While we try to imagine what shopping centres will become after the Covid-19 pandemic ends (whenever that may be), the Quebec Court of Appeal has clearly indicated that attempts to control the commercial uses of same, by way of restrictions registered on title, are not the way to proceed.
The Court of Appeal’s recent decision in the case of Société immobilière Duguay inc. v. 547264 Ontario Limited, 2020 QCCA 571, reverses the decision of the Superior Court and shuts the door on restrictive commercial use “servitudes” (i.e., easements in the common law).
The facts of the case are fairly simple. Two parcels of land were sold by the owners of a shopping centre, and commercial use restrictions were included in the deeds of sale, affecting both the properties sold and the balance of the shopping centre land. After a subsequent sale of the two parcels, the new owner instituted proceedings, asking the Superior Court of Quebec to remove from title the restrictive commercial use “servitudes”. The shopping centre owners contested, claiming that the restrictions relating to the commercial activities that could be conducted on the land constituted servitudes, and, as a subsidiary argument, that the new owner had personally agreed to be bound by the restrictive uses as described in the deeds of sale.
The Superior Court ruled in favour of the shopping centres owners, and the new owner appealed the decision.
The Court of Appeal, in reversing the Superior Court decision, held that under Quebec law, these commercial use restrictions are considered to be for the benefit of the owner of the land, rather than the land itself. In other words, they are personal rights, rather than real rights.
The Court of Appeal determined that the restrictions were neither real servitudes (i.e., for the benefit of one parcel of land and to the detriment of another parcel of land) nor personal servitudes (i.e., a real right of enjoyment on the parcel of land itself in favour of a person). It should be noted that the Court of Appeal did confirm that certain restrictive uses, such as those dealing with non-construction obligations, height restrictions, the types of dwellings that can be constructed, and reciprocal passage and parking rights, can form the basis of valid servitudes.
The Court of Appeal acknowledges the desire of a shopping centre owner to ensure diversity within the shopping centre, but states that the way to enforce these rights against third parties is to resort to extra-contractual (i.e., tortious) liability.
The Court of Appeal also dismisses the shopping centre owners claim that the new owner contractually agreed to assume the restrictions, holding that the mere mention of a registered servitude in a deed of sale does not lead to the conclusion that the buyer undertook it as a personal obligation.
It is interesting to note that while the Court of Appeal makes specific reference to the statements of witnesses that the commercial non-compete provisions had a part to play in the negotiations of the purchase price of the two parcels of land, the Court of Appeal takes pains to state that it cannot reasonably be inferred from this fact that the new owner undertook to personally assume the restrictive use servitudes. Rather, the Court of Appeal holds that at most, it can be concluded that this was a clever negotiation argument to reduce the sales price, but nothing more.
The foregoing provides insight on the extent of the underlying obligation of good faith in Quebec law, which applies to every contractual relationship, as well as the pre-contractual negotiations preceding the actual execution of the contract.
How shopping centre owners will react to the decision, only time will tell. Certainly, with all of the challenges brought to the fore by the present pandemic, this is another hurdle that will require careful thought, in order to ensure that the expectations of both landlords and tenants can be met.