Negligent misrepresentation is a civil wrong whereby a party can sue in court for damages. The Ontario Superior Court of Justice reviewed the elements of negligent misrepresentation in the case of Spot Coffee Park Place Inc. v. Concord Adex Investments Limited (“Spot Coffee”), which concerned a fixed-term lease agreement.

Concord Adex Investments Limited (“Concord Adex”) is the developer and builder of residential condominium communities, which include commercial/retail elements under a master-planned community. The developer and builder of such a project in North York is known as Concord Park Place.

Spot Coffee Park Place Inc. (“Spot Coffee”) operated a “high end” “European style” café that was part of a chain of cafés. Spot Coffee entered into a 10-year fixed term lease executed on October 29, 2010 (the “Lease”). Spot Coffee took possession of the subject unit at Park Place on or about July 5, 2012, and the fixed-term lease was to have expired in or around July 4, 2022.

Concord Adex terminated the Lease on June 1, 2013, after Spot Coffee, on notice, abandoned the leased premises.

Spot Coffee relied on oral representations made by Concord Adex prior to Spot Coffee entering into the lease assuring Spot Coffee that the building from which Spot Coffee was leasing the premises would have a certain number of occupants by a given date and that Spot Coffee’s customers would have “sufficient free, close and accessible parking.”

What are the Elements of Negligent Misrepresentation?

The Supreme Court of Canada set out the test for negligent misrepresentation in Queen v. Cognos Inc.:

(a)   Is there a duty of care based on a “special relationship” between the representor and the representee?

(b)   Was the representation untrue, inaccurate, or misleading?

(c)   Did the representor act negligently in making the alleged misrepresentation?

(d)   Did the representee rely on the negligent misrepresentation and was that reliance reasonable?

(e)   Was the reliance detrimental to the representee in the sense that damages have resulted?

Is There a Special Relationship of Proximity?

The Supreme Court of Canada has provided that a duty of care will be recognized based on the proximity of the relationship between the alleged tortfeasor and the injured party and the reasonable foreseeability of injury as a consequence of the wrongdoing. This proximity analysis entails asking whether the parties are in such a “close and direct” relationship that it would be “just and fair having regard to that relationship to impose a duty of care in law.” In cases of negligent misrepresentation, reasonable foreseeability exists:

“where (1) the defendant should reasonably foresee that the plaintiff will rely on his or her representation; and (2) reliance by the plaintiff would, in the particular circumstances of the case, be reasonable.”

The relationship of landlord and (proposed) tenant is well recognized to give rise to the requisite proximity of relationship. As such, it was reasonably foreseeable to Concord Adex that Spot Coffee would rely on its representations in deciding whether to enter into a fixed-term lease agreement.

What Are the Alleged Misrepresentations?

The duty of care for representations during pre-contractual negotiations is “over and above duty to be honest in making those representations. It requires that the represented exercise reasonable care as the circumstances require to ensure that the representations made are accurate and not misleading.”

In analyzing the evidence, the court concluded that Concord Adex represented to Spot Coffee that the building Spot Coffee was leasing would be built and occupied by a certain date, Spot Coffee customers would have convenient access to parking and would be able to access Spot Coffee from the parking lot.

Are the Alleged Misrepresentations Inaccurate?

The court accepted Spot Coffee’s evidence and found the alleged misrepresentations made by Concord Adex to all be inaccurate.

Did the Representor Act Negligently in Making the Misrepresentations?

It is not enough for a party to prove that a representation was made and was inaccurate or misleading. The representee must also show that the representation was made negligently in the sense that the representation did not exercise due diligence or reasonable care in making the representation.

In considering this test, the Court affirmed the trial judge’s findings that the information contained in the Concord Adex’s Site Plan was “inaccurate, untrue and misleading” and by failing to disclose its intention to revise the plan, “the landlord acted both carelessly and in a negligent manner.” Concord Adex further acted negligently when it failed to disclose that the condominium corporation would have some control over access to customer retail parking and access to the elevator vestibule. Spot Coffee, however, was unable to discharge its burden with respect to the occupancy representations.

Did the Representee Rely on the Misrepresentations and was that Reliance Reasonable?

Spot Coffee’s evidence was that it understood that the occupancy target dates were estimates and not guarantees, leading the court to conclude that its reliance on Concord Adex’s occupancy representation was not reasonable.

Spot Coffee’s reliance on the representation that its customers would have convenient access to ample free customer parking, however, was reasonable.

Did the Representee Rely on the Misrepresentations to its Detriment?

The court found ample evidence that Spot Coffee was induced to enter into a ten-year fixed term lease at an early stage of the development of the premises, in large part, on the representation that its customer base from outside the premises would have ample, free, and convenient access to retail customer parking in an underground parking lot that Spot Coffee representatives toured before signing the Offer to Lease.

As a result of this misrepresentation, Spot Coffee entered into the Lease and undertook the complete building out of the café from a concrete shell. This included everything from installing a ceiling, flooring, tiles, an elaborate bar, two washrooms, murals, fixtures such as lights, plumbing, and electrification, and the purchase of furniture and appliances. Spot Coffee also incurred ongoing operating losses such as staff and inventory expenses from the moment it opened its doors on November 29, 2012, until it vacated the premises at the end of May 2013.

Accordingly, Spot Coffee relied on the parking-related representations to its detriment.

Despite the Lease containing an entire agreement clause, the court found that access by Spot Coffee’s retail customers to free parking does not fall within the scope and ambit of the entire agreement clause. The court, therefore, found that Spot Coffee was to be put in the position it would have been in but for the misrepresentations.

Oakville Lawyers Helping Clients with Commercial Real Estate Transactions Litigation

At Campbells LLP, our team of skilled real estate litigators have ample experience representing clients on a broad range of issues relating to commercial leases, including misrepresentations, breach of warranties, and a failure to disclose latent defects. To speak with a lawyer about a commercial real estate issue, contact us online or at 905-828-2247 to schedule a consultation.