, the Property and those portions of the Roof, if any, which are not included in the Roof Area, in the location or locations shown on the Plans, for the purposes of the Project, including, without limitation:

(i) installing, operating, inspecting, maintain, repairing, replacing and removing all equipment required to connect the Roof Equipment to a transformer and distribute the electricity generated by the Project to the Utility System (the "Connecting Equipment") including access to electrical panels and conduits to interconnect or disconnect the Project, which Connecting Equipment shall include, without limitation, conduits, cables, electrical wiring, wire management systems, electric meters, power distribution boxes, connecting hardware and inverters (the "Connecting Rights-of-Way"); and

(ii) access to the Roof Area and the Connecting Rights-of-Way (the "Access Right-of-Way").

5. Tenant's Condition

This Lease shall be conditional on the Tenant satisfying itself, in its sole and absolute discretion, that it has the ability to install and operate the Project on the Roof Area (the "Tenant's Condition"), which ability shall include, without limitation:

(a) the Tenant having satisfied itself with respect to the title of the Property, the zoning and permitted uses for the Property, the environmental condition of the Property, the ability to connect the Project to the Utility System, and the suitability of the Roof for the Project. The Landlord agrees that from and after the Date of this Lease, the Tenant may have unfettered access to the Property, the Building and the Roof upon forty-eight (48) hours prior notice to the Landlord, to conduct such tests and inspections as the tenant may reasonably require in order to satisfy itself with respect to the foregoing; provided that, promptly following all such tests and inspections, the Tenant shall, at its sole cost and expense, restore the Property, the Building and the Roof to their respective conditions prior to the carrying out of any such tests and inspections, and repair any damage caused to the Property, the Building or the Roof by any such tests and inspections.

The Tenant's Condition is for the sole benefit of the Tenant and may be waived by the Tenant in whole or in part in the Tenant's sole discretion. The Tenant shall give Notice to the Landlord within thirty (30) days after the satisfaction of the Tenant's Condition. In the event that neither a Notice of satisfaction of the Tenant's Condition nor a Notice waiving the Tenant's Condition has been delivered by the Tenant to the Landlord by 11:59 p.m. EST on the day which is the thirty-six (36) month anniversary of the date of this Lease, this Lease shall terminate and be of no further force and effect and neither Party shall have any further obligations or liability to the other, save and except for the Tenant's obligations under Section 5(a) and Section 10(d) which shall survive the termination of this Lease.

6. Use and Access

(a) The Landlord acknowledges, consents and agrees that the Tenant, its contractors, agents and employees may use the Roof Area throughout the Term and any extension for the purposes of solar power electricity generation and distribution under the FIT Contract and agrees that, with respect to the Property and the Building, this use shall be exclusive to the Tenant and its contractors, agents and employees. The Landlord agrees that, in furtherance of such permitted use, the Tenant may install, operate, inspect, maintain, repair, replace, enhance, upgrade, remove and alter the Roof Equipment and the Connecting Equipment in its sole discretion, at any time or times, subject to the terms of this Lease. The Tenant hereby takes and leases from the Landlord the Roof Area together with (i) such rights, interests, rights-of-way, easements and privileges in any way pertaining thereto and set forth in greater detail herein and (ii) such rights of ingress and egress to the Property as may be reasonably necessary for the Tenant's use of the Roof Area in accordance with the terms hereof, to have any to hold for and during the Term.

(b) The Landlord agrees that the Tenant and its contractors, agents, employees and invitees (including, without limitation, the OPA) shall have unrestricted access to the Roof Area, the Connecting Right-of-Way and Access Right-of-Way at all times during the Term, on a 24 hours per day, 7 day per week basis, provided that, except in cases of emergency, the Tenant shall use commercially reasonable efforts to provide the Landlord with at least twenty-four (24) hours prior notice of the need to access such areas and shall use commercially reasonable efforts to minimize any interference with the business of the Landlord or other Building tenants.

(d) In connection with the Tenant's use of the Roof Area, the Tenant shall have the right, subject to compliance with all Applicable Laws and obtaining the Landlord's consent, which consent shall not be unreasonably withheld, to (i) trim, cut down and remove flora adjacent to the Project to provide reasonable solar access, (ii) make necessary connections to the local electrical utility system so long as such connection will not cause an overload to such system(s), and (iii) access to all such areas of the Property for the purposes of performing the foregoing actions. The Tenant covenants to use its best efforts to minimize any disruptions to business operations on the Property in exercising its rights under this Section 6.

11. Landlord's Covenants

(b) The Landlord covenants and agrees to keep the Roof and the structural elements of the Building in good repair at all times during the Term, provided that the Landlord shall not initiate or conduct or carry on maintenance or other activities to, on or affecting the Roof or other parts of the Building or the Property, or on any lands adjacent to the Property, that it knows, or should reasonably know, may damage, impair or otherwise adversely affect the Project or its function (including activities that may adversely affect the Project's exposure to sunlight), or cause the Tenant to be in breach of its obligations under the FIT Contract.

[1] No Schedule 'B' was, in fact, attached to the lease.

[2] No Schedule 'A' was, in fact, attached to the lease.