2022 QCCA 509, 2022 QCCA 509

Vihar Hospitality Inc. c. Norael Corp. 2022 QCCA 509 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-029231-206 (500-17-099644-174) DATE: April 13, 2022 CORAM: THE HONOURABLE YVES-MARIE MORISSETTE, J.A. GUY GAGNON, J.A. SOPHIE LAVALLÉE, J.A. VIHAR HOSPITALITY INC. APPELLANT – Defendant/Cross-Plaintiff v. NORAEL CORP. RESPONDENT – Plaintiff/Cross-Defendant and LAND REGISTRAR FOR THE REGISTRATION DIVISION OF MONTREAL IMPLEADED PARTY JUDGMENT [ 1 ] The appellant appeals from a judgment rendered by the Honourable Mr.

Justice Patrick Buchholz of the Superior Court (District of Montreal) on October 27, 2020, which declared that the option contract between the parties for the purchase of emphyteutic rights is invalid, confirmed the termination of the commercial lease between them, and ordered the respondent to reimburse the appellant an amount of $200,000 which the appellant had advanced in order to avail itself of the option contract. [1] *** [ 2 ] The matter before the trial judge required him to determine whether the parties were bound by a contract of emphyteusis and, if not, whether they had instead agreed to establish an innominate dismemberment of the right of ownership of the respondent, Norael Corp. (“Norael”).

He also had to rule on Norael’s bad faith and abuse of contractual rights, both of which the appellant, Vihar Hospitality Inc. (“Vihar”), had alleged. [ 3 ] He found in the negative on all of these questions.

Vihar therefore appealed. *** [ 4 ] The central issue in this appeal can be stated as follows: In order for a contract establishing emphyteusis to be valid, must the owner of the immovable know, as of the moment the contract is entered into, the substance of the improvements that will be made to the immovable? [ 5 ] Vihar essentially argues that the judge erred in interpreting the clauses of the various agreements entered into between it and Norael, which clauses allowed Vihar to become the emphyteuta at any time during the five years when it was the lessee of Norael’s property. [ 6 ] Norael replies that, pursuant to

article 1195 of the Civil Code of Québec (“ C.C.Q. ”), the improvements an emphyteuta is required to make to the immovable must be clearly defined in the act constituting such dismemberment of the right of ownership. Since the parties did not agree on a plan for the improvement of the immovable, the agreements between them did not meet the minimum requirements to compel it to grant Vihar the right of emphyteusis on the immovable. – I – [ 7 ] The facts giving rise to this dispute are relatively complex, but can be summarized as follows. [ 8 ] Norael was incorporated in the early 1960s for the purpose of acquiring and developing land near Montreal’s airport in Dorval.

The company owns the immovable property located at 7300 Côte-de-Liesse Road (the “Property”). [ 9 ] In 1963, pursuant to a contract of emphyteusis with a 60-year term (the “Original Emphyteutic Lease”), a hotel was built. [2] Since then, a succession of five emphyteutas has operated the hotel. [3] [ 10 ] Until the fall of 2011, the hotel operator was a numbered company run by Vinod Patel (“Patel”). It experienced serious financial difficulties, losing approximately $500,000 per year, and was no longer paying the municipal taxes or maintaining the building, which was in very poor condition.

In fact, the hotel operation had been up for sale since 2009. [ 11 ] In October 2011, the company run by Patel offered Ramesh Vala (“Vala”) the opportunity to take over the remaining term of the Original Emphyteutic Lease entered into in 1963 and ending in 2023.

Vala, who is a chartered accountant and had owned a hotel in Ottawa since 1998, incorporated Vihar in the fall of 2011 for the sole purpose of operating the hotel that is the subject of this dispute. [ 12 ] Before entering into a contractual arrangement with Norael, Vala visited the hotel and, without even having it inspected, noted that a major investment was required due to its condition.

Vala felt that a long-term commitment could be financially detrimental to him if he were not eventually able to turn the business around and he therefore decided not to take over the remaining term of the Original Emphyteutic Lease.

He wanted to first sign a lease so that he could operate the hotel as lessee for a period of five years, which would allow him to decide if he then wanted to agree to a 40-year term under a contract of emphyteusis. [ 13 ] The parties therefore signed three documents: an agreement for the lease of the Property for a five-year term (the “Lease”), [4] a letter of intent [5] and a combined option agreement (the “Option”) providing for a five-year lease during which Vihar could, at any time, exercise an option to enter into a contract of emphyteusis with Norael. [6] [ 14 ] In October 2012, Vihar took over the operation of the hotel, which was then under the Park Inn banner.

In December, it decided to switch to the Travelodge banner so as to avoid having to invest some $2 million in the Property, which would have been needed in order to satisfy the minimum Park Inn requirements. [ 15 ] On October 6 and 20, 2014, Vala sent emails to Norael in which he stated that he would no longer be in a position to continue operating the hotel unless he could come to a new agreement with Norael. He stated that a minimum investment of $1.5 million was needed in order to simply keep the hotel operating.

On March 12, 2015, Vala sent a second email to Norael reiterating that he was experiencing a number of difficulties in operating the hotel, which was in very poor condition. [ 16 ] This email included several photographs showing the effects of numerous water infiltrations. In addition, the WIFI and air conditioning in several rooms were not working, the swimming pool was unusable, the parking lot needed repairs and certain exterior doors could no longer be shut.

Consequently, between 20 and 35 rooms out of the hotel’s 186 rooms were simply unusable, and there was a smell of mildew and humidity. [ 17 ] On August 17, 2015, the parties agreed to reduce the rent payable by Vihar and to cancel any future scheduled increases. The rent was then set at $10,000 per month. In the summer of 2016, Vala and Charlie Rabie met at the hotel to discuss the work that needed to be done on the Property: the roof had to be redone, the parking lot had to be entirely repaved, the ventilation system had to be changed, the landscaping had to be redone and all the rooms had to be updated.

The president of Norael, Adele Rabie, testified that work in the order of $8 to 9 million was required. [ 18 ] On January 9, 2017, Norael received a third-party offer to purchase the Property for $5.5 million. Norael accepted the offer and sent it to Vihar to allow it to exercise its right of first refusal in respect of the Property.

Norael then informed Vihar of five minimum conditions that had to be met in order for a contract of emphyteusis to be entered into, including a requirement that Vihar make improvements to the Property for a minimum cost of $14 million. [ 19 ] On March 6, 2017, Vihar sent Norael a notice informing it that it was exercising its option to become an emphyteuta.

One month later, Norael replied that the contract of emphyteusis was incomplete and had to be perfected and that the parties had to come to an agreement on a renovation plan. [ 20 ] On April 13 and May 19, 2017, Vihar sent Norael two draft contracts of emphyteusis, which were essentially a cut and paste of the Option both parties had signed at the start of their contractual relationship.

Norael rejected them, alleging that they still did not contain a plan providing for improvements giving a lasting increase in value to the Property. [ 21 ] On May 23, 2017, Norael sent Vihar a draft contract of emphyteusis containing a list of improvements, amounting to approximately $9 million, to be made to the Property.

On June 6, 2017, Vihar sent Norael its own draft contract of emphyteusis, in which it undertook to make the renovations required in a renovation plan to be approved by a future franchisor, and in which it also undertook to keep the hotel in good condition by making “First class repairs”, which repairs, however, were not specified. Moreover, in that email, Vihar admitted that the

schedule for the payment of instalments on the purchase price for the emphyteutic rights was yet to be agreed upon by the parties. [ 22 ] On July 5, 2017, Norael sent a notice of termination of lease and eviction to Vihar, reminding it that the Lease would terminate on September 30, 2017. Vihar replied to this notice by offering to purchase the Property for $3.3 million, although the value of the Property, according to the municipal valuation, was more than $4 million. On July 6, 2017, Norael received a third-party offer to purchase the Property.

On July 17, 2017, Norael sent Vihar a notice giving it 48 hours to match the offer, which Vihar refused to do. [ 23 ] On July 21, 2017, Norael filed an originating application seeking the judicial resiliation of both the Option and the Lease between the parties. – II –

[ 24 ] The judge then noted that good faith is presumed and that, in the case at bar, both parties had accused each other of bad faith, but the evidence did not support their allegations.

The trial judge concluded that the Option is not valid, because it is an accessory to a contract of emphyteusis which is itself invalid given that it is missing an essential element, namely a plan to make constructions, works or plantations on the Property that increase its value in a lasting manner. [ 25 ] The following are the relevant excerpts of the judgment under appeal on this point: [26] In the present case, there are significant obstacles to construing the Option as true and perfect, and thus valid and enforceable. [27] Firstly, and most importantly, for the option to be valid, the contract that flows from the exercise thereof must itself be valid and enforceable.

It must itself contain the essential elements of a contract. Otherwise, an option is merely a road to nowhere. To be clear, an option for something invalid is itself invalid and unenforceable. […] [30] Emphyteusis requires, as an essential element, an undertaking to make constructions, works or plantations that increase the value of an immoveble [ sic ] in a lasting manner. […] [35] It is true that pursuant to subsection 4.1.4 (

i) of the Option: “Vihar agrees to proceed to a renovation plan, subject to an agreement to intervene with Vihar’s franchisor. Such plan shall provide details in regards to the conduct of construction, renovation and/or improvements on the Building”. [36] In the Court’s view, such a promise to proceed with “a” renovation plan rings hollow. It is not unlike saying that a purchase agreement will be for “a” price, without agreeing on “the” price. […] [39] The Court has great difficulty with such a proposition.

An owner of a property, who gives it up to emphyteusis for 40 years, must have a say, even if general and undetailed, about the constructions, works or plantations on his property that will foreseeably provide lasting value when the emphyteusis ends.

Even if the emphyteusis lasts 40 years, there is a world of difference between works of little value and works losting [ sic ] millions of dollars. […] [52] In the Court’s view, Vihar always understood that it had to renovate the Property substantially in order to get 40-year rights to the Property and that such renovation work needed to be completed within a short time period. […] [55] Vihar further suggests that it made no sense for it to engage numerous tradespeople, such as architects and engineers to inspect the Property and then prepare quotes for a renovation plan, if it has no emphyteutic lease.

On the contrary, the Court considers that that is exactly what needed to be done by Vihar, and also the reason it was provided with an initial 5-year lease (rather than a 3-year lease as Norael originally wished). Vihar was not ready to conclude an emphyteutic lease right from the start and it needed more than 3 years to get everything ready. Such was Mr. Vala’s testimony.

But, by the end of the 5 years, the evidence indicates that nothing was ready. [7] [ 26 ] In short, according to the trial judge, the Option signed by the parties contains no concrete agreement on Vihar’s principal obligation to make improvements that increase the value of the Property in a lasting manner within the meaning of

article 1195 C.C.Q.

A subsequent agreement on this matter was required, but the parties were unable to negotiate one. [ 27 ] The judge then noted that good faith is presumed and that, in the case at bar, both parties were had accused each other of bad faith, but the evidence did not support their allegations. [8] He was of the opinion that once they were embroiled in this dispute, each of the parties had tried to put forth arguments that would allow it to extricate itself from the dispute, but that their conduct did not necessarily amount to bad faith or malicious intent. [9] [ 28 ] Lastly, having declared the Option invalid, the trial judge confirmed the termination of the Lease on September 28, 2017, ordered Vihar to vacate the Property within 30 days from the date of the judgment and condemned Norael to reimburse the sum of $200,000 it had received from Vihar as an advance on the purchase price of the emphyteutic rights, with interest at the legal rate and the additional indemnity since October 2, 2012. [10] – III – [ 29 ] Vihar argues that since the letter of intent, the Lease and the Option were all drafted by Norael’s lawyers, they should be interpreted in its favour pursuant to

article 1432 C.C.Q. It adds that the judge erred in finding that the validity of the emphyteusis could depend on Norael’s willingness to perform (or not perform) its obligations under the Option, which is contrary to

article 1500 C.C.Q . [ 30 ] Vihar also argues that the trial judge erred in ruling that ss. 4.1.4, 5.1.4 and 5.1.5 of the Option did not contain sufficient details of the improvements it had undertaken to make to the Property, when these were, in fact, the “First class repairs” provided for in s. 4.1.4(iii). At the hearing, it submitted that these provisions of the Option were such that the contract of emphyteusis was but a continuation of the Lease, which Lease already imposed on it the obligation to make such repairs, as required by a future franchisor. [ 31 ] Vihar therefore argues that it could exercise the Option by merely “pressing a button”, without subsequently having to negotiate

anything whatsoever with Norael other than the

schedule for the payment of instalments on the purchase price for the emphyteutic rights, which was still to be discussed. [ 32 ] Norael retorts that compliance with Vihar’s contractual undertaking to make improvements to the Property that increase its value in a lasting manner is missing. The provisions of ss. 3.2 and 6 of the Option clearly stipulate that the parties had to enter into a Deed of Purchase of the emphyteutic rights as well as an Emphyteutic Lease setting out the details of the improvements Vihar was required to make to the Property.

In fact, this is what Vihar implicitly acknowledged when, on April 13 and May 19, 2017, it submitted to Norael two draft emphyteusis contracts, which were essentially a cut and paste of the Option and were rejected by Norael since, according to it, an essential element of the emphyteusis—that is, the improvements bringing lasting added value to the building—was not there.

The parties, however, were never able to agree on the improvements. [ 33 ] Considering the parties’ respective submissions, the Court must determine whether the judge erred: - by finding that there was no valid contract of emphyteusis and, subsidiarily, no innominate dismemberment of the right of ownership; - by finding that there was no bad faith and no abuse of contractual rights by the respondent. A.

Did the trial judge err by finding that there was no valid contract of emphyteusis? [ 34 ] The trial judge’s characterization of the Option granted by Norael to Vihar is central. [ 35 ] In this regard, it is settled that while the characterization of a contract in abstracto is a matter of law, this exercise can rarely be carried out without considering the circumstances that led to the formation of the contract.

Consequently, the correctness standard will apply only in those rare situations in which no elements extrinsic to the contract come into play. [11] [ 36 ] In the present case, in light of the issue in dispute, which requires consideration of the voluminous evidence filed by the parties in order to determine whether they agreed on the constituent elements of a contract of emphyteusis, the applicable standard of review is palpable and overriding error. *** [ 37 ] As regards emphyteusis, the Civil Code of Québec states:

1195. Emphyteusis is the right which, for a certain time, grants a person the full benefit and use of an immovable owned by another provided he does not endanger its existence and undertakes to make constructions, works or plantations thereon that increase its value in a lasting manner. Emphyteusis is established by contract or by will. […] 1203. The emphyteuta is bound to make repairs, even major repairs, concerning the immovable or the constructions, works or plantations made in the performance of his obligation. […] 1210.

Upon termination of the emphyteusis, the emphyteuta shall return the immovable in a good state of repair with the constructions, works or plantations stipulated in the constituting act, unless they have perished by superior force. Any additions made to the immovable by the emphyteuta which he is under no obligation to make are treated as disbursements made by a possessor in good faith. 1195 .

L’emphytéose est le droit qui permet à une personne, pendant un certain temps, d’utiliser pleinement un immeuble appartenant à autrui et d’en tirer tous ses avantages, à la condition de ne pas en compromettre l’existence et à charge d’y faire des constructions, ouvrages ou plantations qui augmentent sa valeur d’une façon durable. L’emphytéose s’établit par contrat ou par testament.] […] 1203. L’emphytéote est tenu aux réparations, même majeures, qui se rapportent à l’immeuble ou aux constructions, ouvrages ou plantations qu’il a faits en exécution de son obligation. […] 1210.

À la fin de l’emphytéose, l’emphytéote doit remettre l’immeuble en bon état avec les constructions, ouvrages ou plantations prévus à l’acte constitutif, à moins qu’ils n’aient péri par force majeure. Ce qu’il a ajouté à l’immeuble sans y être tenu est traité comme les impenses faites par un possesseur de bonne foi. [ 38 ] It should be noted that the wording of

article 1195 C.C.Q. differs from that of articles 567 and 569 of the Civil Code of Lower Canada (“ C.C.L.C. ”). [ 39 ] In an academic text on emphyteusis in Quebec, Professor François Frenette explains that the reference to a “lease” in those C.C.L.C. provisions was a vestige of the bail à cens and bail à rente found in the French legal system, and that it resulted in

interpretation problems which the Civil Code Revision Office sought to address. [ 40 ] The C.C.Q. clearly indicates that emphyteusis is a dismemberment of the right of ownership and leaves behind the expression “emphyteutic lease”. However, the central obligation to improve the immovable in a lasting manner, which was already found in the C.C.L.C. , is still at the core of emphyteusis in Quebec civil law: Le Code civil du Québec , dont certaines dispositions avaient fait l’objet d’une mise en vigueur anticipée, a le grand mérite de ranger clairement la tenure emphytéotique parmi les démembrements du droit de propriété . L’

article 1119 C.c.Q. le dit en toutes lettres. Le progrès est énorme parce qu’il permet ainsi une meilleure articulation des règles gouvernant l’institution. […] Le législateur de 1866 ne définissait pas l’emphytéose. En effet, l’article 567 C.c.B.C. décrivait simplement le contrat qui était le plus souvent utilisé dans l’ancien droit pour donner naissance à l’emphytéose. Ce contrat, auquel on avait ajouté l’obligation d’améliorer et dont on avait fixé la durée, était le bail . [12] [References omitted; boldface added] [ 41 ] In Sylvain c. Visitation de Champlain (Corp. municipale paroisse de) , this Court, referring to the work of the Civil Code Revision Office, wrote:

[50] En réalité, la jurisprudence et la doctrine de l’époque voyaient l’emphytéose davantage comme une convention hautementexceptionnelle, plutôt que comme un contrat visant un simple démembrement temporaire du droit de propriété. L’emphytéose, si elleemporte aliénation, ne confère pas cependant au locataire tous les attributs du droit de propriété (Racine c.

Ville de Québec, (QC CA), [1989] R.J.Q. 1112 (C.A.) et l’opinion de ma collègue, madame la juge Mailhot). [51] Or, en droit immobilier moderne, le bail emphytéotique est devenu un outil juridique fort précieux […] C’est pourquoi, lelégislateur, après l’affaire Weissbourd, a réagi rapidement en ajoutant au Code civil du Bas-Canada l’article 569.1 C.c.B.C. (devenul’article 1200 C.c.Q.), de façon à contrer la jurisprudence dominante, à réduire le caractère extraordiniaire et exceptionnel du bailemphytéotique et à offrir aux promoteurs immobiliers un outil économique intéressant (Voir: J.

CLAXTON, « Emphyteusis: ASuggested Fresh Approach (Weissbourd and Nuns’ Island Revisited) », (1989) 49 R. du B. 345). Cet

article se lit comme suit: […] [52] Le législateur a manifestement entendu encourager une interprétation libérale et une meilleure adéquation d’une vieilleinstitution à la réalité économique et commerciale moderne. La chose transparaît d’ailleurs à la lecture des travaux préparatoires à la loiqui a modifié le Code civil du Bas-Canada. (Voir: Assemblée Nationale, journal des Débats, Commission permanente des institutions, Québec, 4 ième session, 32 ième législature, 1984, p.

CI-498 et CI-499).[13] [References omitted; underlining added] [42] The desire to put an end to the concept of emphyteusis as an exceptional contract to be narrowly construed is reflected by itsplace in Book IV of the C.C.Q., among the other dismemberments of the right of ownership.

In doing so, however, the legislature did notcompletely do away with the constituent elements of emphyteusis—namely, the existence of an immovable property, the emphyteuta’s right to full enjoyment of the property, the 100-year limit on the duration of the right,[14] and the requirement that the emphyteuta make improvements that increase the value of the property in a significant manner.[15] [43] The suggestion, made by two authors, to the effect that the obligation to improve may be adapted according to the amount of the rent provided for in the contract of emphyteusis[16]—a suggestion that was not pleaded on appeal and which need not be analyzed indetail in the present matter—appears more suited to the French legal system, in which the bail à construction[17] exists alongside emphyteusis.

The latter notion is codified in the Code rural in terms that are lessspecific than those of the C.C.Q. as regards the requirement of an improvement that increases the value of the immovable property in a lasting manner.[18] [44] According to Professor Frenette: Les améliorations occupent une place tellement prépondérante dans le cadre de la formule emphytéotique qu’il faut savoir avecexactitude en quoi elles consistent. À cet égard, le Code civil du Bas Canada ne fournissait que des indices selon lesquels lesaméliorations caractérisant la tenure emphytéotique consistaient en des constructions, en des bâtiments.

Les arrêts rapportés depuis lacodification de 1866 révélaient par ailleurs, quand la relation des faits en permet le contrôle, que les réalisations de l’emphytéote avaienthabituellement pris la forme de travaux de construction divers impliquant l’usage de matériaux. Ce n’était point dire cependant que riend’autre n’était admissible au

chapitre des améliorations. Le Code civil du Québec reprend cet acquis pour dire clairement, auxarticles 1195, 1203 et 1210, que la tenure emphytéotique est à charge de « constructions, ouvrages ou plantations » […]. Le législateur oppose les améliorations aux réparations, même majeures, qui sont également à la charge de l’emphytéote. Cesgrosses et petites réparations entrent dans la catégorie des dépenses d’entretien périodiquement ou régulièrement requises.

Ces dépensesse rapportent, pour les réparations majeures, à des déboursés d’importance, intéressant les parties vives d’un immeuble et visant à assurersa conservation. L’article 1152 C.c.Q. nous donne des exemples en la matière pour ce qui a trait aux bâtiments, maisons d’habitation etautres semblables. La dépense a par ailleurs trait, pour les réparations mineures, à des déboursés courants de faible ou moyenneimportance effectués en vue d’assurer un maintien dans la qualité de présentation du bien.

Ainsi en est-il des travaux de peinture, duramonage des cheminées, du rajeunissement de la marqueterie, du remplacement des carreaux brisés, etc. Signalons enfin que les améliorations incombant en tout premier lieu à l’emphytéote et sur lesquels compte le propriétaire onttrait à des déboursés qui tendent avant toute chose à développer l’immeuble cédé en emphytéose, à lui procurer une valeursupplémentaire aussi permanente que possible.

La plus-value imprimée à l’immeuble par les investissements de l’emphytéotedoit être durable comme le précise la fin du premier alinéa de l’article 1195 C.c.Q. […] Au résultat, les améliorationsemphytéotiques seront toujours des immeubles corporels qui sont soit matériellement et juridiquement susceptibles d’identité distincte du bien originairement cédé en emphytéose, soit devenues parties intégrantes de ce bien.[19] [References omitted; boldface added] [45] On the same point, Professor Sylvio Normand states the following: L’obligation d’apporter des améliorations à l’immeuble (1195 C.c.Q.) constitue une obligation incontournable de l’emphytéose depuis lacodification du droit privé québécois en 1866, il s’agit même d’une obligation propter rem.

Cet engagement présente un caractère obligatoire et non simplement facultatif. Le propriétaire accepte le démembrement de son droit depropriété, et ce, pour une période souvent longue, dans la perspective de bénéficier de l’enrichissement que lui procureront lesaméliorations réalisées sur son immeuble. En cas d’absence d’engagement à apporter des améliorations à l’immeuble, force est de conclure que le contrat contrevient à l’une des conditions essentielles à la constitution d’une emphytéose.[20] [46] As regards the improvement contemplated by

article 1195 C.C.Q., he specifies that it will usually consist of newly erected

buildings or structures, which can also include the conversion of an existing building. [21] It cannot, however, be a mere obligation to maintain the value of the property by making the necessary repairs, because those are not improvements that increase its value. [22] [ 47 ] For greater certainty, in the C.C.Q. the legislature replaced the generic term “improvement” with “constructions, works or plantations”: L’obligation principale de l’emphytéote est décrite au Code civil du Bas - Canada comme étant celle d’apporter des améliorations à l’immeuble lui ayant été cédé à ce titre.

Ce terme générique, et peut-être sibyllin pour plusieurs, est remplacé par ce à quoi il a toujours correspondu dans le concret, soit des « constructions, ouvrages ou plantations ». Il importe évidemment que ces travaux impriment une plus-value à l’immeuble du nu-propriétaire, mais encore doit-il s’agir d’une plus-value durable, susceptible, faut-il comprendre, de passer à ce dernier à l’extinction de la tenure emphytéotique. Il en va de la philosophie même de l’institution.

Le propriétaire ne démembre aussi largement son droit qu’en considération de cet avantage escompté. [23] [ Underlining added] [ 48 ] Thus, in order to conclude that a right of emphyteusis exists, the improvements must increase the value of the immovable in a lasting manner, [24] since this requirement to improve the property is the quid pro quo for the real right granted by the owner over his immovable property, which allows the emphyteuta to use the property for a very long time. [ 49 ] As a corollary, the act creating the emphyteusis must describe the improvements the emphyteuta undertakes to make to the immovable and their cost, [25] since the emphyteuta’s obligation must be determinate or determinable, which implies that the improvement must at least be sufficiently described or be set out in a plan. [ 50 ] Let us consider the disputed provisions in light of these requirements. [ 51 ] The following are the relevant provisions of the Lease : 6.1 The Lessee shall be granted a combined Option to :

a) purchase the emphyteutic rights of the Building existing at this date for the amount of: i. […]

b) conclude an emphyteutic lease for the Property (the “Emphyteutic Lease”) for the rent set forth in the

Schedule 6.2 This Lease shall cease accordingly in the event that the Option is exercised and shall be replaced by the Emphyteutic Lease. 7.

STATE OF PREMISES 7.1 The Lessee shall maintain the Premises in First-Class Repair at all times, taking into account its current condition . “First class repair” in this subsection shall mean that the Lessee shall be bound to make all required repairs to the Building, including urgent and necessary repairs, lesser maintenance repairs, as well as all required constructions, renovations and/or improvements to the Building, as such may be agreed upon by the Parties; to ensure the preservation and optimal enjoyment of the Building as well as the profitable and good conduct of its business operations .

For further clarity , the Parties hereby acknowledge and recognize that the Lessee’s obligation to maintain the Premises in First Class Repair under this Lease are not as onerous as the obligation of the Lessee to maintain the Premises in First Class Repair should it exercise the Option, and conclude the Emphyteutic Lease ; [Boldface and underlining added] [ 52 ] The following are the relevant provisions of the Option :

PART I - OPTION TO PURCHASE AND LEASE EMPHYTEUTIC RIGHTS 1.

OBJECT AND CONSIDERATION 1.1 Norael grants to Vihar and Vihar accepts this exclusive combined option to purchase the emphyteutic rights of the Building and conclude an emphyteutic lease for the Property (the “Option”) in consideration of the following: 1.1.1 Vihar shall pay to Norael the sum of two hundred thousand dollars ($200,000) in cash upon the signing of this Option Agreement (the “Advance”), as an advance on the Reduced Purchase Price or Purchase Price (hereunder both terms are defined) of the emphyteutic rights of the Building, in exchange for a revolving line of credit provided by Norael to Vihar for the same amount; and 1.1.2 Vihar agrees to lease Premises from Norael under the terms and conditions set forth in the separate Lease Agreement concluded simultaneously to this Option Agreement. 2.

TERM OF OPTION The Option shall be valid for the period of five (5) years commencing on the signing of this Option Agreement and terminating at midnight on the fifth (5 lh ) anniversary of the signing of the Option Agreement (the ”Term”). Should Vihar not exercise the Option prior to the expiry of the Term, this Option shall forthwith be null and void and of no further effect.

PART II - EXERCISE OF THE OPTION

3. CONDITIONS AND TIMING 3.1. Conditional to the fulfillment of Sections 1 and 2 of this Option Agreement, Vihar shall have the right to exercise the Option at any time during the Term under the terms and conditions set forth in Sections 3 and 4 below . 3.2. The date of exercise of the Option shall be defined as the date the Parties simultaneously conclude a deed of purchase of the emphyteutic rights of the Building (the “ Deed of Purchase ”) and an emphyteutic lease for the Property (the “ Emphyteutic Lease ”). […] 4.1.4 Building - Construction, renovation and/or improvements i .

Vihar agrees to proceed with a renovation plan, subject to an agreement to intervene with Vihar’s franchisor. Such plan shall provide details in regards to the conduct of construction, renovation and/or improvements on the Building . ii.

At all times, Vihar shall keep the Building in first class repair . iii . ”First class repair” in this subsection shall mean that Vihar shall be bound to make all required repairs to the Building, including urgent and necessary repairs, lesser maintenance repairs, as well as all required constructions, renovations and/or improvements to the Building, as such may be required to ensure the preservation and optimal enjoyment of the Building as well as the profitable and good conduct of its business operations. 5. EMPHYTEUTIC LEASE OF THE PROPERTY – TERMS AND CONDITIONS 5.1.

Upon exercise of the Option, Norael shall consent to Vihar and Vihar shall agree to conclude an Emphyteutic Lease for the Property under the following initial terms and conditions: 5.1.1. Duration of the Emphyteutic Lease The term of the Emphyteutic Lease on the Property shall be of forty (40) years . The Parties agree that Vihar shall benefit from an option to extend the term by an additional eleven (11) years. Notwithstanding the foregoing the Emphyteutic Lease will bear a term not exceeding 40 years. [ …] 6.

CLOSING Upon exercise of the Option, the Parties agree that they will concurrently sign and execute the Deed of Purchase and Emphyteutic Lease; otherwise the Option cannot be exercised. […] [Underlining added; boldface in the original] *** [ 53 ] To begin, the Court rejects the appellant’s submission to the effect that the contracts were drafted by the respondent.

Vala’s testimony clearly indicates that the contracts were the result of negotiations between the parties’ lawyers. [26] [ 54 ] It is also important to note that the contractual clauses must clearly set out the scope and timing of the improvements, as Brossard. J. (as he then was) noted: [16] Un second élément essentiel à l’emphytéose est l’engagement clair et précis pris par le preneur de faire sur le fond grevé des améliorations clairement stipulées . ( André Montpetit et Gaston Taillefer , Traité de Droit Civil, Volume 3, pages 501 et suivantes, et la jurisprudence y citée).

Or, une seule disposition du contrat semblerait comporter pour l’intimée l’obligation de faire, à ses frais, certaines constructions, mais cette prétendue obligation est elle-même indéfinie dans son étendue et dans le temps ; […] [27] [Underlining and boldface added; italics in the original] [ 55 ] Thus, the substance of the improvements to be made to the immovable property must be agreed upon before the start of the emphyteusis. [28] [ 56 ] In the present case, the

interpretation of the contractual provisions agreed to by the parties shows that neither the scope nor the timing of Vihar’s obligation to make lasting improvements to the Property is defined. [29] [ 57 ] As the trial judge noted, such a promise to proceed with a “renovation plan” (s. 4.1.4 of the Option), without specifying the content thereof, “rings hollow”. [30] In addition, there is no timeline for carrying out the “First class repairs”, which repairs, moreover, are not specified.

In theory, Vihar could therefore decide to do the work in the 39th year of the emphyteusis, which would make no sense given that the hotel, which is in poor condition, must be renovated quickly.

Indeed, it is not generally in the interests of an emphyteuta to make major investments on the immovable property in the last years of the emphyteusis. [ 58 ] Consequently, the trial judge did not err in concluding that the terms of the Option implied that another contract would be negotiated subsequently in order to give rise to the emphyteusis: [45] In any event, that the Option was not truly exercisable, and instead required further mutual agreement, is also supported by the

language thereof. [46] Firstly, according to

section 3.2 of the Option: “ The date of exercise of the Option shall be defined as the date the Parties simultaneously conclude a deed of purchase of the emphyteutic rights of the Building (the “Deed of Purchase”) and an emphyteutic lease for the Property (the “Emphyteutic Lease”)”, which suggests that there is no real exercise of the Option without both parties signing. This concept of further required mutual agreement is repeated more forcefully in “Section 6.

Closing” which reads: “Upon exercise of the Option, the Parties agree that they will concurrently sign and execute the Deed of Purchase and the Emphyteutic Lease; otherwise the Option cannot be exercised ”. [47] The requirement for further mutual agreement is also supported by the end of the introductory language to Sections 4.1 and 5.1 of the Option which reads as follows: “4.1 Upon exercise of the Option, Norael undertakes to sell and transfer the emphyteutic rights of the Building, which includes all rights and obligations for the exploitation of the Building and its business operations, (the “Emphyteutic Rights of the Building”) to Vihar by means of the Deed of Purchase and Vihar will consent to said sale and transfer, upon the following initial terms and conditions :” “5.1 Upon exercise of the Option, Norael shall consent to Vihar and Vihar shall agree to conclude an Emphyteutic Lease for the Property under the following initial terms and conditions :” [Underlining in the original; reference omitted] [ 59 ] The trial judge was therefore correct in determining that he did not need to interpret the Option, which was clear and unambiguous.

According to him, the fact that the parties had been unable to agree on an improvement plan for the Property in order to sign the contract of emphyteusis did not mean that the agreements between them were not clear. [ 60 ] Being of the view that, since 2016, when discussing matters with Norael, Vihar had merely contented itself with referring to an undefined renovation “plan” which was subject to future approval by an unknown franchisor, the trial judge was correct in holding that the contract of emphyteusis was invalid. B.

A contract for an innominate dismemberment of the right of ownership [ 61 ] Vihar argues that if the Option was not a valid contract of emphyteusis of which it could avail itself, it was a contract for a dismemberment—albeit an innominate dismemberment—of the right of ownership, which the trial judge should have recognized and declared enforceable. [ 62 ] Professor Frenette explains that when one or more of the elements comprising emphyteusis are missing, it is sometimes possible to find that there is an innominate dismemberment of the right of ownership: Toutes les incohérences et contradictions du vieux Code relatives à la qualification de l’institution sont maintenant choses du passé.

À l’occasion de la réforme, le législateur a pris position de façon ouverte et s’est clairement exprimé à ce sujet : l’emphytéose est un démembrement du droit de propriété. Telle était du reste l’opinion dominante en doctrine et en jurisprudence. Les anciennes habitudes, voire les anciens réflexes en matière d’interprétation, devront donc être modifiés. Faute d’être emphytéotique parce qu’enfreignant une ou plusieurs dispositions du Code, l’entente improprement qualifiée par les parties ne pourra plus être automatiquement versée au louage.

Il faudra plutôt songer à un démembrement innomé de la propriété. [31] [ 63 ]

Article 1119 C.C.Q. merely sets out the nominate dismemberments of the right of ownership, and there is no doubt that innominate dismemberments of the right of ownership exist. [32] The parties, however, must have agreed on such a dismemberment—yet nothing in the case at bar suggests that this was the parties’ intention. [ 64 ] Indeed, Vihar was careful not to specify the exact nature of this innominate dismemberment of the right of ownership.

It sought to have the Option interpreted as a contract giving it all the advantages of emphyteusis, without, however, obliging itself to provide the essential consideration in return for such a dismemberment, namely the obligation to make lasting improvements to the Property. The trial judge was correct in stating that the contract contemplated by Vihar more closely resembled a “net net net” 40-year commercial lease, [33] which could not be imposed unilaterally on Norael. C.

No bad faith and no abuse of contractual rights by the respondent [ 65 ] Vihar alleges that Norael’s intention was clearly to defeat the Option—which is a binding contract between the parties—such that it is entitled to claim the reimbursement of its extrajudicial fees from Norael. [ 66 ] In light of the preceding conclusion on the first ground of appeal, the judge did not err in deciding that there was no bad faith and no abuse of contractual rights by Norael. There is no palpable and overriding error in this finding that would allow the Court to reverse the judgment under appeal.

FOR THESE REASONS, THE COURT: [ 67 ] DISMISSES the appeal, with legal costs. YVES-MARIE MORISSETTE, J.A.

GUY GAGNON, J.A. SOPHIE LAVALLÉE, J.A. Mtre Robert Faguy PRÉVOST FORTIN D'AOUST For the Appellant Mtre Sean Griffin M tre Serge Racine Mtre Geneviève Claveau LANGLOIS AVOCATS For the Respondent Date of hearing: January 31, 2022