





CITATION: Caledonia Service Station Inc. v. Cango
      Inc., 2011 ONCA 184





DATE: 20110309



DOCKET: C51770



COURT OF APPEAL FOR ONTARIO



Goudge, Sharpe and LaForme JJ.A



BETWEEN



Caledonia Service Station Inc.



Applicant (Respondent)



and



Cango Inc.



Respondent (Appellant)



Tamara Farber, for the appellant



Nicholas C. Tibollo and Lori Marzinotto, for the respondent



Heard: January 6, 2011



On appeal from the order of Justice David Price of the
          Superior Court of Justice dated January 28, 2010, with reasons reported at
          (2010) 90 R.P.R. (4th) 236.



Goudge J.A.:



[1]

The appellant operated a gas bar on premises that it leased from the
    respondent in Mississauga, Ontario. In the spring of 2008, the appellant
    discovered a failure in one of the underground fuel lines on the premises. It capped
    the line, discontinued its use and notified the respondent in April 2008.
    Subsequently, in June 2008, the appellant terminated the lease and vacated the
    premises, leaving behind the underground tanks and lines, including the capped
    line.

[2]

The respondent then brought an application seeking a declaration that
    the appellant is the owner of the underground storage tanks and fuel lines, and
    an order requiring the appellant to remove them. The application judge dismissed
    this request. The respondent has not appealed from this order. In the
    alternative, the respondent sought an order declaring that the lease required
    the appellant to repair the underground storage tanks and fuel lines. The
    application judge granted this order, together with an order declaring that the
    appellant had breached its duty of repair.

[3]

The appellant appeals, arguing that its lease imposed no such repair
    obligation. For the reasons that follow, I agree. I would therefore allow the
    appeal.

[4]

The appellant was the third lessee to carry on the gas bar business on
    the respondents premises. The first tenant signed its lease with the
    respondent in 1985. That lease explicitly required the tenant to remove its
    equipment and improvements at the end of the lease. The first tenant went
    bankrupt in March 1991 and did not remove its equipment and improvements.

[5]

In June 1991 the second lessee, Pioneer, signed a new lease with the
    respondent. It did not contain a provision requiring the tenant to remove its
    equipment and improvements at the end of the lease. This lease was subsequently
    assigned to the appellant in 1993.

[6]

The important provisions of the 1991 lease are as follows:

3.
USE OF PREMISES:

...

a) Pioneer may at its expense and in conformity
    with all laws, by-laws and regulations construct and install on the Premises
    any buildings, structures, improvements and equipment, including advertising
    signs and billboards. All buildings, improvements and equipment constructed,
    installed or placed on this Lease and any renewal and overholding thereof shall
    be and remain the property of Pioneer until the termination of this Lease.

...

5.
REMOVAL OF TRADE FIXTURES:

Pioneer may at any time during the term
    of this Lease and any renewal or extension thereof, and within thirty (30) days
    thereafter remove any of its trade fixtures and other equipment installed or
    placed on the Premises by it and shall repair damage caused by such removal.
    Any such trade fixtures and equipment not so removed and all buildings and
    improvements constructed, installed or placed on the Premises by Pioneer shall
    thereupon become the absolute property of the Landlord....

6.
REPAIR AND REPLACEMENT:

Pioneer shall at its expense maintain
    and keep the Premises and all improvements thereon neat and clean and in good
    order and repair having regard to the age of such improvements and the business
    of Pioneer. Pioneer will permit the Landlord or its servants or agents to enter
    at all reasonable times upon the premises to examine the state or condition of
    the same.

[7]

The application judge found that the underground storage tanks and fuel
    lines were trade fixtures belonging to the tenant, which it could restore to
    their character as chattels by severing their connection with the soil. The
    respondent conceded this finding in its factum. In oral argument in this court,
    although not attacking the finding as incorrect, the respondent urged that the
    reasons below be read as finding that these were the landlords trade fixtures.
    I cannot do so. Nowhere did the trial judge say or imply this. Rather he found
    explicitly that they were owned throughout the lease by the tenant.

[8]

The application judge then focused on paragraph 5 of the 1991 lease,
    which gave the appellant the right, although not the obligation, to remove any
    of its trade fixtures at the end of the lease. This paragraph states that any
    trade fixtures not so removed become the property of the respondent. Since the
    appellant did not remove the underground storage tanks and fuel lines when it
    vacated, this paragraph provides that they now belong to the respondent.
    Paragraph 5 necessarily serves as the underpinning for the application judges
    dismissal of the respondents request for a declaration that the appellant is
    the owner of these tanks and lines and an order requiring the appellant to
    remove them from the premises. As I indicated, the respondent has not appealed the
    dismissal order.

[9]

The application judge then turned to the appellants duty to repair. It
    is governed by paragraph 6 of the 1991 lease. He found that improvements in
    that paragraph include the underground storage tanks and fuel lines. That was
    the only issue before him concerning the repair obligation. In this case the
    respondent did not allege that the failure to repair caused damage to the
    premises. The damage alleged was only to the trade fixtures themselves.

[10]

The application judge concluded that paragraph 6 imposed an obligation
    to repair the underground storage tanks and fuel lines, and that the appellant
    breached its duty by failing to repair the fault that it reported in April
    2008.

[11]

I am inclined to agree with the appellants alternative argument that
    the application judge had no basis to conclude that the capping of the failed
    fuel line constituted a breach of the duty to repair. However, it is
    unnecessary to finally decide that question because I agree with the
    appellants primary argument, namely that the application judge erred in
    finding that the duty to repair applied to the underground storage tanks and
    fuel lines at all.

[12]

The lease clearly distinguishes between the tenants trade fixtures and
    improvements. Paragraph 5 refers to both explicitly and treats them differently.
    The tenant is given the right to remove any of its trade fixtures during or at
    the end of the lease. If it chooses not to do so, they become the property of
    the landlord on termination of the lease.

[13]

On the other hand, the tenant is given no right to remove improvements
    that it constructs on the premises. While paragraph 3(a) provides that such
    improvements are the property of the tenant during the term of the lease,
    paragraph 5 provides that they become the property of the landlord on the
    leases termination.

[14]

This distinction accords with the ordinary meaning of improvements and
    trade fixtures in the law of real property: improvements refer to things
    constructed on and attached to the realty that are intended to become part of
    it; trade fixtures refer to things placed on and connected to the realty but in
    a way that the connection can be severed, restoring their character as
    chattels. See
Stack v. T. Eaton Co.
(1902), 4 O.L.R. 335 (Div. Ct.);
Fas
    Gas Oil Ltd. v. J. H. Automotive Ltd.
(2004), 31 Alta. L.R. (4th) 197 (C.A.);
Beloit Sorel Walmsley, Ltd. v. New Brunswick
(1976), 71 D.L.R. (3d) 240
    (N.B.C.A.).

[15]

Paragraph 6 of the lease sets out the tenants repair obligation. It
    clearly applies to improvements. It does not refer to the tenants trade fixtures.
    This not only reflects the ordinary distinction that is drawn between the two
    in the law of real property, but it also reflects the distinction that is explicitly
    drawn in this lease. It reflects the fact that, because they cannot be removed,
    improvements made by the tenant will inevitably become the property of the
    landlord, giving the landlord an interest in ensuring their repair. On the
    other hand, a tenants fixtures may be removed by the tenant, in which case the
    landlord has no stake in their state of repair. A landlord wishing to protect
    itself against unrepaired trade fixtures left behind by the tenant can do so by
    requiring the tenant to remove its trade fixtures at the end of the lease, as
    this landlord did in the 1985 lease, but did not in the 1991 lease.

[16]

I therefore conclude that, having found the underground storage tanks
    and fuel lines to be tenants trade fixtures, the application judge erred in
    concluding that they were improvements for the purposes of the tenants repair
    obligation. The appellant had no obligation to the landlord to repair them.

[17]

I would therefore allow the appeal, set aside the order below and
    substitute an order dismissing the application in its entirety.

[18]

The appellant is entitled to partial indemnity costs here and below,
    which I would fix at $10,000 and $25,000 respectively, each inclusive of
    disbursements and applicable taxes.

RELEASED:  MAR 09 2011 (S.T.G.)

S. T. Goudge
    J.A.

I agree. Robert J. Sharpe
    J.A.

I agree. H. S. LaForme J.A.


