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9142-9134 Québec inc. c. 9180-9293 Québec inc.

2010 QCCS 4397

JM2232

 
SUPERIOR COURT

 

CANADA

PROVINCE OF QUEBEC

DISTRICT OF

MONTREAL

 

N°:

500-17-045107-086

 

DATE:

September 17, 2010

______________________________________________________________________

 

IN THE PRESENCE OF:

THE HONOURABLE PAUL MAYER, J.S.C.

______________________________________________________________________

 

9142-9134 Québec Inc.

Plaintiff

 

v.

 

9180-9293 Québec Inc.

Defendant

 

______________________________________________________________________

 

JUDGMENT

______________________________________________________________________

 

1.         INTRODUCTION

[1]           As the manager of a newly purchased shopping centre, you know that your relationship with a tenant will be problematic when, the first time you meet him, he introduces himself by saying "I'm the troublemaker here".[1]

[2]           This case is the story of a landlord-tenant dispute that took on a life of its own ending in a six-day trial.

[3]           The tenant, 9142-9134 Québec Inc. (Unison Bar & Billiard) ("Unison"), is asking for a reduction of rent of 50% from January 1, 2008 until September 30, 2010 (approximately $300,000) and some 70% during a subsequent option to renew period of 5 years (approximately $1Million).

[4]           It alleges that 9180-9293 Québec Inc. (the "Landlord"), has failed to provide it with the peaceful enjoyment of the premises and it is liable for the numerous problems that have caused it to suffer substantial losses from the operation of its business.

[5]           The Landlord is unwilling to entertain the requested rent reduction.  It denies the claim and asserts that it has accomplished its obligations.  It further argues that:

a)            a number of Unison's complaints were dealt with in an out-of-court settlement and transaction;

b)            Unison's complaints are exaggerated and unfounded; and

c)             no reduction of rent is possible during the option to renew period because Unison did not properly exercise the option.

2.         THE FACTS

2.1       The parties

[6]           The initial developer of the Spheretech, 2631-1746 Québec Inc., a holding of SITQ Inc. (the "Initial Landlord") sold the property to The Fonds de Placement Alexis Nihon in 2004.  It was purchased by its current owner, 9180-9293 Québec Inc., in June 2007. [2]  This company is owned by the Trustees of Homburg Real Estate Trust ("Homburg").

[7]           The shareholders of Unison, likeminded friends, bought the Unison pool-hall, bar and restaurant in 2004.[3]

2.2       The business

[8]           The establishment was a money losing enterprise[4].  It consisted of leasehold improvements for an operating sports bar and restaurant with 44 billiard tables located on the second floor of the Spheretech Center (the "Spheretech").

[9]           Mr. Sameh Nassr ("Nassr"), the only representative of Unison to testify at the hearing, says that he knew the business well, having promoted a number of events in the Premises and frequented it often in the past.

2.3       The Spheretech

[10]        The Spheretech consists of two parcels of land on which there is a 190,000 square foot commercial retail building, several stand-alone restaurants and some 1,300 parking spaces.

[11]        It is located between Côte-Vertu Boulevard and the Trans-Canada Highway ("Highway 40"), two busy thoroughfares in the retail, industrial and office park area of the Borough of Ville Saint-Laurent.

[12]        Its most striking feature is a tall metallic structure on which motorists can read the words "Spheretech" and "Cinema Guzzo".

2.4       The Lease

[13]        The lease for the premises of some 20,000 square feet (the "Premises") was entered into in December 1999 by the Initial Landlord and Bar & Billiard Unison Inc. (the "Initial Tenant") for a term of 10 years and four months, commencing on June 1, 2000 and terminating on March 31, 2010 (the "Lease").[5]

[14]        The minimum net rent is $9.25 per square foot per year during the first 5 years of the term and $11.25 per square foot per year for the balance.  In addition, the tenant is to pay its proportionate share of operating costs and real estate taxes.

[15]        There are two options to renew the term of the lease for additional periods of five years each.

[16]        It was assigned to Unison in August 2004.[6]

[17]        Nassr, Mr. Ashley Ascoli and Mr. Fadi Atallah guaranteed the obligations of Unison up to a maximum amount of $17,000 each for a total suretyship of $51,000.

2.5       The current situation

[18]        At the end of its first year of operation, Unison earned some $1.1Million in revenues from food, beverages, billiard and arcade and some $300,000 from video lottery terminals, which, after expenses, generated a net loss of approximately $10,000.

[19]        Five years later, it has not yet generated a profit.[7]

[20]        Unwilling to sustain growing annual losses, the shareholders of Unison decided in 2007 to take rigorous measures to cut expenses.

[21]        The cuts and changes to operations did not achieve their objective.  Revenues continued to decline and losses increased as can be seen from the following chart:

 

2007

2008

2009

Revenues:

Beverages/Food

 

$929,336

 

$699,955

 

$589,325

Video lottery

$224,680

$161,692

$175,555

Loss after expenses:

($ 84,680)

($218,025)

($307,549)[8]

[22]        Nassr testifies that revenues have declined further in 2010.  Unison has reached its limit on two lines of credit and it is rapidly using a third.  He states that Unison does not currently have sufficient revenues to meet its payroll, hydro and rent.

[23]        Yet, despite this bleak outlook, he explains that he continues to be optimistic.  If only the Landlord could get its act together, customer traffic flow would increase and create the expected synergy that would enhance Unison's business.  In the meantime, the requested rent reduction will enable it to make ends meet.

[24]        He is so hopeful about the future success of the business that, in March 2010, to the Landlord's surprise, he exercised Unison's option to renew the term of the Lease for an additional period of five years, despite the current litigation and numerous complaints about the Spheretech.[9]

[25]        In addition, during that same month, he offered to purchase the Sugars Café located on the ground floor of the Spheretech for $80,000, an offer which was accepted by the owner of that establishment.[10]

[26]        Asked to explain why he did this in light of Unison's current financial problems, Nassr declares that the Spheretech is situated next to Montreal's largest industrial park and that the Premises are a "gold mine".  He insists that Unison has the potential of earning $5Million in revenues per year in this location.

2.6       The legal proceedings

[27]        The current legal proceedings began some two years ago.

[28]        In February 2008, Nassr wrote an email to the Landlord in which he identified the source of Unison's problems to the slow traffic flow of customers being attracted to the Spheretech.  He wrote that this was due, in great part, to the opening in the summer of 2005 of a new, large and modern Cinema Guzzo at the Marché Central Shopping Centre, situated some six kilometres away from the Premises, the high turnover of tenants and the low occupancy levels of premises in the Spheretech.[11]

[29]        He asked the Landlord to examine either one of three options to help it overcome current hardships: (i) reduce the rent by 50%; (ii) reduce the space leased by 50%; or (iii) relocate the business to a recently vacated smaller ground floor premises of approximately 10,000 square feet.

[30]        Although it expressed sympathy with Unison's plight, the Landlord declined.[12]

[31]        Unison responded by notifying the Landlord that it considered it to be in default of its obligations under the Lease and asking that a temporary rent reduction be considered for at least the year 2008.[13]  The Landlord refused to do so once again. [14]

[32]        In August, Unison sent the Landlord a formal demand letter alleging a series of specific defaults.[15]

[33]        The following month, Unison filed a Motion to Institute Proceedings.

[34]        In its rectified re-amended motion of April 2010, it alleges that the Landlord is in default for the following reasons:

a)            it leased a stand-alone building in the Spheretech to "La Cage aux Sports", a direct competitor of Unison, thereby breaching its duty of good faith to Unison;

b)            it prevents Unison from distributing promotional flyers from car to car in the parking lot because La Cage aux Sports objects;

c)            it has not considered any one of the reasonable solutions which Unison submitted to the Landlord for additional signage, thereby failing to address Unison's visibility "crisis";

d)            it failed to address the lack of customer traffic flow to the Spheretech caused by a number of reasons, including the following:

(i)            the decline in moviegoers at the Cinema Guzzo;

(ii)           vacant premises having multiplied to a level never seen before;

(iii)         constant changes with the tenants; and

(iv)          an unleased and empty common area hallway.

e)            there is no recycling program in place;

f)             there is no electric generator, even though there are regularly 8 to 12 power failures per year;

g)            there is no full time security service, thereby provoking car and property thefts in the parking lot;

h)            there is a poor maintenance and a severe vermin infestation; and

i)             it has been experiencing excessive noises and vibrations because of the manipulation of weights by the clients of the neighbouring tenant, Energie-Cardio.

[35]        On September 1, 2008, Unison reduced the monthly rent it was paying in half.

[36]        Judge Tingley rendered a safeguard order in October 2008, in which he ordered Unison to pay the full monthly rental to the Landlord's attorneys in trust and authorized them to pay the Landlord half of the rent.

[37]        In June 2009, Judge Castonguay modified the safeguard order, deciding that Unison only had to remit 75% of the rent to the Landlord's attorneys, reserving the Landlord's right to claim the balance.

[38]        In April 2010, more than a dozen witnesses were heard to help decide this matter.

3.         ISSUES

[39]        The Court proposes to analyse the following questions of fact and law:

a)          is Unison barred from claiming a reduction of rent in respect to certain issues because of a transaction between the parties?

b)          has the Landlord breached an obligation?

c)           if so, what is the appropriate amount of rent reduction for the period of January 1, 2008 to September 30, 2010?

d)          has Unison validly exercised its option to renew?

e)          if so, what is the appropriate amount of rent reduction for the period of October 1, 2010 to September 30, 2015?

4.         IS UNISON BARRED FROM CLAIMING A REDUCTION OF RENT IN RESPECT TO CERTAIN ISSUES BECAUSE OF A TRANSACTION BETWEEN THE PARTIES?

[40]        Homburg argues that the following issues were the object of a transaction:

a)            the decline in traffic flow to the Spheretech because of a decrease in customers to the Cinema Guzzo premises;

b)            Unison's lack of signage; and

c)             the unleased and empty common area of the Spheretech.

[41]        It asserts that a transaction has the authority of a final judgment.  It asks the Court to strike those portions of Unison's claim.

[42]        For its part, Unison argues that there is no final judgment with respect to these issues since the situation complained about are new problems which were not included in the transaction.  It alleges that a series of new facts have made the situation much worse.

[43]        Is there a binding transaction that has the authority of a final judgment with respect to the above-mentioned issues?

[44]        In order to invoke the authority of a final judgment resulting from a transaction, a party must establish that the situation he evokes is dealing with the same parties, cause and object[16]Professor Jean-Claude Royer writes as follows:

"Le plaideur, qui invoque l'autorité de la chose jugée résultant d'une transaction pour faire rejeter une demande en justice doit établir l'identité des parties, de la cause et de l'objet.  Ainsi, une transaction mettant fin à une action fondée sur un contrat a l'autorité de la chose jugée et empêche le défendeur d'invoquer, dans un autre litige fondé sur le même contrat, les mêmes motifs allégués lors du premier procès.  La chose jugée ne vise que ce qui a été convenu entre les parties.  Elle ne couvre pas ce qui ne fait pas l'objet de la transaction ou ce qui en a été exclu."[17]

[our underlining]

4.1       Cinema Guzzo

[45]        Unison alleges that the Landlord is in default because it has failed to address what it describes as the "non-existing or close to none"[18] customer traffic flow to the Spheretech given that Cinema Guzzo was allowed to build another movie theatre nearby.

[46]        Nassr explains that the presence of Cinema Guzzo in the Spheretech is the principal reason that he and his partners purchased the business in 2004.

[47]        He says that Cinema Guzzo is Unison's "number 1 source of traffic" and recalls that in 2004 and 2005, it was the "heart and soul" of the Spheretech as it was full of customers all of the time.

[48]        He relates that in those years, Cinema Guzzo's 14 theatres Megaplex generated massive customer traffic that guaranteed Unison's success.  He says that there used to be 5,000 to 6,000 cars parked in Spheretech's parking lot during peak hours from moviegoers.  Unison had a rush of clients before and after the 5:00, 7:00 and 11:00 p.m. showings at which times, all of the pool tables were occupied.

[49]        He complains that Cinema Guzzo is no longer the anchor tenant it used to be and consequently the traffic from moviegoers to its establishment is only a fraction of what it used to be.

[50]        For its part, the Landlord says that the issue concerning Cinema Guzzo's customer traffic has been dealt with on two occasions.

[51]        The Court concludes that there is a transaction with the authority of a final judgment with respect to this issue for everything, which preceded January 2007.

[52]        Any serious aggravation of the situation since that date is a different matter that is to be examined separately.

[53]        The evidence shows that both the Initial Tenant and Unison complained about the lack of customer traffic flow and a transaction occurred on two occasions to deal with this issue.

4.1.1   The first transaction

[54]        A year after the commencement of the term, a dispute arose concerning the Initial Tenant's expectations of a profitable operation.

[55]        The Initial Tenant protested the changes made by the Initial Landlord to the configuration of the building and the resulting fact that the Spheretech's large interior common area hallway was not being used by the clients of Cinema Guzzo because a separate exterior entrance had been built for this anchor tenant.

[56]        It expressed its dissatisfaction for the fact that it was being deprived of the business generated by moviegoers in the following letter sent to the Landlord in May 2001:

"When we originally decided to take the […] location […] we were told that the Cinema entrance and ticket booth would be located in the main hallway, therefore, our choice of location for Unison seemed to be the best of all […] [to] benefit by the amount of traffic in the hallway.

As you are aware, the above never happened, instead the Cinema has two major entrances thereby people do not even use the main entrance.  We could not understand why so much money was spent on the main entrance and then the Cinema were allowed their own main entrances. This fact alone has killed the success that our operation and the project could have had.

[…]

The sales currently generated at our […] operations, are not what was projected and far below our expectations. This is due to the fact that the traffic in the hallway is zero.

[…]

Despite the above, the rental rents we signed reflected the fact that we thought we were getting the best location in the project and would benefit from the cinema traffic in the hallway."[19]

[our emphasis and underlining]

[57]        The parties agreed to settle the matter.  A lease amendment agreement dated October 8, 2002[20], converted the net lease into a gross (all inclusive) lease and reduced the rent substantially.

[58]        The parties recognized that the settlement was a transaction and that the Landlord's agreement to reduce the rent was made in exchange of a full and final settlement.[21]

4.1.2   The second transaction

[59]        In 2006, the Landlord took legal proceedings against Unison to recover $128,000 of unpaid rent.[22]

[60]        In its defence to that claim, Unison alleged that the Landlord failed to fulfill promises that it had made before it purchased the business with respect to the eminent development of the Spheretech, which would increase traffic flow of customers to the centre. [23]

[61]        The significant decrease in customers to the Cinema Guzzo premises was a well known fact since 2005.

[62]        In January 2007, the parties signed an agreement settling the matter out of court.[24]  They extended the term of the Lease to September 30, 2010 and reduced the rent by some 40%, that is $4.00 per square foot to $8.50 gross per square foot per year until September 30, 2010: a reduction of approximately $400,000.

[63]        It is specifically stipulated in the agreement that it constitutes a transaction pursuant to articles 2631 and following of the Civil Code of Quebec ("C.C.Q.").[25]

[64]        The Court finds that this issue is settled with respect to the situation that existed in January 2007.

4.2       Signage

[65]        The Premises are recognizable from the exterior of the building because of the name "Unison" and the twenty-foot long pool cue stick and the three large coloured pool balls attached to the outside wall.

[66]        Despite this highly visible signage and the high volume of car traffic on both Côte-Vertu and Highway 40, the Premises are somewhat isolated.

[67]        An aerial photograph of the site illustrates the large setbacks between the building, Côte-Vertu and Highway 40.[26]  The Premises face directly on Beaulac Street, a side road which leads to the North service road of Highway 40.

[68]        Directly across the street, there is a parcel of land that forms part of the Spheretech on which there are a number of stand-alone restaurants and a vast parking lot, a portion of which is unpaved and sometimes used to park trucks.

[69]        Unison alleges that the Landlord has not provided it with proper signage or considered any of Unison's reasonable solutions to resolve this isolation and visibility problem.  It complains that it has no signs on Côte-Vertu or on Highway 40.[27]

[70]        The Court concludes that there exists a situation of final judgment with respect to this issue as it was specifically raised in paragraphs 12 and 13 of Unison's defence of April 2006.[28]

[71]        It was settled by the transaction of January 2007, whereby it was agreed that Unison would have the right to place its name and logo on the pylon sign for the Spheretech on the corner of Côte-Vertu and Beaulac.  It was also given the right to build a terrace to attract a summer clientele.[29]

[72]        Unison has not prevailed itself of either one of those rights as it determines that the two spaces offered by the Landlord on the pylon sign are not sufficient for its needs.  It also deems the cost of building a terrace to be prohibitive.

[73]        Unison is not in good faith with respect to this allegation.

[74]        It is disingenious to blame your landlord for having failed to provide you with signage when it is your own decision not to proceed with its installation.

[75]        Unison also alleges that the Landlord is in default for refusing to consider additional requests it has made for signage rights.

[76]        One of them is completely unreasonable.  It entails the Landlord leasing a privately owned billboard on land it does not own on the border of Highway 40 so that Unison can advertise its business to "capitalize on the massive traffic flow exposure created by this highway".  It suggests that the fee for this billboard be "included in our rental fees".[30]

[77]        If Unison wanted to lease a billboard to advertise its business, it should have done so on its own.

[78]        The Landlord has no obligation to provide Unison with any signage other then as specified in the transaction of 2007.  It respected that obligation when it offered Unison space on its pylon sign.

4.3       The empty common area hallway

[79]        Unison alleges that the Landlord is in default because it has failed to lease the large common area hallway inside the Spheretech.

[80]        It also complains that there is a parking lot facing the Premises, that was intended to be an office building and that is presently being used to park trucks.

[81]        These are complaints that were raised in Unison's defence of 2006 and that were settled in the transaction of 2007.

5.         HAS THE LANDLORD BREACHED AN OBLIGATION?

[82]        In order to obtain the desired rent reduction, Unison has the burden of proving, on the balance of probabilities, the non-performance of an obligation by the Landlord.[31]

[83]        The Court will now examine each one of Unison's complaints as they have been listed in paragraph [34] hereof.

5.1         Competition from La Cage au Sports

[84]        Unison alleges that the Landlord breached its obligation to provide it with the peaceful enjoyment of the Premises, because it leased a stand-alone building on Spheretech land to "La Cage aux Sports", a direct competitor of Unison.  It relates that this is the largest sports restaurant/bar franchisor in the Province of Quebec and that it uses television and radio to advertise.

[85]        It asserts that the Landlord has breached its duty of good faith to Unison, which is operating a smaller sports bar that does not operate on the same scale as its stronger and larger competitor.

[86]        There is no doubt that the introduction of a powerful competitor in a shopping centre can affect the profits of a tenant and can be seen as affecting the peaceful enjoyment of the premises.

[87]        On the other hand, the freedom of commerce and the benefits of competition are values, which are recognized in our society.

[88]        Without a specific exclusivity (or non-competition) clause in a lease, whereby a landlord agrees to grant a tenant the exclusive right to conduct a particular activity, the majority of the jurisprudence and doctrine has recognized the freedom of a landlord to lease his property to whomever he wishes.[32]

[89]        Sophisticated tenants of shopping centres usually try to negotiate the inclusion of a non-competition clause in their leases to prevent competing business from operating in the center.[33]

[90]        Unison does not benefit from such a clause.

[91]        As there is nothing in the Lease preventing the Landlord from leasing premises to a competitor of Unison, we must then determine whether the Landlord has breached a broader obligation of good faith in this particular case?

[92]        The concept of good faith provides, among other things, that the parties to a contract have an obligation of loyalty to each other.[34]

[93]        One example of the duty of loyalty, as it applies to commercial leases, can be found in the judgment of Posluns v. Entreprises Normil Inc.[35], in which the owner of a shopping centre took an action against a tenant for unpaid rent.  The tenant, who operated a fast-food restaurant called "Loto-Burger" counter claimed that it was entitled to cancel the lease because the landlord had leased premises to a competitor.

[94]        The facts of the case show that the tenant had leased the premises to sell hamburgers, hot dogs and French fries.  No exclusivity clause had been granted to the tenant in the lease.  The sale of hot dogs accounted for approximately 15% of the tenant's business.  Some six years into the term of the lease, the landlord leased premises in the centre to a "Frits" franchise specializing in the sale of hot dogs and French fries.  From that moment on, the tenant's business began to suffer.

[95]        The Superior Court held that the landlord should have been aware that the arrival of such a powerful competitor was bound to affect the business of the tenant.  It held that notwithstanding the fact that the lease contained no exclusivity clause, the landlord had an obligation of loyalty towards the tenant to ensure that the tenant's principal activities were not affected.  It concluded that the landlord had not respected this obligation and thereby, granted the tenant's request to cancel the lease.

[96]        A similar decision was rendered by the Superior Court in the case of 2981092 Canada Inc. v. Société Immobilière Trans-Québec Inc.[36]

[97]        In that case, the tenant who operated a restaurant ("Bouffe Minute") in a shopping centre, took an injunction against the landlord to prevent the arrival of an important competitor who sold the same specialities, namely French fries, poutine, hot dogs and hamburgers.

[98]        There was no exclusivity clause in the lease but there was a use clause which provided that the tenant could only use the premises to sell the foods specified in the lease.  The tenant established that its revenues had dropped after the competitor opened its restaurant.

[99]        The Superior Court found that the landlord had breached its obligation to act in good faith and that it owed the tenant damages for its failure to do so.

[100]     Its important to note, however, that this decision was overturned by the Court of Appeal.[37]

[101]     Judge Rothman held that the use clause in the lease did not create an obligation on the part of the landlord to refrain from leasing space in the shopping centre to another tenant offering similar kinds of foods: "Unless there is some form of exclusivity granted to the tenant in the lease as a general rule, landlords are free to lease in the same building to another tenant offering similar products."[38]

[102]     The Court of Appeal found no evidence of any violation of the landlord's duty of good faith in the decision to lease to the competing tenant.  It held that if there existed a duty to maintain a balance in the kinds of business to be leased in the shopping centre, this had been specifically excluded in this lease given that there was no exclusivity clause.  The Court found no abuse of right in the decision to lease to the competing franchise.  If found no suggestion of malice or fraud and it held the sole motivation of the landlord was to select another restaurant operator for the food court that would attract as many customers as possible to the shopping centre.

[103]     In the case at hand, the Court concludes that the Landlord has not breached its obligation of good faith by leasing premises to La Cage aux Sports in the Spheretech.  No evidence of bad faith has been established.

[104]     Moreover, La Cage aux Sports was a tenant of the Spheretech when Unison purchased the business and assumed the Lease in 2004.

[105]     Unison cannot claim a reduction of rent for a situation it knowingly entered into when it became a tenant of the Spheretech.

5.2       Promotional flyers

[106]     Unison alleges that the Landlord is in default because it is preventing Unison from distributing promotional flyers from car to car in the parking lot of the Spheretech since its competitor, La Cage aux Sports, objected given that Unison was advertising free chicken wings during the Montreal Canadians' hockey games.[39]

[107]     It states that it has been distributing promotional flyers in this manner since 2004 and that the Landlord accepted this form of advertisement.

[108]     The Court concludes that even if it was true that the Landlord had tacitly tolerated Unison's distribution of the promotional flyers, any such toleration came to an end in June 2007.

[109]     Mr. Jacques R. Beaudoin ("Beaudoin"), Director General for Homburg in the Province of Quebec, recalls that he met Nassr for the first time in June 2007, when he went to the Premises to introduce himself as the representative of the new owners of the Spheretech.  He remembers telling Nassr that the distribution of flyers was forbidden.  He says that Nassr told him that he had always done this in the past and that he would continue to do so.  Beaudoin insisted that this would have to stop.

[110]     The following sections of the Lease illustrate the fact that Unison cannot litter in the common areas of the Spheretech or distribute promotional flyers without prior written permission from the Landlord:

"5.2      USAGES PROHIBÉS -  Le Locataire ne pourra pas exercer dans ou à partir des Lieux Loués toute activité, entreprise ou pratique qui nuit ou qui a tendance à nuire à l'entreprise et à la réputation du Bailleur ou des autres locataires de l'immeuble, ou peut ternir l'image de l'Immeuble ou encore à tromper ou frauder le public.

De plus, le Locataire reconnaît qu'il ne pourra annoncer ni afficher l'abandon de ses affaires dans les Lieux Loués, la fin du Bail ou vente de fin de bail ou son départ des Lieux Loués sauf si le Bailleur y consent préalablement par écrit."

"6.6      REBUTS - Le Locataire s'engage à maintenir les Lieux Loués de façon sanitaire, exempts de rebuts qui pourraient contribuer à augmenter les risques d'incendie, à produire des odeurs désagréables, à infester les Lieux Loués d'insectes indésirables ou à obstruer les passages, espaces publics ou autres Installations ou Aires Communes de l'Immeuble.  De plus, le Locataire devra placer ses déchets dans des contenants convenables aux endroits indiqués par le Bailleur."

"6.10    NUISSANCE - Le Locataire ne devra poser aucun geste de nature à nuire aux droits du Bailleur et des autres locataires de l'Immeuble et du Développement.  Le Locataire devra mettre fin à tels actes ou activités et ce, dès que le Bailleur le lui demande."

"13.2    CONSENTEMENT DU BAILLEUR - Le Locataire ne pourra, sans le consentement préalable et écrit du Bailleur, exposer, afficher ou distribuer quelque avis, annonce, enseigne ou autre inscriptions en dehors ou dans les Lieux Loués, si elles sont visibles de l'extérieur des Lieux Loués, à défaut de quoi le Bailleur aura le droit d'exiger qu'on procède à leur enlèvement et le Locataire devra se conformer à cette demande dans un délai maximum de vingt-quatre (24) heures.  Si le Locataire ne se conforme pas à la demande du Bailleur, ce dernier aura le droit d'enlever, aux frais du Locataire, tout tel avis, annonce, enseigne, inscription sans recours du Locataire contre le Bailleur."

"22.10  DIRECTIVES ET RÈGLEMENTS - Le Locataire convient d'observer tous les règlements et directives de l'Immeuble que le Bailleur pourra prescrire en ce qui concerne l'exploitation, le bon ordre, la réputation, la sécurité et la propreté de l'Immeuble.

[…]"[40]

[our underlining]

[111]     The evidence shows that the untidiness caused by the flyers disturbed La Cage aux Sports.

[112]     The following extract from its letter of April 2008 illustrates it's genuine concern about the paper littering the parking areas:

"[…] nous désirons vous informer de notre insatisfaction en ce qui concerne le gestionnaire chargé de l'entretien des aires communes et du stationnement du Complexe Sphèretech.  Notre insatisfaction est telle que nous devons engager du personnel de soutien pour ramasser les papiers qui traînent dans le stationnement et les aires communes en face et aux alentours de notre commerce et nettoyer également les arbustes des papiers qui s'y ramassent avec le vent et ce malgré que ces frais nous soient chargés dans la répartition des frais communs en vertu du bail.

[…]

Nous avons également constaté un problème au niveau des tracs publicitaires qui sont largement distribués sur les parebrises des voitures et qui aboutissent avec le vent dans le stationnement. […]"[41]

[our underlining]

[113]     In May 2008, the Landlord wrote to Unison to complain about the distribution of flyers and asked Unison to stop doing so.[42]

[114]     Unison ignored the letter and continued the distribution.

[115]     Similar written requests were sent by the Landlord to Unison on September 12th, October 1st, October 21, 2008 and February 22, 2010.[43]

[116]     Beaudoin's testimony is quite compelling when he recounts his visit to the Spheretech the weekend before the trial.  He submits into evidence the photographs he took with his cellular phone on Saturday, April 10th that show hundreds of Unison's flyers littering the parking lot of the Spheretech.[44]

[117]     He recounts that he returned the following morning and that he again found Unison's flyers scattered in the parking lot as well as in the area in front of La Cage aux Sports, the McDonald's restaurant and on the grass and shrubs surrounding the Spheretech's parking lot.  The photographs taken by him show, among other things, a cleaning truck on site ready to remove the numerous flyers lying about.[45]

[118]     This evidence makes it very difficult to understand why Unison is accusing the Landlord of preventing it from distributing flyers when it is clear that it is doing so without concern during the trial.

[119]     If anyone is in default of an obligation, it is Unison.

[120]     It is unacceptable to be littering in this manner and to be so uncaring for the concerns of the Landlord and neighbouring tenants.  Unison is clearly breaching the words and spirit of the Lease that require it to keep a clean and tidy environment for all tenants to enjoy.

[121]     One needs to also underline the fact that Unison is not reimbursing the Landlord for the cost to remove the discarded flyers as it is paying an all inclusive gross rent.

[122]     The proverb, "one should not throw stones when you live in a glass house", has some resonance here.  Unison complains that the Spheretech is unkempt when evidence shows that it is the main cause of the problem.

5.3       Decrease in customer traffic flow to the Spheretech

[123]     Unison alleges that the Landlord is in default because it has failed to address the lack of customers in the Spheretech.

5.3.1   Cinema Guzzo

[124]     Unison states that the single biggest cause that explains the lack of customers at the Spheretech is the decrease of moviegoers to Cinema Guzzo.

[125]     It alleges that the situation has gotten much worse since the 2007 transaction was signed.

[126]     Has it changed sufficiently to merit the reduction of rent being requested?

[127]     Nassr says that he noticed a decrease in customer traffic after a new Cinema Guzzo was opened in the Marché Central shopping centre in 2005 but nothing alarming.

[128]     He insists that there has been an enormous reduction in customer traffic since the transaction of 2007, a decline he describes as "a nose dive".  He claims that Cinema Guzzo is quasi-closed now.  Instead of 6,000 cars in the parking lot, there are now only a few hundred.

[129]     A number of witnesses corroborated Nassr's testimony that there has been a drop in customers in the Spheretech.  It is evident from their testimony, however, that their observations are not limited to the period of time following January 2007.

[130]     Mr. Gino Fragnoli, a waiter in the Divino Restaurant, states that the traffic flow to the Spheretech has decreased since the opening of a new movie theatre in Marché Central.

[131]     Mr. Nick Athanasopoulos, who used to own the "La Belle Province" franchise in the Spheretech, testifies that he used to be very busy as they had line-ups of moviegoers on Tuesdays, Wednesdays and Saturdays.  He recalls that there was an "immediate drop" in clients when the new cinema opened at the Marché Central and that he had problems paying his rent after that.  Deeply frustrated, he sold the franchise in October 2008.

[132]     Mr. Richard Repper, the owner of the Multimag store, which used to lease premises in the Spheretech until March 2008, says that Cinema Guzzo used to bring him many clients ("une clientèle cible").  He also recalls that Cinema Guzzo used to be full ("plein à craquer") to the point that the large crowds caused problems with the security and the cleanliness of the Spheretech.

[133]     He says that customer traffic decreased significantly after the opening of Marché Central.  He relates that he went to see a movie at the Spheretech one Saturday in December 2009 and that the cinema was completely empty.

[134]     He submits into evidence a document detailing the number of clients in the Multimag premises between 2003 and 2008 that shows that his business did not suffer in spite of the drop of customers to Cinema Guzzo.  Rather, it shows an annual increase of 13% in 2005, 28% in 2006, 6% in 2007 and 6% in 2008. [46]

[135]     Mr. Vatché Kassarjian, the owner of the Sugars Café, says that he has not noticed a significant decline of customers to the Spheretech since he purchased the business in 2006.  He, nevertheless believes that the decrease of moviegoers at Cinema Guzzo has been an important factor in the Spheretech's decline.  He ventures that the solution to the traffic flow problem in the Speretech is for Cinema Guzzo to renovate.

[136]     Other factors, according to him, include the change in demographics of the clientele in the Spheretech.  He says that the area has become a "ghetto" in the afternoons due to the younger and different types of customers.  He insists that he used to have better quality patrons four years ago. 

[137]     Mr. Vincenzo (Vince) Guzzo, Executive Vice-President of Cinema Guzzo, acknowledges that there has been a decrease of moviegoers to his theatre in the Spheretech from its peak of nearly 800,000 clients in 2002.

[138]     He says that there are various factors that explain the seasonal volatility and the fluctuation in moviegoers to the Spheretech, including the rain in 2002 ("the best year in the movie industry"), the Hollywood writers' strike of 2003 (which lead to the "dark ages of movies in 2004 and 2005 due to the lack of quality product"), the opening of Marché Central in 2005 and a general drop in the industry in 2006.  He recalls that the overwhelming succes of the movie Avatar in January 2010 created a 35% boost in customers over the same nine-week period the previous year.

[139]     The following chart shows the number of Cinema Guzzo clients at the Spheretech since Unison purchased its establishment in 2004:[47]

Year

Total Clients

% Change

2004

694,613

 

2005

495,356

- 25%

2006

385,794

- 22%

2007

365,330

- 5%

2008

336,782

- 8%

2009

393,871

+ 17%

First 9 weeks of 2010

72,513

+ 35%

[140]     What is striking about the testimony of Mr. Guzzo and the above-mentioned chart, is that Nassr has vastly exaggerated what he describes to be the "enormous" decline of customers since January 2007.

[141]     Rather, the facts show a decline of 5% in 2007 and 8% in 2008.  They also show a substantial increase since then.

[142]     Such exaggerations undermine Nassr's credibility and the seriousness of Unison's claim.

[143]     Moreover, there is nothing in the Lease or in the law that requires the Landlord to guarantee that Cinema Guzzo's customers will continue to flow to the Spheretech and create synergies for Unison.

[144]     Cinema Guzzo's lease agreement is duly registered on title to the property.[48]  One can see upon reading it that Section 49 thereof, the non-compete (or radius restriction) clause, which would have prohibited it from operating a competing business within a designated area, was struck out by the parties.

[145]     The Landlord cannot, therefore, prevent Cinema Guzzo from opening a competing location.

[146]     If this was a fundamental consideration for Unison, it could have easily discovered this aspect of Cinema Guzzo's lease during its due diligence period before it purchased the establishment.  Nassr readily admits that Unison was represented by attorneys at the time.

[147]     In his decision of June 2009, Judge Castonguay held that no reduction of rent was merited for this issue in respect to the safeguard order requested by Unison:

"[3]  La Demanderesse invoque principalement une diminution de l'achalandage causée par les agissements de ce qu'il est convenu d'appeler un « locataire pilier », soit les Cinémas Guzzo qui se seraient eux-mêmes cannibalisés en ouvrant un cinéma à moins de 6 km du centre commercial en cause;

[4]  Ce fait est connu des parties et date de 2005.  Non seulement est-il connu, mais il a fait l'objet d'une négociation à la baisse du coût du loyer constaté par un règlement intervenu le 3 janvier 2007 où la défenderesse a consenti une diminution du loyer de quelque 40%;

[5]  Cela étant, le Tribunal voit mal comment il pourrait tenir le locateur, la défenderesse, responsable de cette diminution de l'achalandage.  Après tout il s'agit d'un tiers;

[6]  La jurisprudence citée par les parties traite des faits entourant les relations contractuelles entre un locateur et un locataire et l'importance de l'intervention du Tribunal pour maintenir un équilibre entre les parties, le cas échéant.  La jurisprudence est muette lorsque des faits dommageables sont causés par le comportement d'un tiers;

[7]  La principale cause de la diminution du chiffre d'affaires de la demanderesse causée par la baisse d'achalandage du centre commercial est liée par la demanderesse elle-même aux agissements du « locataire pilier », les Cinémas Guzzo;

[8]  Sur cette unique base, le Tribunal ne peut pas accorder l'ensemble de la diminution demandée.  Néanmoins, toute révision d'une ordonnance de sauvegarde constitue un procès de novo avec une nouvelle preuve qui doit être administrée par le Tribunal;"

[148]     To conclude, there is no merit to Unison's claim for a reduction of rent due to the decrease of clients to the Cinema Guzzo in the Spheretech since January 2007.

5.3.2   Vacant premises

[149]     Unison affirms that the lack of customers at the Spheretech is also due in part because vacant premises in the Spheretech have multiplied.  According to Unison, there is approximately 100,000 square feet of available free space inside the Spheretech (including in that calculation, the square footage of the large common area hallway).

[150]     The Landlord asserts that it has not received any such complaint from other tenants of the Spheretech.

[151]     It indicates that it deploys every necessary effort to lease the centre and that the occupancy rate has fluctuated between 90 and 98% in the past four years.  It relates that the occupancy rate of the Spheretech was 92% at the time of the hearing.  It asserts that this is an acceptable occupancy level, given the current retail rental market and the challenges of this particular property.

[152]     Is Unison justified in respect to this complaint?

[153]     There is no doubt that a retail tenant in a shopping centre will normally have an expectation that his neighbouring tenants will create synergies that will enhance his business.

[154]     Does a landlord have a legal obligation to fully lease his shopping centre in order to provide a tenant with the peaceful enjoyment of his premises?

[155]     To begin, when synergies are an important aspect of a tenant's success, it is wise to negotiate a co-tenancy provision in a lease, which gives a tenant the right to terminate his lease or reduce his rent if a prescribed percentage of neighbouring tenants become vacant or anchor tenants leave the centre.  This type of clause will help ensure that a tenant will obtain a certain relief in the event that there is not sufficient customer traffic that enables his business to remain viable.[49]

[156]     In the case at hand, there is no such provision in the Lease.

[157]     Does such an obligation exist in law in the absence of such a clause in the lease?

[158]     Article 1856 C.C.Q. stipulates that a landlord may not change the form or the destination of the leased premises.[50]

[159]     It has been recognized by Courts that leaving premises empty can be considered a change of destination of the premises. [51]  As well, a landlord cannot change the vocation of a shopping centre by transforming a portion of it into office premises.[52]

[160]     In a decision by Judge Hugessen, it was held that leaving the majority of the premises in a shopping centre empty was a default on the part of the landlord.[53]

[161]     In that case, a "Steerburger" restaurant had leased 4,000 square feet in the metro level of a downtown shopping centre.  This level of the complex was not a success.  The landlord wished to change its vocation so he stopped leasing space and actively instigated the vacating of premises.

[162]     The Superior Court held that it is an implied term of the lease that a landlord will use his best efforts to rent out all of the space in the shopping centre.  It found that the landlord had failed its implied obligation to actively promote the rental of premises.  The Court reduced the tenant's rent until 80% of the metro level was occupied.

[163]     This decision is very different from the case at hand.

[164]     In the current situation, the evidence shows that the Landlord has made significant efforts to rent vacant premises in the Spheretech.

[165]     Ms. Céline Fournier ("Fournier"), who has two decades of experience in the field of commercial leasing, testified in a no-nonsense, straightforward and honest fashion.  She says that she works with a number of real estate brokers and retail consultants to market the Spheretech.  She also explains that she contacts potential tenants directly and ensures that "for rent" signs are placed on vacant premises.  She has regular weekly meetings with management to review and monitor progress.

[166]     She carefully went through the rent roll of the tenants of the Spheretech and described her efforts to renew leases, expand and retract premises and find new tenants.  She recounts the series of successful lease renewals and new leases that she has concluded these past few years.

[167]     She acknowledges that it has not been easy to find a replacement tenant for the Multimag premises situated directly below the Premises.  She details the number of exclusivity clauses held by certain tenants of the Spheretech that prevents her from leasing space to their competitors.  She relates also that it has been more difficult to lease retail space these past two years given the recent recession.  She sympathises with the struggles of bar and restaurant operators for the difficulties they have faced following the implementation of the non-smoking law in 2006.

[168]     On the basis of her convincing testimony, the Court is satisfied that the Landlord has actively attempted to lease premises in the Spheretech and that it has not breached its obligation to do so.

5.3.3   Change of management among tenants

[169]     Unison further complains that there has been a constant change of business and administration of the various tenants located in the Spheretech, which has lead to a decrease of customer traffic to the Spheretech.

[170]     Unison has not established that the decrease of customers to his Premises has been caused by any such changes.

[171]     The Court finds that the Landlord has no liability in this regard.

5.3.4   Unison's responsability

[172]     In reviewing the evidence, the Court is struck by the fact that Nassr does not acknowledge that he bears some responsibility for the decrease in customers to his establishment.

[173]     Blaming others for one's problems is easy.  However, in this case, Unison may very well be the author of its own misfortune.

[174]     When a retail business is going from bad to worse, it needs to adapt with the times.  A good manager has to innovate, renovate, refresh and reinvest to draw people in.

[175]     It is public knowledge that when the non-smoking law in restaurants and bars came into force in 2006, such establishments, especially those relying on video lottery revenues, faced a significant challenge.  Fournier alluded to that fact in her testimony.  Beset with this reality, owners of restaurants and sports bars had to insure that the quality of their food improved, that their prices remained competitive and that special events were used to promote and draw in customers.

[176]     What is Unison's marketing plan?  What has it done in face of declining revenues?

[177]     In terms of marketing, it has distributed flyers from car to car in the Spheretech parking lot to advertise a smorgasbord of events, including a Halloween wet T-shirt contest, the presence of Bret (the "Hitman") Hart, a wrestling star from Western Canada, the hockey playoffs and karaoke nights.[54]

[178]     With respect to declining revenues, in 2007, a wall was built inside the Premises, dividing the space in two and reducing the number of pool tables from 44 to 6.  Since then, Unison has occupied less then a third of the original space (the full area being used only for special events), thereby, saving energy and maintenance costs.

[179]     Unison's staff was cut from 40 in 2006, to 25 in 2007, and to 7 at the time of the hearing.  The chef and the cashier manager were let go, as were numerous others.  The choices on the menu were reduced, the pizza oven closed and the lunch hour eliminated.

[180]     Access to the washrooms inside the Premises was curtailed by keeping the lights off in the area leading to them.  Instead, customers were encouraged to use the washrooms situated on the ground floor of the common area of the Spheretech.

[181]     A review of Unison's financial statements illustrate that over the past few years, it has been spending progressively less on advertising, promotion, repairs and maintenance:[55]

 

2006

2007

2008

2009

Advertising and promotion

$39,042

$36,088

$32,120

$28,602

Repairs, maintenance and cleaning supplies

$67,523

$53,098

$52,120

$45,666

Pool hall supplies

$16,158

$1,374

$652

$360

[182]     The sum of $360.00 for pool hall supplies in a billiard themed establishment!

[183]     It is not hard to conclude that these cuts and changes to the business have caused a drop in customers and revenues.  Unison bears sole responsibility for this.

5.4       No recycling program

[184]     Unison alleges that the Landlord is in default because there is no recycling program in place in the Spheretech.

[185]     The Landlord relates that it has put into place a cardboard recycling program and that each tenant is responsible for its own recycling of bottles, plastics and other products.

[186]     There was no recycling program in place when the Lease was assigned to Unison in 2004.  No such obligation is stipulated in the Lease.

[187]     The Landlord is not in default in respect to this issue.

5.5       Fire alarms

[188]     Unison alleges that the Landlord is in default because it has not provided Unison with the peaceful enjoyment of the Premises due to the "incessant" fire alarms in the Spheretech.[56]

[189]     It complains that the Landlord's poor security service has resulted in the fire alarm lever of the Spheretech being pulled approximately 15 times since January 2008.

[190]     It asserts that when the fire alarm lever is pulled, the ventilation system of Unison's kitchen automatically shuts down, thus closing the kitchen completely from one to three hours.  Moreover, Unison's clients leave the Premises and many do not return to pay their orders.

[191]     As a direct consequence of the fire alarm being pulled three times during one-week period in the month of September 2008 (the 11 th, 12 th and 13th), Unison affirms having accumulated $11,000 of unpaid restaurant and bar tabs.

[192]     During the hearing, Unison withdrew its request to have the Landlord condemned to pay this amount.

[193]     The evidence made during the hearing reveals that this complaint is greatly exaggerated.

[194]     Mr. Pascal Gagné ("Gagné"), Director of Prevention and Security for Homburg, testified that, to his knowledge, there were only two fire alarms in 2008 (September 6th and 11th) and three in 2009 (March 26th, November 7th and November 27th).  All of them were settled within half an hour of the alarm being setoff and the ventilation system in Unison's Premises having been re-established.

[195]     His testimony is confirmed by the following record of fire alarms submitted into evidence by Protectron, the third party company servicing the fire alarm system:

Fire alarms at the Spheretech

between January 1, 2008 and December 31, 2009

Date

Fire alarm signal received

System re-established

Duration

September 6, 2008

12:39 (midnight)

01h08

29 minutes

September 11, 2008

20:04

20:17

13 minutes

March 26, 2009

15:32

15:45

13 minutes

November 7, 2009

13:54

14:15

21 minutes

November 27, 2009

20:21

20:31

16 minutes

[196]     Unison's claim in respect to this issue is not serious and is hereby dismissed.

5.6       No generator in the Spheretech

[197]     Unison alleges that there is no generator in the Spheretech, despite the fact that the complex has, on a regular basis, approximately eight to twelve power failures per year.

[198]     The Landlord asserts that there exists emergency lighting for the common areas of the complex but that it has no obligation to provide a generator for the rentable areas of the Spheretech.  It insists that it is Unison's responsibility to obtain one at its own expense if so desired.

[199]     Nassr confirms that he spoke to Fournier about this issue several years ago and that she told him that the Landlord was not responsible for the power outages which are caused by work being undertaken by Hydro-Quebec in the neighbourhood.  He recalls that she suggested that he obtain a generator if he wanted one.  He says that he declined to do so because of the cost involved.

[200]     He, nevertheless, acknowledges that in 2006 he purchased a small generator which provided about 15 minutes of power supply.  He relates, however, that the power outages can last between two to three hours.

[201]     Section 6.1 of the Lease stipulates that the tenant must assume and pay all expenses related to the use and maintenance of the Premises.  Among other things, it must replace, repair and maintain all heating, ventilation and air-conditioning systems in the Premises.  It must also pay for the costs of all repairs to the Premises, including major repairs.

[202]     The Court finds that the Landlord has no obligation to maintain and operate a generator for the Premises.

5.7       Lack of security

[203]     Unison alleges that the Landlord is in default because there is no full time security service in the Spheretech, despite car and property thefts in the parking area.

[204]     Nassr explains that there is an inadequate security service at the Spheretech as there is only one security agent present and that there are no camera systems, no walkie-talkies and insufficient lighting in the parking area.

[205]     He further explains that "once a customer has his laptop stolen in his car, you lose the whole company.  You can lose a 1,000 employees […] when you lose a potential customer".

[206]     He relates that the lack of security at night has caused a problem with vagabonds, kids and people loitering, fighting, smoking marijuana and running in the common area hallway of the centre.

[207]     What is the evidence in respect to this complaint?

[208]     Mr. Gino Fianolli indicates that the Divino's restaurant has a coupon on their menu to notify customers of the danger of thefts in the parking lot.

[209]     Lieutenant Pierre Liboiron, of the Montreal police department, testified that between eight and 21 cars were stolen annually in the Spheretech parking lot between 2007 and 2009 and that there was 66 thefts of property in cars in the Spheretech parking lot in 2007, 54 in 2008 and 56 in 2009.[57]

[210]     He said that, in his opinion, this is not a significant number of car thefts in comparison to similar shopping centres with outdoor parking lots.

[211]     The Court is satisfied the Landlord is acting reasonably and prudently.

[212]     Gagné describes the security system and cameras which Homburg has in place since 2007.  He related that there is at all times a security agent on the property during opening hours.  He also described the routine of the security agent when he is on duty and the 24hr/7day service provided at a central location.

[213]     In his view, the security problems in the Spheretech common area hallway and washrooms are caused by Unison's clients, the only bar in the building.

[214]     Worth noting is Section 8.4 of the Lease which limits the Landlord's liability with respect to the parking area in this manner:

"8.4      STATIONNEMENT DU DÉVELOPPEMENT - Le Locataire pourra utiliser et bénéficier du stationnement du Développement avec tous ceux qui y auront également droit et accès.  Le Bailleur ne sera pas responsable de tout dommage causé au Locataire ou à toute autre personne utilisant le stationnement, sauf si ces dommages résultent de la faute lourde ou négligence grossière du Bailleur ou de toute personne sous son contrôle."

[215]     Pursuant to that clause, Unison would have to prove that the Landlord was grossly negligent in order to be made liable for any damages caused to Unison or to another person using the parking area.

[216]     The Court finds that Unison has not established, on the balance of probabilities, that Unison has been negligent in respect to this issue to merit the requested reduction of rent.

5.8       Lack of proper maintenance

[217]     Unison claims that the Landlord is in default because there is "extremely poor" maintenance, including a "severe" vermin infestation in the Spheretech.

5.8.1   Cleanliness

[218]     Unison has not provided convincing proof to support its allegation that the Spheretech is not being properly maintained.

[219]     In fact, the photographs that it submits into evidence show that the Spheretech is clean, well maintained and properly landscaped.[58]

5.8.2   Vermin infestation

[220]     Nassr testifies that he saw rats on more than one occasion and that he was mortified when he had one run by while he was having a conversation with a corporate client.

[221]     During his testimony, he refers to "an explosion of rats" running and criss-crossing in his business and in the common area hallway.  He recalls that one of his barmaids found one next to her bar provoking her to quit her job.

[222]     He states that the problem is still present and remembers being shown 12 dead rats by his exterminator.

[223]     He admits, however, in his cross-examination, that he is unable to differentiate between a rat and a mouse.

[224]     He submits into evidence inspection reports from the City of Montreal in relation to the La Belle Province restaurant in the Spheretech that note that there are mice in those premises.[59]

[225]     For its part, the Landlord says that it has deployed all the necessary efforts to maintain a clean and sanitary Spheretech.  It denies that there was ever any rats in the Spheretech but acknowledges that there was an issue with mice when it purchased the property in 2007.  It says that it has taken all measures required to resolve the matter.

[226]     It alleges, however, that Unison has left open garbage bags in the garbage room of the Spheretech.  It wrote to Unison in September 2008 to advise it that it would no longer tolerate this behaviour and it required Unison to place its waste in sealed garbage bags in the compactor situated in the garbage room.[60]

[227]     The Landlord points out that it has a third party exterminator taking care of the common areas of the complex but that each tenant is responsible pursuant to their leases to get their own exterminator for their premises. 

[228]     The following section 6.5 of the Lease confirms this:

"6.5  EXTERMINATION DANS LES LIEUX LOUÉS - Pendant la Durée du Bail et lors de tout renouvellement ou prolongation de celui-ci, le Locataire devra utiliser, à ses frais, les services d'une firme d'extermination approuvée par le Bailleur et ce, aussi fréquemment que pourra l'exiger le Bailleur ou toute autorité compétente.  Le Locataire devra fournir, sur demande écrite à cet effet, une preuve du Bailleur à cet effet.  Si le Locataire néglige d'effectuer l'extermination lorsque requis ou refuse de remettre au Bailleur les pièces justificatives prouvant que l'extermination a été effectuée, le Bailleur, après avoir avisé le Locataire par écrit, pourra retenir les services d'une firme d'extermination et tous les coûts ainsi engagés devront être remboursés par le Locataire sur demande du Bailleur."[61]

[our underlining]

[229]     Gagné relates that the Landlord encourages all tenants to use the same exterminator in order to have consistent results.

[230]     Mr. Éric Sirois, of ABC Gestion Parasitaire et Extermination, says that his firm has handled pest control in the Spheretech since March 2009.  At first, it had the extermination contract for the common areas and for three other premises.  Since then, it has obtained four new contracts from tenants of the Spheretech.

[231]     He explains that there is a generalised problem with mice in the Côte-Vertu Boulevard area and that there has been an increase in their population these past few years.

[232]     He affirms that the mice situation at the Spheretech is under control and that their presence is negligible.  He insists that there are no rats and that there have never been any rats in the Spheretech.

[233]     He recalls that he went to Unison's Premises to meet with Nassr in July 2009 to examine the situation being complained about.  He says he was rudely asked to leave by Nassr and told that his services were not required.  He subsequently received a demand letter from Unison's attorneys telling him not to return to the Premises.[62]

[234]     One notes, once again, Unison's exaggeration of issues.  What Nassr described as "an explosion of rats" turns out to be a problem with mice that is now under control.  One also notes Nassr's inability to collaborate with the Landlord with respect to an issue that he describes as an being "severe".

[235]     The Court is satisfied that the Landlord has taken all necessary precautions to handle the mice situation and that no reduction of rent is available in these circumstances.[63]

5.9       Noises and vibrations

[236]     Unison alleges that, since June 2008, it has been experiencing excessive noises and vibrations in the Premises due to the manipulation of hands-free weights by clients of its neighbour, Energie-Cardio.[64]

[237]     Nassr affirms that when the weights are dropped, bottles fall off shelves in his storage room and clients' drinks tip over. He wrote to the Landlord to complain about the situation in June 2008 and he insists that it was unresponsive. He says that a week before the hearing, a phone fell off the wall in his office because of this situation.

[238]     The Landlord relates that it did react to the complaint.  It notified Energie-Cardio of the issue and went to the Premises to verify the problem.  It dropped 600 lbs weights in the Energie-Cardio premises which generated no vibrations which could make a bottle fall.  It concluded that the complaint was unjustified.

[239]     The Court notes that this issue was not raised by Unison in its demand letter of August 14, 2008[65] or in its motion to institute proceedings of September 2008, a period of time contemporaneous with the start of the alleged problem, which makes one question the seriousness of the claim.

[240]     Given Nassr's lack of credibility with respect to so many other complaints, the Court concludes that Unison has not proven, on the balance of probabilities, that this issue is serious enough to merit a reduction of rent.

5.10    Conclusion

[241]     To conclude this section, the Court dismisses Unison's motion to obtain a reduction of rent.

[242]     Accordingly, the sum of $148,012.52 being held in trust by Kaufman Laramée, is to be released to the Landlord.

[243]     Furthermore, Unison must pay the Landlord the balance of all rent not paid by Unison pursuant to the Lease, up to and including the rent of September 2010, namely the sum of $76,241.28.

[244]     There remains one last issue to tackle.

6.         HAS UNISON VALIDLY EXERCISED ITS OPTION TO RENEW?

[245]     In March 2010, Unison sent the Landlord a letter, by registered mail, whereby it notified it that it was exercising its option to renew the Lease for an additional term of five years, starting on October 1, 2010.[66]

[246]     It indicated that it was doing so without prejudice to and under reserve of its rights pursuant to this trial and judgment to obtain a reduction of rent during the new term of the Lease.

[247]     The Landlord responded that it did not accept the caveat made by Unison in respect to the option to extend.[67]  It gave Unison the opportunity to revoke its option within 30 days, otherwise it would consider that it had exercised the option at the stipulated price of $13.25 per square foot per year.

[248]     Unison's attorney replied that its client would not revoke its option to renew and that it considered that the option had been validly exercised.[68]

[249]     Has the option to renew been properly exercised?

[250]     Absent an express provision in the Lease, a landlord is not bound to grant a renewal period once a lease expires.[69]

[251]     For a landlord, the granting of an option to renew is generally viewed as a one-way street favouring a tenant.  In fact, it is not normally in the interest of a landlord to grant an option to renew to a tenant since its exercise is not guaranteed and when it is exercised, it may not be in the landlord's interest.[70]

[252]     The exercise of an option to renew the term of a lease by a tenant must be unequivocal and without condition.  It is indivisible.  It cannot be exercised on different terms.  The conditional exercise of an option to renew, in a manner not provided for in a lease, will not be binding on a landlord.[71]  Its exercise requires complete compliance with the terms and conditions stipulated in the lease.  For example, Courts have not permitted an option to renew to be exercised with respect to only a portion of the leased premises.[72]

[253]     In the case at hand, the parties stipulated as follows in the Lease:

"1.1.9.1  Options de Renouvellement

Première (1ère) Option de Renouvellement

Pourvu que le Locataire ait payé son Loyer Minimum et son Loyer Additionnel et qu'il ait respecté les modalités et conditions prévues au Bail, alors le Bailleur accordera au Locataire une première (1ère) option de renouvellement pour une période additionnelle de CINQ (5) ANS, commençant à la fin de la Durée du Bail et se terminant CINQ (5) ANS plus tard (ci-après appelée la « Première Option »).  Le Locataire devra manifester son intention d'exercer la Première Option par avis écrit au Bailleur par courrier recommandé ou certifié, SIX (6) mois avant la fin de la Durée du Bail, à défaut de quoi, la Première Option deviendra nulle et sans effet.  Au cours de la Première Option, toutes les modalités et conditions stipulées dans le Bail demeureront les mêmes à l'exception de ce qui suit:

i)  le Loyer minium sera fixé à TREIZE DOLLARS ET VINGT-CINQ CENTS (13,25 $) le pied carré de la Superficie Locative des Lieux Loués;

ii)  le Bailleur ne sera pas tenu d'effectuer des Travaux du Bailleur dans les Lieux Loués;

iii)  le Bailleur ne sera pas tenu de verser au Locataire quelque allocation que ce soit."

[254]     The language of this option to renew clause clearly sets forth the means and the manner by which it is to be exercised.  It stipulates with certainty the length of the additional period and the basic terms of renewal, including the rent to be paid.  It is legally enforceable as such.

[255]     The option to renew cannot be validly exercised by Unison subject to the requested rent reduction.

[256]     Moreover, one notes from the above clause that the option to renew can only be exercised if Unison has paid the rent and has respected the terms and conditions of the Lease.

[257]     This is a reasonable provision because landlords are normally wary of granting renewal rights to "troublemakers" who have been in default pursuant to their leases.

[258]     In the case at hand, Unison has engaged the Landlord in expensive litigation.  The Landlord has not received the full amount of rent when due since September 2008.  Unison has littered the parking lot and exterior common areas with flyers without permission from the Landlord.

[259]     Unison has not, therefore, satisfied the conditions precedent to exercise the option to renew.

FOR THESE REASONS, THE COURT:

[260]     DISMISSES the Plaintiff's Rectified and Re-Amended Motion to Institute Proceedings;

[261]     AUTHORIZES Kaufman Laramée to release, from its trust account, the sum of $148,012.52 and to pay same to the Defendant;

[262]     CONDEMNS the Plaintiff to pay the Defendant the sum of $76,241.28;

[263]     DECLARES that the option to renew the term of the Lease was not properly exercised by the Plaintiff;

[264]     WITH COSTS.

 

 

__________________________________

PAUL MAYER, J.S.C.

 

Mtre. Irene Chrisanthopoulos

Cain Lamarre Casgrain Wells

For the Plaintiff

 

Mtre. Johanne Gagnon

Kaufman Laramée

For the Defendant

 

Dates of hearing:

April 13, 14, 15, 16, 19 and 20, 2010

 



[1]     Mr. Jacques R. Beaudoin, Director General for the Homburg Real Estate Trust, testifies that this is what Mr. Sameh Nassr told him when they were first introduced in June 2007.

[2]     Exhibit P-5.

[3]     Exhibit P-3.

[4]     Exhibit P-3 shows that there was some $93,000 in rental arrears owing to the Landlord at the time of the assignment of the Lease.

[5]     Exhibit P-1.

[6]     Supra note 3.

[7]     Exhibits P-24 and P-41.

[8]     Supra note 7.

[9]     Exhibit P-32.

[10]    Exhibit D-4.

[11]    Email of February 11, 2008 - Exhibit P-18.

[12]    Letter of February 22. 2008 - Exhibit P-11 - Ms. Céline Fournier, Vice-President Leasing for Homburg, explains that Homburg does not believe that it is economically viable for it to lower the rent any further.  She points out that the annual operating expenses for the Spheretech are $6.07 per square foot and the real estate taxes are $4.85 per square foot:  a total of $10.92 per square foot. She underlines that Unison is paying a gross rent of only $8.50 per square foot.

[13]    Letter of March 11, 2008 - Exhibit P-11.

[14]    Letter of March 19, 2008 - Exhibit P-11.

[15]    Letter of August 14, 2008 - Exhibit P-12.

[16]    Articles 2633 and 2848 of the Civil Code of Quebec provide as follows:

"2633.  A transaction has, between the parties, the authority of a final judgment (res judicata).

A transaction is not subject to compulsory execution until it is homologated."

"2848.  The authority of a final judgment (res judicata) is an absolute presumption; it applies only to the object of the judgment when the demand is based on the same cause and is between the same parties acting in the same qualities and the thing applied for is the same.

However, a judgment deciding a class action has the authority of a final judgment in respect of the parties and the members of the group who have not excluded themselves therefrom."

[17]    Jean-Claude ROYER, La Preuve Civile, 4th ed., Éditions Yvon Blais, 2008, p. 665.

[18]    Plaintiff's Rectified and Re-Amended Motion to Institute Proceedings, par. 35.

[19]    Appendix to Exhibit P-2.

[20]    Exhibit P-2.

[21]    "en contrepartie d'une quittance totale et finale de tous montants pouvant être dus aux termes des représentations faites et de toutes réclamations passées, présentes ou futures quant auxdites représentations et tout ce qui peut en découler, sans admission de part et d'autre, accepte d'amender le bail […]."

[22]    At the time of the settlement of the matter, the arrears totalled some $240,000.

[23]    Exhibit P-8.

[24]    Exhibit P-9.

[25]    Ibid, section 5.5.

[26]    Exhibit P-35.

[27]    Supra note 18, paras. 31-34.

[28]    Supra note 23.

[29]    Supra note 24.

[30]    Exhibit P-11.

[31]    "1863.  The nonperformance of an obligation by one of the parties entitles the other party to apply for, in addition to damages, specific performance of the obligation in cases which admit of it. He may apply for the resiliation of the lease where the nonperformance causes serious injury to him or, in the case of the lease of an immovable, to the other occupants.

The nonperformance also entitles the lessee to apply for a reduction of rent; where the court grants it, the lessor, upon remedying his default, is entitled to reestablish the rent for the future."

[our underlining]

See also Pierre Gabriel JOBIN, Le Louage - Traité de droit civil, 2e éd., Cowansville, Éditions Yvon Blais., 1996, p. 453; King George Electronique Inc. c. 2842122 Canada Inc., 2006 QCCA 764 and 2004-08-26 (C.S.).

[32]    Frederic L. CARSLEY, "Commercial Leases - Restrictive covenants, non-competition clauses and changes of form or destination in commercial leases", Meredith Memorial Lectures, Cowansville, Éditions Yvon Blais, 1990, p. 123.

[33]    Stephen J. MESSINGER and Christina KOBI, "Exclusive Rights and Non-Competition Clauses", Shopping Centre Leases, 2nd ed., Harvey M. Haber, Q.C., Aurora, Ontario, LSM - Canada Law Book, 2008, pp. 551-578.

[34]    Articles 6, 7 and 1375 of C.C.Q.

[35]    J.E. 90-1131 (S.C.).

[36]    [1994] no AZ-50401894 (C.S.).

[37]    Société immobilière Trans-Québec inc. v. 2981092 Canada inc., [1998] R.L. 571 (C.A).

[38]    Ibid., p. 7-8.

[39]    Supra note 18, par. 29.13.

[40]    Supra note 5.

[41]    Exhibit P-21.

[42]    Exhibit P-10

[43]    Exhibits D-2, D-3 and P-33.

[44]    Exhibit D-6.

[45]    Exhibit D-7.

[46]    Exhibit P-34.

[47]    Exhibit P-39.

[48]    Exhibit D-10.

[49]    See Natalie VUKOVICH, "Opening Covenants, Carrying on Business Clauses and Co-Tenancy Clauses", Shopping Centre Leases, 2nd ed., Harvey M. Haber, Q.C., Aurora, Ontario, LSM - Canada Law Book, 2008, pp. 337- 358.

[50]    "1856.  Neither the lessor nor the lessee may change the form or destination of the leased property during the term of the lease."

[51]    Steinberg inc. v. Centre d'achats Duberger inc., [1987] R.J.Q. 868 (C.A.).

[52]    J.B. Lefebvre ltée v. Val d'Or Properties, J.E. 80-842 (S.C.).

[53]    Société d'investissement York-Hannover Ltée v. BMP Steerburger, S.C. Montréal, no 500-05-000234-797, June 8, 1979, j. Hugessen.

[54]    Exhibit P-16.

[55]    Supra note 7.

[56]    Supra note 18, paras. 40.2 - 40.7.

[57]    Exhibit D-8.

[58]    Exhibits P-35, P-36 and P-38.

[59]    Exhibit P-28.

[60]    Exhibit D-2.

[61]    Supra note 5.

[62]    Exhibit D-9.

[63]    See Mockler v. Boucher, [2003] AZ-50203228 7 (C.S.); Huyen v. Kortbawi-Khoury Group Inc., 2006 QCCS 300 .

[64]    Supra note 18, par. 40.9.

[65]    Exhibit P-12.

[66]    Exhibit P-32 en liasse.

[67]    Supra note 57.

[68]    Ibid.

[69]    "1877.  A lease with a fixed term terminates of right upon expiry of the term. A lease with an indeterminate term terminates upon resiliation by one of the parties."

[70]    See Lloyd F. CORNETT, "Renewals and Extensions of Term", Shopping Centre Leases, 2nd ed., Harvey M. Haber, Q.C., Aurora, Canada Law Book, 2008, p. 583-610.

[71]    Ibid, p. 596-597.

[72]    Alexander Brown Milling and Elevator Co. v. Canadian Pacific Railway Co., (1910), 42 S.C.R. 600.

AVIS :
Le lecteur doit s'assurer que les décisions consultées sont finales et sans appel; la consultation du plumitif s'avère une précaution utile.

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