In 2432714 Ontario Inc. v. Heffner Development Group Limited, 2018 ONSC 1034, the Ontario Superior Court of Justice was recently asked to decide the age old question of whether a burrito was a wrap in the context of an exclusivity clause in a commercial lease agreement.
In this case, the tenant operated a Pita Pit franchise in a 13 unit plaza owned by the landlord. The tenant had negotiated an exclusivity clause in the lease agreement that gave it the exclusive right to sell “pitas and wraps” in the plaza. When the tenant discovered that a Mexican fast food chain, Holy Guacamole, was renovating one of the units, it brought a motion for an interlocutory injunction prohibiting the landlord from leasing a unit in the plaza to Holy Guacamole.
The tenant argued that Holy Guacamole sold “wraps” because its menu of tacos, burritos and quesadillas were all prepared by wrapping up food items in a tortilla. The tenant relied upon the evidence from a food journalist whose expert opinion was that “burritos, soft tacos, and most quesadillas are wraps in that they are food that are ‘delivered’ by way of a wrapped covering”. In response, the landlord argued that the food items sold by Holy Guacamole are very different from wraps because of their respective places of origin. The landlord cited Wikipedia definitions which described a pita as a bread of middle eastern origin whereas tacos, burritos, quesadillas and tortillas were food items originating from Mexico.
The Court first decided that the tenant was seeking a prohibitory injunction rather than a mandatory injunction. Prohibitory injunctions seek to enforce a right created by the parties, whereas mandatory injunctions seek to establish a new right.
Next, the Court stated that the test for a prohibitory injunction was the three-part RJR-MacDonald test: (i) is there a serious issue to be tried; (ii) whether the applicant would suffer irreparable harm if the application was refused; and (iii) which party will suffer greater harm. The Court made the following findings:
- There was a serious issue to be tried because the lease agreement clearly provided the tenant with exclusivity in respect to the sale of “pitas and wraps” in the plaza.
- The tenant would suffer irreparable harm because there was a real risk that the tenant’s business would not survive in the presence of direct competition for lunch sales in the plaza. There was evidence that the tenant had invested $300,000 into its business and had not made a profit yet.
- The tenant would suffer greater harm because the tenant will likely go out of business without the injunction whereas the landlord would only lose one tenant (Holy Guacamole) out of thirteen units in the plaza if the injunction was granted.
Accordingly, the Court granted the interlocutory injunction prohibiting the landlord from leasing any unit in the plaza to Holy Guacamole until after the trial. The ultimate question of whether a burrito is a wrap will have to wait until the trial to be decided. In the meanwhile, the reader will have to wait in anticipation and satisfy their curiosity with the debates found on the internet such as this article and this podcast.
If you require legal representation in respect to commercial lease issues such as exclusivity clauses, please contact us for an initial consultation.
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