A B.C. Supreme Court judge has ordered Evergreen Medicinal Supply to leave its bunker and land near Michell’s Farm in Central Saanich due to unpaid rent and expiry of a lease.
The company operates a bunker-style facility to grow cannabis at 6922 Lochside Drive in Central Saanich.
The owner of the land, Philip Illingworth, filed a petition in January 2019, asking for a declaration that Evergreen is wrongfully in possession of the lands and premises and an order for a writ of possession. The hearing took place before Justice B.D. MacKenzie on June 4 to 7, 2019, and June 10, 2019.
“Given the totality of the evidence, there will be a declaration that Evergreen is wrongfully in possession of the lands and premises, and there will be an order for a writ of possession pursuant to s. 21 of the Commercial Tenancy Act. Due to the unique nature of this facility, Evergreen shall deliver possession of the premises to Mr. Illingworth no later than August 31, 2019. The wording of the writ of possession will be to that effect, pursuant to my discretion under s. 21(3) of the Act,” MacKenzie wrote in the judgment on July 15.
According to the judgment, on Sept. 21, 2013, Illingworth and Evergreen’s CEO Shawn Galbraith, signed a lease starting January 1, 2014, with an option to renew for a further term of five years.
Illingworth alleged Evergreen failed to pay back rents owed from January 2014 to February 2017. Evergreen argued that its obligation to pay rent began in August 2017, when it was issued a municipal occupancy permit for the premises and since it had paid rent, the petition should be dismissed.
“This submission departs from an earlier position advanced by Evergreen, which was that rent became payable in March 2017 when Evergreen received a Health Canada licence to produce marihuana,” MacKenzie wrote.
“Alternatively, if I find rent for the period prior to August 2017 is due and payable, Evergreen says it should be granted relief from forfeiture. This argument relies in part on Evergreen’s contention that the Lease does not expire until December 31, 2019, or, if the Lease did expire in 2018, that Evergreen was and remains entitled to a renewal for a further five-year term.”
Earlier Petitions and Notice of Termination
The petition was not the first time Illingworth sought writ of possession on the basis Evergreen had breached the lease by not paying rent, “amongst other breaches.”
Two years ago, Illingworth was unsuccessful when another judge concluded rent was not due until March 2017 at the earliest on the basis that that was when construction of the building was “completed” and when Evergreen obtained a licence to produce medical cannabis.
Justice Cole also found that, as Illingworth had “expressly stated”, in an email or “note” dated July 31, 2016, that “back rent” was not due until Evergreen had obtained its licence for the production of medical cannabis at Illingworth’s premises, he was stopped from terminating the lease merely because Evergreen had failed to pay the rent “when due.”
Illingworth appealed the decision but the estoppel was upheld. However, the justice of appeal set aside the conclusion that there had been an abatement of rent as the issue was not properly before Justice Cole. The justice of appeal, Justice Smith, concluded:
“Evergreen took possession of the lands on January 1, 2014. Thereafter it oversaw construction and management of the facility through an affiliated company, Welton Construction Ltd. (“Welton”). An invoice from Welton dated December 31, 2013, indicated that, before the start of January 2014, 100% of the building’s exterior shell, and between 60 to 100% of its various interior components, were completed. In short, the structure of the building was substantially completed that month, with Evergreen occupying the premises.”
Smith also concluded parties signed a five-year lease commencing on January 1, 2014. Cole made a similar finding on the length of the lease.
As a result of the Court of Appeal’s decision setting aside Justice Cole’s finding that there was an abatement of rent, Mr. Illingworth delivered a demand to Evergreen for payment of the upaid rent. The amount was about $348,000 in principal, plus $98,000. or so. in interest.
Monday’s judgment states no back rent was paid and Illingworth then served Evergreen with a notice of default on December 5, 2018, advising that if the unpaid rent was not paid within 15 days, he would terminate the lease without further notice.
According to MacKenzie’s judgment, Evergreen did not respond or pay. Illingworth then hired a bailiff who served a notice of termination on Evergreen and took possession of the premises and changed the locks on December 21, 2018. Galbraith attended, as did the police. A constable testified on this hearing that he could not remove the new locks as requested by Galbraith, and told both Galbraith and Illingworth to leave the property and consult their lawyers, as it was clearly a landlord/tenant dispute.
On Jan. 3, 2019, Illingworth filed the current petition. In his second affidavit on Jan. 30, Illingworth alleged Evergreen cut the locks on Dec. 21, 2018, or the next day and “physically and forcibly re[took] possession.” He then said he delivered further demands to Evergreen to give up possession of the premises and did not receive a response.
Evergreen filed a response on Jan. 31, 2019, followed by an amended response on March 6, 2019, alleging that “occupancy of the Premises was not possible until August 22, 2017, at which time an occupancy permit was issued.” Evergreen also pled as it did in the 2017 litigation, that if three years’ rent was due and payable, it is entitled to relief from forfeiture.
The matter was scheduled for March 11, 2019, but Justice Power, who was involved in the 2017 petition, determined there was not enough time to hear the matter. She did, however, order Evergreen to continue to pay $9,500 per month in rent pursuant to the terms of the lease, “for use and occupation of the premises only” and “without prejudice to the parties’ rights”.
Other applications were heard prior to the present hearing based on allegations that Evergreen has not complied with the order of Justice Power and other terms of the lease.
Positions from Illingworth and Evergreen
According to the judgment, Illingworth argues that Evergreen owes $425,061 in unpaid rent, dating back to Jan. 1, 2014. That’s when Illingworth says the building was available in occupancy, as stated in the lease. According to Illingworth, “the parties contemplated rent would be owing as of that date pursuant to the clear terms of the lease”
Illingworth also argued that the five-year lease ended on Dec. 31, 2018, and due to what he says is Evergreen’s continued breach of the terms of the lease, he did inform the company that the lease would not be removed and they needed to vacate the land and premises.
Illingworth also alleged other defaults on the part of Evergreen during the course of the tenancy, including failure to pay property taxes and insurance premiums on time or at all, not permitting Illingworth’s authorized agent to inspect the premises after he provided proper notice, and failing to comply with provincial and municipal regulations pertaining to permits and work orders.
However, the unpaid rent Illingworth’s primary focus, MacKenzie wrote.
Evergreen stated in its initial response that it is not in breach by failing to pay rent because the ” “alleged arrears of $425,061.13 are not due and owing as the petitioner is claiming for rent accrued prior to March 2017.”
Evergreen’s argument that rent payable from the start of the lease was abated is based on Article 6.10 of the lease, which read:
“If the demised premises shall not be available for occupancy by the Tenant upon the date of commencement of the term hereby demised, the rent under this lease shall abate until the demised premises are available for occupancy and the Landlord shall not be liable in any way for the consequences of occupancy not being available to the Tenant upon the date of commencement.”
Evergreen also said it was agreed that rent would be “deferred” and not payable until the respondent obtained a licence to produce cannabis, which occurred in March 2017, and since then rent has been paid in full. According to the company, all property taxes and insurance premiums have been paid and none are due or outstanding.
In its amended response in March, Evergreen stated: “occupancy of the premises was not possible until August 22, 2017, at which time an occupancy permit was issued.” As a result, Evergreen now says no rent was due to be paid until August 2017, when it received an occupancy permit and the company paid rent from March through July 2017 pursuant to Justice Cole’s order when it should not have.
Evergreen also requested relief from forfeiture if MacKenzie agreed with Illingworth “because of the dire consequences a loss of the premises would have for Evergreen’s business.”
“Conversely, Evergreen submits in its response that if relief from forfeiture was granted, Mr. Illingworth ‘would continue to enjoy the substantial income from the Premises for which he bargained when he agreed to the Lease,'” MacKenzie wrote.
Evergreen also argued the lease did not expire until Dec. 31, 2019. In the alternative, if the lease did expire at the end of 2018, Evergreen maintained it was and entitled to a renewal for a further term of five years, as the company provided Mr. Illingworth with its notice to renew as stipulated in the lease.
Evergreen also submitted that the present claim is an abuse of process because Illingworth has filed a separate civil claim alleging he is entitled to a share of Evergreen’s business.
In his judgment, MacKenzie wrote given the totality of the evidence, “he has no hesitation in concluding that as of January 1, 2014, the premises were “available for occupancy” and, further, that Evergreen was in “occupancy” and benefited from that occupancy throughout the alleged abatement period.”
“I further find that Evergreen was not deprived of a benefit it could reasonably have expected to receive at that time. As a result, there was no abatement of rent and Evergreen is in default of the Lease by not paying the full rent due from January 2014 to March 2017, MacKenzie wrote.
“As the lease stipulates that interest is to be paid on any outstanding arrears, in my view Evergreen is indebted to Mr. Illingworth in the principal amount plus interest. However, this petition only seeks a writ of possession. Any claim for compensation must await a separate application.”
MacKenzie did not see merit in Evergreen’s abuse of process argument.
MacKenzie also found he was satisfied that the reference to a termination date of Dec. 31, 2019, was a “simple error” and the lease expired on Dec. 31, 2018. He did not grant relief from forfeiture as the “lease has expired and has not been renewed”
“I will add, for the sake of completeness, that even if relief from forfeiture were possible in the circumstances, I would not be persuaded Evergreen should be granted this equitable remedy in light of the extent of its unlawful failure to pay rent for three years of a five year lease,” MacKenzie said in the judgment.
“Finally, Evergreen says it still has an argument that it properly gave notice in 2018 it intended to renew the lease for another five years, and is therefore entitled to that renewal unless it was “habitually in default” of its obligations under the Lease. I find Evergreen’s unlawful failure to pay over three years of back rent amounts to habitual default. As a result, Evergreen is not entitled to a renewal.”
To read the full judgment, click here.