ONTARIO
SUPERIOR COURT OF JUSTICE
2013 ONSC 6281
COURT FILE NO.: 57863
DATE: 20131028
B E T W E E N:
First Real Properties Limited
T. Hogan and M. Vine, for the Plaintiff
Plaintiff
- and -
Biogen Idec Canada Inc.
W. Sarasin and Barbara F. VanBunderen, for the Defendant
Defendant
HEARD: January 29, 30, 31 and February 1, 4, 5, 6, 7, 12, 13, 21, 2013
HOCKIN J.
[1] The plaintiff First Real Properties Limited (“First Real”) is a commercial landlord with 182 tenants in 14 buildings across Canada. The defendant Biogen Idec Canada Inc. (“Biogen”) is the Canadian arm of Biogen Idec, a global research and biotechnical firm based in Zug, Switzerland.
[2] In 2007, First Real owned a single tenant “first class” building at 830 Dixon Road in Toronto. It was available for lease when First Real’s tenant, the Toronto Board of Trade, left its lease. At the time, Biogen was investigating a move to new premises before January 2008, when its lease at a multi-tenant high rise building at 3 Robert Speck Parkway in Mississauga expired. In due course, the parties entered into an offer to lease 830 Dixon Road. The agreement was subject to the execution of a formal lease. During the course of the negotiation of the lease, it was discovered that the cost of installing new windows in a wall was in the order of ten times the cost contemplated by the parties when the offer was signed. Discussions between the parties followed, but in late November 2007, Biogen’s Swiss parent, Biogen Idec. instructed its Canadian managing director not to proceed with the lease.
[3] This action is First Real’s action for damages for Biogen’s non-performance of the lease or its non-performance of the offer to lease. These points require determination:
Was the final draft of the lease, in unexecuted form enforceable?
If so, what are the damages?
If not, was the offer to lease enforceable or was it frustrated by reason of the cost of the windows?
If the offer to lease was not frustrated, what are the damages?
I. Facts
[4] Although the evidence was heard over 14 days, the material facts and the history of the case are not particularly complicated or lengthy. Few matters of fact are in dispute.
[5] In the spring of 2007, Biogen was close to the end of a 10 year lease at 3 Robert Speck Parkway in Mississauga; it came to an end on January 31, 2008. The managing director of Biogen at the time was Richard Francis. Mr. Francis embarked upon a search for better premises and to this end retained an office design and project management firm, Straticom Planning Associates Inc. (“Straticom”). Mr. Francis with his director of finance, Mr. Mann-Kee Li, met with Ms. Colleen Baldwin from Straticom when business space and design requirements were reviewed. There were two aspects to the search for Biogen: one, a stand-alone or one tenant Class “A” Building which would accommodate an open plan for Biogen’s employees with natural light in a location to raise its profile in the pharmaceutical community; two, the financial cost of the lease had to be reasonable.
[6] Ms. Baldwin referred Biogen to Mr. Michael Hagerty, a commercial leasing agent at the Cushman and Wakefield real estate firm. It was common knowledge in the real estate community that the Board of Trade was about to leave its banquet facility at 830 Dixon Road. Mr. Hagarty called First Real’s senior vice-president, Mr. Gordon Parker, and there followed preliminary discussions about Biogen’s lease of 830 Dixon Road. Rent figures were mentioned and Mr. Parker indicated that First Real required a binding offer to lease if it was to proceed with the transaction.
[7] Mr. Francis was interested in 830 Dixon Road. It was a single tenant building and close to the airport. It was a Toronto address and the building’s west exposure faced a golf course. Parking was generous. There was natural light on the upper floor from the west through large windows. See Exhibit #1A, Tab 1. It was in the words of the agent, Mr. Hagerty, “a unique opportunity that Biogen could really make their own”.
[8] Through May and June 2007, Mr. Francis with his office layout consultant, Ms. Baldwin, and Mr. Hagerty, by inspection of 830 Dixon Road, gathered information to decide whether the space could be converted from a banquet facility to an open concept office. Mr. Parker conducted the tours. There was at least one survey of the building when Mr. Francis was accompanied by Mr. Edward Dondero, the director of planning and real estate for Biogen’s parent, Biogen Idec.
[9] Central to this case is the matter of the east exposure of the building. The east exposure is the front of the building. In 2007, the east exposure had over its length a solid wall without windows. Its appearance is depicted in Exhibit #1A, Tab 1, p. 3. Also at p. 3, is a photograph of the west exposure, which shows over its length eight large windows. As well, there were a couple of large windows on the north and south walls at the west side of the building. Windows over the length of the east wall were important to Biogen for two reasons: one, for aesthetic reasons and to be consistent with the appearance of a first rate office building, windows were necessary; two, windows were necessary on the east side of the building to provide natural light to the office area from the east side of the building. The effect of the evidence of Biogen’s Mr. Francis was that they would not relocate to 830 Dixon Road without natural light from the east. He explained it in his examination in-chief as follows:
Q. And going back to your comment, about the importance of windows. Describe for Your Honour, what you meant by the necessity for windows to be added to the eastern exposure or the front of this property?
A. Well, as you can see, there’s a significant length of the building. And so, it was important to have windows put in that, because that would allow a huge amount of natural light into the building, which was critical. That is the fundamental important reason; we needed to have windows there for natural light. The second thing is, if you drive up to that building, without windows, then I don’t think that is the type of office block, or first class office block, that you would consider to be first, first class. So, functionally, it was really important, because of what I’ve laid out previously. And then aesthetically it was very important, to make people feel that this was a, a first class building.
Q. So, and do you still have the other photograph of the western exposure, at tab one, in the other brief? Have that open, as well.
A. Yep.
Q. What discussions, if any, did you have with Mr. Parker, about the windows themselves, that already existed on the property?
A. The discussions were around the windows, which are on the upper floor. I wanted those windows to be all around the building. So….
Q. What do you mean by that?
A. Well, the, the front of the building we’re looking at with no windows, I wanted the windows which we have at the back of the building, to be of the similar type in the front of the building. The reason for that is, we needed to let in a lot of light, because of what I’ve previously said.
[10] The office plan prepared by Ms. Colleen Baldwin of Straticom for Biogen assumed windows and natural light from the east.
[11] Mr. Parker accompanied Mr. Francis on his survey of the building. On cross-examination, Mr. Parker’s evidence was to the following effect. The subject of the windows and the east wall was discussed with Mr. Francis. Mr. Francis wanted windows in the “blank” wall and Mr. Parker was happy to oblige to get a tenant and to improve his building. The ceiling heights at the east and west elevations were different and so the dimensions of the windows for the east wall would be different than the west windows, but he agreed that it was desirable from both points of view, tenant and landlord, that the windows for the east wall should match in style and shape the west windows. Mr. Parker indicated that the windows for the east wall could be “like those in the west elevation.”
[12] The agent, Mr. Hagerty, was instructed by Biogen to prepare an offer to lease. It was signed by Mr. Parker for First Real on July 20, 2007 and by Mr. Francis on August 3, 2007. The offer was conditional on Biogen’s “executive approval”, which Mr. Francis received in short order and the offer became a final, unconditional offer on August 15, 2007.
[13] The matter of the east wall windows was dealt with in the offer to lease as follows. Their installation in the east wall was covered by para. 13 of the offer and Schedules D and D1 to the offer. The landlord’s work was to be undertaken “at its sole cost and expense”, and included under Schedule D an obligation to “create openings in the existing perimeter wall and prepare for installation of seven new windows; supply and install seven new exterior windows”. At Biogen’s behest, Straticom prepared an artist’s rendering of the east wall that illustrates the type or style of window Biogen expected of the landlord. This is Schedule D to the lease. It is attached to these reasons as Appendix A. The windows were described on Schedule D1 as “new windows (fixed glass) to match existing”.
[14] Schedule D of the offer set out other exterior work for the landlord. Each item of work included a “budget number”. The estimate for the windows was $48,000. The total for all items was $169,000. Schedule D included the following language, which Mr. Parker described as the “landlord’s cap”: “all of the above to be completed to a maximum total cost of $169,000 – plus applicable taxes based on the budget numbers for each item shown above and the attached rendering shown as Schedule ‘D1’. The figure of $48,000 and the other amounts that make up the total of $169,000 were estimates obtained by Straticom from a contractor without drawings.
[15] The evidence of Mr. Parker on the window estimate of $48,000 was that it was a reasonable forecast, but that if a greater amount was required of the landlord, sums could be moved around within the list of its work in Schedule D. In any event, the greatest amount First Real could be asked to pay was $169,000; any amount beyond this figure or “cap” was a charge to Biogen’s account in his view.
[16] The expectation of Mr. Francis was that the listed exterior work would include in the east wall windows that would look like the existing windows in the upper floor, west wall, and cost approximately $48,000.
[17] On the basis of this evidence, I make the following findings of fact:
Biogen’s objective was to convert 830 Dixon Road from a banquet facility to a first class office building where the work environment would be an open one with natural light from the east and west.
The office layout designed by Straticom included offices along the east perimeter wall. Each office was to have a window for light which entered the general office area through a glass wall. The exterior windows were to match or be like the existing upper floor windows for aesthetic reasons and to allow a generous amount of light to pass through the east perimeter offices into the work area. This is apparent from the artist’s rendering and Schedule A1, which formed part of the offer to lease. First Real knew this was the arrangement.
The parties signed the lease in good faith believing that the new windows could be installed and that the forecast of $169,000 for the windows and other exterior work was reasonable.
[18] After the offer to lease was signed and returned to First Real, the parties began the work of settling on the language of the lease. First Real left this to Mr. Parker and Biogen retained a solicitor at Torys law firm. At the end of August, 2007, Straticom prepared a Request for Proposal (“RFP”) for Biogen to retain a construction manager to organize the tenant’s work at 830 Dixon Road and to co-ordinate that work with the work promised by the landlord under the offer to lease. Biogen included the upper level floor plan in the RFP which included the new windows. They took up almost the full span of the east wall. The proposal of the Govan and Brown firm was accepted.
[19] Govan and Brown soon thereafter, armed with drawings and detail on the project, retained an engineering firm and architect to survey the electrical, mechanical, and structural work First Real and Biogen were obliged to complete under the offer to lease. In early October 2007, the architect discovered that there were no pilasters or columns at any point over the length of the east wall. Without pilasters the wall was a bearing wall and lacked sufficient structural integrity for the building if the windows were installed. The significance of this discovery and what followed was described by Mr. Parker in his cross-examination as follows:
Q. And I can go to them shortly, but would you agree that in those budgets and the breakdowns specific to the windows, those budget breakdowns did not suggest, or suggest a pricing over and above your cap, up until November 2, 2007.
A. Well, the problem is that nobody had any idea this was a cinderblock bearing wall. So, throughout this whole process of the construction managers looking at the budgets and creating budgets – and keep in mind a construction manager just creates a budget, he’s not a fixed price guy so he, he just creates a budget as a work about and, until the structural engineers were involved and we determined that the – this was a bearing wall – and that wasn’t determined ‘til really, you know, right around in that point in October, when we put the emails out from Paul Didur. You’re stretching it ahead to there and they, they, they – the issue became clearer in early October, October 9th and 10th, was when it became clear that there was going to be an issue with putting in – we’ll call it for lack of a better term, wider windows into that wall.
... (continues exactly as in source text) ...
[65] For these reasons, the action and counterclaim are dismissed.
[66] Counsel please arrange a time with Ms. Beattie, our trial coordinator, to speak to costs.
“Justice P. B. Hockin”_
Justice P. B. Hockin
Released: October 28, 2013
APPENDIX ‘A’
APPENDIX ‘B”’