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Right-of-Way Interrupted for 10 Years, Then Reduced in Size – What Damages?

Fountas Corp. (“F”) owned a building with four stories, three of which had been renovated to form 15 residential apartments.  A vacant lot in the rear, which was landlocked, was used by tenants for parking at an average fee of $60 per month.  The parking lot also contained a garbage dumpster for tenants’ use.

Access to the rear parking was gained via an 11-foot-wide right-of-way over property owned by another corporation.    Under the specific wording of the grant, F was given the right “to go, return, pass and re-pass with or without automobiles, horses, carts, wagons, trucks and other vehicles laden or unladen, in, through, along and over” the right-of-way.  There was no height restriction in that grant.

When the other corporation made its property available for a proposed hotel development, the resulting demolition work interrupted F’s access to the parking lot via the right-of-way.    The corporation and F reached an agreement:  The existing right-of-way would be closed for four months due to construction and would cease to exist in its old form.  In its place, the new building would contain “a new and fairly direct route” from the street to the rear of the property. F would also be provided with temporary parking for 22 vehicles and an alternate garbage dumpster.

As it happened, the proposed hotel construction did not take place for almost 10 years.   The contemplated four months of suspended access to the right-of-way turned into four years; the hotel developer was then placed into bankruptcy and the bank foreclosed.  As the court put it:  “The now excavated property was left as a gaping hole which prevented all access to the parking lot.”

In 1995, Melo Corp. (“M”) bought the property on which the contentious right-of-way and hotel were situated. As before, there were delays in construction and the “gaping hole” remained for another four years.  Eventually, however, F’s right-of-way was restored shortly before the hotel officially opened for business in 2000.

However, the right-of-way had changed drastically:  Essentially it was now a tunnel through the newly-constructed hotel building, was only 9’11” in width and included a new inherent height restriction. This meant that F had to re-grade parts of the parking lot and that front-end loaders could no longer access the garbage dumpsters.

In considering the damages owed by M to F, the court noted that the limits of any right-of-way were to be determined by looking at the language of the express grant creating it.  If the language gave rise to a reasonable doubt as to their nature and extent, then the court could also look at the circumstances at the time.  Certain “ancillary rights” – meaning those reasonably necessary for the use of the right-of-way – could also be relevant.

Here, the right-of-way agreement between M and F envisioned a 4-month interruption in F’s use of the parking lot; it turned out to be almost a decade. When it was eventually restored, the access had been reduced in dimension and was subject to a new height restriction.  In short, the new hotel clearly represented an interference with the right-of-way as originally granted, for which M was liable in damages.

In calculating the time-period for which M was accountable, the court observed that M knew or should have known when it bought the property in 1995 that it was subject to a right-of-way in F’s favour.   M should have made arrangements for F’s access at the time.  But even allowing for a 1-year grace period, M was still liable for damages from 1996 until 1999 when the right-of-way was reopened.  Those damages, amounting to about $450,000 (less $10,000 for F’s failure to mitigate some of its lost parking revenues)  included the loss of parking and apartment/commercial rental income, plus the costs for alternative garbage pickup.   See Fountas v. Melo, 2014 (ONSC).