Arbitration Decision by Stephen Waqué, Sears and The Cadillac Fairview Corporation Limited
This is a January 2012 decision of Mr. Stephen Waqué, who acted as the arbitrator in a matter that concerned the interpretation of a February 1977 lease granted by Cadillac Fairview to the T. Eaton Company, predecessor of Sears Canada Inc., and in particular, Article 14.02(a)(iii) which provides: in the absence of agreement by the Landlord and the Tenant as to the proper proportions under clause (ii) above, then in the proportions determined by arbitration.
Sears sought to recover from CadillacFairview $8.5 million dollars. A majority of the claim concerned Sears’ allegation that over the period of 8 years, from 2000 to 2008, it bore most if not all of a claw back penalty, which it contends should have been born by all tenants to the parcel. The claw back and the capping system which were both brought in approximately 10 years after the lease was negotiated, were examined. The way the claw back system was applied during 2000 to 2008 and its lack of legislative symmetry with the capping system also in place, was the crux of this case.
Another issue examined was when the lease was negotiated in 1977, what was the manner in which the subject parcel was owned, used and occupied. At the time the lease was drafted, the separately assessed parcel involved the Eaton department store alone. It was owned by Eatons and was folded into the Eatons Centre complex when the Eaton Centre enclosed the mall. Over time, levels were added and the Eaton store tenancy was converted from a department store unit to commercial rental units. Rent for the commercial units was higher per square foot than for the department store. Over the period in dispute, the assessed value of the commercial rental units rose, while for the department store it either declined or grew slower.
Neither the changes to the assessment and taxation systems nor the restructuring of the Eatons parcel, which were to come, could have been known to those who drafted and negotiated the 1977 lease.
In the end result, Mr. Waqué found that the Landlord’s Limitations Act defence defeated Sears’ claims prior to June 2008, and that the responsibility of taxes for the period post June 2008, was to be allocated in the same proportion as would exist if there was no claw back.
Stephen Waqué is a senior partner at Borden Ladner Gervais LLP, and a founding director and past president of the Ontario Expropriation Association. Stephen has more than 30 years experience in the practice of expropriation legislation and real estate law. Stephen is the author of the New Law of Expropriation, a two-volume reference text that deals comprehensively with government acquisitions of real estate and business interests, and is considered an authority in Canada. For more information on Stephen Waqué please visit http://www.blg.com/en/home/our-professionals/Pages/Waque-Stephen.aspx