The lease

The head lease that governs the operation and funding of Orchard House can be found here (‘opens a new browser tab):  OH Head Lease from LTO  . This Land Titles-registered lease was re-typed onto legal-length sheets and copied for 211 suite assignments. Lessees will have received the legal-length version along with a Land Titles Office-registered assignment.

In May of 2020 the B.C. Court of Appeal made a finding of fact that the Orchard House lease and nine others are “standard-form agreements”, which can be read about under this website’s headline “Lease is a standard-form contract”. This finding has implications for the leases’ interpretation before the courts. A list of those properties can be found here (opens a new tab):  List of ‘same leases  .

Dated 1 May 1974, the 99-year head lease expires at the end of 2073, and with it will expire all assignments to individual suites. Of 211 suite assignments in the building, 195 were sold, while Westsea Construction retained 16 that the company runs as rentals and to house site managers.

At page 13 you’ll see that the head lease was signed twice by builder George Mulek, first on behalf of lessor (property owner / landlord) Westsea Construction and on then behalf of lessee (tenant) Capital Construction Supplies. The resulting lease between two companies that he largely owned outright allowed for the sale of each suite’s lease assignment, a few of which are on the housing re-sale market at any given time. The lease allows the landlord to vet every re-sale of an assignment so it could veto, say, a pending purchase by a known criminal.

At page 14 schedule A lists every suite’s portion of the building’s in-suite floor area, expressed as a percentage. One-bedroom suite 201, for example, has .4637%, or just under .5% of the entire building’s in-suite floor area, which makes sense for a building of 211 suites. This is parallel to a condominium building, which Mr. Mulek apparently wanted to make of his rental building. A condo plan was even drawn up, but the land, building and suites remain a single taxable property, valued today at about $35 million. The history of the building’s controversial construction and protested conversion to leasehold can be found under this website’s headline “The building”.

Beginning at page 20 schedule B has five pages of “Rules and regulations” which includes clauses that appear never to have applied to Orchard House, such as rules about use of an incinerator. The rules are similar to those that govern condominium buildings, but there is no system of fines in the rules, nor authorized by the lease. Alleged minor lessee breaches could be submitted to the B.C. Civil Resolution Tribunal for enforcement, but landlord Westsea Construction’s lawyer has opposed that body hearing a claim made to the CRT by a lessee. It appears that the landlord prefers retaining the big stick of suing for alleged breach of the lease for any infraction, and limiting interpretation of the lease to higher courts.

A reference to “rent” at clause 4.01 has been clarified in court by Westsea’s lawyer Mark Stacey, who confirmed that the only rent payable under the lease was the prepaid rent when the first lessees purchased their 99-year assignments from Westsea Construction. “Rent has been prepaid,” Mr. Stacey said in 2016 to Justice Brian MacKenzie. “That is the asset that a purchaser like Mr. Trenchard is buying. So it’s like he’s buying the balance of the 99-year rent that has been prepaid. … This lease is not about rent.”

An exception to this might be if a lessee is found by the courts to be in breach of the lease. Clauses 8.02 and 8.03 reference recovery of money from such lessees—and the cost of action to recover it–“as rent”, but that appears to be subject to challenge.

Eleven clauses under Article 4 detail what lessees “covenant” to do and not do. Yes, that’s in addition to the five pages of rules and regulations. At 4.03 is a standard rental wear-and-tear-exception clause that should mean that lessees (tenants) are responsible to maintain and repair fixtures inside their suites, but that the landlord will pay from its rental income (pre-paid, in this case) to replace the fixtures when they wear out. In practice and before the courts this clause seems not to exist; Westsea Construction does not replace worn-out suite parquet flooring or toilets, and if it responded to a demand to do so it would no doubt bill the cost to lessees.

Eleven clauses under Article 5 detail the lessor’s covenants to allow lessees to enjoy quiet living at Orchard House, to maintain the building, keep it insured, and to pay all the bills with money collected from lessees. There’s a “cablevision” clause, but no one seems to care that this service is not provided and paid for as an operating expense.

Article 7 lists the operating expenses that may be billed to lessees, which the courts have interpreted broadly. For example, while 7.01 lists “window washing”, it neglects to mention ‘window replacements when needed’, which cost lessees about $15 million in two phases, and which expenses forced numerous lessees out of their homes. Even with that omission and the building’s plan showing windows to be interior to suites—and thus subject to the wear-and-tear exception—the courts ruled that such a capital expense is an operating expense for lessees to pay. It appears that judges have not wrapped their heads around long-term lessees being tenants who have paid their rent in advance.

Article 7’s list of operating expenses payable by lessees does not include “management fees”, even though Westsea’s 24 October 2017 notice of 2018 suite fees said for the first time that such an expense was being billed (and increasing), and even though Madam Justice Douglas somehow came to believe that Article 7 included “management fees” when she adjudicated the civil trial regarding the cost of new Orchard House windows. Read about that under this website’s headline “Don’t believe it!”.

The last sentence of 7.01 requires the lessor, “…to exercise prudent and reasonable discretion in incurring operating expenses…”, which was quoted and stressed by the B.C. Court of Appeal in May of 2020. What those words actually mean is still the subject of court proceedings. Is it “prudent and reasonable” for the lessor to bill lessees its litigation expenses opposing one lessee’s legal action? Are lessees who refuse to pay that lessor’s billed expense in default of the lease? That issue is covered under this website’s headline “Disputing WS’s legal costs”.

Clause 7.02 requires the lessor to give lessees, “…an estimate of the operating expenses…” for the coming year, “…based on prior years experience…”. (possessive apostrophes are rare in this document). What actually happens is that lessees receive a letter telling them what their monthly fees will be next year, without a budget, perhaps with a few words justifying a dramatic increase in the fees. There is no clause in the lease requiring any financial disclosure to lessees.

“Overholding” clause 8.06 anticipates the end of the lease at the end of 2073, granting by-the-month tenancy to lessees at whatever rent rate the lessor may choose to set. This means there is no overholding protection for lessees as is granted by legislation in most other jurisdictions; if the landlord wants lessees out at that time it will simply set an insanely high rental price.

Article 10 declares that every suite’s assignment of the lease is independent, which raises an interesting question for lessees facing huge bills to reconstruct their buildings. At the time of writing, for example (July 2020), two dozen lessees at a Westsea company-owned building in Richmond are sued because they cannot afford the bills they’ve been levied.

One defense those lessees have put forward is that they’re only obliged under the lease to pay for restoration of the building to the state it was in at the time they bought their assignment. If you bought last month, then, do “operating expenses” require you to pay to restore the building to the condition it was in back in 1974?

Another defense they offer is that it could be “unconscionable” that the operating-expenses clause is interpreted by the lessor to include capital costs that will bankrupt many of the lessees. If they’d been told of or understood that implication they would not have bought their lease assignments. Read about that under this website’s headline “Unconscionable lease?”.

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