Wednesday, June 8, 2016
The landlord’s obligation to provide the tenant with peaceable enjoyment of the leased premises goes to the very essence of a commercial lease, as was illustrated in 9185-4000 Québec Inc. v. Centre Commercial Innovation Inc., 2016 QCCA 538.
On February 24, 2010, the Tenant, Restaurant Amir (“Amir”), signed a lease for ten years with the Landlord for space in a commercial centre. During the negotiations that led to the signature of the lease, Amir learned that the premises situated directly above it were occupied by a Metro grocery store. Amir subsequently learned that the Metro premises were used as a warehouse and not a retail grocery. Amir opened for business in May 2010. From September through November 2010, the Landlord undertook major renovations to the exterior of the building. During this time, Amir noticed that there was excessive noise that disturbed its customers.
After the Landlord’s work had ended, Amir noticed that the excessive noise persisted and appeared to emanate from the Metro premises. On November 24, 2010, Amir sent a formal notice of complaint to the Landlord.
In December 2010, the Landlord notified Metro of the situation and requested that the excessive noise issue be corrected. Despite numerous attempts on the part of the both the Landlord and Metro to significantly reduce or eliminate the noise, the problem persisted.
On February 23, 2011, Amir filed suit to cancel the lease and claim damages. On April 11, 2011, Amir vacated the leased premises without paying rent for November and December 2010 as well as for February, March and April 2011.
The Trial Judge concluded that:
1. Excessive noise emanating from the Metro warehouse was perceptible in the Amir restaurant;
2. However, Amir failed to prove that it lost any profits as a direct result of the excessive noise;
3. Amir should have known that the structure of the building consisting of cement and steel was particularly conducive to the transmission of noise.
The Trial Judge dismissed Amir’s application to cancel the lease and damages and condemned Amir to pay the sum of $106,961 as a penalty for abandoning the leased premises and $35,830 for unpaid rent.
The Court of Appeal was not in agreement with either the reasoning or the conclusions of the Trial Judge. In its view, before deciding whether there was a causal connection between the excessive noise and Amir’s lost profits, the Trial Judge should have determined whether the Landlord fulfilled its imperative obligation to the Tenant to provide peaceable enjoyment throughout the term of the lease. This obligation goes to the very essence of the contract of lease. The Landlord’s obligation is one of result and not means, the consequence of which is that the Landlord can only exonerate itself from a breach by proving force majeure or the fault of a third person for whom it is not responsible in law.
In addition, the law expressly provides that the landlord must guarantee the tenant against disturbances caused by other tenants.
With respect to the types of disturbances that a tenant would be expected to tolerate and which would therefore not be actionable, the Court drew an analogy from the obligation of neighbors to tolerate normal inconveniences that are not excessive. Peaceable enjoyment of leased premises is appreciated according to the particular circumstances of the premises and the objective perception of a reasonable person. Normal inconveniences that neighbors must tolerate are evaluated according to the nature, the situation of the disturbance and custom. From this the Court reasoned that the abnormal and persistent character of a disturbance could give rise, depending on the circumstances, to a reduction in rent or the cancellation of the lease, with or without damages.
In the present case, the evidence retained by the Trial Judge established that the Landlord was notified of the existence of excessive noise in November 2010 and, despite its efforts and that of Metro to reduce or eliminate it, the noise persisted. Regarding the concrete and steel elements of the structure of the building, the Court of Appeal found that this was not at all relevant for the reason that a landlord cannot exculpate itself from its essential obligation on the ground that the tenant should have discovered a defect in the building.
The Trial Judge should not have dismissed the Tenant’s application to cancel the lease on the ground that it could not demonstrate a causal link between the noise and the lost profits. The Court of Appeal stated that this was not the Tenant’s legal burden. The enjoyment of the premises occupied by a restaurant is not solely reflected in its balance sheet since many factors could influence the financial results of a new business. The conclusions of fact retained by the Trial Judge lead to the uncontestable conclusion that the Landlord was in breach of its fundamental obligation pursuant to the lease to provide peaceable enjoyment to its Tenant. The sanction for such breach gives rise to three possibilities: specific performance, cancellation of the lease or reduction of rent. In the present case, the Tenant’s application for cancellation of the lease was well-founded and should be granted effective April 11, 2011. The Court of Appeal also granted a 50% reduction of rent from November 24, 2010 until April 11, 2011.
In addition, the Tenant claimed damages from the Landlord representing its investment in leasehold improvements amounting to $211,345. However, Article 1861 of the Quebec Civil Code provides that a landlord can exculpate itself from a claim in damages resulting from a disturbance caused by another tenant if it shows that it acted with prudence and diligence. This is a notably different standard than what applies when the sanction is cancellation of the lease or reduction of rent resulting from the landlord’s breach of its essential obligation to provide peaceable enjoyment.
The Court of Appeal was of the opinion that the claim for damages should be dismissed because the evidence demonstrated that the Landlord made a reasonable effort to intervene with Metro in order to correct the noise problem, although without success.
It is common in standard commercial leases to have a clause that exculpates the landlord from any responsibility for disturbances caused by another tenant. Had such a clause been in the Amir lease, the judicial outcome would presumably have been quite different. In such circumstances, the tenant’s recourse would be limited to a claim against the tenant causing the disturbance, and not the landlord.