Executive Summary: Key Legal and Evidentiary Issues

• Landlord failed to establish the initial condition of the premises at the start of tenancy, leaving no baseline for assessing alleged damages

• The lease term "first class condition" was undefined, creating ambiguity in determining breach

• Insufficient evidence existed to distinguish between tenant modifications made with permission, those made without permission, and damage occurring after eviction

• Appellant bore the burden of proving both the breach and resulting damages but could not discharge this evidentiary obligation

• Contractual interpretation required consideration of the factual matrix, including that the tenant took the premises on an "as is" basis

• Standard of review for contract interpretation and factual findings was palpable and overriding error, which the chambers judge did not commit

The commercial lease and its terms

Singh Jewelers and Manjit Singh Mutti operated a jewellery store on premises owned by 1049104 Alberta Ltd and Tony Parmar under a commercial lease effective from May 18, 2010, until April 30, 2022. Section 11.1 of the lease obligated the tenant to keep the premises in "first class condition" throughout the tenancy and return them in the same condition upon termination. However, the term "first class condition" was not defined in the agreement. Schedule C, section 1.1 stipulated that the tenant took the premises on an "as is" basis, and there was no evidence before the chambers judge regarding the condition of the premises when the tenant commenced occupancy.

Lease expiry and eviction

As the lease neared expiration, the parties began discussing lease renewal but no agreement was reached. On May 1, 2022, the tenant became an overholding tenant subject to a monthly tenancy. The same day, the landlord provided notice of termination to occur on June 1, 2022, and denied the tenant's request to extend the lease until October 1, 2022, which would have allowed the tenant time to find new premises and arrange to move its equipment. On June 8, 2022, a bailiff was sent to evict the tenant. The tenant was given one hour to remove its property. Given the weight and composition of the jewelry industry specific counters, safes, and machines, this was not possible and the tenant was forced to leave much of its property behind.

The landlord's claims for damages

Following the eviction, the landlord commenced proceedings on July 14, 2022, claiming breach of contract and damages on a number of bases. The landlord contacted the City of Calgary to perform an inspection which resulted in a declaration that the premises was unfit for occupation. The landlord obtained an estimate indicating it would cost $29,164.80 to repair the premises for reoccupation. On November 21, 2022, the landlord further asserted damages because the tenant had left the premises in disrepair contrary to the terms of the lease. The asserted damages included damages to the door, walls, and roof. There was evidence the premises had been broken into on at least two occasions after the tenant was evicted. The tenant defended by indicating it was not responsible for some of the asserted damages, the landlord was aware of many of the modifications to the premises now asserted as damages, and some of those modifications improved the value of the property and therefore could not be considered damages.

The chambers judge's decision

The parties appeared before the chambers judge on November 23, 2023. The chambers judge released written reasons on July 29, 2024, dismissing the landlord's application and ordering the return of the tenant's property. The chambers judge determined that the landlord had not met its evidentiary burden to establish that it was entitled to the damages claimed. Further, the chambers judge found that there was insufficient evidence to assess what the quantum of damages would be, even in respect of modifications the tenant admitted making. The record was unclear as to which modifications to the premises, now claimed as damages, were made at the start of the tenancy with the landlord's permission and assistance; which occurred during the tenancy but without permission; and which occurred subsequent to the tenant's eviction. The chambers judge found it significant that there was no evidence regarding the state of the premises when the tenant took possession, reasoning that without a baseline reference regarding the condition of the premises, the landlord had failed to meet its burden.

The appeal and its dismissal

The landlord appealed, arguing the chambers judge committed a palpable and overriding error in finding that the record was not sufficient to ground a finding that the tenant had breached the terms of the lease by not leaving the premises in "first class condition." Before the Court of Appeal, the landlord argued that the state of the premises at the beginning of the lease is irrelevant, and that all that is relevant is that the tenant was required to return the premises in a "first class condition." The landlord suggested the meaning of this is self-evident and was reflected in the quotes it obtained to repair the premises. The Court of Appeal disagreed, affirming that proper contractual interpretation required determining what a reasonable person would objectively have understood from the words of the lease read as a whole and from the factual matrix. The initial state of the premises was part of the surrounding circumstances that could properly inform the interpretation of the contract and was also relevant to determining the extent to which modifications made by the tenant might constitute compensable damage. The Court held that the chambers judge made no reviewable error in finding that without any evidence as to the initial condition of the premises, she could neither determine whether a breach of the lease had occurred, nor quantify the damages arising from such a breach. The burden lay on the landlord to prove the breach and the damages, and the chambers judge did not err in determining they failed to discharge that burden. The appeal was dismissed, and the tenant, Singh Jewelers and Manjit Singh Mutti, prevailed. No specific monetary award was granted; rather, the original dismissal of the landlord's damage claims and the order to return the tenant's property were upheld.