In RioCan Holdings Inc. v. Metro Ontario Real Estate
Limited, the Ontario Court of Appeal found that a parking lot
rehabilitation was a capital cost and must be excluded from
additional rent under the terms of that Lease. Unfortunately, this
case is often used by tenants who are challenging their
landlord's CAM allocations, as they erroneously believe that
the RioCan v. Metro case stands for an affirmation that
landlords cannot pass through capital costs.
In Parsons Precast Inc. v. Sbrissa the Court was asked
to settle a dispute between Landlord and Tenant over the
re-imbursement of the costs to the Landlord for repaving a parking
lot. The Landlord and Tenant first entered into a Lease in October
2004 for a term of three years. The Lease was renewed twice for two
additional two-year terms, ending in October 2011. The Lease
contained provisions obligating the Tenant to pay on a monthly
pro-rata basis for "repairs (reasonable wear and tear
excepted) and maintenance" of common areas.
With just over a year remaining on the Lease, the Landlord
repaved the entire parking lot and delivered a bill for $14,533 as
the Tenant's proportionate share of the paving costs. The
Tenant applied for a determination of whether it was liable for the
repaving costs. The Tenant relied on RioCan v. Metro to
argue that the repaving of a commercial parking lot is a capital
expense and therefore could not be recovered as part of a monthly
expense from a tenant. However, the Court distinguished RioCan
v. Metro from the case at hand – and rightfully so
– because of specific language in that lease which excluded
"capital expenditures" from common expenses, whereas the
Lease in this case had no such exclusion.
Nevertheless, Parsons is a worthwhile read as the Court
analyzes whether the parking lot repaving would qualify as
"maintenance" or "repairs (reasonable wear and tear
excepted)", which were costs the Landlord was clearly entitled
to pass through to the Tenant. The Court stated that:
"Undoubtedly in arrangements of this type there will be a
myriad of items which must be replaced in the normal course of
events as an item of maintenance – for example a light bulb,
or an air filter in a heating or air-conditioning system. It seems
to me that other items, however, are so substantial in their nature
and in their expense that they cannot reasonably be considered as
an item of repair or maintenance." As well, the Court noted
that "on the evidence before me it appears that the Landlord
accepted the advice it had received to the effect that the wear and
tear over 19 or 20 years on the original paved parking lot was such
that it required to be replaced rather than repaired."
The Court concluded that the repaving project was not considered
"maintenance" or "repair (reasonable wear and tear
excepted)" since the parking lot was completely replaced,
rather than being "fixed up", and such replacement was
required as a result of wear and tear, the Tenant was not
responsible for any of the repaving cost based on the wording of
the Lease. The Court also considered (and deemed significant), the
fact that the Landlord billed the client for its proportionate
share in a lump sum and not as part of its monthly charge. If it
was wrong in characterizing the re-pavement as falling outside the
realm of "maintenance" and "repair," the Court
said it would make sense to amortize the payment over a period of
20 years and the Tenant would only be responsible for such
amortized amount between the months of September 2010 and October
2011 when the Lease expired. From a landlord's
perspective, the latter statement may sends chills down
your spine as the Court seemed willing to read into the Lease a
restriction that the Tenant ought to have negotiated itself.
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guide to the subject matter. Specialist advice should be sought
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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