Executive Summary: Key Legal and Evidentiary Issues

• Dispute over whether the commercial lease was effectively renewed by a verbal agreement and subsequent conduct despite the absence of a signed renewal document.
• Alleged breach of clause 8.07 of the lease concerning the landlord’s obligation to ensure the presence of a pharmacy “in the environs” of the clinic throughout the term.
• Effect of the landlord’s mitigation efforts and a negotiated rent reduction/credit as a transaction extinguishing the tenant’s right to later invoke the pharmacy’s departure to seek resiliation.
• Legality of the tenant’s unilateral extrajudicial termination of the lease in light of article 1863 C.c.Q. and the absence of a contractual right to terminate de plein droit.
• Calculation of the landlord’s damages based on lost rent over 32 months, application of the security deposit, and addition of contractual interest at 18% plus brokerage commissions.
• Rejection of the tenant’s counterclaim for resiliation back to 2019 and reimbursement of deposit and rent, based on credibility findings and proof that the tenant had accepted the compensation arrangement and continued performance.

Facts and background to the commercial relationship

Les Pavillons de Bois Franc inc. (the landlord) owns the “Grande Place de Bois Franc,” a mixed-use commercial complex in the Bois-Franc residential sector of Ville Saint-Laurent, comprising several buildings with retail and office tenants, including medical and service businesses. Power Recherche Clinique inc., operating under the name Clinique médicale Theo, is a medical clinic whose president, Dr Alain-Steve Theodat, has led the clinic since 2015. In August 2017, the parties entered into a commercial “bail brut” (gross lease) for approximately 2,700 square feet on the second floor at 2555, rue des Nations. The lease term was five years, set to run from 1 September 2017 to 31 August 2022. An addendum in April 2019 expanded the leased premises by adding an extra unit (local 200-A). The landlord’s project positioned the clinic within a service hub that included, at the outset, a Brunet pharmacy on the ground floor of the same building, which was integral to the clinic’s business model as a Groupe de médecine familiale (GMF) intending to operate alongside an on-site pharmacy.

Lease provisions and the pharmacy presence clause

A central contractual provision was clause 8.07 of the lease, entitled “Présence d’une pharmacie.” It provided that the landlord “s’engage à ce qu’une pharmacie soit présente dans aux environs de la clinique pendant la durée du bail.” The clinic later argued this clause was the “keystone” and raison d’être of the agreement, asserting that its GMF concept depended on a pharmacy in the same building, and that this was essential both operationally and commercially. The landlord, for its part, contended that clause 8.07 was satisfied so long as there was a pharmacy “in the environs,” pointing to nearby pharmacies located approximately 1.2 km and 1.4 km from the premises, and further argued that, in any event, the parties had later agreed on a compensatory rent reduction and credit that settled any dispute arising from the pharmacy’s departure and constituted a renunciation of further recourse under that clause.

Departure of the pharmacy and its effect on the clinic

In September 2019, the Brunet pharmacy located on the ground floor closed its doors and transferred patient files and prescriptions to another pharmacy (Pharmaprix) about 1.2 km away. Although Brunet stopped operating on site, it continued to pay rent for its former premises and resisted the idea of having a new pharmacy installed there, in order to avoid competition with another banner pharmacy in the vicinity. The landlord insisted it was not contractually prevented from re-leasing the space to a different pharmacy and undertook significant efforts to find a replacement pharmacy tenant. These efforts included working with real estate brokers, arranging site visits with prospects and pharmacy chains, and discussions with market players such as Familiprix and Proxim, though none of these initiatives ultimately produced a new pharmacy tenant. From the tenant’s perspective, the loss of the on-site pharmacy was catastrophic. The clinic claimed a significant drop in business, difficulty retaining and recruiting physicians, and financial strain so severe that it relied on the federal emergency rent assistance program for commercial tenants during the 2020 pandemic. Dr Theodat asserted that the absence of a pharmacy made it practically and operationally impossible to continue the GMF model in the leased premises.

Negotiations over rent reduction and renewal

By 2021, the parties were actively negotiating adjustments to the financial terms of the lease in light of the pharmacy’s departure. The tenant proposed substantial rent reductions, arguing that the value per square foot had decreased significantly since September 2019. The landlord, through its representative, Luc Fortin, resisted a reduction of the magnitude suggested but ultimately agreed to meaningful concessions. According to the landlord’s evidence, an agreement was reached on two key points: first, a lump-sum credit of $17,497.67 for the period from September 2019 to December 2019 to compensate for the absence of the pharmacy; and second, a retroactive reduction of the gross rent starting 1 January 2021, in exchange for a renewal of the lease and a renunciation by the tenant of any recourse related to the pharmacy issue. Documentary evidence in the form of emails from Dr Theodat proved central. In August and September 2021, he explicitly requested a “prolongation de bail – Entente,” confirmed that there was an “entente” on renewal and rent adjustments, and acknowledged that certain months were to be credited and others rebilled at the negotiated reduced rate. The landlord made it clear that invoicing could not be changed until the renewal agreement was formally executed, but that once signed, credits would be applied retroactively. Despite administrative delays and unpaid rent accumulating at various points, the correspondence showed that both sides were discussing and relying on a negotiated framework: renewal of the lease, rent reduction during the period without a pharmacy, and a specific credit for the earlier months immediately following the pharmacy’s closure.

Draft renewal terms and continued occupation

In May 2022, the landlord sent a detailed draft “Convention de prolongation de bail,” embodying the parties’ prior discussions. That draft acknowledged that the absence of a pharmacy at Grande Place since September 2019 had caused prejudice to the tenant and specified a compensation package: the $17,497.67 credit for September to December 2019 and a retroactive adjustment of the gross rent to $24 per square foot as of 1 January 2021 (with a higher rate of $27 per square foot if a pharmacy were later reinstalled). In exchange, the tenant would grant a broad mutual release and quitclaim regarding any rights or recourses linked to the absence of a pharmacy. Separately, the landlord and tenant were exploring a possible expansion of the clinic on the second floor, and architectural plans were prepared and tweaked over the summer of 2022. In August 2022, shortly before the original lease expiry, Dr Theodat confirmed in writing that the clinic wanted to “aller de l’avant pour 5 ans” with the renewal, effectively reconfirming the intention to extend for an additional five-year term. The initial term expired on 31 August 2022, but the tenant remained in occupation, continued to use the premises, and interacted with the landlord on the basis that renewal and expansion were in progress. When a new property manager, Antoine Foulon, took over, he wrote in September 2022 referencing the ongoing renewal discussions, the proposed $17,497.61 credit, and the expectation that the clinic would remain for “encore longtemps.” The tenant did not deny that such an arrangement existed; rather, it disputed the calculations and maintained that, based on its own spreadsheets, the rent account was at a zero balance after accounting for the credits and adjustments related to the pharmacy’s departure.

The unilateral termination by the tenant

Despite this background of negotiations and continued occupation, the tenant eventually pivoted. On 31 October 2022, Dr Theodat sent a letter announcing that the clinic intended to end the lease on 31 December 2022. The landlord reacted by letter on 15 November 2022, stating that the tenant could not repudiate the renewal agreement by invoking clause 8.07, that there was no continuing default since pharmacies operated within approximately 1.1–1.4 km of the clinic, that the lease did not confer any automatic right of termination in the event of a breach of clause 8.07, and that any unilateral resiliation would expose the tenant to damages. The tenant vacated the premises as of 1 January 2023, leaving rent arrears of $8,350 that were calculated taking into account the previously agreed rent reduction and credit. It then sought, by counterclaim, to have the lease judicially resiliated retroactively from September 2019 and to obtain a refund of its security deposit plus reimbursement of all rent paid since the pharmacy’s departure—approximately $250,000—on the theory that it had been misled and could not reasonably continue to operate its GMF model without an on-site pharmacy.

Key legal issues and the court’s approach

The Superior Court was asked to decide five main questions: whether the lease had been renewed; whether there had been a breach of the lease by the landlord; whether the tenant had a right to unilaterally terminate the lease; and whether each party’s claim for damages was justified. On renewal, the court found that there was indeed a binding verbal agreement to extend the lease, supported by clear documentary evidence and the parties’ conduct. The tenant’s repeated written references to a “prolongation de bail – Entente,” its confirmation that it wished to proceed with a five-year renewal, and its acceptance and use of rent credits and reductions were inconsistent with its position at trial that no renewal agreement existed. The court concluded that the only missing step was the formal signature of the written renewal document; the essential terms had already been agreed. Regarding breach, the court held that clause 8.07 had been breached when the on-site Brunet pharmacy closed, but it emphasized the landlord’s good-faith efforts to replace the pharmacy and the fact that it was not contractually barred from re-leasing the space to another pharmacy. More importantly, the judge accepted that the parties had entered into a transaction settling this breach through the agreed credit and rent reduction, with the tenant renouncing further recourse for the absence of a pharmacy. By accepting the benefits of this arrangement and continuing to occupy after August 2022, the tenant was precluded from later invoking the same breach to justify early resiliation.

Limits on unilateral termination under Québec civil law

A critical legal question was whether the tenant could validly end the lease unilaterally, without prior judicial authorization, because of the landlord’s alleged default under clause 8.07. The court turned to article 1863 of the Civil Code of Québec, which stipulates that, in the event of non-performance of an obligation under a lease, the other party may seek performance in kind or, if the breach causes “prejudice sérieux,” may seek resiliation, in addition to damages, but generally through judicial action. The court reiterated that resiliation is an exceptional, harsh remedy and that, unless the lease expressly grants a right of automatic termination in the case of a specified default, a party cannot simply take the law into its own hands and unilaterally declare the lease at an end. In this case, nothing in the lease gave the tenant a contractual right to terminate de plein droit for a breach of clause 8.07. Even if the pharmacy’s departure had been a sufficiently serious default to warrant resiliation, the appropriate mechanism would have been to seek a court order, not to vacate unilaterally in late 2022, particularly after having negotiated and accepted compensation. The judge also indicated that a more proportionate remedy for a breach of the pharmacy clause might have been a rent reduction or a claim for damages, not necessarily termination of the entire lease, especially given the landlord’s mitigation efforts and the subsequent settlement arrangement.

Damages, mitigation, and calculation of the landlord’s loss

Once the court found that the tenant had renewed the lease and then wrongfully repudiated it, the question became the appropriate quantum of damages. Evidence showed that the landlord acted promptly to mitigate its loss once the premises became vacant on 1 January 2023, engaging a broker, listing the space, conducting numerous visits, marketing through Centris and social media, and even organizing a brokers’ “caravan” event to showcase spaces at Grande Place. These efforts eventually resulted in a new five-year lease signed in 2025 with CIC Maurice inc., running to 31 January 2030, with a rent-free period from 1 February to 25 July 2025 as part of the commercial terms negotiated to secure the replacement tenant. The landlord did not insist on enforcing the full renewal-option framework in clause 4.01 of the original lease, which contemplated an automatic three-year renewal unless the tenant gave written non-renewal notice. Instead, the court noted that the parties had effectively set that mechanism aside in favour of a custom five-year renewal arrangement. The landlord nevertheless chose to limit its damages claim to 32 months of loss rather than the full potential term. The damages calculation included: 32 months of lost rent at $5,703 per month (plus taxes), less rent received from the new tenant for July and August 2025; the undisputed arrears of $8,350.10 outstanding as of 1 January 2023; a deduction for the security deposit of $19,749.75; contractual interest at 18% per annum compounded monthly on arrears and each missed rent payment up to 30 June 2025, with recapitalization as at 1 July 2025 and continued application of the same interest rate to the recapitalized balance until 1 January 2026; and a leasing commission of $9,450 plus taxes paid to the brokerage firm that secured the replacement tenant. On this basis, the court accepted the landlord’s detailed damage schedule and found that the claim was legally and factually well-founded.

Outcome and final orders in favour of the landlord

The Superior Court allowed the landlord’s amended originating application and dismissed the tenant’s amended defence and counterclaim in their entirety. The court held that there had been a binding verbal renewal of the lease; that any breach of the pharmacy-presence covenant had been settled via a rent reduction and credit, with the tenant renouncing further claims; and that the tenant could not lawfully resort to extrajudicial unilateral resiliation in the absence of an express contractual provision and after having benefited from the negotiated compensation. As a result, Power Recherche Clinique inc. was ordered to pay Les Pavillons de Bois Franc inc. $251,986.39 in capital plus 18% interest per year compounded monthly from 1 January 2026, and an additional $10,865.14 with legal interest and the additional indemnity under article 1619 C.c.Q. from the date of judgment. In total, the principal monetary award amounted to $262,851.53, exclusive of running interest and indemnity, with costs also awarded against the tenant, making the landlord the successful party in the litigation.