The Supreme Court of Canada has ruled that a binding agreement will exist where both sides show by their actions that they meant to enter into an agreement.
The Supreme of Canada has upheld the British Columbia Court of Appeal’s decision in Owners, Strata Plan LMS 3905 v Crystal Square Parking Corp. In applying common principles of contract law, the Supreme Court of Canada has shed light on the implications of agreements imposing positive obligations on successors in title, and specifically whether positive obligations can run with the land. Additionally, the Supreme Court of Canada also contemplated whether the parties, by their conduct post-incorporation demonstrated an intention to be bound by a contract identical to the one their predecessor entered into.
Crystal Square was a large complex in Burnaby, B.C., which held a mixture of both commercial and residential tenants including an officer tower. When Crystal Square was built, its developer signed an Air Space Parcel Agreement with the City of Burnaby. One thing the agreement set out was access to the parking for each air space parcel and the cost associated with same.
The office tower was a strata tower, made up of several units or “strata lots”. Though owned by different people, it has shared ideas. The strata corporation manages and maintains the shared areas and services. The strata corporation did not exist when the Air Space Parcel Agreement was signed. However, its members used the parking garage and paid for it, as directed by the Agreement.
Eventually, the owners wanted to dispute the cost of parking. As they had not signed the Agreement, they disputed whether its terms applied to them. As such, the central question before the Courts was whether the parties, after Strata’s incorporation, entered into a new contract on the same terms as the pre-incorporation contract?
In order to answer this question, the Appellate Court used the test from Heinhuis v Blacksheep Charters Ltd. and Phelps Holding Ltd. v Owners Strata Plan VIS 3420:
- the parties need to show an intention to be bound by a new, and identical post-incorporation contract; and
- that the parties cannot take the benefit of the agreement without accepting the burden that comes with; and lastly
- when the benefit and burden are contemplated pre-incorporation, and then acted upon exactly as contemplated post-incorporation, then there will be a new post-incorporation contract on the same terms.
Ultimately, the Supreme Court of Canada, in agreement with the BC Appeals Court, held that the Agreement between the parties could be enforced. The strata corporation took advantage of all the terms of the Agreement, for many years, after incorporation, it therefore should be obliged to discharge the burden of the Agreement as well. Consequently, the benefit and burden were acted upon by the the strata corporation in the exact manner contemplated post-incorporation.
Interestingly, this case opens the door for the general applicability of Heinhuis in all cases where there is a newly incorporated entity with an intention to be bound by a new, post-corporation contract. Further, it addresses the apprehension of applying Heinhuis because it would bind a party to a positive obligation that does not run with the land.