On February 12, 2012, the Québec Court of Appeal rendered a decision in Provigo Distribution Inc. v. 9173-1588 Québec Inc. which reaffirmed the conclusion of its often cited 2001 decision in Épiciers unis Métro-Richelieu inc. v. Standard Life Assurance Co. that use restrictions are not real servitudes. This decision is particularly notable given the 2010 Superior Court decision in Demik Properties (Sorel) Inc. v. Canadian Austin Group Co. that seemed to reopen the question of whether restricted-use covenants could be considered real servitudes.
The basic facts of the case are as follows. Bombardier owned a large parcel of land and sold part of it to Provigo in 1996. As a condition of the sale, Bombardier agreed not to allow any part of the remaining land to be used as a grocery store and registered this restriction as a servitude. Provigo and Bombardier also entered into an agreement which imposed, by way of servitude, a maximum land-building ratio and parking ratio on the remaining land. In 2006, Bombardier sold the remaining land to 9173-1588 Québec Inc. who leased the land to Provigo's direct competitor, Métro-Richelieu, who constructed a supermarket. Provigo took action to require Métro-Richelieu to demolish its store.
Interestingly, both parties and the Court agreed that the restrictive-use prohibition, although registered against title as a servitude, did not create a real and perpetual servitude affecting the property. Therefore, the Court had to decide whether 9173-1588 Québec Inc. had assumed this personal obligation of Bombardier.
The Court accepted that Bombardier clearly disclosed the restriction of use to 9173-1588 Québec Inc. prior to the latter's purchase of the property. The Court also recognized that the deed of sale provided that 9173-1588 Québec Inc. purchased the land "subject to" the restrictive-use servitude. However, 9173-1588 Québec Inc. did not expressly assume Bombardier's obligations under the restrictive-use servitude and the Court held that neither the disclosure of the existence of the land-use restriction nor the purchase of the land subject to it amounted to an assumption by 9173-1588 Québec Inc. of Bombardier's obligations thereunder. The Court therefore concluded that the restrictive-use covenant was not binding on 9173-1588 Québec Inc.
Unlike the restrictive-use covenant, the Court concluded that 9173-1588 Québec Inc. assumed Bombardier's obligations under the agreement that required that the parking ratio on the remaining land be the same as that on Provigo's property. Provigo's subsidiary argument was that the required parking ratio on the remaining property could not be respected with a supermarket thereon, and that consequently, Métro-Richelieu was required to demolish its store.
The zoning by-law in place when Provigo built its supermarket was changed in 2009 to reduce the minimum number of required spaces and to set a maximum number of permitted spaces. Provigo benefitted from acquired rights for its property, but 9173-1588 Québec Inc. did not. Despite the change in applicable zoning by-laws, Provigo argued that 9173-1588 Québec Inc. was limited to using the remaining property in a way that ensured that the same parking ratio as it had on its property was maintained. In order to do so, the Metro-Richelieu supermarket would have to be demolished and replaced with a commercial building with an unusually high proportion of restaurants (as restaurant use was subject to different minimum and maximum parking ratios than other commercial uses under the applicable zoning by-law).
9173-1588 Québec Inc. argued that limiting the use of the property to those uses that would enable it to respect the parking ratios set forth in the agreement with Provigo was not economically viable. The Court concluded that the change in the zoning by-law was akin to force majeure and that 9173-1588 Québec Inc. was no longer bound to respect the parking ratios set forth in the agreement. The Court did not accept the argument that the parking ratio agreement was intended by the parties to restrict the uses of the property, in particular where the parties had also entered into a specific restrictive-use agreement for that very purpose. Therefore, the Court refused to order the demolition of Metro-Richelieu's supermarket.
The Court of Appeal's decision in Provigo reinforces the fact that restricted-use "servitudes" will generally be considered as personal and not real rights, and that agreements imposing restrictions on the use of land may be interpreted narrowly in the event of any question as to the express intention of the parties. In negotiating restrictions on uses of land, it is important to be precise and to include a covenant requiring successors in title to respect such restrictions. It should be noted that the deed of servitude in favour of Provigo did not seem to require Bombardier to cause any purchaser of the property to assume its obligation thereunder. If it had, Provigo would have at least preserved a claim in damages against Bombardier for having failed to cause 9173-1588 Québec Inc. to assume the obligation.
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