An ongoing battle between the landlord
and a major tenant of West Penderís landmark Evergreen
Building has produced a court case which may assist
developers looking to redevelop commercial sites.
In a decision
rendered in late 2005 and reported this week, the B.C.
Court of Appeal expanded the rights of landlords wishing
to redevelop existing commercial properties but facing
the problem of existing long term tenancies.
The court overturned an earlier
decision which granted the tenant an injunction
preventing the landlord from terminating its lease and
re-entering the premises. The court held that, depending
on the circumstances of each case, a tenantís remedy may
be limited to damages for breach of contract, rather
than an ongoing right to possession of its premises.
In legal terms, the decision reflects a
movement by the courts towards greater emphasis of the
contractual elements of a lease. While a lease has
traditionally been viewed as a special agreement
providing a tenant with an interest in land, the
Evergreen decision gives hope to owners of
under-developed sites who would like to redevelop but
have been unable to negotiate lease terminations with
The decision arose out of the proposed
redevelopment of the Evergreen Building on West Pender
Street in Vancouver. The landlord proposed to demolish
the existing 10-storey office building and re-develop
the site with a 21-storey residential tower, in order to
take advantage of the current strong residential market
in downtown Vancouver.
The building was 74% vacant at the time
of the hearing. The tenant in question leases an entire
floor, and has nearly three years remaining on its lease
term, with a right to renew. The tenant is not in
default and the lease does not contain a "demolition
clause" allowing the landlord to terminate the lease in
the event of the buildingís redevelopment.
The landlord notified the tenant that
it was going to take possession of the premises on
December 30, 2005, thereby breaching the landlordís
obligation under the lease to provide the tenant with
"quiet enjoyment" of the premises.
The tenant applied for and was granted
a permanent injunction preventing the landlord from
taking possession. In granting the injunction, the B.C.
Supreme Court applied the traditional view of a lease,
which is that it represents a "demise" (or interest in
land) for a specified period of time. Without a right of
re-entry under the lease, it followed that the landlord
was not entitled to simply compensate the tenant for a
breach by payment of damages.
The landlord appealed.
The B.C. Court of Appeal ruled that in
these types of cases, courts should "balance the
equities" between the landlord and the tenant on the
basis that a lease is both a demise of land and a
contract. It relied on earlier cases which chose to
emphasize the contractual aspects of the lease in order
to take advantage of a broader range of remedies than
would have been available if the lease were viewed only
as a demise. Therefore, rather than allowing the tenant
the almost automatic right to an injunction so as to
prevent the landlord from dealing with its land, the
Court ordered that the Supreme Court re-consider the
circumstances of the case with a view to whether the
tenant could be adequately compensated by damages for
the proposed breach of the lease.
Note that Court of Appeal did not find
that tenants are not entitled to injunctions in
these situations, but rather, held that each
circumstance must be considered on a case-by-case
Courts are to consider the equities
between the parties, particularly "the 'uniqueness' of
the property in question and the relative hardship, if
any, of holding the landlord to the strict terms of the
lease". That is, rather than simply defaulting to the
granting of an injunction, a court should look at the
circumstances and see if damages would adequately
compensate the tenant. This may still prove to be
problematic for the landlord of the Evergreen Building,
as the tenant might successfully argue, for example,
that as an Arthur Erickson design, the Evergreen
Building is unique in terms of design and profile.
The result of Evergreen is that
landlords who own under-developed sites have more
options for dealing with tenants in possession under
long term leases. Although landlords should be aware
that re-entering the premises will constitute a breach
of the lease contract, they may decide that it is
economically more efficient to take over the premises
and take the chance that the profit from redevelopment
will exceed the damages awarded to the tenant.
Reasonable steps should, of course, be taken by the
landlord in providing for an orderly take over.
Although Evergreen may serve to expand a
Landlordís options for redevelopment, it must be kept in
mind that tenants may still successfully argue for an
injunction so as to uphold their right to occupy their
premises. Each case will depend on its own facts with
the Courts being required to examine and balance the
equities as between landlord and tenant.