Executive Summary: Key Legal and Evidentiary Issues

• The central dispute concerns whether cannabis production equipment left on the leased premises at the end of the tenancy constituted trade fixtures removable by the tenant or leasehold improvements belonging to the landlord.
   
• Clause 7(r) of the 2023 Lease expressly excluded HVAC systems, utility equipment, electrical fixtures, and similar items from the definition of "trade fixtures," representing a significant departure from the more tenant-favourable 2019 lease.
   
• Under the common law test, the Equipment would qualify as trade fixtures; however, the court held that clause 7(r) — not the common law — governed the classification of the items in dispute.
   
• Compliance with the March 11, 2026 consent order was also contested, with the parties at an impasse over the Keep Rite Chiller's classification and the extent of environmental cleanup required.
   
• Environmental contamination discovered after UTSG vacated the premises raised a separate issue as to whether cannabis waste disposal on the property had been conducted properly and with the landlord's consent.
   
• Costs were awarded to the plaintiff in the amount of $2,000.00, payable by June 30, 2026.

Facts of the case

On July 1, 2019, HCC Holdings Ltd. (HCC) entered into a lease agreement with Under The Sun Groweries Inc. (UTSG) for the property known as Surface Parcel #149941952. The original lease expired in March 2023, after which the parties negotiated and signed a new lease on April 1, 2023 (the Lease). When the Lease expired, HCC and UTSG agreed to an ad hoc month-to-month extension while UTSG sought financing to purchase the premises — efforts that were ultimately unsuccessful. UTSG fell into significant arrears, and HCC began enforcement proceedings in February 2026. On March 11, 2026, Justice Currie granted a consent order requiring UTSG to clean up the premises and consenting to the issuance of a Writ of Possession in favour of HCC. A dispute then arose as UTSG began removing its equipment, with the parties in disagreement over which items UTSG was entitled to take. UTSG is in the business of licensed cannabis production, operating an indoor production facility for growing cannabis seed, with plants harvested at an outdoor farm and processed for oil extraction and distribution.

Lease terms and contractual provisions at issue

The Lease contained specific language on the classification of fixtures and trade fixtures under clause 7(r). The clause provided that all alterations, additions, fixtures, and improvements made by the tenant would immediately become the landlord's property upon installation, with certain exceptions. During the lease term, the tenant could remove trade fixtures with the landlord's prior written consent, provided the fixtures were excess or being replaced and the tenant was not in default. At expiry, the tenant was obligated to remove all of its trade fixtures at its own cost. Critically, clause 7(iv) defined, in bolded terms, what the tenant's trade fixtures would not include: heating, ventilating, or air-conditioning systems; other utility systems, facilities or equipment serving the premises; floor coverings; light fixtures and their tracking; storefront and doors; demising walls, ceilings, partitions, and special wall or ceiling finishes; and fixtures of any kind affixed to any of the foregoing — all of which were deemed leasehold improvements. The court noted that this clause was a significant departure from the more tenant-favourable 2019 lease.

Court's reasoning and analysis

The Equipment in dispute consisted of: a Keep Rite Chiller; shelving on which cannabis plants were grown; a Cannabeast distiller; a Vitalis Q machine including cosolvent injection equipment; process piping and ductwork affixed to walls or running through walls; and an electrical shut-off switch and associated wiring. With the exception of the shelving, all remaining Equipment was plumbed and wired into the building system. Justice R.S. Smith accepted that the shelving — which had wheels, sat on tracks, and could be easily lifted out and rolled away — was unquestionably a trade fixture removable by UTSG. As to the remaining Equipment, the court acknowledged that under the common law test for trade fixtures (whether the asset is affixed by the tenant for trade or commercial purposes and can be removed without material damage to the premises), the items would likely qualify as trade fixtures. However, the court held that it was clause 7(r), not the common law, that governed the characterization of the Equipment as between the parties. The court found that clause 7(r) was conceptually exhaustive of the type of trade fixtures used by UTSG, and that UTSG's obligation to read the Lease carefully precluded it from relying on the argument that HCC had failed to draw its attention to this departure from the 2019 lease. On the compliance issue, the court observed that the parties had reached a standstill over the Keep Rite Chiller's classification and the scope of environmental cleanup — particularly in relation to cannabis waste and contamination detected after UTSG vacated. The court declined to take an absolutist position on residual plant material given the nature of the cannabis operation, noting that UTSG's operation generated gross revenues of between $4 million and $7 million per year.

Ruling and outcome

Justice Smith concluded that the Equipment — with the sole exception of the shelving — must remain at the premises under the ownership of HCC. The court expressed optimism that the parties would be able to resolve compliance with the consent order between themselves, but remained seized of the matter and directed that either party could apply on five days' notice if a breakdown occurred. HCC, as the successful party, was awarded costs against UTSG in the amount of $2,000.00, payable by June 30, 2026.