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COMMERCIAL TENANCIES - Landlord’s remedies - Termination of lease (forfeiture)

Wednesday, January 09, 2019 @ 8:20 AM  

Lexis Advance® Quicklaw®
Appeal by the landlord, Illingworth, from a judgment determining rights and obligations under a commercial lease with the tenant, Evergreen Medicinal Supply. The landlord purchased lands for construction of a building intended to house a medical cannabis facility. The tenant was responsible for overseeing and managing construction of the facility itself, and for obtaining a production licence from Health Canada. In 2014, the parties executed a five-year commercial lease. The tenant encountered delays in obtaining a production licence and was in arrears on rent, property taxes and insurance premiums. In 2016, the landlord issued a notice of termination of the lease. The tenant refused to relinquish possession of the premises, causing the landlord to commence a petition for a writ of possession and related relief. The tenant alleged an oral agreement obliged the landlord to set off facility construction costs incurred by the tenant against monies owed under the lease. The chambers judge held that arrears of rent were abated due to the facility's non-readiness for production and occupancy three years after the tenant took possession. Alternatively, the landlord was estopped from terminating the lease based on representations that obtaining the Health Canada licence took precedence over paying back rent. No findings were made regarding the alleged prior oral agreement or the tenant's set-off claim. The landlord appealed.

HELD: Appeal allowed in part. The judge chambers judge erred in abating the arrears as neither the pleadings nor the notice of inquiry raised abatement as an issue for determination by the judge. The central issue was whether the notice of termination was valid, and therefore whether the tenant was in wrongful possession of the premises. The only defence raised by the tenant was equitable set-off. Consequently, the abatement order was set aside. Otherwise, the chambers judge did not err in finding that the landlord was estopped from terminating the lease, based on his written representations to the tenant regarding back-rent and obtaining the Health Canada cannabis production licence.

Illingworth v. Evergreen Medicinal Supply Inc., [2018] B.C.J. No. 3727, British Columbia Court of Appeal, D.M. Smith, P.M. Willcock and L.A. Fenlon JJ.A., November 27, 2018. Digest No. TLD-January72019006