The Second Opinion: For Repudiating a Salon's Lease, the BCCA gives the Landlord a Haircut

Interesting issues of contractual repudiation and landlord-tenant law were recently addressed by the British Columbia Court of Appeal in Abraham v. Coblenz Holdings Ltd., 2013 BCCA 512.

The tenant utilized the rented premises as a hair salon specializing in “African hairstyling.”  The lease contained no express restriction on the business that could be conducted, and the tenant decided to begin offering additional (non-African) hair styling services, as well as nail, massage and tanning services.

The landlord -- which had other tenants whose businesses would be compromised by this proposed expansion of services -- sought to impose new restrictions on the tenant’s advertising and provision of its expanded services.

Both the trial judge and the Court of Appeal found that the landlord’s attempt to impose this new and unbargained-for restriction on the tenant’s rights constituted a repudiation of the lease -- i.e., the landlord’s conduct amounted to a “fundamental breach…going to the very root of the contract,” and indicating the landlord's intention to deprive the tenant of the essence of their agreement.

This repudiation by the landlord gave the tenant the right to elect between (i) accepting the repudiation and terminating the lease, or (ii) rejecting the repudiation and leaving the lease in place:

  • The tenant claimed that he had accepted the repudiation, thereby ending the tenancy, with the result that he owed no further moneys to the landlord under the lease.
  • The landlord argued that, because the tenant did not explicitly and within a reasonable time accept the repudiation -- and because the tenant had acted in a manner consistent with a continuation of the landlord-tenant relationship -- the lease remained in place.  On this basis, the landlord argued that the tenant’s refusal to pay further rent constituted an actionable breach of contract.

The Court of Appeal sided with the tenant, and confirmed that “an innocent party is not required to communicate its acceptance of a repudiation immediately. An innocent party must have a reasonable opportunity to assess the circumstances it finds itself in, to assess its options, and to explore the possibility of resolving the situation.”

More specifically, continued negotiations between the tenant and the landlord did not constitute an affirmation by the tenant of the tenancy agreement, and were not inconsistent with the tenant’s subsequent acceptance of the repudiation.

Because the tenant vacated the premises once it became clear that the landlord was adamant about imposing the new restrictions, the tenant's communication of its acceptance of the repudiation was effective.  The lease had been thereby terminated, and the landlord could not sue for upaid rent or other losses.

The tenant, on the other hand, was permitted to sue for those damages caused to it by the landlord's conduct.

The McCarthy Tétrault Opinions Group consists of members of the firm’s litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions.  The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain, Hovsep Afarian and Kirsten Thompson.

 

contract damages landlord and tenant Real Property repudiation

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