Last year I
blogged about a Nanaimo commercial tenant who defeated her
landlord's claim for unpaid rent on the grounds the lease had
been fundamentally breached as a result of a pervasive odour.
Neither the landlord, nor the tenant could find the source of the
smell though it was related to the HVAC system. The odour was
adversely affecting the tenant's retail clothing business to
the point she stopped paying rent. The landlord sued.
At trial, the court found that the persistence of an unpleasant
odour was a breach of the covenant of quiet enjoyment. The
court held that the presence of "a strong and unpleasant
odour" defeated the purpose of leasing the space
"entirely by discouraging clientele from entering the Premises
and ruining the product for sale." It was substantial
enough to entitle termination of the lease on the grounds of
The landlord appealed. In a setback for commercial
tenants, the Court of Appeal recently overturned to the
trial decision. They did so essentially on two grounds.
First, the lease terms outlined that the leased retail space was
provided to the tenant "on an 'as is, where is'
basis" with no representations as to fitness. In
addition, the lease made the tenant responsible for keeping the
premises in good repair, including the HVAC system. These
types of terms meant that the trial judge's finding of breach
of a term of implied fitness was unsustainable.
Second, the Court of Appeal turned to the issue of quiet
enjoyment and "fundamental breach". Such a breach
means that substantially the whole benefit of the contract has been
lost as a result. The trial judge had found that "the
odour breached the landlord's covenant of quiet
enjoyment," which deprived the tenant "of the whole
benefit of the contract."
The Court of Appeal began by reviewing what "quiet
enjoyment" means as a matter of law. The gravamen of
"quiet enjoyment" is to be able to exclusively occupy
premises without interference by the landlord or his agents.
Only a substantial interference in a tenant's occupancy by
the landlord will infringe quiet enjoyment. The
infringement must be "grave and permanent" in
The Court of Appeal noted there was no evidence the
landlord caused the odour or that the odour was of a
"grave and permanent nature". As such, its
existence was not an infringement of the right to quiet
enjoyment. The Court of Appeal then turned to the question of
whether the odour was a fundamental breach of the lease. A
fundamental breach must make further performance of the lease
impossible or deprive the tenant of substantially the whole benefit
of the lease. The presence of the odour, while unpleasant,
did not prevent the tenant from carrying on business. She had
not proven any loss of sales or profits. She had not tried to
determine the source of the smell, instead simply ceasing to pay
rent. In any event, the lease terms made it the tenant's
responsibility to service and repair the HVAC system.
For tenants, this result is an illustration of the need to
review and understand your lease terms before you sign it and to
fully test and inspect the premises you intend to lease.
While there are factual scenarios, supported by court decisions,
which support a claim for fundamental breach based on a breach of
the right to quiet enjoyment, this recent decision illustrates that
such cases must be quite extreme to succeed. The lesson is to
look before you leap: review and understand your lease; inspect and
be confident about the quality and fitness of the premises you
intend to occupy.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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