Keeping in mind that every commercial leasing arrangement is unique, since there is no standard lease agreement, this case illustrates the quagmire that commercial landlord and tenants can get themselves into when a third party insurer denies insurance coverage for the operations being carried out in the rented premises.
In this case, the landlord’s insurer denied a renewal following an inspection that, amongst other things, disclosed to them that the sprinkler system was inadequate for the type of plastics operations being conducted by the tenant. This lead into a spiral of problems. The landlord tried to get insurance from over a dozen other insurers. The tenant tried as well. Then disputes arose over who had to pay for the upgrade to the sprinkler system. In the end, without a resolution, the commercial tenant was locked out. The court had to hear a motion from the tenant to be allowed back in.
The court reviewed the lease, and concluded that:
- it was proper for the landlord to have locked out the tenant;
- the tenant had to cover the expense of the upgraded sprinkler system; however,
- in light of all the factors in play, relief from forfeiture was available, on tight parameters:
- the tenant was given thirty (30) days to decide whether to invest in an upgrade sprinkler system by itself or make an additional rent payment to the landlord if the landlord arranged for the sprinkler upgrade, or to simply walk away;
- if the upgrade was pursued, the landlord had to present the upgrade plans to the insurers to determine if any insurer would be willing to insure the building (which was necessary to permit the tenant to continue operations in the tenanted space);
- prior to the sprinkler upgrades being completed, and property insured, the tenant shall not operate within the leased premises; and
- the tenant must bear the cost of the additional insurance premiums, if any.
The tenant was denied a mandatory injunction prohibiting the landlord from entering the tenanted space. Indeed, the court ordered that the tenant was only allowed entry, with a landlord representative, to deal with matters that could help facilitate securing insurance on the premises.
Green Solutions Industries International Inc. v Clarke Holdings (London) Inc., 2022 ONSC 1505
https://www.canlii.org/en/on/onsc/doc/2022/2022onsc1505/2022onsc1505.html