CONTENT What Happens when an Option to Terminate is not Exercised in Accordance with its Terms? The Landlord's Obligation to Provide Peaceful Enjoyment WHAT HAPPENS WHEN AN OPTION TO TERMINATE IS NOT EXERCISED IN ACCORDANCE WITH ITS TERMS?Chantal JoubertAn option for the renewal or termination of a lease generally provides for the mechanism that is necessary to exercise the option. Is the failure to comply with this mechanism fatal to the exercise of the right? If the clause does not state that the fulfillment of the conditions is necessary to validly exercise the option, the clause will be construed in favour of the party exercising the option, even where it has not scrupulously complied with those conditions.In the case of World Color Press Inc. v. Édifice 800 Industriel Inc. 2012 QCCS 1774, the court had to determine whether the lessee had validly exercised an option to terminate the lease which provided that the lessee’s right had to be exercised by no later than March 31, 2011, for purposes of terminating the lease on March 31, 2012, together with the payment of a penalty of $1 million by no later than March 31, 2011 in “full and final payment of all the lessee’s obligations under the Lease”. The lessee sent the notice on March 30, 2011 indicating that a cheque in the amount of $1 million was attached to the notice; however, no cheque was attached. On discovering the omission, the lessee sent the cheque on April 8, 2011, but the lessor returned it, claiming that the option had not been validly exercised and that the lease would continue until March 31, 2017, the expiry date of the initial term.In fact, the termination clause was reproduced upon each renewal. Only the dates and amount of the penalty were changed. However, according to the lessor, at the time of the last renewal, the parties had wanted to make the payment of the penalty concomitant with the notice of exercise of the option. On the other hand, the lessee pleaded the whole agreement clause in order to exclude the discussions surrounding the changes made to the last version of the option to terminate.Two issues were raised in court: was the non-payment of the penalty by the specified date fatal to the exercise of the option to terminate and, if the answer was no, did the penalty serve as the payment of the rent until the end of the term in 2012, since this penalty represented a “full and final payment of all the lessee’s obligations under the Lease”.The court held that the lessee had validly exercised the option to terminate but that it still had to pay the rent until the end of the term in 2012.The court found that the entire agreement clause was inoperative in the circumstances and that it did not prevent the court from endeavouring to determine the parties’ true intention since, on the one hand, the option to terminate clause was incomplete and, on the other hand, the literal application of the clause would have had an absurd result from a commercial point of view.The option to terminate clause was incomplete because it did not specify the nature of the time limits, i.e. whether or not they were mandatory. The court found that the parties never discussed this point and, therefore, that the time limits were not mandatory and that the lessee had validly exercised the option to terminate. As for the penalty, the court held that it should not be considered as rent paid in advance, otherwise, the concept of penalty would lose all its meaning. Consequently, the lessee had to pay the rent until the end of the term in 2012 despite the words “in full and final payment of all the lessee’s obligations under the Lease,” which could be given their full meaning under the previous versions of the option to terminate when the penalty was payable at the end of the term, but which would have yielded an absurd result where the penalty was payable one year prior to the end of the term, as in the present case. NEW RULES RESPECTING SAFETY, HEALTH AND THE PROTECTION OF BUILDINGS In the December 2012 edition of this bulletin, we discussed the draft Regulation to improve building safety (the “Regulation”) which will amend the Quebec Safety Code, adopted under the Building Act. In general, the Regulation specifies, for the territory of Quebec, the standards to be complied with by owners to improve building safety. It contains standards applicable at the time of construction and imposes maintenance requirements for building façades and parking lots. The Regulation has been adopted by the government and the first provisions of the Regulation, i.e. those relating to the maintenance of building façades and parking lots, came into force on March 18, 2013. We will discuss the new obligations imposed on owners under the Regulation in a special bulletin to be published shortly. THE LANDLORD’S OBLIGATION TO PROVIDE PEACEFUL ENJOYMENTNicole MessierAlthough non-residential real estate leases provide for a variety of obligations, which are often more onerous for the tenant than the landlord, it is the very essence of the lease that the landlord must provide the tenant with the peaceful enjoyment of the leased premises. This means unimpeded possession that enables the tenant to fully use the premises for the purposes for which they were rented. The tenant is entitled to conduct its activities in the premises with peace of mind and without fear of the risk of accidents.The obligation to provide peaceful enjoyment extends both to the leased space, to the areas used jointly by the tenants of the property, and to the appurtenances necessary for its use. It is a continuous obligation that is binding on the landlord until the end of the lease.Peaceful enjoyment is a concept which is assessed, firstly, according to the authorized use of the leased space, but also in light of all the circumstances surrounding the lease and the property. The nature of the tenant’s activities, the main reasons for the tenant’s lease of this space in the building, the location of the property in the city or chosen sector of the city, the type of construction of the building and neighbouring area, are some of the factors to be considered in assessing the peacefulness of the occupancy and the use of the leased premises by the tenant. This is because, for some tenants, the same event may prevent or interfere with the normal exercise of their activities, while it would have little impact on others. For example, one can imagine the consequences of opening a bar in a building housing a law firm as compared to opening a bar in proximity to a billiard hall.The criterion used for assessing the peaceful enjoyment afforded to the tenant is the average person. Moreover, the landlord’s duty to provide peaceful enjoyment does not require it to provide exceptional services in order to take a specific situation into account.Interference with peaceful enjoyment may be due either to the conduct or omissions of the landlord and its employees, or to disturbances from circumstances under the total or partial control of the landlord, such as those caused by other tenants in the building. Thus, the landlord may not transform the physical space of the building with the effect of restricting access to the leased space or preventing the free use of the amenities and services available to the tenant without the risk of infringing on peaceful enjoyment. It cannot turn a blind eye to a water leak, an invasion of cockroaches, constant loud noise or a persistent toxic odour without incurring its liability. Nor may it make excessive use of its right to visit the premises for an inspection or to re-lease or sell them without exposing itself to damages, an abatement of rent, or even termination of the lease.As important as it may be, the landlord’s obligation to provide peaceful enjoyment is sometimes limited by the consent of the parties through the insertion of a clause in the lease exonerating the landlord of any liability in this regard. The effect of such a clause has been reviewed on several occasions and recognized as valid by the courts, although they found it to be inoperative in cases where the tenant was totally deprived of the enjoyment of its space, or where the peaceful enjoyment was disturbed by the deliberate acts of the landlord. And justifiably so, since the peaceful enjoyment of the premises chosen by a tenant to carry on its activities is the primary benefit sought by it and for which it pays a price. It is a benefit which should not be nullified. The use of such a clause requires both care and advice.
Nicole Messier is a notary and a member of the Business law group, where she specializes in real estate law.
She has extensive experience in commercial leasing.
Ms. Messier has developed expertise in the transfer and acquisition of property rights and the implementation of all modes of ownership and dismemberments of the right of ownership. In addition, she participates regularly in complex projects in the areas of mining law and transportation law and infrastructure.
- LL.L., Université de Montréal, 1991
- B.Sc., Université de Montréal
- Certificate in communication, Concordia University
Boards and Professional Affiliations
- Chambre des notaires du Québec
CONTENT Mortgage lenders – Duty to notify the insurer of a material change in risk Undivided co-ownership and the right of redemption Unpublished servitudes Mortgage lenders – Duty to notify the insurer of a material change in risk Louis-Martin Dubé and Ariana Lisio All fire insurance policies which cover a mortgaged immovable contain a clause dealing with the mortgage security (the “mortgage clause”). Financial institutions are familiar with this clause, which is considered as a separate contract from the insurance policy between the insurer and the mortgage creditor (the “creditor”) of the insured immovable.1 Under this separate contract, the actions, negligence or statements of the insured—for example, misrepresentations by the insured when the policy is first taken out—cannot be invoked against the mortgage creditor. Moreover, this characteristic of the mortgage clause is also its cornerstone. However, the protection afforded to the creditor by the mortgage clause does suffer from imperfections, which are underlined in the judgment rendered on January 25, 2011 by the Quebec Court of Appeal in the matter of Xceed Mortgage Corporation v. Wawanesa2. In the aforementioned case, the creditor exercised his hypothecary rights against its debtor, who was insured by Wawanesa. Unfortunately, a fire substantially damaged the mortgaged building (the “building”) before the creditor completed its recourse. The creditor therefore filed a claim with Wawanesa who refused to indemnify it, arguing that the creditor failed to inform the insurer that the insured no longer lived in the building and had rented it to a third party. Indeed, in the certificate of service of the motion to institute proceedings for forced surrender which was served by the creditor, the bailiff mentioned that a third party, and not the insured, occupied the insured building. The mortgage clause attached to the policy issued by Wawanesa contained the following provision: [Translation] The mortgage creditors must promptly disclose to the insurer (if the insurer is known to them) any circumstances that increase the risks set out in the policy and that are a result of their actions if the said circumstances would materially affect the insurer in setting the rate of the premium, assessing the risk, or deciding to maintain the insurance [...] Wawanesa’s refusal to pay was based on the fact that since this was a homeowners’ policy, Wawanesa would not have agreed to insure the building knowing that it was rented to a third party. According to the insurer, this fact would have had a material impact on its decision to maintain the insurance and ought to have been disclosed to it by the lender. In its judgment, the Court concluded that the insurer never intended to insure for the risk of fire where the insured did not live in the building as a homeowner and that, if it had been informed of this on a timely basis, it would have terminated the policy before the loss occurred. The lender’s action for payment of the insurance indemnity was therefore dismissed. This Court decision without a doubt brings to light the significant impact that a material change in risk may have on a mortgage creditor. ________________________________ 1 National Bank of Greece (Canada) v. Katsikonouris,  2 SCR 1029. 2 Xceed Mortgage Corporation et Xceed Funding Corp. v. Wawanesa compagnie mutuelle d’assurance, 2011 QCCA 197. Undivided co-ownership and the right of redemption Chantal Joubert Immovables are frequently owned by several co-owners, residential condominiums being one example that naturally comes to mind. However, while commercial immovables are not exceptions to co-ownership, they do, on the other hand, more frequently take the form of undivided co-ownership, where each co-owner has an undivided right of ownership to the whole property. This type of ownership, and especially the associated rights, are frequently misunderstood. The judgment in 2159-4395 Québec Inc. v. Gérard Lamarche et Richard Cousineau is a good example. FACTS – Lamarche and Charbonneau were co-owners of an immovable property. Charbonneau sold his 50% share in the immovable to 2159-4395 Quebec Inc. (“Quebec Inc.”) for a price of $570,000, including $50,000 in cash, with the balance payable in six (6) interest-free instalments. There was also a hypothec on the immovable maturing in 2007. Article 1022 of the Civil Code provides that an undivided co-owner may, within sixty days of learning that a third party has acquired the share of the other co-owner, purchase the said share himself by paying the third party the sale price and associated costs. This is known as the right of redemption. However, the right of redemption may not be exercised if the undivided co-ownership agreement contains a right of preference in favour of the co-owners, provided the agreement was registered against the immovable. In this case, Lamarche exercised his right of redemption within the requisite time and offered to reimburse Quebec Inc. for the first payment of $50,000, and to take over Quebec Inc.’s hypothec with the hypothecary creditor. He also filed a letter of credit for the balance of the sale price. Quebec Inc. objected to the exercise of the right of redemption, claiming that it had not been validly exercised because Lamarche’s offer was insufficient: it should have included the full payment of the sale price, since Lamarche did not benefit from the terms of payment offered to Quebec Inc. JUDGMENT – The trial judge and the Court of Appeal ruled in favour of Lamarche, holding that his offer to pay the $50,000, plus the letter of credit for the balance, were sufficient, and that he benefited from the terms of payment given to Quebec Inc. It should be added that the deed of sale to Quebec Inc. included a provision that was designed to counteract Lamarche’s right of redemption by stipulating that if Lamarche exercised his right of redemption, the full payment of the balance of the sale price would become due—causing Lamarche to lose the benefit of the terms of payment if he exercised the right of redemption. Without much discussion on this point, the Court of Appeal refused to give effect to a scheme aimed at discouraging Lamarche from exercising his right of redemption. CONCLUSION – The existence of a right of redemption has the effect of making the purchaser’s title to an undivided share quite precarious. The right of redemption must be exercised within one year of the sale. This means that, on the sale of an undivided share to a third-party purchaser, the purchaser’s acquisition can be challenged for a year following the sale. Mechanisms should therefore be set up to stabilize the transaction, i.e. to prevent the right of redemption from coming into existence. To do so, the undivided co-ownership agreement should either provide for a pre-emptive right—which closely resembles the right of redemption, except that it is exercised prior to the sale and does not therefore give rise to the same uncertainty—or simply a waiver by the co-owners of the right of redemption. DID YOU KNOW THAT... ... failure to pay when due one instalment of municipal or school taxes can cause the unpaid balance of the taxes billed, to become immediately payable, thus causing the taxpayer to lose the benefit afforded by instalment payments. Unpublished servitudes Nicole Messier Like all other immovable real rights which must, by law, be published (registered) to be enforceable against third parties, servitudes must be registered in the land register. Once a servitude is registered in the land register against the immovables that it affects, all persons dealing with the immovables are deemed to have knowledge of it. What then is the fate of an unpublished servitude? When a servitude is not published, it is effective between the parties who created it, but is not binding on the purchasers of the immovables it affects or that benefit from it, even if the deed of sale provides that the immovable is sold “with all the active and passive, apparent or unapparent servitudes” charged against it. Also, based on the well-established principle in article 2963 of the Civil Code of Québec, which states that “[n]otice given or knowledge acquired of a right that has not been published never compensates for absence of publication,” even where the purchaser has knowledge of an unpublished servitude, this does not cure the failure to register it in the land register. However, a line of cases has considered whether knowledge of an unpublished servitude could affect its unenforceability. Quite recently, the Quebec Court of Appeal1 was asked to rule on the enforceability of a servitude for the drawing of water that was not registered in time. The owners of the property benefiting from the servitude alleged that the owner of the servient land was aware of the existence, or tolerated the exercise, of the servitude even before it was registered in the land register. Relying, among other things, on the principle in article 2963 of the Civil Code of Québec, the Court of Appeal held that this servitude for the drawing of water was unenforceable against the owner of the servient land. However, in its reasoning, the Court of Appeal confirmed that, nonetheless, it is still possible to present evidence that the owner of the servient land had knowledge of an unpublished servitude, but stressed that this evidence must be very strong: [Translation] If one wishes to prove that he verbally or implicitly acknowledged the servitude, which is a priori unenforceable against him, one cannot be content to adduce evidence of the tolerance, even over a long time, or of the exercise, albeit lengthy, of the servitude in question. The burden of proof to be met by the owner of the allegedly dominant land is therefore a heavy one.2 In addition, the Court of Appeal added that this evidence must attain a “necessary threshold” (without otherwise defining it) to reach the conclusion that a servitude has been implicitly created or recognized. Ultimately, the Court of Appeal’s judgment reminds us that, to avoid any conflict over the existence of a servitude, the first thing you should do is register it. ________________________________ 1 Beaulieu v. Sinotte, 2011 QCCA 1743. 2 Op. cit. no. 1, p. 12.
On June 11, construction began on Espace Montmorency, Laval's largest mixed-use real estate project, worth nearly $500 million. Lavery had the opportunity to play a key role in this major transaction by representing Groupe Sélection in the creation of the consortium for the construction, development and ownership of Espace Montmorency. The organization of such a consortium raised complex issues related to corporate, construction, real estate and labour law all at once. In addition to having been mandated to develop several important project agreements, including the consortium agreement governing the rights and obligations of Espace Montmorency's builders, the lawyers involved in the deal represented Groupe Sélection in the negotiation of the terms of all the agreements ancillary to the project. Espace Montmorency is a sustainable, mixed-use urban development project combining residential, commercial, cultural and community spaces. This human-scale project, located near Place Bell and Laval's main thoroughfares and directly linked to Montréal's subway system, is sure to become a popular destination. Montoni and the Fonds immobilier de solidarité FTQ will now rely on the recognized expertise of our client Groupe Sélection, a Canadian leader in the creation of intergenerational living environments, for the design and construction of the residential portion of the project. The work of Lavery's team, led by Étienne Brassard and composed mainly of Bernard Trang, Carole Gélinas, France Camille De Mers, André Vautour, Nicole Messier, Guy Lavoie, Élodie Brunet, Chantal Tremblay, Dolaine Béland and Joëlle Montpetit, helped launch this flagship project for Laval.
A team of lawyers from Lavery represented Clifton Star Resources Ltd. ("Clifton") in a transaction with First Mining Finance Corp. ("First Mining"), where First Mining acquired all the shares of Clifton, in exchange for shares of First Mining. The transaction was effected by way of a scheme of arrangement and was completed in April 2016. The firm has prepared and reviewed the documents related to this transaction, including the Arrangement Agreement and the information circular for Clifton shareholders meeting. Lavery’s team consisted of Josianne Beaudry, Philip Nolan, Jean-Yves Simard, Nicole Messier and Mylène Vallières.
On February 17, 2016, Sodémex Développement s.e.c. entered into an agreement with the mining company Osisko Gold Royalties Ltd. (“Osisko”) to acquire a 15% interest in a portfolio of mining royalties including rights on Richmont Mines Inc.’s producing Island Gold Mine, Niogold Mining Corporation’s Marban and Noraltic sites and the Integra Gold Inc.’s Lamaque project. The value of the portfolio acquired by Osisko from Teck Resources Limited was more than $20 million. Sodémex Développement s.e.c. was represented by a Lavery team composed of Sébastien Vézina, Tereza Kristic, Louis-Martin Dubé, Nicole Messier, Carole Gélinas and John McFarlane Sodémex Développement s.e.c. is an investment fund whose only shareholder is the Caisse de dépôt et placement du Québec and whose mandate is to invest in companies in the natural resources sector that are in the development stage.
Lavery is pleased to announce it has acted as legal counsel for the Province of Québec to a consortium led by Magris Resources Inc. in the completion of the acquisition of Niobec Inc., a subsidiary of IAMGOLD Corporation (TSX : IMG, NYSE: IAG) and one of the world’s three primary niobium producers. The total consideration of US$530 million was comprised of a US$500 million cash proceeds payable at closing, as well as an additional US$30 million payable upon commencement of commercial production from adjacent rare earths element properties. Lavery also acted as local counsel in connection with the financing of the acquisition. Lavery’s transactional and financing team was led by Mr. Sébastien Vézina (M&A and Mining Law) and Mr. Benjamin Gross (Financing), and included Mr. René Branchaud (Mining Law), Ms. Nicole Messier and Ms. Carole Gélinas (Real Estate Law and Mining Titles), Ms. Sophie Prégent (Environmental Law), Ms. Catherine Méthot and Mr. Raphaël Bacal (M&A), Mr. François Parent (Pension and Benefits), Ms. Catherine Maheu, Mr. Guy Lavoie and Ms. Valérie Korozs (Labour and Employement), Mr. Éric Gélinas (Tax Law), Mr. Pierre Denis and Ms. Anne-Sophie Lamonde (Financing).