Executive Summary: Key Legal and Evidentiary Issues

• Dispute centered on interpreting contractual remedies for landlord-caused delays in a commercial lease agreement.

• Determination required on whether landlord delays extended the rent-free fixturing period or only postponed its start.

• Clarification sought on who has authority to determine errors in the architect's delay assessment—court or Independent Architect.

• The lease’s wording was ambiguous, prompting reliance on principles of contractual interpretation and commercial reasonableness.

• Deloitte claimed double rent relief for delays, which was rejected by the court as commercially unreasonable.

• The judge concluded that an Independent Architect, not the court, determines whether there was a palpable and overriding error.

Facts of the Case

Deloitte Management Services LP entered into a 15-year commercial lease with Homer Street Office Properties Inc. for nine floors of office space in downtown Vancouver. The lease was part of Deloitte’s relocation plan, and timely possession was crucial due to short-term extensions at its previous location.

The lease stipulated that Deloitte would receive possession of the premises in “Turnover Condition” by August 20, 2020, with an eight-month rent-free fixturing period to follow. However, possession was delayed by approximately 16 months, with Deloitte taking occupancy only on December 31, 2021. This delay triggered provisions in the lease concerning “Landlord Delay” and entitlements to rent relief and compensation.

A key document was a report by the Building Architect, who concluded that only 4.5 months of the delay were attributable to the landlord, with the remainder deemed “Unavoidable Delay.” Deloitte challenged this determination and sought additional rent relief, invoking provisions of the lease that allowed for review by an Independent Architect if a “palpable and overriding error” had occurred.

The Court's Findings on Rent Relief

The primary legal dispute involved the interpretation of section 3.6(c)(i) of the lease. Deloitte argued that for every day of landlord delay, the rent-free fixturing period should be extended proportionally, effectively increasing the total duration of rent-free occupancy. In contrast, Homer Street contended that the fixturing period should remain at eight months, but its start should be postponed by the length of the delay.

The court sided with Homer Street. Justice Coval ruled that the lease, when read in context, did not support the idea of an extended rent-free period. The fixturing period was not meant to be lengthened; instead, it was merely to begin later due to the delay. This interpretation was found to align better with the language of the lease and commercial logic, avoiding what the judge described as an unreasonable “windfall” for Deloitte.

Authority to Determine Architectural Error

The second issue was who determines whether the Building Architect made a palpable and overriding error in attributing the causes of delay. Deloitte asserted that this determination could be made by the Independent Architect under section 3.6(e), once a dispute notice was issued. Homer Street argued that this was a judicial question for the court to decide.

Justice Coval agreed with Deloitte, holding that the lease’s structure supports the view that the Independent Architect, not the court, has the authority to assess whether such an error occurred. The judge emphasized that this interpretation made the dispute resolution mechanism more efficient and consistent with the lease’s intent.

Outcome

The court declared that under section 3.6(c)(i), the fixturing period remains eight months in length and is only postponed by the length of the landlord’s delay, not extended. It also found that the Independent Architect has the authority to determine if a palpable and overriding error was made by the Building Architect, as long as the tenant gave proper notice. Deloitte was thus entitled to proceed with the Independent Architect process. Other forms of relief sought were either dismissed or deferred, and each party was ordered to bear its own legal costs.