A recent case from the BC Supreme Court provides guidance for commercial landlords who are concerned about potential violations of BC Provincial Health Orders (“PHOs”) by tenants and other illicit activity occurring upon a tenant’s premises.
In Ivy Lounge West Georgia Limited Partnership v TA F&B Limited Partnership, 2021 BCSC 997, the plaintiff licensee (“Ivy Lounge”) sought an injunction to compel the defendant licensor (the “Licensor”) to provide Ivy Lounge with access to its licensed premises and to prohibit the Licensor from exercising its termination rights. Ivy Lounge operated out of the Trump International Hotel & Tower in Vancouver pursuant to a five-year licence agreement (the “Licence Agreement”) with the Licensor.
The Licence Agreement provided that the following (among other things) constitute an event of default, entitling the Licensor to terminate the Licence Agreement in each case:
1) any breach by Ivy Lounge of any condition, covenant or agreement under the Licence Agreement which Ivy Lounge failed to either cure or diligently proceed to cure within a specified period, or
2) if Ivy Lounge’s business or conduct brought the property or hotel into disrepute and had a material negative impact on the hotel’s operation.
In March 2020, Ivy Lounge opened its doors to the public, only to close shortly after as a result of the government-mandated shutdown. After investing over $83,000 in COVID safety measures, Ivy Lounge reopened in August 2020, purportedly in compliance with then-applicable PHOs. Thereafter, numerous calls were generated by Ivy Lounge that required the Vancouver Police Department (“VPD”) to attend at the premises (including for weapons possession, PHO violations, assaults and fights, and ejections of persons known to be engaged in criminal activity). There were also reports from health inspectors of repeated violations of PHOs, and complaints filed by the residential strata council for the residential portion of the building due to loud noise and the ongoing requirement for VPD intervention.
On March 25, 2021, the Licensor issued a notice to Ivy Lounge terminating the Licence Agreement. In response, Ivy Lounge applied to the Court for an injunction for access to the premises and to prohibit the Licensor from taking further steps to terminate the Licence Agreement. Ivy Lounge claimed that they were not given sufficient opportunity to remedy the breaches, that the Licensor was not entitled to terminate, and that doing so would cause irreparable harm to Ivy Lounge. The Licensor asserted that Ivy Lounge’s business and conduct had a material negative impact on the operation of the hotel, that the relevant default provision provided no cure period, and that the Licensor was entitled to terminate.
The Court dismissed Ivy Lounge’s application for an injunction, noting that it had failed to establish either a strong prima facie case or that it would suffer irreparable harm. In particular, the Court found further that there is actually a strong likelihood that the Licensor will be able to demonstrate at trial that Ivy Lounge’s flagrant disregard of PHOs, liquor laws, and its propensity to attract a known criminal element, would adversely affect the reputation of the hotel, and negatively impact residents of the building who were overwhelmed by the fallout caused by Ivy Lounge’s manner of operation.
The affect of this decision is not limited to current PHOs or pandemic-related measures. This decision demonstrates the importance to landlords of incorporating carefully crafted default and termination clauses into commercial leases and licences, particularly where non-compliant operations by the tenant may affect the goodwill of the landlord’s or other party’s business at the same site.