Facts

Appellant Europe Cosmétiques Inc. and Respondent Location Le Carrefour Laval Inc., owner of a mall, signed a Letter of Intent for the rental of a two-story commercial building. Under the Letter of Intent, Appellant agreed to partake in the construction of a medical spa that would be considered as an extension of the mall. 

Through its real estate broker, Appellant waived the financing condition stipulated in the Letter of Intent. After the completion of the works, the parties negotiated a Lease Agreement, the signature of which was delayed by the fact that Appellant had not yet received its financing. After a substantial waiting time, Respondent brought an action against Appellant for damages and breach of the Letter of Intent. A year later, Respondent managed to rent one of the two floors of the building to a new tenant.

The trial judge held that the Letter of Intent was indeed a promise to enter into a contract under section 1396 of the Civil Code of Québec (L.R.Q. 1991, c. C-1991) (the “CCQ.”) and that the award should then be fully granted with regard to the sum representing the development and conversion costs of the leased property. With regard to the claim for unpaid rent, the trial judge limited the award to the square footage that was not rented by the new tenant.

Decision

The Court partially allowed the appeal and reduced the award for the development and property conversion costs, while at the same time increasing the award for unpaid rent. The Court concluded that the Letter of Intent was indeed a promise to enter into a contract under section 1396 of the CCQ, since the document signed by the parties contained all the necessary elements of a lease, namely the property, the use, the rent and the rental period.

The Court held that the intention of the parties was to be bound by this Letter of Intent, as was demonstrated by Appellant’s waiver of the financing clause. With regard to the claim for unpaid rent, the Court held that Respondent should be compensated for the amount it would have received had the Lease Agreement actually been signed. With regard to the development and property conversion costs, the Court held that some of the expenses were justified because they did not constitute double compensation.