2005 BCSC 4 Kootenay Veneers Ltd. v. Enviro-Smart Systems Ltd.

Before: The Honourable Mr. Justice Truscott

Reasons for Judgment

Counsel for the plaintiff:	M.P. O’Neill
Counsel for the defendant:	D.D. Geronazzo
Date and Place of Hearing:	November 22, 2004
	Nelson, B.C.

[1] I have received the submissions of Mr. O’Neill and the December 19, 2004 submissions of Mr. Geronazzo. Although Mr. Geronazzo has requested more time to make a further submission in response to my Memorandum to Counsel, I have concluded that there is no reason to wait further in view of my reasons herein.

[2] The plaintiff applies for judgment under Rule 18A against the defendant for the sum of $76,512.71, representing rent, GST and property taxes allegedly owed by the defendant as tenant to the plaintiff as landlord under a lease entered into between the parties dated May 27, 2003, for the lease of commercial premises in Grand Forks, British Columbia, for a 30-month term with an option to the defendant to renew on certain terms.

[3] The defendant opposes this application for judgment and takes the position that the lease is illegal and therefore unenforceable by either party, because no occupation permit had been issued by the local authority allowing occupation of the leased premises during the term of the lease, and accordingly it would have been unlawful for the defendant to occupy the premises.

Background

[4] As stated, the parties entered into a commercial lease dated May 27, 2003 for a lease of premises in Grand Forks that the defendant intended to use for its commercial operations.

[5] The evidence is that the defendant never paid any rent or any other monies that it was responsible for under the lease. However, it did register the lease in the land registry on June 16, 2003 and it did arrange for the tenant’s insurance as it was required to do by one of the terms of the lease. It also may have physically occupied the premises, although that is unclear on the evidence.

[6] When the defendant defaulted on its obligation to pay rent the plaintiff took the required steps under the Commercial Tenancy Act, R.S.B.C. 1996 c. 57, to terminate the lease and have the defendant deliver up possession.

[7] Eventually a show cause hearing was conducted before Mr. Justice Shaw on August 30, 2004 under s. 25 of the Commercial Tenancy Act, whereby the defendant was called on to show cause why an order should not be made for delivery up of possession of the premises to the plaintiff.

[8] On that hearing the defendant attempted to show cause and when it was unable to do so, sought relief from forfeiture of the lease under the Law and Equity Act, R.S.B.C. 1996 c. 253. It was unsuccessful in obtaining relief and an order was issued by Mr. Justice Shaw requiring the defendant to deliver up possession forthwith.

[9] Subsequently the plaintiff has brought on the application presently before me and it was on the hearing of this application that the defendant first raised the issue of illegality of the lease.

Submissions on Illegality

[10] The defendant submits that the plaintiff only ever obtained a temporary occupancy permit from the corporation of the City of Grand Forks (“the City”) on February 1, 2000, which expired on August 8, 2000 according to its terms. Subsequently the plaintiff never obtained any further occupancy permit and accordingly when the lease commenced on May 1, 2003, there was no legal right of the defendant to occupy the premises.

[11] The defendant relies upon Bylaw 1426 of the City which contained the following provisions which are relevant.

7.2 No person shall occupy or use any building or part thereof contrary to the terms of any permit, notice or certificate given by the authority having jurisdiction, or obtaining an occupancy permit.

…

8.1 The authority having jurisdiction may:

…

d) issue occupancy permits as set out in “Appendix B” or issue final inspection reports in lieu of when he is satisfied construction is in substantial compliance with the Bylaw.

…

18.1 Any person who violates the provisions of this Bylaw or the Building & Plumbing Code is liable on summary conviction, to a penalty not exceeding One Thousand ($1,000.00) Dollars and also to the costs of prosecution.

[12] The defendant also relies upon s. 10.2 that requires work to be started within six months from the date of issuing of the permit and not to be discontinued or suspended for a period of more than one year, failing which the permit is to lapse. I conclude that this provision is only applicable to permits issued during the construction itself, as identified by the schedule of fees in Schedule ‘A’ to the Bylaw, although I agree the wording of s. 10.2 is unclear.

[13] The City issued a Certificate of Temporary Occupancy of a Building on February 1, 2000 pursuant to s. 8.1(d) of the Bylaw, which stated that it was subject to completion of certain fire and safety items by August 8, 2000. It appears to be the case that these items were not completed by August 8, 2000, or at all, and it is the position of the City now that the Certificate ceased to be valid August 8, 2000 and there was no other valid certificate of occupancy for the premises after that date.

[14] The defendant relies upon the decision of the Court of Appeal in International Paper Industries Ltd. v. Top Line Industries Inc., (1996) 20 B.C.L.R. (3d) 41 (Top Line), where the Court of Appeal found a commercial lease to be illegal and unenforceable because its terms violated s. 73 of the Land Title Act, R.S.B.C. 1997 c. 219. The defendant also relies upon a decision of the Nova Scotia County Court in Lantz v. Hansen, 82 N.S.R. (2d) 392, where the court on similar facts to the evidence before me, held a residential lease to be illegal because the premises had no occupancy permit as required by the local Ordinance, and the Ordinance also contained a penalty provision.

[15] The plaintiff submits that where the illegality does not arise out of statute law, but out of common law, which it submits is the case here, the court must decide whether to enforce the contract would be contrary to public policy, and in this case it is submitted that the Nova Scotia decision should not be followed.

Analysis

[16] I have reviewed the Top Line and Lantz cases and as well the cases cited in Lantz and other cases, and it my conclusion that the lease in question here is not illegal by statute or by common law. There is nothing illegal about any of the provisions of the lease and unlike Top Line, entering into the lease in the first place was not an illegal act. I decline to follow the Lantz decision from Nova Scotia.

[17] In my view the fact that the defendant could not legally occupy the premises only meant that the plaintiff as landlord did not meet the condition precedent to the operation of the lease – the obtaining of the occupation permit.

[18] I observe that in Top Line there was a discussion of the applicability of what was referred to as the Dynamic line of cases, named after the Supreme Court of Canada decision in Dynamic Transport Ltd. v. OK Detailing Ltd. (1978), 85 D.L.R. (3d) 19, where it was stated that a condition precedent that one party is obliged to comply with before both parties’ obligations will come into effect can be implied into a contract in appropriate circumstances to give it business efficacy.

[19] In Top Line, this line of cases was not applied because the court was not prepared to conclude that either party had an implied obligation to obtain subdivision approval.

[20] In the case before me there is no doubt that it was the plaintiff that had the duty to obtain the necessary permanent occupancy permit after August 8, 2000, and I am prepared to imply such an obligation on the plaintiff into the lease. Without this obligation being satisfied the occupation by the defendant would have been illegal under the Bylaw, and would have been a breach of the plaintiff’s covenant under the lease for quiet enjoyment.

Disposition

[21] While I have found the lease to be legal, I have found the plaintiff to be in breach of the implied condition precedent on it to obtain a permanent occupancy permit after August 8, 2000. Thus the parties’ obligations under the lease never came into effect.

[22] However, I am unable to say what effect any actions of the defendant under the lease and any actions of it in its attempts to refrain the lease through this litigation, have had on its ability now to take the position that the plaintiff cannot enforce its right to these monies under the lease.

[23] I also do not know whether the defendant actually took possession and whether the plaintiff has any alternative remedy available to it, if it cannot enforce the lease, as Top Line contemplated is sometimes possible.

[24] Finally, I do not have the pleadings readily available to me to know whether they mirror any of the circumstances now existing.

[25] If the plaintiff intends to challenge the right of the defendant to the implication of such a condition precedent into the lease at this stage of the litigation, or intends to make any alternative claim in law, it is for the plaintiff to do that by making a further submission on the implication of the condition precedent, within one month citing any relevant legal authority, or failing that, by amending its pleadings to claim another remedy at law. I leave that to the plaintiff. As matters now stand I am not prepared to grant the plaintiff judgment on its application and its application is adjourned.

[26] I will remain seized of this litigation hereafter.

“J. Truscott, J.”
The Honourable Mr. Justice J. Truscott

Citation:	*Kootenay Veneers Ltd. v. Enviro-Smart Systems Ltd.,*
	2005 BCSC 4