In RioCan Holdings Inc. v. Metro Ontario Real Estate Limited, the Ontario Court of Appeal found that a parking lot rehabilitation was a capital cost and must be excluded from additional rent under the terms of that Lease. Unfortunately, this case is often used by tenants who are challenging their landlord's CAM allocations, as they erroneously believe that the RioCan v. Metro case stands for an affirmation that landlords cannot pass through capital costs.

In Parsons Precast Inc. v. Sbrissa the Court was asked to settle a dispute between Landlord and Tenant over the re-imbursement of the costs to the Landlord for repaving a parking lot. The Landlord and Tenant first entered into a Lease in October 2004 for a term of three years. The Lease was renewed twice for two additional two-year terms, ending in October 2011. The Lease contained provisions obligating the Tenant to pay on a monthly pro-rata basis for "repairs (reasonable wear and tear excepted) and maintenance" of common areas.

With just over a year remaining on the Lease, the Landlord repaved the entire parking lot and delivered a bill for $14,533 as the Tenant's proportionate share of the paving costs. The Tenant applied for a determination of whether it was liable for the repaving costs. The Tenant relied on RioCan v. Metro to argue that the repaving of a commercial parking lot is a capital expense and therefore could not be recovered as part of a monthly expense from a tenant. However, the Court distinguished RioCan v. Metro from the case at hand – and rightfully so – because of specific language in that lease which excluded "capital expenditures" from common expenses, whereas the Lease in this case had no such exclusion.

Nevertheless, Parsons is a worthwhile read as the Court analyzes whether the parking lot repaving would qualify as "maintenance" or "repairs (reasonable wear and tear excepted)", which were costs the Landlord was clearly entitled to pass through to the Tenant. The Court stated that: "Undoubtedly in arrangements of this type there will be a myriad of items which must be replaced in the normal course of events as an item of maintenance – for example a light bulb, or an air filter in a heating or air-conditioning system. It seems to me that other items, however, are so substantial in their nature and in their expense that they cannot reasonably be considered as an item of repair or maintenance." As well, the Court noted that "on the evidence before me it appears that the Landlord accepted the advice it had received to the effect that the wear and tear over 19 or 20 years on the original paved parking lot was such that it required to be replaced rather than repaired."

The Court concluded that the repaving project was not considered "maintenance" or "repair (reasonable wear and tear excepted)" since the parking lot was completely replaced, rather than being "fixed up", and such replacement was required as a result of wear and tear, the Tenant was not responsible for any of the repaving cost based on the wording of the Lease. The Court also considered (and deemed significant), the fact that the Landlord billed the client for its proportionate share in a lump sum and not as part of its monthly charge. If it was wrong in characterizing the re-pavement as falling outside the realm of "maintenance" and "repair," the Court said it would make sense to amortize the payment over a period of 20 years and the Tenant would only be responsible for such amortized amount between the months of September 2010 and October 2011 when the Lease expired. From a landlord's perspective, the latter statement may sends chills down your spine as the Court seemed willing to read into the Lease a restriction that the Tenant ought to have negotiated itself.

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