News & Updates
Landlord’s Pre-Contractual Representations are not precluded by Entire Agreement Clause in Lease
February 23, 2023
An entire agreement clause puts a pin in negotiations and specifies that only what is written in the contract is enforceable. This clause is typically buried in boilerplate and the commercial and contractual certainty it provides is often taken for granted, until such a clause is found to be inapplicable.
In January 2022, the Ontario Court of Appeal released its decision in Spot Coffee Park Place Inc. v. Concord Adex Investments Limited, a case that describes the treatment of entire agreement clauses and underscores the importance of the proper drafting of such clauses. The case serves as a reminder that entire agreement clauses are not bulletproof shields against negligent misrepresentations and that careful drafting can save parties from costly and time-consuming litigation.
Background:
Spot Coffee Park Place Inc. ("Spot Coffee") and Concord Adex Investments Limited ("Concord") entered into a lease agreement in 2014 to lease premises for a term of 10 years in a condominium development. The agreement contained an entire agreement clause, which stated that the lease and any attached schedules contained the entire agreement between the parties and that any previous agreements or representations were null and void which related to the “subject matter” of the lease.
In 2018, Spot Coffee commenced a claim against Concord for misrepresentations made during lease negotiations - before any lease was entered into. Spot Coffee alleged that Concord had represented that certain free parking for retail customers would be available and that a certain elevator connecting the parking floor and the retail level would be installed adjacent to Spot Coffee’s premises. Spot Coffee contended that the representations regarding ample and accessible customer parking induced Spot Coffee to enter into the lease.
Once Spot Coffee moved into its premises, it discovered that the customer parking promised was inadequate and did not reflect the pre-contractual discussions between Concord and Spot Coffee. In fact, customers often had to park in another building in order to access the Spot Coffee cafe.
The trial judge found that (a) the landlord, through its representative, made negligent representations regarding the quality and quantity of customer parking, (b) the tenant reasonably relied on such representations to its detriment, (c) the entire agreement clause in the lease did not apply to such pre-contractual representations as the customer parking was not part of the subject matter of the lease, and (d) the tenant was entitled to damages of over $1 million dollars.
Concord appealed the decision on the basis that customer parking was contemplated, based on particular provisions of the lease which described “certain common facilities”, and thus the entire agreement clause ought to apply. The Court of Appeal disagreed, and affirmed the decision of the trial judge.
The Court of Appeal's Decision:
The Court noted that the trial judge considered the relevant lease provisions and whether Concord’s representations regarding customer parking related to the subject matter of the lease. The Court reviewed the provisions raised by Concord and found no extricable error of law or any palpable and overriding error. As there was no such errors, the Court deferred to the trial judge’s interpretation that customer parking was not the “subject matter” of the lease. As the customer parking was not the “subject matter” of the lease, it correctly followed that the entire agreement clause did not bar Spot Coffee’s claim.
In reaching the decision, both the trial and appellate court emphasized the specific wording of the entire agreement clause, and it stands to reason that broader clause may not resulted in the same determination.
Analysis:
The Spot Coffee case serves as a reminder of the importance of entire agreement clauses and the need for careful drafting of even “boilerplate” provisions. Properly drafted entire agreement clauses limit the scope of contractual obligations to the terms set out in the contract. The purpose of such clauses is to prevent parties from relying on any pre-contractual representations or promises that are not included in the written contract which provides for greater certainty among the parties.
However, as the Spot Coffee case demonstrates, the effectiveness of an entire agreement clause will depend on its drafting. The clause must be clear, comprehensive and unambiguous in order to exclude any pre-contractual representations or promises.
