The Alberta Court of Appeal recently decided a case relating to a commercial lease agreement and what constitutes a repudiation of contract.
Booster Juice Inc (“Booster Juice”) was responsible for negotiating leases for “Booster Juice” retail locations. For over a decade, a successful location had been operating in Phase III of West Edmonton Mall (“the mall”). Booster Juice wanted to add a second location in Phase I of the mall. It started negotiations for the design and construction of the second Booster Juice kiosk with West Edmonton Mall Property Inc (“WEM”), the leasing entity for the mall’s owner.
The parties entered into a lease agreement for a kiosk located in Phase I of the mall, with a term commencing November 1, 2013. Eventually, unhappy differences arose between the parties that implicated both Booster Juice locations in the mall (the “Phase I” and “Phase III” lease agreements), culminating in litigation, a trial, and the appeal.
The trial judge found that Booster Juice breached the Phase I lease agreement by failing to pay rent from November 1, 2013 forward; that WEM breached the Phase I lease agreement by unilaterally moving the location and orientation of Booster Juice’s proposed second kiosk; and that the WEM improperly terminated Booster Juice’s Phase III lease agreement by invoking a cross-default clause contained in the Phase I lease agreement.
The trial decision granted judgment in Booster Juice’s favour against WEM in connection with the improper closure of the Phase III Booster Juice location (in the amount of $30,738). Judgment was also granted in WEM’s favour against Booster Juice in connection with the lease for the Phase I Booster Juice location (in the amount of $64,572). Each party was to bear its own costs.
The Alberta Court of Appeal focussed on WEM’s repudiation of the commercial lease.
It began by stating that:
“[I]t is well established that the innocent party to a breach of contract may be entitled to treat the breach as repudiatory where the breach is fundamental, because it deprives that party of substantially the whole benefit of the contract.”
In the trial decision, the court had found that WEM had unilaterally changed the location and directional orientation of the Phase I kiosk when it approved Booster Juice’s proposed design for the kiosk subject to the change in location. The trial judge had characterized this decision as a fundamental change to the lease.
The Court of Appeal found that this was a repudiatory breach of the Phase I lease agreement, which entitled Booster Juice to terminate the lease. In its view, the record supported the determination that WEM committed such a breach, a determination that attracts deference.
At trial, Booster Juice had stated that it had agreed to the original Phase I location because it would be close enough to the main corridor to entice mall patrons to the kiosk, thus increasing its revenue and profitability.
The Court of Appeal found that there was no palpable and overriding error in the trial judge’s finding that the overall location and configuration of the Phase I kiosk was fundamental to the lease, nor in his determination that WEM’s unilateral alteration of the agreed location deprived Booster Juice of substantially the whole benefit of the contract.
Additionally, the Court of Appeal rejected WEM’s argument that when it moved the kiosk to a new location without the Booster Juice’s agreement, it was merely making “an offer” that invited Booster Juice to engage in further negotiations.
The Court of Appeal then explained that where a repudiatory breach has occurred, the parties are discharged from future obligations if the other party accepts the repudiation.
The parties disputed whether WEM’s repudiation of the Phase I lease was ever accepted by Booster Juice. Booster Juice argued that it accepted the repudiation of the lease agreement through its conduct. In fact, the record showed that following the unilateral change of location, Booster Juice conducted itself in a manner inconsistent with its obligations under the contract and which were sufficiently unequivocal to constitute acceptance of the repudiation. For instance, Booster Juice failed to begin construction and continued to fail to pay rent.
The Court of Appeal concluded that such conduct amounted to acceptance of the repudiation; Booster Juice had accepted WEM’s repudiation of the Phase I lease, and, as a result, the parties were discharged from their future obligations under the contract.
The appeal was dismissed.
Entering in to a commercial lease represents a huge financial commitment and comes with significant legal risk. Because of this, it is critical for both landlords and tenants to obtain the advice of an experienced commercial leasing lawyer when negotiating a commercial lease and certainly before finalizing any agreement.
At DBH Law in Calgary, our experienced commercial real estate lawyers help our clients manage the risks of commercial leasing by providing trusted guidance in all aspects of their leasing affairs.
Contact the experienced commercial real estate team at DBH Law in Calgary to see how we can help you through your commercial leasing matters. We work with our clients every step of the way, negotiating for you and protecting your interests in the event of a dispute. Please reach out to us online or by phone at 403.252.9937 to talk today.