Hotchkiss v Budding Gardens Inc, 2021 ABQB 333

Court of Queen’s Bench of Alberta Citation: Hotchkiss v Budding Gardens Inc, 2021 ABQB 333 Date: 20210427 Docket: 2001 09804 Registry: Calgary Between: Paul Hotchkiss and Tracy Hotchkiss Applicants/Cross-Respondents - and - Budding Gardens Inc Respondent/Cross-Applicant _______________________________________________________ Endorsement of the Honourable Mr. Justice J.T. Eamon _______________________________________________________ Introduction [ 1 ] The parties made a lease dated June 1, 2019, purportedly for a three year term.

Section 3(

a) of the lease fixed rent at $7875 per month for the first year of the term, and

section 3(

b) required the parties to negotiate and agree on rent for years two and three. [ 2 ] The tenant went into possession of the premises and paid rent for the first year under

section 3(

a) of the lease. The parties negotiated, but did not reach agreement, on the amount of rent for years two and three. [ 3 ] A dispute arose whether the lease was enforceable after the end of the first year. The landlord claimed the lease was not

enforceable for those years because the amount of rent was uncertain. The tenant claimed the lease was enforceable, and sought directions including fixing the amount of rent under the lease. [ 4 ] In Hotchkiss v Budding Gardens Inc , 2020 ABQB 794 (the “Reasons”), I concluded that

section 3(

b) of the lease was uncertain. [ 5 ] On the question of what remedy to grant the landlord, I made the following observations and directions: VI Remedy [132] The landlord seeks a declaration that the lease “became void” as of June 1, 2020 and that Budding Gardens has been a tenant since June 1, 2020 on a month to month basis only.

The landlord’s counsel submitted that Budding Gardens is a month to month tenant because it went into possession, the lease “became void” and therefore the tenant is overholding. [133] The landlord did not cite any authority that the lease could be severed, such that the first year of the term is valid and subsequent years are void. If the landlord is saying the lease is valid during year one, then it hasn’t addressed the

interpretation of

section 17 of the lease concerning overholding. That provision is internally inconsistent, and seems to say the tenant is a tenant for years in one sentence, and a tenant for months in the next sentence. [134] The tenant focussed on its case that the lease is valid and why the Court should refuse a declaration.

It did not make submissions about the remedy that should follow if I accepted the Hotchkisses’ position, whether the lease can be void for part of the term only, or the basis on which Budding Gardens was in the premises if the lease were void. .... [137] The landlord is entitled to a declaration that the lease is uncertain because the rent in years two and three is uncertain. [138] I will not deal, in these reasons, with the question whether the tenant is overholding and if so, on what basis.

It appears to follow from Ko [ v Hillview Homes Ltd , 2012 ABCA 245 , leave denied [2012] SCCA No 445] that the lease is void, but perhaps year one is severable from years two and three. The parties have not cited authority on the point. They will need to make supplemental submissions if they are unable to agree whether the Court should issue a declaration that the lease is entirely void, or void only as to years two and three; or if they are unable to agree when the tenant is legally obliged to vacate.

VII Conclusion [139] The lease is uncertain and therefore of no force and effect for years two and three of the term. I have not determined if

section 3(

b) can be severed, such that the lease was valid for year one; or if so, how the overholding provision in

section 17 of the lease may affect the timing of the tenant’s obligation to vacate the premises. See para 138 above. If the parties require a determination of these points, then they must do so by written submission, unless they persuade me that an oral hearing is necessary to deal with these subsidiary points. [ 6 ] The tenant abandoned the premises on December 17, 2020. The landlord sought directions that the lease was valid for year one but void for years two and three, and costs. The tenant advised on February 4, 2021 that it was unable to further participate in the matter.

Whether to sever the term of the lease [ 7 ] Sections 2 and 3 of the lease provide: 2. TERM: This Lease shall be for a term of three (3) years commencing on the 1 st day June 2019. 3. MINIMUM RENT:

a) For the first year of this Lease, the Lessee agrees to pay to the Lessor minimum annual rent in the amount of $90,000.00 plus applicable GST in Canadian currency for the Demised Premises by monthly payments in the amount of $7875.00 ... commencing on the first day of June, 2019 and continuing on the 1 st day of each and every month up to and including the 1 st day of May 2019.

b) For the second and third years of this Lease, the Lessee will pay the Lessor an adjusted monthly rent amount, to be negotiated one month prior to the anniversary date of this Lease, and agreed to by both parties, based on a review of actual costs associated with utilities and upkeep of the Demised Premises. As with the first year of this Lease, the amount is to be paid per month on or before the first day of the month by way of either cheque or email transfer. [ 8 ] The lease contains other provisions speaking to its duration.

Section 16(

b) permits the tenant to terminate the lease after two years if the tenant is unable to obtain a license from Health Canada for cannabis cultivation.

Section 23 guarantees quiet possession to the tenant upon paying the rent and complying with the lease covenants. [ 9 ] The landlord submits sections 2 and 3 of the lease must be read together, and that the three year term of the lease is divided into two distinct periods: the first year, where the rent is quantified; and the second and third years where the rent is uncertain. Therefore, years two and three can be severed, and year one does not fail for uncertainty. [ 10 ] The landlord submits I should apply the test for severance set out in Rumrunner Pub Ltd v Seaport Place Holdings ULC ,

2010 BCSC 736 , a case dealing with contractual uncertainty of a portion of a lease renewal clause. In that case, the Court stated: [63] The question of whether Clause 2 [of the lease renewal clause] can be severed must begin by considering whether the remainder of the contract can be enforced. This involves a consideration of four principles.

These principles can be conveniently found in Halsbury’s Laws of England , Vol. 9, 4th ed. (London: Butterworths, 1998) at p. 633, para. 877: 1) the clause must be void, but not illegal; 2) it must be possible to strike out the clause without rewriting or rearranging the contract; 3) severance of the clause must not alter the scope or the intention of the agreement; and 4) the contract once the offending clause is removed must retain the characteristics of a valid contract. [ 11 ] The landlord cites numerous examples where renewal clauses were found unenforceable without affecting the validity of the whole lease [1] .

There are similar examples severing rent review clauses [2] . [ 12 ] In a more recent decision, Khela v Clarke , 2021 BCSC 503 , the BC Supreme Court reviewed various authority on the issue and concluded: [76] ... The jurisprudence is clear that severance of uncertain terms is limited to those that are: (

a) meaningless, minor, or subsidiary to an otherwise enforceable agreement; or (

b) in a divisible part of an agreement. Vague or uncertain terms that the parties intended to govern a vital aspect of the parties’ relationship are not severable; they vitiate the entire agreement. [ 13 ] That statement is consistent with Alberta authority on the matter. [ 14 ] As to subsidiary terms: Uncertain terms that are not an essential part of the contract will not be fatal to its enforcement; uncertain or meaningless terms that are subsidiary may be severed from the contract ...

Hole v Hole , 2016 ABCA 34 at para 49 . [ 15 ] As to divisible terms, the Alberta Court of Appeal in Ko v Hillview Homes Ltd , 2012 ABCA 245 , leave denied [2012] SCCA No 445, acknowledged that the Court may sever where the subject matter is separable but, on the facts of that case, refused to sever the uncertain portion. [ 16 ] The dispute in Ko concerned an agreement to sell a lot and construct a house thereon. The design of the house was uncertain.

The trial judge declared the contract to be enforceable but ordered specific performance of only the part of the contract (sale of the lot, at an unspecified price). Although the trial judge found the contract valid, the remedy did not oblige the buyer to build any home on the lot. [ 17 ] The Court of Appeal rejected the notion that a part only of that contract could be enforced: [155] ... There is no contract. In theory the respondent could try to show that the contract for the lot was severable.

Given the developer’s position about not getting a lot without an approved house, a house was a vital topic for the appellant builder and not separable.... [ 18 ] Contracts containing uncertain essential terms can be saved through a variety of mechanisms ( Ko at para 120 ). Among these mechanisms is the power of the Court to imply that an unspecified price be a reasonable price. [ 19 ] I rejected such approaches in the present case.

The parties expressly reserved to themselves the determination of rent, with broad discretion that was not limited to prevailing market rates or other considerations that were defined with sufficient certainty. The parties did not have any experience in commercial leasing or with cannabis cultivation facilities.

In substance, the parties contemplated a rent renegotiation after they had gained experience with each other and the operation of a cannabis cultivation facility. [ 20 ] In Pagnan SPA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 , Bingham J at first instance, observed that the parties control their contractual fate, and “It is their intentions which matter and to which the court must strive to give effect.” [ 21 ] The landlord says the parties must have contemplated that if they couldn’t agree on rent for the later years, the lease would end [3] .

Severance would respect their objective intentions because the parties contemplated the tenant being in possession immediately and renegotiating rent later. Well informed parties acting prudently should have known that their rent provision in

section 3(

b) was a mere agreement to agree and would not be enforced. However, they also must have intended the tenant to be in possession under the specified legal framework that detailed the rights and obligations of each side including with respect to alterations, maintenance, and insurance [4] . It is highly likely that if asked, the parties would have said that if they could not agree on rent, the arrangement would terminate. [ 22 ] I am mindful that

section 2 prescribes a three year term for this lease. However, that is inconsistent with the consequences of the explicit agreement to agree in

section 3(b). These express provisions must be reconciled. Given the surrounding circumstances described in para 73 of my Reasons, I am persuaded that the parties must have intended, objectively speaking, that their lease be divisible and that severance would respect the parties’ objectively mutual intentions. [ 23 ] The tenant did not dispute the landlord’s position on remedy in the event the Court found

section 3(

b) uncertain. I accept the landlord’s position in the absence of opposing argument. I grant the declaration that the landlord requests.

Costs [ 24 ] The Applicants seek a costs award of 50% of their solicitor and client fees, plus disbursements. Alternatively, they seek an award based on the tariff,

Schedule “C”, column 3. [ 25 ] The Rules of Court provide that the successful party is entitled to costs following the event (R 10.29(1)), subject to the Court’s general discretion under R 10.31. [ 26 ] This rule applies where a party is substantially successful in a proceeding ( Clarke v Syncrude Canada Ltd , 2014 ABQB 430 at para 7 ). Where success is mixed to the extent that it cannot be said that one party was “substantially successful”, no order should be made as to costs and the parties will bear their own costs ( ibid at para 12).

Costs “are not usually apportioned on an issue-by-issue basis, a claim-by-claim basis or on a head-of-damages basis, although there is a discretion to do that in proper cases” ( Mahe v Boulianne , 2010 ABCA 74 at para 6 ). [ 27 ] R 10.31 confirms the Court’s wide discretion in providing for reasonable and proper costs of the successful party’s litigation expenses, in an appropriate amount ( Stewart Estate v TAQA North Ltd , 2016 ABCA 144 at para 17 ).

Rule 10.33 sets out the variety of factors to be considered in assessing quantum. “The ultimate question is whether the final total is reasonable or not.” ( Ed Miller Sales & Rentals Ltd v Caterpillar Tractor Co , 1998 ABCA 118 at para 4 ). [ 28 ] The Applicants ask me to award them a partial indemnity for their actual solicitor and client account in the amount of 50% of fees, plus disbursements. They rely on Remington v Crystal Creek Homes Inc , 2018 ABQB 644 , where the Court awarded a successful applicant 40% of its solicitor and client account.

The general approach of awarding indemnity of 40 to 50% of actual solicitor and client costs in appropriate cases is discussed in McAllister v Calgary (City) , 2021 ABCA 25 . [ 29 ] The Applicants’ lawyer provided me a print out identifying time keeper, time recorded, and resulting fee. It does not contain service descriptions. This information is not sufficient to assess solicitor and client costs under Rule 10.2.

I am not referring the matter to an assessment officer, requiring additional resources and incurring further delay. [ 30 ] The application and cross-application were heard as a ½ day Chambers hearing with written briefs, on a common record consisting of one affidavit from each side and cross-examination on these affidavits out of Court. The Respondent extracted 33 undertakings in the cross-examination of Mr Hotchkiss, resulting in a lengthy set of responses and production of various records. The Applicants abandoned several issues at the outset of the hearing (Reasons at para 11).

They succeeded on the remaining issues. The vast majority of the issues in the cross-application mirrored the Applicants’ application. The only added issues were whether the landlord negotiated in bad faith and whether to limit the landlord’s right of inspection under the lease. The parties addressed these added issues in the context of the over-riding issue whether the Applicants and Respondent came to a further contractual agreement in June 2020.

The added issues did not materially add to the length of the record, but increased the effort needed to conduct the proceedings. [ 31 ] The Applicants were substantially successful in their application. They should receive costs. They abandoned some issues that must have put the Respondent to greater expense. The Respondent unsuccessfully raised the added issues that must have put the Applicants to greater expense. These considerations are off-setting, and neither merits an increase or reduction of costs. Therefore, the two applications should be assessed as if one complex application. [ 32 ] The

Schedule “C” tariff was amended in March 2020, AR 36/2020. It is a suitable reality check for reasonable costs of a chambers application. [ 33 ] Column 1 of

Schedule “C” would be the default where the relief is not expressed in money, but that range is too low for relatively complex matters. The matter was moderately complex. Column 3 is appropriate. Both sides filed detailed and lengthy briefs dealing with the evidentiary record and numerous legal issues. Both filed reply briefs. The Respondent’s reply was particularly lengthy. Given the number and character of the issues, the costs of the hearing should be based on an appearance to argue before the Court of Appeal rather than tariff item 8(1).

I would also add $750 to account for the lengthy undertakings in Mr Hotchkiss’ cross-examination, because these exceed what one would typically see in a cross-examination in contrast to a discovery. [ 34 ] On this basis, costs would amount to $19650. This is slightly more than 40% of the amount of claimed solicitor and client costs. It is a reasonable amount for this proceeding and I award that amount. [ 35 ] I further award Applicants their disbursements and other charges as claimed. Their claim includes typical amounts to third parties for transcripts and filing.

Based on the volume of materials filed with the Court in this proceeding, the claimed charges for copying appear to be in the range of reasonableness. [ 36 ] The total amount is $23,774.05. The Applicants may add GST if they provide an affidavit that they have incurred GST and are not entitled to any credit in respect thereof. The final amount of costs, in a lump sum format, should be included in the formal judgment.

They can send the judgment, together with the affidavit re GST, to me directly through my judicial assistant. [ 37 ] In addition to the Applicant’s filed submissions dated February 19, 2021, the Clerk of the Court is directed to file a copy of the Applicants’ letter submission dated January 27, 2021 and the Respondent’s letter dated February 4, 2021 on the Court file. Written submissions January 27, 2021 and February 19, 2021 (Applicants); letter from the Respondents advising they take no further position, February 4, 2021 . Dated at the City of Calgary, Alberta this 27 th day of April, 2021.

J.T. Eamon J.C.Q.B.A. Appearances: James M Delaney for the Applicants/Cross-Respondents No appearance for the Respondent/Cross-Applicant