Lease - Renewal, No Renewal Agreement, Initial Lease Terms Binding Upon Tenant; Operating Expenses Not Defined and Therefore Uncertain; UFFI - Damages for Breach of Warranty #278

By Gerry Neely
B.A. LL.B

The omission of wording in a lease renewal clause that the renewal would be void if the parties were unable to agree upon the renewal terms, led to some surprising results, at least for the tenant.

The right to renew the initial term for a further period of three years, provided that the renewal rent was to be no less than the rent paid during the initial term, and that any renewal agreement entered into was to include provisions for the payment of additional rent to cover the proportionate area costs of property tax and operating expenses.

While notice to renew was properly given by the corporate tenant, the parties were unable to agree upon the terms of the renewal lease and after nine months the tenant vacated the premises.

The landlord then sued the tenant and the two personal guarantors for monthly rent plus GST for the balance of the term, based upon the rent payable during the initial term. The landlord also claimed for damages for the proportionate share of taxes and operating expenses, legal costs and 24% per annum upon the amount due to it.

The B.C. Court of Appeal held that the tenant became bound by the terms of the lease upon its renewal. It was therefore liable for the rent and GST for the three year term. Interest at 24% was payable on that amount, because it was a term of the lease that rent in default would bear interest at 24%. The tenant was also liable for payment of its proportionate share of the taxes, but not for interest.

The landlord's claim for "operating costs" was dismissed because the term was not defined. The judge said it was therefore too uncertain to be sued upon.

In view of the lack of appropriate wording to deal with the failure to agree upon the terms of the renewal lease, or the mechanism for fixing the renewal rent when the parties could not agree upon it, and based upon the B.C. Court of Appeal decision, the tenant presumably could have continued to occupy the premises over the three year term, paying the rent called for in the initial lease.¹

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A decision in a Newfoundland case reveals that UFFI is still a headache for both sellers and buyers. A house was sold and resold three times, and on each sale, the seller gave to the buyer a warranty that there was no UFFI within the house. The fourth buyer found in the course of renovations that the house contained UFFI. This could only be removed at a cost of $23,000, money which the buyer did not have. His purchase was made in 1990 and in 1992 he vacated the house because of mild headaches and a general concern that his health was endangered.

He sued his seller, who in turn joined in with the person from whom he had bought, and so on down the line.

No medical evidence was provided to establish that UFFI was a health risk. The appraiser, who had appraised the property at the time of purchase at $90,000, gave evidence that he would have reduced the value to $67,000, had he been aware of the UFFI. Damages of approximately $24,000 were awarded to the buyer, who sued his seller, who in turn sued the person from whom he bought, who then sued the first seller who had given the UFFI warranty.

I assume the reason why each party was aware of the existence of the earlier warranties was because Newfoundland does not have a Torrens system. Therefore, proof of the title of an owner to sell would be based upon an examination of the transfer documents of his predecessors in title. This chain of liability might be found in British Columbia, because of the printed form UFFI warranty that used to be included in offers to purchase. Since other warranties are given, is this case therefore an argument for warranties limited say to any breach discovered and sued upon by the buyer during his period of ownership of the house?²

	1.	P. T. Haro Enterprises Inc. v. Paris Restaurant Ltd., 9 R.P.R. (3d), p. 98.
	2.	Clancy v. Shanahan, 9 R.P.R (3d), p. 55.

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