October 23rd - 2014

Legal Beat: Caught in a “net-net” of confusing language

The commercial tenant in this case had a three-year lease that was renewed for two years and then for a further two years.

Mervin Burgard Q.C.

by Mervin Burgard 

The commercial tenant in this case had a three-year lease that was renewed for two years and then for a further two years. The lease was said to be on a “net-net basis” and the wording stated that it was a “completely carefree net lease to the lessor”.

Within the year before the end of the lease term, the landlord had the entire parking lot repaved using materials that would ensure a 20-year lifespan of the parking lot’s surface. The landlord billed the tenant a proportionate share. This was not a monthly common expense charge but a lump sum amount. The tenant was responsible “for the costs and expenses of repairing the property ...reasonable wear and tear excepted, ...and maintenance of the common areas.”

A court case ensued. The court had to determine whether a complete repaving with a 20-year lifespan was covered by “repairs”, or “maintenance”.  The judge concluded, “I interpret the lease as providing that the total cost of replacing the entire parking lot is beyond what was contemplated in the tenants’ obligation to pay on a monthly pro-rata basis for “repairs (reasonable wear and tear excepted)” or “maintenance” of the common areas.  Accordingly I find the applicant tenant is not liable for the repaving costs attributed to it.” 

Parsons v Sbrissa 2012 ONSC 6098

MERV’S  COMMENTS

Mervin Burgard Q.C.

The judge added that “reason and common sense would require that this tenant’s proportionate share of the paving cost ought to be amortized over a period of 20 years, being the landlord’s evidence as to longevity, with the resulting figure then being divided by 12 to create a monthly figure to be added to the monthly charge, and that the tenant would be liable only for that amount for the months between September of 2010 when the notice of paving charges was given, and October, 2011 when the lease expired.  To require this tenant to be responsible for its proportionate share of the entire repaving cost, when the paving job has a life expectancy of 20 years, and the tenant has only 14 months left on its lease, is unfair and unjust.”

The courts will look at the specific clauses in the context of the actual situation. Whether you are dealing with an Offer to Lease or the actual Lease, do not rely on vague words such as ‘gross’, or ‘net’, or ‘net-net’, or ‘net-net-net’, or ‘triple net’.  Use clear language that makes common and legal sense and choose wording that reflects what the parties intend.

Mervin Burgard, Q.C.

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