Historically the common law permitted parties to pursue their legal rights in all circumstances. But when courts found this to be overly harsh, various “equitable” doctrines were developed to give the courts greater discretion. One of these equitable doctrines is the doctrine of estoppel.
The doctrine of estoppel is a concept that, in certain circumstances, restricts a party from relying on its full legal rights. This, for example, can arise in a lease context. A landlord may have the right under a lease to re-measure the premises and collect rent on the re-measured area, but the landlord’s conduct over a number of years (and the tenant’s reliance on such conduct) may present a hurdle in enforcing such right.
Requirements of Estoppel
Typically a party raises an estoppel as a defence when the other party is seeking to enforce a contractual or other right. The party seeking to defeat the enforcement takes the position that the party with the rights is “estopped” from relying on those rights.
In order to successfully raise an estoppel defence, the party seeking to defeat the legal rights of the other must show:
- notwithstanding that the party seeking to enforce had certain legal rights, it took some action (made some representation or promise) with the intention of the other party relying on that action; and
- the other party did in fact rely on that action (representation or promise) and changed its course of conduct based on that action. (This is often said to be a requirement that there be “detrimental reliance”).
In those circumstances, the court may find that it is inequitable to allow the first party to go back on its representation or promise and enforce its full legal rights. And so, notwithstanding that there was no amendment to the contract, the party may not be able to rely on its full legal rights.
In OGT Holdings Ltd. v. Startek Canada Services Ltd., a 2009 Ontario case, the court held that the tenant was permitted to rely on the doctrine of estoppel in defence of a claim by the landlord for certain realty taxes owing pursuant the lease for the period of September 1, 2001 to September 30, 2005.
The tenant acknowledged the correctness of the arithmetic used to calculate the landlord’s claim, being $346,692.80. However, the tenant maintained that while the lease gave the landlord the option to charge realty taxes in alternate methods (proportionate share or separate assessment), the landlord was estopped from using the proportionate share method after having used the separate assessment method for so many years.
Throughout the period at issue, the tenant had paid all of the rent, including the share of realty taxes, as billed by the landlord pursuant to the separate assessment method. The court found that the landlord had made an election upon which the tenant had relied and which then became a final election, from which the landlord could not now withdraw. The necessary elements for estoppel were present (a representation or promise and reliance by the other party).
But the estoppel argument failed in the 1999 Ontario case of Meadowvale Industrial Mall v. Becquerel Laboratories. Here the tenant tried to apply estoppel to the situation where a landlord forgot to charge a rent step up. The facts were fairly simple. There was a 10 year lease, with five years at $8 per square foot and then five years at $10 per square foot. The landlord never invoiced for the step up and throughout the whole second five-year period the rent continued to be paid at $8 per square foot. The parties even negotiated a further five year extension and signed it at $8 per square foot.
Then the landlord became aware of the undercharging for five years, sought payment and eventually brought an action. The tenant defended the action on the basis of waiver and estoppel. That is, the tenant took the position that the landlord should be estopped from charging the higher rent. The court looked at the estoppel principles. First, the court stated that there was no statement or promise that the landlord would not charge the higher rent. Simply sending out an invoice in error or forgetting to invoice for the higher amount did not amount to a representation that it was changing its legal right to charge $10 per square foot. Second, the court held that the tenant’s argument would have failed even if that was found to be a representation, because there was no evidence that the tenant relied on the invoice for the lower rent to its detriment. The tenant did not change its position, so one of the necessary elements of estoppel (reliance) was not there.
When a lease or other contractual dispute arises it may be that there are equitable doctrines, like estoppel, that can assist one of the parties. However, not every representation or promise made outside the contract or the lease will result in rights being lost. The representation or promise must have been made with the intention of inducing a change in the other party and must have resulted in the other party actually changing its position such that it would not be equitable for the first party to insist on its full legal rights. These factors would have to be considered on the specific facts when determining, as in the first lease example above, if a landlord can reach back in time and collect rent based on a re-measurement of the premises.