In a recent decision, the Ontario Court of Appeal again held that an entire agreement clause in a contract is not a complete defence to claims involving pre-contractual misrepresentation claims. This decision comes on the heels of 10443204 Canada Inc. v. 2701835 Ontario Inc., 2022 ONCA 745, where the Court of Appeal ruled that an entire agreement clause will not preclude a defence of fraudulent misrepresentation. See our previous article on that decision.

In Spot Coffee Park Place Inc. v. Concord Adex Investments Limited, Concord Adex Investments Limited, a condominium developer the (“Landlord”) entered into a commercial lease agreement (the “Lease”) with Spot Coffee Park Place Inc. (the “Tenant”), a high-end café with a number of locations in the United States and Canada.

In accordance with the Lease, the Tenant agreed to rent space to operate a café in a mixed-use development built by the Landlord (the “Development”). Before entering into the Lease, the Landlord had a three-year preexisting relationship with a related company of the Tenant for the operation of a café in downtown Toronto.

Before entering into the Lease, the Landlord assured the Tenant that ample parking would be provided for the Tenant’s customers at the Development, and this assurance was confirmed in site visits and brochures provided to the Tenant. The Landlord also acknowledged that customer parking was essential to the Tenant’s business in order for it to attract customers from outside the Development.

Following negotiations, the parties entered into an offer to lease agreement in September 2010 for premises in the Development. The offer to lease contained an entire agreement clause, which stated:

“contains all of the terms and conditions of the agreement between the parties relating to the lease of the Premises and supersedes all previous agreements or representations of any kind, written or verbal. There are no covenants, representations, agreements, warranties or conditions in any way relating to the subject matter of this Offer to Lease, expressed or implied, collateral or otherwise, except as expressly set out herein.”

The Lease was executed the following month, and it contained a more comprehensive entire agreement clause. The clause stated that the Lease:

“contains all of the terms and conditions of the agreement between the parties relating to the matters herein provided and supersedes all previous agreements or representations of any kind, written or verbal, made by anyone in reference thereto, with the exception of any written and executed offer to lease or agreement to lease (“Offer to Lease”) which may exist between the parties and pursuant to which this Lease has been entered into. There are no covenants, representations, agreements, warranties or conditions in any way relating to the subject matter of this Agreement expressed or implied, collateral or otherwise, except as expressly set out herein or in the Offer to Lease, if any. In the event of any inconsistency or contradiction between the provisions of any Offer to Lease and the terms and conditions of this Lease, this Lease shall prevail.

There shall be no amendment hereto unless in writing and signed by the party to be bound.”

After the Tenant opened for business in the Development, it immediately began experiencing customer parking problems. Despite the Landlord’s assurances, adequate customer parking was not provided, which made it impossible for the Tenant to operate its business

In May 2013, the Tenant abandoned the premises and asserted the challenges from the parking issue caused it to suffer damages. The Landlord terminated the Lease in June 2013.

The Tenant then commenced an action against the Landlord, seeking the return of monies it expended to operate the premises, as well as costs associated with designing, constructing and fixturing the premises. The Landlord defended the action and argued that the Tenant’s claim was barred by the entire agreement clauses contained in the lease offer and the lease itself.

The trial judge found that the Landlord owed the Tenant a duty of care and did make representations to the Tenant regarding customer parking at the Premises, which turned out to be false. The Tenant was found to have reasonably relied on these representations, which the Landlord used to induce it into entering the Lease.

It was held that the entire agreement clause in the Lease did not preclude the Tenant’s action because the key language of the clause stated that there were “there are no … representations … in any way relating to the subject matter” of the Lease. Customer parking was not addressed in the Lease, and therefore the clause did not apply.

In this ruling, the trial judge considered that the Landlord and the Tenant were both sophisticated commercial parties with a preexisting relationship. The Landlord was also determined to have made negligent misrepresentations regarding the parking issue before the Lease was executed. It was also noted that the Landlord had a duty to correct its misrepresentations after the Tenant began operating its business, and it did not do so.

In the end, the Tenant was awarded over $1 million in damages, plus nearly $200,000 in interest and costs.

The Landlord appealed because the trial judge failed to consider provisions in the Lease that addressed the Tenant’s use of common areas in the Development. The Landlord argued that common areas included parking; therefore, the Lease did address that issue, meaning the entire agreement clause would apply.

The Landlord’s appeal was dismissed because the Lease clauses raised were highly ambiguous and it was unclear whether the common areas addressed the parking issue. It was therefore held that the trial judge did not err in holding that the parking issue was not addressed in the Lease, meaning the entire agreement clause did not bar the Tenant’s claim.

This decision is another warning from Ontario’s highest court that entire agreement clauses are not as ironclad as we once thought. Although they can generally be relied on for most pre-contractual misrepresentation claims, they will not always get a party off the hook in fraud or negligent misrepresentation cases. This especially holds when the contract does not address the subject matter of the misrepresentation itself.

About the Authors

Daniel Waldman is Of Counsel in the firm’s Toronto office. He has a broad commercial litigation practice with an emphasis on real property litigation, including commercial leasing, commercial real estate, construction law, and debt collection. Daniel can be reached at 416-644-2838 or dwaldman@dickinsonwright.com. To read his full bio, please click here.

 

 

Mordy Mednick is a partner in Dickinson Wright’s Commercial Litigation Group with a particular focus on business disputes. He can be reached at 416-777-4021 or MMednick@dickinsonwright.com. To access his biography, click here.

 

 

 

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