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Landlord and Tenant (Commercial) - Covenant to Repair. Orillia (City) v. Metro Ontario Real Estate Limited
In Orillia (City) v. Metro Ontario Real Estate Limited (Ont CA, 2021) the Court of Appeal considered principles applicable to interpretation of a covenant to repair in a commercial lease:(i) Tenant’s obligation to repair
[31] The construction of a covenant of repair in a lease is a contextual, fact-specific exercise: see G.M. Pace Enterprises Inc. v. Tsai, 2003 BCSC 1336, 37 B.L.R. (3d) 60, at para. 66; Lurcott v. Wakely, [1911] 1 K.B. 905 (C.A. (Eng.)), at pp. 915-16. Like all contracts, the contract as a whole forms part of this context. Several principles on interpreting lease repair covenants emerge from a review of English and Canadian case law. First, the primary inquiry is to ask whether the repair gives the landlord back something entirely different than was demised. Second, the obligation to repair must be interpreted having regard to the specific wording of the repair covenant, the terms of the lease as a whole, and the premises rented, including its condition at the start of the lease. Third, a repair will generally involve some kind of replacement or renewal. One question is whether the replacement or renewal is of subsidiary parts of the whole or of the entire thing.
[32] A tenant that covenants to repair the premises is not obligated to fix defects in the premises that go beyond a repair. The analytical question is whether the work that “the tenant is being asked to do can properly be described as repair, or whether on the contrary it would involve giving back to the landlord a wholly different thing from that which he demised”: Ravenseft Properties Ltd. v. Davstone (Holdings) Ltd., [1980] Q.B. 12 (Q.B.D. (Eng.)), at p. 21; Nicholas Dowding et al., eds., Woodfall: Landlord and Tenant, loose-leaf (London: Sweet & Maxwell, 2020) (loose-leaf updated 2021, release 122), vol. 1 at 13.032.
[33] In Morcom v. Campbell-Johnson, [1955] 3 W.L.R. 497 (C.A. (Eng.)), at p. 501, leave to appeal to H.L. (Eng.) refused, Denning L.J. observed that the distinction between a repair and an improvement is whether it is a replacement of something already there or if it is the provision of something new:It seems to me that the test, so far as one can give any test in these matters, is this: if the work which is done is the provision of something new for the benefit of the occupier, that is, properly speaking, an improvement; but if it is only the replacement of something already there, which has become dilapidated or worn out, then, albeit that it is a replacement by its modern equivalent, it comes within the category of repairs and not improvements. [34] The test to determine whether the work goes beyond a “repair” has been stated in many different ways. One approach is to “look at the particular building, to look at the state which it is in at the date of the lease, to look at the precise terms of the lease, and then come to a conclusion as to whether, on a fair interpretation of those terms in relation to that state, the requisite work can fairly be termed repair. However large the covenant it must not be looked at in vacuo” (emphasis in original): Brew Brothers Ltd. v. Snax (Ross) Ltd., [1970] 1 Q.B. 612 (C.A. (Eng.)), at p. 640, leave to appeal to H.L. (Eng.) refused (October 13, 1969); Dowding, at 13.032.
[35] In Lurcott, at p. 924, Buckley L.J. described repair as “restoration by renewal or replacement of subsidiary parts of a whole. Renewal, as distinguished from repair, is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject-matter under discussion.” Buckley L.J. continued, at p. 924, “the question of repair is in every case one of degree, and the test is whether the act to be done is one which in substance is the renewal or replacement of defective parts, or the renewal or replacement of substantially the whole.”
[36] The English law on the definition of repair has, with some exceptions not relevant here, been adopted by Canadian courts: see e.g. Norbury Sudbury Ltd. v. Noront Steel (1981) Ltd. (1984), 1984 CanLII 2181 (ON SC), 11 D.L.R. (4th) 686 (Ont. H.C.), at p. 698; Hall v. Campbellford Cloth Co. Ltd., 1944 CanLII 359 (ON SC), [1944] 2 D.L.R. 247 (Ont. H.C.).
[37] There are only a few Canadian cases that deal specifically with the obligation to repair a roof under a lease. In Hall, the roof of a curling rink collapsed after an unusual amount of snow accumulated on top of it. The roof and premises were available to be repaired, and the premises were not wholly destroyed. After a thorough review of Canadian, English, and American case law, the court determined, in conclusory reasons, that the repair fell under the tenant’s obligation to “repair, reasonable wear and tear and damage by fire, lightning and tempest only excepted”.
[38] In G.M. Pace, the court concluded that the tenant was not obligated to replace the roof of a service station that was at the end of its useful life. The service station was described as an older building that had suffered the ravages of neglect, and the roof was the original roof, when the lease began. As a result, the court determined that replacing the roof would provide to the landlord a building in a condition better than the tenant had received it. The tenant was only obliged to maintain, through repairs, the building as it existed when the lease began. In addition, the roof did not require immediate replacement and could continue to be “bandaided” for quite some time.
[39] Finally, in 708-1111 West Hastings Ltd. v. Coopers & Lybrand Vancouver Ltd., 1990 CanLII 1084 (B.C. Co. Ct.), rev’d on other grounds, 1991 CanLII 1374 (B.C.C.A.), the issue was whether the roof membrane repair was a “structural repair”. In deciding the issue, the court commented in obiter that “[s]ome of the English cases appear very harsh on the tenant. But it must be kept in mind the tenancies are frequently of long duration. That a tenant for 40 years would be held responsible for replacing a 20 year bonded roof during the term is not remarkable.” Some have cautioned that the length of the lease, although relevant, cannot be weighed too heavily: see Post Office v. Aquarius Properties Ltd., [1987] 1 All E.R. 1055 (C.A.), at pp. 1064-65.
[40] In summary, when interpreting a covenant of repair in a lease, a court should consider:(i) whether the repair gives the landlord back something entirely different than was demised (see Ravenseft; Morcom);
(ii) the circumstances surrounding the obligation to repair including the specific wording of the covenant, the terms of the lease, the premises rented, and the condition of the premises at the start of the lease (see Brew Brothers; G.M. Pace; 708-1111 West Hastings; and Post Office); and
(iii) whether the replacement or renewal is of subsidiary parts of the whole or of the entire thing (see Lurcott).
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