If a landlord does not provide a tenant fire insurance he may be able to sue the tenant for damages caused by fire.
The court held that a landlord was not prevented by the terms of Offer to Lease from maintaining an action against its tenant for damages resulting from a fire caused by the tenant’s alleged negligence where there were no provisions of the lease whereby the landlord agreed to provide fire insurance.
A good summary of this case is contained in the law of the land blog.
1044589 Ontario Inc. (c.o.b. Nantucket Business Centre) v. AB Autorama Ltd. [2008] O.J. No. 3006 Ontario Superior Court of Justice R.E. Mesbur J. August 7, 2008
The plaintiff landlord and the defendant tenant brought a motion by way of a special case to determine a question of law on an agreed statement of facts. The question for the court was whether or not the landlord was precluded from maintaining its claim, subrogated or otherwise, in an action for damages allegedly sustained in the fire, at the premises it owned.
The parties signed an Offer to Lease in December 1999 intending to subsequently enter into a formal lease. They never did so. As a result, under the express provisions of the Offer to Lease, the parties agreed that the Offer to Lease would be the lease. The landlord leased the tenant a unit in a commercial strip mall to conduct its business of an automobile repair shop. In February 2005 the tenant, or someone for whom it was responsible in law, was working on an automobile when a fire started causing damage to the premises. The court found that the issue was whether the terms of the Offer to Lease permitted the landlord to sue the tenant for damages, or whether, when it included insurance as part of the costs of the tenant’s proportionate share of the cost of the premises, the landlord effectively assumed the risk of damage by fire, and thus was precluded from suing the tenant for damages arising from the tenant’s negligence.
The tenant took the position that where a tenant pays its proportionate share of property insurance on the premises the landlord owns, the risk of damage to the premises fell on the landlord who could then not sue the tenant citing the “trilogy” of cases from the Supreme Court of Canada: Agnew-Surpass Shoe Stores Ltd. v. Cummer-Young Investments Ltd., [1976] 2 S.C.R. 221; Ross Southward Tire Limited v. Pyrotech Products Ltd., [1976] 2 S.C.R. 35, and S. Smith v. T. Eaton Co., [1978] 2 S.C.R. 749. The landlord disagreed arguing that the current state of the law preserved the general rule that a tenant was responsible for damage caused by its own negligence and was not immune from a landlord's suit unless there is clear language in the lease to the contrary.
The court found that the Offer to Lease in this case was similar to the lease reviewed by the courts in Lee-Mar Developments Ltd. v. Monto Industries Ltd, [2000] O.J. No. 1332 (Ont. S.C.J ) affirmed [2001] O.J. No. 987 (Ont. C.A.). In that case, the court had held that certain aspects of the lease had mandated provisions which placed the risk of loss by fire caused by the tenant’s negligence on the tenant. The court held that most of these aspects were present in this case as well. First, there was no covenant obliging the landlord to take out insurance on the property. Second, the only clause referring to insurance in the Offer to Lease did not require the landlord to obtain insurance nor did it specify what type of insurance might be contemplated by the clause. Third, the Offer to Lease contained an “entire agreement” clause; and fourth, the lease was what is described as a “completely carefree” net lease to the landlord. Based upon its review of these factors, the court inferred that the parties intended that the tenant be responsible for the costs which result from its failure to operate the business in a safe manner. Therefore, the inescapable conclusion was that the parties intended that the tenant assume the risk for any losses caused by the tenant's negligence.
In the result, the court found that the landlord was not precluded from maintaining an action against the tenant for damages caused by the tenant’s negligence.
This case was originally summarized by jmeadows@harpergrey.com and originally edited by dpilley@harpergrey.com
