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Court finds that failure to provide tenant with occupancy on agreed date does not allow tenant to repudiate lease, grants landlord judgment for $1.1m, Spring 2008

Spirent Communications agreed in the fall of 2000 to lease an Ottawa office building under construction, and had agreed with Quake Technologies, a growing high technology company in Ottawa, to sublease part of the building for three years.  June 1, 2001 was the specified occupancy date. Quake’s then-existing lease was to expire on May 31, 2001.

At the time the sublease was entered into, there was a tremendous demand for space in Ottawa.  However, in the spring of 2001, as a result of the decline of the high technology sector, the commercial leasing market in Ottawa had changed dramatically, with more space available and rental rates down significantly. 

Weather and construction mistakes led to delays in the construction of the building. Upon being advised in April of 2001 that occupancy would be delayed until July 15, 2001, Quake advised Spirent that it would not proceed with the sublease.  In May of 2001, Quake proceeded to sublease space elsewhere at a significantly lower cost, and Spirent in turn subleased the space to third parties, also at a much-reduced rate. 

Spirent sued Quake for the difference between the amount it would have received under the sublease agreement and that which it was actually able to obtain. The lower court dismissed Spirent’s claim on the basis that “Spirent was in breach of a stipulation of major importance to the contract”, being meeting the occupancy date. In other words, Spirent was in fundamental breach of the sublease.

The Court of Appeal allowed Spirant’s appeal, and granted judgment in favour of Spirent in the amount of $1,096,793.87.

“Did the anticipated delay in occupancy deprive Quake of substantially the whole benefit of the Agreement?”

The Appeal Court held that the anticipated delay did not constitute a fundamental breach: “[We] do not accept that the anticipated delay in occupancy had sufficiently serious consequences to Quake that it would have deprived Quake of substantially the whole benefit of the Agreement.” The Court placed much emphasis on the fact that Quake made little effort to find temporary space. “By its own admission, therefore, although Quake would have incurred additional costs by maintaining its then-existing lease, it would have had space for at least three months after June 1, 2001. Had it elected to stay in its then-existing space, it would have been entitled to look to Spirent for compensation for those additional costs.”

Spirent Communications Of Ottawa Limited v. Quake Technologies (Canada) Inc., [2008] O.J. No. 444, Ont. C.A.