Canada: Focus On Real Estate

Last Updated: September 16 2009

Estoppels Are No Substitute For Lease Due Diligence
By: Sonja K. Homenuck

We all take some comfort on the acquisition of commercial real estate when the purchaser is able to obtain a reasonable number of estoppels [covering a good portion of the rentable area of the building(s) being purchased]. But what happens if a tenant asserts something in an estoppel but the tenant is incorrect? Can a tenant later take a different position? Or perhaps the bigger question is can you rely on the statement made in the estoppel? Not if you could have determined the correct state of affairs from doing proper due diligence of the lease documentation. This is what the British Columbia Supreme Court held in a recent case discussed below. The case also reminds us of the important distinction between renewals of a lease and an extension of the term of a lease, and is an important case to consider for anyone involved in lease due diligence or in dealing with estoppels.

In Vancouver City Savings Credit Union v. New Town Investments Inc., 2008 Carswell BC 2525, New Town Investments Inc. (the "Landlord") was the assignee of a commercial lease originally entered into by Park Georgia Properties Ltd. ("Park Georgia") as landlord and Vancouver City Saves Credit Union (the "Tenant") as the tenant. The term of the lease was ten years and it granted three renewal options to the Tenant, each for a five year period. Park Georgia and the Tenant entered into an agreement to renew the lease which contained a number of changes to the original lease (the "2002 Agreement"). Sometime thereafter the Tenant provided an estoppel to the Landlord upon the Landlord's purchase of the subject property from Park Georgia which indicated that the Tenant had exercised the first renewal right (so only two renewal periods remained). Further, the Tenant later gave written notice exercising its second renewal option.

During the process of attempting to document the second renewal term, the Tenant took the position that the term earlier referred to in the estoppel as the first renewal term (and documented in the 2002 Agreement) was not in fact a renewal term, but was an extension of the term (which would mean that all three renewal terms were still preserved at that point). The Tenant relied on the wording of the 2002 Agreement as using the words "extension" throughout (not "renewal") as well as the fact that the extension term ran for a different period of time than the five year renewal period would have run (though not a significantly different period). The Landlord disagreed and the parties wound up in court on this and other lease interpretation issues.

The Court restated the long-held common law position that a renewal and an extension are two different concepts at law. In doing so the Court quoted the definitions of those terms from Black's Law Dictionary, 8th ed., which defines an "extension" to be a continuation of the same contract for a specified period, and a "renewal" as the re-creation of a legal relationship or the replacement of an old contract with a new contract, as opposed to an extension.1

Further, the Court held that the term had been previously extended by the 2002 Agreement, rather than renewed, due to the wording of the 2002 Agreement and therefore all three renewal options remained (and therefore the notice provided to exercise the second renewal option really exercised the first renewal option and two further renewal options remained).

Although the Landlord sought to rely on the fact that the Tenant had referenced the first renewal term in its estoppel and in subsequent correspondence, the Court quoted Massawippi Valley Railway v. Reed (1903), 33 S.C.R. 457 (S.C.C.) at p.470 that "subsequent conduct cannot be used to interpret an agreement when the words of the written agreement are clear and unambiguous." The Court in the present case found the wording of the 2002 Agreement to be clear and that the term was extended and therefore the statement in the estoppel to the contrary and the exercise of the notice provided to exercise the second renewal option, both of which were incorrect, could not be used as subsequent conduct to overcome the clear wording of the 2002 Agreement.

It is a scary proposition for purchasers that they may not be able to rely on the contents of an estoppel, however in this case, a proper inspection and interpretation of the lease documentation by the purchaser should have revealed that the term had been in fact extended by the extension agreement entered into by the parties and therefore all three renewal terms remained (rather than two renewal terms). If the lease documentation available for due diligence had not been clear, the Court may have held the Tenant to the statements made in the estoppel.

The Court did distinguish cases where a purchaser could not determine a matter from reviewing lease documents alone, but went on to hold (as per existing common law) that the "Estoppel Certificate cannot have the effect of altering the terms of the Lease."2

In some transactions, a vendor wishes to only provide a purchaser the actual lease agreements, but not the tenant correspondence, etc., however the entire tenant file is important for due diligence purposes and a purchaser should insist on obtaining all documents, correspondence and materials in respect of tenant files. It is not clear what a court would hold in the event that clear documentation existed that was not made available to a purchaser, which contradicts a tenant's statement in an estoppel. Although it would seem unfair to not hold a tenant to its misstatement in an estoppel where the purchaser did not have documentation to review to discover the misstatement, it would also seem unfair to hold a tenant to a mistaken statement in an estoppel that could have been discovered if all lease documentation and correspondence had been available and properly reviewed. However, it is more in the purchaser's control in negotiating the agreement of purchase and sale to ensure that all lease documentation and tenant files will be provided. The best way for a purchaser to protect itself is to insist on all lease documentation and tenant files be delivered and to have them inspected and reviewed diligently, together with the estoppels. It may be prudent to involve a commercial leasing lawyer in your due diligence and in dealing with estoppels where the stakes are high. For instance, where a purchaser wants to ensure that demolition rights in favour of the landlord are enforceable and when they can be exercised if a future redevelopment of the subject property is planned.

Is The Municipal Devil You Know Better Than The Provincial Devil You Don't?
By: Mark Piel

Renewable energy infrastructure projects are a top policy priority of the current Provincial government as both the political and economic climate suggest the early part of the 21st century will be the time government and industry reconsider the sustainability of existing energy infrastructure. Infrastructure projects which use wind, water, biomass, biogas and biofuel, solar energy, geothermal energy, and tidal forces for the production of energy may one day replace what are presently considered more conventional sources of energy. Renewable energy infrastructure projects, like all infrastructure projects, involve a number of legal considerations, from securing project financing through to managing labour relationships during post-construction management of the infrastructure asset. Acquiring the necessary land use approvals in order to begin construction is a key part of planning most infrastructure projects. Privately funded infrastructure development typically require municipal land use approvals through the land use planning process provided by the Planning Act.1 However, with the Green Energy and Green Economy Act, 2009 2 the Province has set in motion significant changes to the existing land use approval process for renewable energy infrastructure projects. Chief among these changes is removing from municipal jurisdiction the approval of renewable energy infrastructure projects in favour of a Provincial approval process.

The Green Energy and Green Economy Act, 2009 enacts the Green Energy Act, 2009 3 and amends the Planning Act. While these amendments have yet to come into force, they significantly change the applicability of the Planning Act to renewable energy infrastructure projects. "Renewable energy undertakings" will be defined in the Planning Act and means a "renewable energy generation facility, a renewable energy project, a renewable energy testing facility or a renewable energy testing project."4 The Green Energy and Green Economy Act, 2009 also incorporates into the Planning Act the meaning of the "renewable energy generation facility," "renewable energy project," "renewable energy testing facility" and "renewable energy testing project" as they are defined in the Green Energy Act, 2009.5

Under the Green Energy Act, 2009, the lieutenant-governor-in-council has the broad authority to make regulations that remove barriers to and promote opportunities for the use of renewable energy.6 Based on a review of the amendments to the Planning Act, those "barriers" include the municipal government decision-making process; the Green Energy Act, 2009 effectively removes renewable energy developments from municipal jurisdiction with the intention of replacing the municipal approval process with a provincial approval process.

"Renewable energy undertakings" will no longer be subject to the following land use planning instruments:

  • Provincial policies;7
  • Provincial plans, with the exception of the Niagara Escarpment Plan;8
  • Municipal official plans;9
  • By-laws and orders under Part V of the Planning Act, including demolition control by-laws, zoning by-laws, interim control by-laws, minor variances, and Minister's zoning orders, and zoning by-laws under the City of Toronto Act, 2006;10 the site plan approval process under both the Planning Act and the City of Toronto Act, 2006.11

In addition, "renewable energy undertakings" are now exempt from the subdivision control and part lot control provisions of the Planning Act. Lands outside a registered plan of subdivision or a part or block of lands within a registered plan of subdivision may now be acquired for the purpose of a "renewable energy generation facility" or a "renewable energy project" provided the acquiring party provides a declaration that the land will be used for the purpose of a "renewable energy generation facility" or "renewable energy project."12

The extent to which the Green Energy and Green Economy Act, 2009 exempts "renewable energy undertakings" from the municipal approval process raises questions regarding two of purposes of the Planning Act, namely, to provide for a land use planning system led by provincial policy and to provide for a planning process that is fair, open, accessible, timely and efficient.13 For example, under the Planning Act, planning decisions at all levels of government must be consistent with provincial policy statements and conform with provincial plans.14 The Green Energy Act, 2009 includes no such requirement.

With respect to the public consultation process under the Planning Act, landowners looking to develop renewable energy undertakings may be pleased to hear their projects will be exempt from a local consultation process that often becomes mired in "NIMBY" politics. As to what the Provincial approval process will look like, time will only tell as the lieutenant-governor-in-council has yet to enact the necessary regulations. The Ministry of the Environment and the Ministry of Natural Resources have made available for public comment proposed content for renewable energy approval regulations15 and the former Ministry is contemplating requiring private landowners to consult with the public within a 1.5 kilometre radius of the proposed development, the applicable municipality, the Ministry of the Environment, and Aboriginal Peoples on behalf of the Crown.16 Therefore, the possibility for politics to affect the approval process remains.

These recent amendments are not the first time the Province has exempted energy projects from the reach of the Planning Act.17 As with most legislative amendments of this kind, there are trade-offs which proponents of renewable energy undertakings should be aware. By removing renewable energy undertakings from the reach of the Planning Act, the Province has withdrawn a proponent's right to appeal a decision to refuse a development proposal to the Ontario Municipal Board on the basis of land-use planning grounds. Appeals are not entirely absent under the new regime. The Green Energy and Green Economy Act, 2009 also amends the Environmental Protection Act 18 by providing a right to appeal to the Environmental Review Tribunal (ERT) in the event the Director refuses to issue a renewable energy approval.19 Third party rights of appeal have also been added to the Environmental Protection Act. On such appeals, the ERT must consider whether the renewable energy project under appeal will cause serious harm to human health or serious or irreversible harm to plant life, human life, or the natural environment.20

Municipal councillors may be breathing a sigh of relief now that Provincial Ministries will be the approval authority for "renewable energy undertakings"; the political cost to having the authority to approve the location and site plans for renewable energy infrastructure perhaps outweighs the political benefits, even during a time when the political appetite for renewable energy is high. It remains to be seen whether private developers will breath a similar sigh of relief once the Province enacts the new approval process regulations for "renewable energy undertakings".

Can The Holder Of A GSA Exercise Real Property Remedies?
By: Paul Shantz and Ron Matheson

On occasion a lender may discover that a borrower owns real property which was not previously disclosed to it and therefore not subjected to a specific mortgage registered under the Land Titles Act or (increasingly rarely) under the Registry Act. In the context where most registrations now are made through the pre-populated statements available under the Teranet electronic system, the absence of a conventional form of charge, mortgage or debenture with a specific charge and a legal description of a parcel of real property may appear even more problematic. However, sometimes a careful reading of other security documents which do not consist of typical forms of real estate security may unearth additional remedies for a secured lender.

A General Security Agreement ("GSA") may be drafted broadly enough to provide the lender with a security interest in all of the real and personal property of the debtor, even if the real property is not specifically described by an attached legal description. In this case, a notice of the GSA may be registered on title to the real property by way of a Notice under Section 71 of the Land Titles Act, since the lender has an unregistered interest in the property.

Registration of the Section 71 Notice can be done without the sometimes difficult task of obtaining a signed authorization and direction of the borrower. When registered, the Notice will caution all potential purchasers or encumbrancers that the lender claims an interest in the real property. As such, this may be a useful and cost effective tactic to prevent the transfer of title and/or dilution of the borrower's equity to the lender's detriment. However, this step is essentially only preventive and the process of realization upon the real estate by sale is necessary to satisfy the debt secured by the GSA.

In the event that there has been a bankruptcy of the debtor, the lender could approach the trustee in bankruptcy to complete a sale of the real property. Assuming that the trustee accepts the position of the lender that it has a security interest in the real property, then upon completion of the sale the lender would be entitled to the proceeds of sale as a secured creditor. However, the completion of the sale and the distribution of the proceeds would be affected by any prior registered interests or any writs of execution outstanding against the debtor.

If this option is not available, the question arises whether the registered GSA can be relied on to conclude a sale of the real property through a mortgage power of sale scenario. Unfortunately there is no clear answer to this question.

Normally the GSA would not contain the language granting remedies against real property in the same manner as a registered mortgage or charge, nor will it contain the legal description of the real estate. However, where principal money is secured "by a mortgage of land", and such mortgage does not contain a contractual right of exercising a power of sale, Part II of the Mortgages Act, R.S.O. 1990, c. M.40 applies to provide for a statutory power of sale which may be exercised, albeit on slightly different time frames for default and notice of sale than those allowed under a contractual right of power of sale.

However, notwithstanding this proposed manner of exercising a power of sale, the staff at the relevant Land Registry Office may take the position that absent a court order or clear direction from senior staff, title will not be transferred or certified under the Land Titles Act based upon the usual statements in an electronic instrument, or statutory declarations in a paper registration. Therefore whatever the definitive legal answer, resolving this issue could involve considerable delay and expense.

FMC Fall Real Estate Seminar

Please join us at our complimentary Fall Real Estate Seminar.

City of Toronto Harmonized Zoning By-law

Read our last issue of Focus on Real Estate, discussing the City of Toronto's Harmonized Zoning By-law.

Footnotes

1.Vancouver City Savings Credit Union v. New Town Investments Inc., 2008 Carswell BC 2525, paragraphs 13 and 14, quoting Black's Law Dictionary, 8th edition.

2. Ibid, paragraph 26.

1. R.S.O. 1990 c.P.13.

2. S.O. 2009, c. 12.

3. S.O. 2009, c. 12 , Sched. A.

4. Supra note 2, Sch. K, s. 1.

5. Supra note 3, s. 1.

6. Ibid., ss. 5(1).

7. Supra note 2, Sch. K, s. 3.

8. Ibid.

9. Ibid.

10. Ibid.

11. Ibid.

12. Ibid., Sch. K, s. 2(1), (2).

13. Supra note 1, ss. 1.1(b), (d).

14. Ibid., ss. 3(5).

15. Ontario Ministry of Natural Resources, Draft Approval and Permitting Requirements Document for Renewable Energy Projects, online: http://www.mnr.gov.on.ca/272327.pdf; Ontario Ministry of the Environment, Proposed Content for the Renewable Energy Approval Regulation under the Environmental Protection Act, online: http://www.ene.gov.on.ca/envision/env_reg/er/documents/2009/010-6516.pdf .

16. Ontario Ministry of the Environment, Proposed Content for the Renewable Energy Approval Regulation under the Environmental Protection Act, online: http://www.ene.gov.on.ca/envision/env_reg/er/documents/2009/010-6516.pdf at 5/24 – 7/24.

17. Supra note 1, ss. 62, 62.0.1.

18. R.S.O. 1990, c. E.19.

19. Supra note 2, Sch. G, s. 7.

20.Ibid., Sch. G, s. 13.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
23 Oct 2018, Other, Toronto, Canada

Dentons and SheEO are coming together for an evening of #radicalgenerosity on October 23, 2017. Meet Vicki Saunders, Founder of SheEO, and learn about how SheEO is changing the landscape for female entrepreneurs.

23 Oct 2018, Seminar, Montreal, Canada

Dentons is pleased to invite you to join us for a breakfast seminar as part of the Les Matinées Dentons series on issues relevant to you and your business.

24 Oct 2018, Other, Toronto, Canada

If you build it, claims may come. Join the Dentons Construction group for breakfast and an informative discussion on current topics in construction law.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions