Can Tenant Renege on Landlord’s Relocation Deal?

Since 2007, the tenant had been operating a hot yoga studio in a space it leased from the landlord.   When the landlord started making plans in 2013 to redevelop the building, it asked the tenant to vacate and sign a surrender of lease, requiring it to move into a replacement space that was available from a landlord-affiliated company. In exchange, the landlord would pay the tenant several inducement payments, consisting of $50,000 up-front, plus $212,000 once additional documentation was signed.

The tenant agreed, signed a new lease, and moved into the replacement premises as required.  A month later, at the landlord’s request it signed an estoppel certificate, confirming various aspects of the new arrangement.  It also specifically agreed to be obligated to comply with all laws, by-laws and regulations relating to the premises.

Shortly after, the tenant realized that it could not operate a hot yoga studio in the new space until certain zoning and building code requirements were complied with. These included the installation of wheelchair access and a sprinkler system, and increased parking.  Only some of these issues could be resolved with the landlord.

Meanwhile, as news of the tenant’s move to the new premises started to spread to its customers; the tenant immediately began to see a consistent reduction in revenues. While it never expressed concern to the landlord, the tenant began to have second thoughts about having agreed to change locations.

After initially attempting to force the landlord to take on full responsibility for the remaining zoning/building code issues, the tenant advised the landlord that it was rescinding the surrender of the original lease, and that it would not be bound by the replacement lease it had signed.  The tenant returned the keys, which the landlord refused to accept.  After further unsuccessful negotiations, the landlord locked out the tenant.

The tenant then asked the court for an interim injunction allowing it to continue to operate in the original space, pending a full trial.

The court refused to grant the injunction.  The tenant was simply not entitled to rescind either the surrender of the original lease or the replacement lease. It had signed the estoppel certificate agreeing to conform to all building code and zoning requirements, so there was no real issue about whether the lease obligations were enforceable in light of the problems discovered after-the-fact.  In any case, the tenant could have easily confirmed the state of those zoning/building code requirements prior to signing.

Also, the court noted that the tenant had already spent most of the landlord’s inducement money, and indeed had done so after telling the landlord that the building code/zoning problems made the replacement premises unsuitable.  The tenant simply could not take the monetary benefit of the agreement and still ask to have it rescinded.

Finally, applying the legal test for an injunction, the court concluded that even if there was a serious issue to be tried here, the tenant would not suffer irreparable harm.   Despite the tenant’s claim that the high ceilings, maple hardwood flooring and large windows made the original space “irreplaceable”, the court observed:

With due respect, and without putting too fine a point on the matter, the entire transaction between the parties demonstrates that the Premises was eminently replaceable. Charming as the woodwork may have been, all it took to induce the Tenant to move to the Replacement Premises was money.

As such, the court concluded that any injury to the tenant arising from the move could likewise be compensated with cash.    The tenant was ordered to leave the premises immediately; the landlord was ordered to pay the balance of the inducement payments that it had promised.  See 2454 Bloor Street West Ltd. v. 2107733 Ontario Inc. (c.o.b.  Moksha Yoga Studio), 2013 (ONSC).