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By: C. Nicole Mangan

Disputes regularly arise between parties on how to interpret a commercial lease. Often leases provide that where parties cannot agree, they must arbitrate the dispute. A common example of such a dispute is the determination of renewal rent.

In Vancouver School District No. 39 v. Kingsgate Property Ltd. 2026 BCCA 98 (“VSB”), the BC Court of Appeal recently provided guidance on how and when prior arbitration decisions regarding a renewal rent clause will be binding on the determination of future renewal rent disputes.

Background of the Dispute

VSB is the latest in a long string of litigation concerning the Kingsgate Mall in Vancouver (the “Premises”).

On November 20, 1972, the Vancouver School District No. 39 (the “Vancouver School District”), leased the lands on which the Premises were located (the “Lands”) to Royal Oak Holdings Ltd. (“Royal Oak”) (the “Lease”). Following the initial term, the Lease provided for seven renewal terms of 10 years each.

The Lease provided that, if the parties could not agree on the amount of renewal rent, the annual basic rent was to equal 8.25% of the fair market value of the Lands, which was to be determined by treating the Lands as vacant at the time of assessment and ready for “immediate use” based on their “immediate development” to their highest and best lawful use.

The 1999 Arbitration Outcome

The Vancouver School District and Royal Oak were unable to agree on the fair market value of the Lands for the first renewal term and went to arbitration in 1999 (the “1999 Arbitration”).

The issue in the 1999 Arbitration was how to interpret “immediate development” and “immediate use” in s. 29.09 of the Lease.

The zoning for the Lands allowed for development of either an outright approval use or a conditional approval use. A majority of the 1999 Arbitration panel found there was an automatic right to develop the Lands under the outright use as this was a legal entitlement because the specific language of the bylaw provides outright use “shall be permitted in [Vancouver]” and the permit “shall be issued.” The conditional approval use, however, required discretionary approval by the City of Vancouver. Under the outright approval use, the maximum FSR is 1.0 whereas under a conditional approval use it could be up to 3.0.

Additionally, the approval time for the outright approval use was 7 to 12 weeks, whereas a conditional approval use could take longer than 60 weeks.

In a two to one majority, the 1999 Arbitration panel found that assessing the fair market value of the Lands under s. 29.09 required assuming the Lands would be developed for their outright use and not the conditional use (the “1999 Arbitration Award”). This was because the shorter timeline for approval, and the relative certainty of the outright use, were closer to the definition of “immediate use” and “immediate development” than the conditional use, which would take substantially longer and may ultimately never be approved.

The 2022 Arbitration

In December 2005, Kingsgate Property Ltd. (“Kingsgate”) took an assignment of Royal Oak’s rights under the lease, and Kingsgate and Beedie Development LP (collectively, “Beedie”) agreed to observe the covenants of Royal Oak under the Lease.

The Vancouver School District and Beedie could not agree on the renewal rent and the parties went to arbitration in 2022 (the “2022 Arbitration”).

Beedie argued that the 2022 Arbitration panel was bound to follow the 1999 Arbitration Award’s interpretation of s. 29.09 of the Lease, which required valuing the Lands by determining what use they could be put to with the least delay. Specifically, Beedie argued that the doctrine of issue estoppel compelled that result since the issue of the interpretation of s. 29.09 had already been determined in the 1999 Arbitration.

Issue estoppel prevents parties from re-litigating an issue that has already been judicially decided between the same parties, unless special circumstances arise after the original decision or unless applying issue estoppel would result in an injustice to the parties.

Ultimately, the majority of the 2022 Arbitration panel did not apply issue estoppel and interpreted s. 29.09 afresh (the “2022 Majority”). In the 2022 Majority’s opinion, “immediate use” and “immediate development” did not mean the comparatively faster use or development of the Lands, but rather whether either outright use or conditional use could be deemed immediate in the sense that it allowed for development without delay.

Evidence in the 2022 Arbitration showed an outright use was not guaranteed approval from the City. Further, the process for obtaining an outright use had ballooned to at least 6 to 8 months. The 2022 Majority found neither outright use nor conditional use met the definition of “immediate use”, therefore, following the 1999 Arbitration Award would result in an injustice to the parties.

As a result, the 2022 Majority set the market value of the Lands based on conditional use since conditional use would allow for the highest and best lawful use of the Lands as required by s. 29.09 by providing for the higher FSR of 3.0 (the “2022 Arbitration Award”).

The Court Decisions

The 2022 Arbitration Award was overturned in the British Columbia Supreme Court following a judicial review. This decision was then appealed to the British Columbia Court of Appeal.

A two to one majority of the Court of Appeal upheld the chambers judge’s ruling that the 2022 Arbitration Award should be overturned because the 2022 Majority erred in not following the 1999 Arbitration Award’s interpretation of s. 29.09.

In discussing the effect of prior arbitration decisions between the same parties, the Court drew an analogy with how prior judicial decisions interpreting a statute constrain how subsequent decision makers interpret it. That is, any subsequent arbitrator must keep in mind how a prior arbitrator interpreted a specific lease provision and is not at liberty to conduct a fresh interpretation of the lease.

The Court found that, upon a fulsome reading of the 1999 Arbitration Award, the focus of the decision was not on the actual time to obtain a permit under either outright or conditional approval use, but rather which use was both certain and faster to obtain. Further, the majority of the 1999 Arbitration panel found that, since a conditional use is discretionary, it cannot meet the definition of “immediate development.” Therefore, “market value” is based on the zoning in effect at the valuation date for the renewal term and does not consider the potential for re‑zoning or discretionary approvals.

Given the zoning for the Lands had not changed, the Court found the 1999 Arbitration Award’s interpretation of s. 29.09 was applicable and issue estoppel ought to prevent the 2022 Arbitration panel from applying a different interpretation.

The Court disagreed with the 2022 Majority’s conclusion that it was unjust to apply issue estoppel. The Court found the 2022 Majority came to that decision because it considered the 1999 Arbitration Award’s interpretation of s 29.09 to be wrong, which is not a valid reason to decline to apply issue estoppel on the basis of injustice.

The Court also stated that parties to a commercial lease should be entitled to expect finality and certainty in their ongoing dealings when a decision has been rendered on the interpretation of a lease.

What are the practical takeaways?

VSB underscores that arbitration does not free parties from the legal principles governing finality of decisions. Issue estoppel applies equally to arbitrations and court judgments, ensuring that arbitration does not become a vehicle for endless re-litigation.

As a result, parties to a lease must be cognizant of the lasting effects of an arbitral decision concerning the interpretation of their lease.

For renewal rent clauses, just because a lease provides for serial renewals, that does not mean that every renewal term is a fresh opportunity to re-litigate the same interpretation issues. While the value of rent may be disputed in each successive term, any interpretation of how that value is determined should be binding in subsequent arbitrations.

If a party is seeking to argue a previous arbitral decision should not apply, it must show a significant change in the underlying facts to warrant this outcome. For example, in VSB, if the zoning for the Lands had changed after 1999 that may have been sufficient to result in a different outcome.

Ultimately, parties must take care with how they approach arbitrations. How the parties frame an issue in the first instance may have a long lasting effect on future disputes.

If you have any questions regarding this article, please contact the author, C. Nicole Mangan, or any member of our Commercial Leasing group.