Canada: Risk Allocation In Leases - An Update On Deslaurier Custom Cabinets V. 1728106 Ontario Inc.

Introduction

The allocation of risk in a commercial lease is an issue that both landlords and tenants, and their lawyers, spend a considerable amount of time negotiating prior to the start of a lease. However, despite the time and effort spent by both sides in reaching a mutually agreeable solution, it's also an issue that continues to be litigated year after year. Case law demonstrates that our courts consistently defer to the same set of common law principles in determining whether a landlord or tenant (or, oftentimes, their insurer) is, or is not, entitled to sue the other after a commercial property has been damaged by fire. Why then, despite the relatively consistent case law and the time spent negotiating the provisions related to risk allocation in commercial leases, do we continue to see the same issues and the same factual scenarios litigated over and over again?

In drafting and negotiating commercial leases, landlords and tenants are guided by the underlying notion that a party who causes damage to an innocent party should be held responsible to the innocent party. But, without recognizing and carefully crafting the interplay between the insurance, indemnity, release, and repair provisions in a lease, parties are often left in the unfortunate position of finding that what they had intended was not accurately reflected in the terms of the lease. The 2017 Ontario Court of Appeal decision in Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc.,¹ and the Supreme Court of Canada's subsequent denial of leave to appeal indicates that these issues are best dealt with by proper and careful drafting in order to avoid ambiguity and the need for a court to interpret conflicting provisions in a lease.

Part I of this paper will provide an overview of the common law principle of tort immunity, which forms the basis for any court's analysis of the allocation of risk in a commercial lease. Part II will summarize the facts and history of Deslaurier's journey through the courts. Part III will provide an overview of relevant Canadian case law regarding the ability to rebut or escape the principle of immunity.

Footnotes

1 2017 ONCA 293 [Deslaurier], leave to appeal to SCC refused, 2017 CanLII 68350.

To view the full article, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.