9102-5486 Québec Inc. v. Café Suprême Canada Inc., EYB 2008-146794

In April 2001, the franchisee signed a franchise agreement with the franchisor Café Suprême Canada Inc. ("Café Suprême") for the operation of a franchise in a commercial building. The building had many tenants and some 700 workers. Following the drop in occupancy, the building was sold to a new owner who changed the commercial designation into a residential one, and terminated the franchisee’s lease.

The franchisee and the franchisor entered into a sublease for a shop located on Sherbrooke Street in Montreal. Shortly thereafter, the building occupancy started to decrease, as did the franchisee’s revenues. The franchisee notified the franchisor about his concerns. In April 2004, the building was sold and the new owner terminated the franchisee’s lease, which was never registered. The franchisor did, however, arrange for an extension of the lease with the new owner. The franchisee refused this new arrangement because he would have been the only lessee left in the building during a two-year renovation period. Thus, the franchisee claimed an amount of $471,903 in damages.

The Superior Court noted that both the sublease and the franchise agreement were contracts of adhesion as the stipulations were not negotiated and were all in favour of the franchisor. Despite the fact that the lease was entered into by a former subsidiary of the franchisor, the Court concluded that Café Supreme was the sublessor, since the franchisee was never informed of the true identity of the lessor, and the franchisor’s former subsidiary no longer existed. The Court noted that the registration of the lease was not required by law. However, the lessor is obligated to provide the lessee with peaceful enjoyment of the property throughout the term of the lease. Under the circumstances, the absence of registration resulted in an impossibility for the franchisee to operate the franchise in accordance with the franchise agreement. The Court concluded that the franchisee was not bound by the franchisor’s arrangement to extend the lease since the new context would be unsustainable for the franchisee. Lastly, the Court deemed that the limitation of warranty with respect to the profitability of the franchisee’s operations is not applicable where there is a quasi total loss of business caused by a change in the building’s designation. The Court declared both the franchisor and the initial owner of the building responsible for 70% and 30% respectively of the damages evaluated at $75,000.