By: Anthony Pugh, Law Works
Editor: Ben Hanuka, Law Works
In Spot Coffee Park Place Inc. v. Concord Adex Investments Limited, a January 12, 2023, decision of the Court of Appeal for Ontario, the issue was about pre-contractual oral misrepresentations made by a developer-landlord, and the interpretation of a commercial lease. The Court of Appeal upheld a trial judge’s damages award against the developer-landlord for negligent misrepresentations that its representatives orally made to a prospective tenant in pre-contractual negotiations about available parking spaces. The court awarded damages to the tenant for over $1 million for its losses in constructing the unit and operating the café.
The plaintiff (respondent in the appeal), Spot Coffee, was part of a chain of high-end European-style cafés, largely based in the United States. The defendant (appellant in the appeal), Concord Adex, was a residential condominium developer that built the Concord Park Place in North York (Toronto). The condominium complex included commercial and retail space.
In early 2010, the Concord Adex began discussions with Spot Coffee’s principals about leasing a retail unit in the North York complex. At a presentation, Concord Adex representatives made various representations about the availability of free, accessible and convenient customer parking.
The Offer to Lease and Lease that the parties signed did not speak about the availability of customer parking. They also contained entire agreement clauses.
Spot Coffee later discovered that there were numerous parking challenges. Its customers would often have to drive to a different building in the complex and seek out a concierge to let them into the parking lot. Further, customers frequently could not gain access to the café from the elevator leading to the underground parking lot, since the door was locked from time to time. The business ultimately failed.
The trial judge found that Concord Adex had made negligent misrepresentations to Spot Coffee about parking, and that Spot Coffee had relied on those representations. Specifically, the trial judge was satisfied that Concord Adex failed to advise Spot Coffee that it did not have complete control over retail customer parking facility in the building, including how that parking would be accessed.
Concord Adex also failed to advise that the retail customer parking was part of a shared common facility that would be governed by a shared common facilities committee which it did not control. The trial judge held that Spot Coffee proved verbal representations that Concord Adex made to it about access to free customer retail parking in the building, and access to the dedicated elevator for retail customer use, and that these were inaccurate or misleading.
The trial judge also determined that the entire agreement clause did not preclude Spot Coffee relying on those representations. The head lease stated that there were no representations relating to the subject matter of the agreement, and customer parking was not addressed in the lease. Provisions in the lease regarding parking instead were related to employee parking, which was separate from customer parking.
The trial judge awarded over $1 million in damages in addition to costs. This amount was made up of about $758,000, that Spot Coffee spent on designing, constructing, and fixturing the unit, and about $270,000, of losses that Spot Coffee incurred in operating the restaurant.
The Court of Appeal upheld the judgment against the developer/landlord
On appeal, Concord Adex argued that the trial judge failed to consider two sections of the lease related to common areas. It argued that these common areas included customer parking and brought that subject within the ambit of the entire agreement clause. It raised one of those two sections for the first time on appeal.
The Court of Appeal rejected Concord Adex’s argument. The court acknowledged that failure of a trial judge to consider various sections of the lease may result in failing to construe the contract as a whole, and thus possibly resulting in an extricable error of law. However, the court held that, in this case, the two sections that Concord Adex relied on did not clearly address customer parking. The court held that it was reasonable for the trial judge to conclude that the lease did not deal with customer parking and that her decision was owed deference.
This case should be a cautionary tale to landlords and developers about making unsupportable or misleading pre-contractual representations to potential tenants. Landlords should not assume that an entire agreement clause will protect them from pre-contractual misrepresentations. Tenants who rely on pre-contractual misrepresentations to their detriment, resulting in a failed business, may be entitled to significant damages for their losses.