Law Times

PAGE 10 FOCUS January 11, 2010 • Law Times Appeal court clarifies property liability BY DARYL-LYNN CARLSON For Law Times S ome commercial landlords may be looking to lawyers to review the terms of their leases dealing with insur- ance coverage following a deci- sion last month by the Ontario Court of Appeal. In the case of 1044589 On- tario Inc. (Nantucket Business Centre) v. AB Autorama Ltd., a tenant had leased a property in a commercial mall to operate an automotive repair service. While the parties had en- tered into an "off er to lease" rather than a formal lease, the off er required the tenant to pay the cost of insurance. In 2005, a fi re occurred in the auto repair tenant's premises, which led to a business interrup- tion for neighbouring tenants and ultimately costs for the landlord. Th e landlord then launched an action against the auto re- pair tenant, claiming negli- gence for the damages to the property and loss of profi ts. Th e issue facing the court E.V. Litigation & Financial Services Inc. Elaine G.Vegotsky, CMA, CFE, CFI Assisting you in Litigation & Forensic Accounting, Financial Investigations Suit e 900 4 5 Sheppar d Avenu e East, Willowdale, Ontario M2N 5W9 Telephon e o r Fax (416 ) 930-1370 (905) 731-5812 evlitigation@rogers.com was whether the terms of the off er to lease enabled the land- lord to sue the tenant and, through a subrogated claim, its insurance company for damag- es or if the landlord, because it required the tenant to pay pro- portionate costs that included insurance, was responsible for the damages caused by the fi re. In reaching its decision on a motion requesting interpretation of the off er to lease, the appeal court examined the language and referenced the ruling in Lee-Mar Developments Ltd. v. Monto Indus- tries Ltd., handed down in 2000 by Ontario's Superior Court. In its decision released last September, the appeal court wrote that under the off er to lease and in keeping with the Superior Court's earlier in- terpretation, "the risk of loss by fi re passed to the landlord under the terms of the off er to lease because of the covenant requiring the tenant to contrib- ute to the cost of insurance," wrote Justice John Laskin. Vlit_LT_Mar17_08.indd 1 Insurance titles 3/13/08 11:55:47 AM Accident Benefits in Ontario This service provides in-depth guidance to the Statutory Accident Benefits Schedule in Ontario with summaries and analysis of case law with respect to arbitration decisions from the Financial Services Commission of Ontario (F.S.C.O.), relevant judicial decisions and private arbitration decisions. Case digests are available online with links to the full-text decisions. Looseleaf, binders (2), Internet access & electronic newsletter • $419 • Releases invoiced separately (4-5/yr) P/C 0456032000 • Vol. 1 ISBN 0-88804-432-1 Vol. 2 ISBN 0-88804-473-0 Annotated Commercial General Liability Policy This is the best source to keep you on top of the changes and legal developments in the industry, as well as their impact on Canadian insurers, brokers and policyholders. Looseleaf & binders (2) • $280 • Releases invoiced separately (1-2/yr) • P/C 0437030000 • Vol. 1 ISBN 0-88804-240-X Vol. 2 ISBN 0-88804-468-6 Business Interruption Insurance, Second Edition Provides a comprehensive discussion of the principle issues to be considered or addressed in obtaining insurance, and pursuing and defending claims when business loss occurs. Hardbound • 412 pp. • 2006 • $105 • P/C 011010002 ISBN 0-88804-441-0 Insurance An easy-to-use electronic service that keeps you up to date with the latest decisions in insurance law. 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Looseleaf & binders (2) • $329 • Releases invoiced separately (1-2/yr) • P/C 0486030000 • ISBN 0-88804-380-5 Property Damage Claims under Commercial Insurance Policies This is a practical guide to handling liability and first party claims for property damage and business interruption, encompassing coverage issues, loss evaluation, jurisdiction, proper law, subrogation, and punitive damages. Looseleaf & binder • $159 • Releases invoiced separately (1-2/yr) • P/C 0130030000 • ISBN 0-88804-414-3 precluded from maintaining its claim against the tenant." Costs went to the tenant. As well as providing guid- ance as to when a commercial landlord can make a claim against one of its tenants, the case also affi rms that a formal lease signed by both parties and, ideally, reviewed by lawyers, provides much better protec- tion for tenants and landlords rather than an off er to lease. Th omas Donnelly, a founding Landlords or tenants who are drafting leases have to make sure they've got proper doc- umentation, says Thomas Donnelly. landlord nor its "Accordingly, neither the insurer can proceed with its negligence ac- tion against the tenant. "I would allow the appeal, set aside the order of the mo- tion judge, and in its place order that the landlord is partner at Th omas Gold Pettingill LLP in Toronto, says although the decision is indeed consistent with prior cases, the matter of not having a formal lease turned out to be problematic. "It might be a situation where they weren't using law- yers and just did an agreement up amongst themselves but it is clear they only entered into an off er to lease and not a formal lease," says Donnelly. "So the moral, I think, of the case is landlords or tenants who are drafting leases have to make sure they've got proper and complete documentation." He says of particular note is the fact the court took into ac- count the repair covenant with- in the off er to lease that required the tenant to be responsible for the property's upkeep as well as insurance, which he suggests is important in interpreting the document in its entirety. "Too often, people focus on just one particular clause and don't take the whole document in context," Donnelly observes. William Scott, a partner and civil litigation specialist at Brown & Korte in Toronto, says an off er to lease falls far short of spelling out the requisite responsibilities in the event of a damaging inci- dent such as a fi re. "Th e landlord and tenant have separate property interests," Scott points out. "Th e landlord owns the building while the ten- ant is responsible for its share of the premises, so they have sepa- rate interests and, in theory, they can insure those interests sepa- rately both for property damage and for liability of other parties arising out of the use of their part of the premises. "Th en, if they're both sepa- rately insured, the landlord's insurer could subrogate against the tenant." He says in some instances, par- ties don't comply with the terms of their lease when it comes to obtaining insurance, so in most circumstances, it's best to formal- ize those requirements over and above the drafting of the lease. "Normally, what's done in For a 30-day, no-risk evaluation call: 1.800.565.6967 Canada Law Book is a Division of The Cartwright Group Ltd. Prices subject to change without notice, to applicable taxes and shipping & handling. CA083 (LT 1-2x4).indd 1 www.lawtimesnews.com CA083 1/6/10 8:18:03 AM commercial leases is the land- lord and tenant do not sepa- rately insure. Th ey take out one policy that insures the landlord and insures the tenant both of their share of the premises and both of them against claims by third parties," he explains. "In that circumstance, when there's one policy, nei- ther the landlord nor the ten- ant can subrogate against each other." LT Roderick S James M. Flaherty and Catherine H . Zingg .W . W insor Roger G. Oatley, John McLeish and contributing authors Mark G. Lichty and Marcus B. S nowden Richard Krempulec, Q.C. Sean Gosnell of Borden Ladner Gervais LLP Bruce W ebster and John Seigel of PricewaterhouseCoopers LLP r r r r r r V V V i i i f f f s s s i i i t t t o o o u u u w w w J J J e e e b b b s s s i i i i i i e t e t e t n n n a a a n n n u u u a a a r r r y y y o o o a a a

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