Our Canadian Retail Report provides you with practical content to keep you current on developments that affect retailers in Canada. In this issue, Timothy M. Banks, the Canadian lead for our Privacy and Security practice, describes some of the latest developments in data privacy in Canada, including interest-based advertising. Anneli LeGault, a senior partner in our Employment Law practice provides readers with a primer on how accessibility standards in Ontario affect retail services. Julie Robbins, a Commercial Leasing partner, explains the ins and outs of “additional rent” clauses.
From Data Breaches to Interest-Based Advertising: Selected Takeaways
Accessible Customer Service: What the AODA Means for Retailers
Where’s My Money? Drafting, Negotiating and Reconciling Additional Rent Clauses in Retail Leases.
From Data Breaches to Interest-Based Advertising: Selected Takeaways
by Timothy M. Banks
Canada’s new federal Privacy Commissioner has wasted no time in continuing the tradition of showing leadership on privacy regulatory issues at home and around the world. Here are a few important takeaways from recent developments that are of special interest to organizations operating in the retail sector.
Privacy breaches: Smoke doesn’t always mean fire
Dentons represented a Canadian online back-office services provider in a cross-border data breach involving the disclosure of customer and payment information of individuals who had made transactions online and in-premises with numerous clients of the online provider. The organization was able to demonstrate that it had created an effective data breach management plan. It had implemented safeguards such as firewalls, hashing and encryption of sensitive information, separate storage and obfuscation of encryption keys, and multiple intrusion detection systems. Although the organization suffered a breach as a result of a criminally-motivated hack, for the first time in a reported case, the Office of the Privacy Commissioner of Canada (OPC) concluded that the complaint against the organization was not well-founded. View the PIPEDA Report of Findings #2014-004, Online service provider that suffered a breach had appropriate safeguards in place.
Dentons’ key takeaway: Conduct a fire drill with the assistance of knowledgeable counsel. Would you have the evidence to prove you met the standard of care for safeguards?
Foreign service providers have obligations in Canada
In the same decision involving the back-office service provider, the OPC agreed that the back-office service provider had done the right thing in making breach notification to the affected consumers of the back office service provider’s clients in Canada. The fact that the organization was based in the US, without any presence in Canada, did not mean that the organization was beyond the reach of Canada’s Personal Information Protection and Electronic Documents Act (PIPEDA) and substantially similar provincial laws. Moreover, for the first time, the OPC concluded that a service provider could be jointly in control of personal information it processes on behalf of a client and, therefore, have independent obligations to the individuals with whom it does business.
Dentons’ key takeaway This is an area of evolving law. Whether you are a service provider or an outsourcer, it is prudent to seek legal advice when negotiating breach response obligations under service agreements. Don’t assume it will always be the outsourcer’s sole responsibility.
Collecting personal information from kids: You may need parental consent
In recent years, the OPC has expressed concern regarding the collection and use of personal information of children. Canada does not have an equivalent law to the US’s Children’s Online Privacy Protection Act. However, the open-textured, principled nature of PIPEDA allowed the OPC to set a high bar for obtaining consent in a recent investigation into the practices of Ganz. Ganz marketed Webkinz plush toys and operated a related website for children. Ganz thought that it had avoided collecting personal information by requesting children not use their real names. However, the OPC concluded that this was not enough as children might use their real name and the collection of a parental email address could, in any event, lead to the connection of the username with the child. Among the important recommendations of the OPC in connection with obtaining meaningful consent on websites for children were:
Privacy policies must explain the actual practices of the website so parents can determine exactly what is happening on the child’s website versus other websites directed to other audiences – this can be an issue when trying to use one policy for multiple sites;
Traditional privacy notices are not appropriate for children and should be supplemented with other just-in-time notices;
Children’s websites should use age-appropriate language, ideally with interactive tools to ensure children understand and/or pay attention to the notices;
Interactive tools should communicate to the child that they must involve a parent or guardian in critical steps, such as accepting terms and conditions;
Organizations should obtain parental consent if the website is directed to children 13 years or younger because obtaining meaningful consent is unlikely for that age group without parental assistance; and
Analytics and advertising providers should be carefully monitored to ensure that they are not collecting personal information of children without appropriate consent – too often website operators fail to monitor the practices of third parties with cookies and other digital markers on their sites.
View the PIPEDA Report of Findings #2014-011, Investigation into the personal information handling practices of Ganz Inc.
Dentons' key takeaway: Although privacy policies are of continuing importance, greater evidence is being placed on just-in-time privacy notices and icons. If you are developing new content or functionality, now is the time to build in best practices.
Online advertisers beware: More interest-based advertising guidance
The OPC released a controversial decision regarding Bell Canada’s proposed “Relevant Advertising Program.” Under this program, Bell Canada proposed to collect information from user activities and demographic information from customer accounts and compile a profile of consumers for advertising purposes. Advertisers could obtain a limited-use code from Bell Canada to advertise to consumers who fit the characteristics that the advertiser was looking for. The most contentious issues were whether Bell’s use of network usage information and account/demographic information to support sales of advertising to its customers was an appropriate use of personal information and whether express opt-in consent was required for that use. Ultimately, the OPC concluded that the use of the information for advertising programs was an appropriate purpose but decided that express opt-in consent was required because of the potential sensitivity of the browsing behaviour being used by Bell. The OPC’s view was that the reasonable expectations of consumers would be that their telecommunications service provider would seek such consent before making use of that information.
Organizations must monitor and conduct due diligence regarding tracking technology on their sites: To demonstrate accountability, organizations must ensure that they monitor tracking technology on their site. They must conduct due diligence and ensure that third parties are not using personal information collected through cookies and other technologies contrary to the purposes identified to the users of those sites. Organizations must conduct their due diligence and should use contractual provisions to prevent misuse.
Interest-based advertising is an appropriate use of personal information: The OPC has stated in the Bell Report of Findings that it accepts that the objective of maximizing advertising revenue and improving a customer’s online experience through targeted advertising can be a legitimate business objective. In general the use of personal information for that purpose is appropriate.
But use of credit information not appropriate: The use of credit scores, whether on an individual basis or an aggregate basis, is not appropriate for targeted advertising. Using this information for this purpose may not be permitted by consumer reporting legislation. The OPC recommended, and Bell agreed, to discontinue the use of that information.
Opt-out consent must be meaningful – no rainy day retention: The OPC recommended that if a customer opted out of Bell’s interest-based advertising program, that the information be deleted and not further collected. Bell had proposed to continue to collect the information but not use it unless the customer opted back in.
Opt-out consent is not a universal rule: Previously, the OPC said in its online behavioural advertising guidance that opt-out consent would be appropriate for online behavioural advertising if the information used was not sensitive and there was an effective opt-out mechanism. However, in the Bell Report of Findings, the OPC confirmed that opt-in consent may be required if the scope of the information being collected is very broad and the reasonable expectations of the consumer would be to expect opt-in consent.
Broad collection creates sensitivity: In the OPC’s view, the scope of collection could result in the information being collected being sensitive. The OPC believed that Bell could track virtually all of its customers’ online activities and, therefore, this information was, in the aggregate, sensitive.
Reasonable expectations of consumers are relevant to whether opt-in consent is required: The OPC has reintroduced its primary/secondary purposes analysis through the guise of a reasonable expectations analysis. In the Bell Report of Findings, the OPC just couldn’t get past the fact that Bell charged for Internet services, unlike a free service, such as Facebook. As a result, the OPC thought Bell was making a secondary use of personal information and commodifying customer information for purposes other than the delivery of telecommunications services.
Time-limited retention won’t eliminate sensitivity: Even though Bell only kept 90 days’ worth of behavioural information, the information was, in the OPC’s view, still sensitive in the aggregate.
In response to the decision, Bell withdrew its proposed Relevant Advertising Program. View the PIPEDA Report of Findings #2015-001, Results of Commissioner Initiated Investigation into Bell’s Relevant Ads Program.
Dentons' key takeaway: At this point, this is the most detailed and important guidance from any regulator on interest-based advertising. Whether you are an advertiser, an advertising network or a platform, or simply looking to build a richer CRM database profiling your clients, this is the time to consider how this guidance affects your business strategy.
Accessible Customer Service: What the AODA Means for Retailers
by Anneli LeGault
What is the AODA?
The Accessibility for Ontarians with Disabilities Act, 2005 (AODA), is a bold piece of Ontario legislation that aims to enforce full accessibility for all Ontarians with disabilities by 2025. It covers both the public and private sector, including retailers. To make goods and services accessible to people with disabilities, the AODA requires changes according to a set time frame to the following areas of operations: customer service, communications, employment, transportation, buildings, structures and premises.
Which retailers are covered by the AODA?
Any retailer with at least one employee in the province of Ontario is covered. As you will see from below, the AODA can affect a retailer’s operations and employees outside the province of Ontario as well.
By now, retailers should have complied with the requirements of the Customer Service Standard, which requires a retailer to prepare an accessible customer service plan; make the plan available to the public; train employees who deal with the public on accessible customer service; train employees who develop the retailer’s policies, practices and procedures on accessible customer service; and establish a feedback process for receiving and responding to feedback from customers and the public about the manner in which services are being provided to those with disabilities. Retailers with at least 20 employees are also required to report compliance online on the ServiceOntario website as of December 31, 2012 and December 31, 2014.
All of this makes sense. In fact, it is doubtful that many retailers want their sales associates to turn away a customer because the customer has mobility issues, a hearing or visual disability, or relies on a support person or some type of assistive device, such as a wheelchair, walker, cane or seeing eye dog.
The unanticipated effect of the AODA is that it can govern the conduct of employees who are not located in the province of Ontario. This is because the Act is directed at protecting the consumer in Ontario. The Act does not have any regard for the location of the retail employee or the company providing the service to the Ontario consumer provided the company has at least one employee in Ontario. While there are no legal rulings to date, given the wording and purpose of the legislation and the position taken by the Ontario government, it appears that there can be significant consequences outside of Ontario.
If customer service is being provided to an Ontario individual from a call centre located outside of Ontario or located outside of Canada, or if a consumer in Ontario phones a foreign location to discuss an online order, the Act seeks to govern that service provider’s conduct. Some companies have already trained foreign call centre staff who service Ontario. This means that a retailer selling into Ontario and serving Ontario consumers needs to train its staff on accessible service, regardless of where the employees are located, if they are providing online, written or telephone assistance to Ontario consumers. The retailer should also have consumer information available in alternative formats for individuals with disabilities. This can include reading things out loud over the phone to a consumer who cannot read documents or online information, using accessible electronic formats such as HTML and MS Word, large print, text transcripts of visual or audio information, or even simply repeating, clarifying or restating information. In some cases it may be appropriate or necessary to provide information in Braille or through a Teletype (TTY) service.
The Customer Service Standard also requires a retailer to train staff members who are involved in developing the company’s policies, practices and procedures on providing goods and services to the public. These individuals may work outside of Ontario; for example, in the company’s corporate offices either elsewhere in or outside of Canada. Similarly, the managers or supervisors of the staff who provide the customer service may be located outside of Ontario and should also receive training on accessible customer service.
This is where things get interesting. As noted above, one of the goals of the AODA is to ensure that information and communications are available in alternative formats for consumers with disabilities.
If a retailer prepares a new website or an existing website undergoes a significant refresh, the site and any web content published after January 1, 2012 must conform to the Web Content Accessibility Guidelines (WCAG) 2.0 Level A. A new website means either a website with a new domain name or a website with an existing domain name undergoing a significant refresh. While ‘significant refresh’ is not defined in the legislation, it could include a change in how users navigate through a website or a major update and change in the content of the website.
The WCAG refers to the World Wide Web Consortium Recommendation of December 2008 titled, “Web Content Accessibility Guidelines 2.0”. This is an international standard for making websites and web content accessible to a broader range of users with disabilities. WCAG 1.0 was developed by a team of worldwide experts and released in 1999, while WCAG 2.0 was released in 2008. WCAG provides guidelines to make web content accessible to those with low vision, deafness, hearing loss, blindness, learning disabilities, limited movement, photosensitivity and the like. For example, suggested modifications could be the use of alternate text for images, making the website navigable with just a keyboard, and ensuring that consumers who use an e-reader can use drop down boxes to enter contests and purchase goods online. Generally speaking, the simpler your website, the easier it is to make it accessible. A simple website has good contrast, does not have a busy background or flashing figures, avoids video and audio, and navigation is internally consistent.
By January 1, 2021, a larger retailer with at least 50 employees in Ontario will have to ensure that all websites and content conform to WCAG 2.0 Level AA (other than the live captioning and pre-recorded audio descriptions criteria).
As you can see, the AODA, once again, has a possible effect on operations outside of the province of Ontario. If a retailer has a global website with no page targeting consumers in Ontario or Canada, I believe that the website does not need to be changed under the AODA. Having said that, other jurisdictions, such as the United Kingdom, have already implemented similar requirements for websites. However, if a global retailer has a specific page for Ontario consumers or a significant connection with Ontario, the AODA requires such webpages to be WCAG compliant, provided the organization in Ontario has control over the appearance, functionality and content of the website. Conversely, the government’s position is that where a parent organization outside Ontario controls the website, the AODA does not apply. Regardless of the AODA, expanding the consumer base through easy and broadly accessible online access is generally good business for any retailer.
The built environment
The Design of Public Spaces Standards of the AODA deal with items such as off-street parking, waiting areas and exterior paths of travel. The Design Standard most likely to affect the retailer with a bricks and mortar location in Ontario concerns service counters. Newly-constructed service counters must include at least one counter that accommodates a mobility aid through counter-top height, knee clearance and floor space. Accordingly, if a retailer is renovating retail space in Ontario, it would be advisable to consider the service counter requirements now. The Design Standard will apply as of January 1, 2017 to retailers with 50 or more Ontario employees, and as of January 1, 2018, to smaller retailers.
There are also rules concerning fixed queuing guides (i.e. fixed to the floor or the ground, as opposed to temporary guides, such as movable posts and ropes), and waiting areas, which may possibly apply to a bricks and mortar retailer. For example, a department store may have a waiting area in its customer service area.
The accessible service counter must be clearly identified with signage, such as the International Symbol of Accessibility if there are multiple queuing lines and service counters. The countertop height must be appropriate for a customer seated in a mobility aid. The person seated in the mobility device must be able to reach any objects intended for customer use, such as a point of sale terminal, and to be able to carry out tasks that need to be done at the counter, such as writing a signature.
There must be enough knee clearance for a person seated in a mobility aid if it is necessary to approach the counter (to sign a credit card receipt, a form for returns or to insert a debit card), and the floor space in front of the counter must be able to accommodate the mobility aid. Service counters include an information desk and a check-out counter, as well as outdoor service counters. If a retailer has different counters that each provide a different service, there needs to be an accessible service counter for each of the services, such as express check-out, self-service, customer service and returns. The government is taking the position that if one queuing line serves multiple counters, then all of the counters must be accessible. On the other hand, if you have multiple queuing lines and service counters, the accessible option must be clearly identified with signage.
Fixed queuing guides must be placed far enough apart to allow people using mobility devices to pass through them and turn where the guides change directions. These must also be designed to include an element that can be detected with a cane by a person with a visual disability.
When constructing a new waiting area or redeveloping an existing waiting area, where the seating is fixed to the floor, at least three percent of the new seating must be accessible, with a minimum of one accessible seating space. This applies to both indoor and outdoor fixed seating areas.
Since the rules are known, it makes sense to incorporate accessible design elements now into renovations and new construction.
In summary, while the AODA is an Ontario law, it has significant effects on retailers, including operations and activities outside of Ontario. This is because it is not directed at the retailer or the retail employees as such. Instead, it is legislation that seeks to protect the Ontario consumer. With an aging public and increasing numbers of consumers who will need assistance to access retail stores and make online sales, following the AODA can help a retailer broaden its range of customers.
Where’s My Money? Drafting, Negotiating and Reconciling Additional Rent Clauses in Retail Leases
by Julie Robbins
"If you look after the pennies, the dollars will look after themselves." J. Paul Getty
In an industry where profit margins can be tight, all additional costs can reduce the bottom line to retailers. While location is extremely important to the success of a retail store, the costs involved in a commercial lease can be quite high. One of the most significant negotiations between a landlord and retailer is the minimum rent payable; additional rent provisions in a lease are not often given the same level of attention. This article will summarize these additional rent considerations and identify how they can affect the profitability of your business.
Payment of additional rent
Most retail lease forms require payment of additional rent (or at least, operating costs and taxes) based on estimates determined by the landlord. Generally, at the beginning of its fiscal period, the landlord will estimate the additional rent for the year and then have each tenant pay 1/12 of its share every month. Paying additional rent based on monthly estimates can be beneficial to both parties, as the landlord will have funds available to pay expenses when they come due and the retailer will have certainty regarding its monthly lease expenses.
Adjustments of additional rent
When items of additional rent are paid based on estimates, annual reconciliations need to be completed to determine whether the retailer paid too much or too little. If the retailer has overpaid, it will want annual reconciliations to be completed as quickly as possible so that it can be credited with any overpayment (particularly since landlords will not generally agree to pay interest on such amounts).
In drafting the adjustment provisions, landlords will want as much flexibility as possible and the retailer will want as much certainty as possible. From a retailer's perspective, the following issues should be considered when negotiating these clauses:
Has the landlord provided a covenant to complete an annual reconciliation?
When is the landlord required to complete the reconciliation?
What is the landlord required to deliver at the end of the fiscal period (i.e. will an audited statement be provided, a statement signed by the landlord’s CFO, or is it only required to provide a statement prepared by a property manager or lease administrator)?
Some of these issues were discussed in Ayerswood Development Corporation v. Western Proresp Inc. (2011 ONSC 1399) (Ayerswood), a decision of the Ontario Superior Court of Justice. In Ayerswood, a claim was brought by a landlord for a large adjustment in respect of operating costs and taxes. The lease provided that operating costs could be estimated by the landlord for a "period" and then went on to say: “As soon as practicable after the end of such period, the Landlord shall advise the tenant of the actual amounts for such period and, if necessary, an adjustment shall be made between the parties" (paragraph 24). This language is not unusual, and even though it did not say that statements would be delivered annually, the tenant likely expected that there would be annual adjustments. The landlord did not adjust for any “periods” during the term, and completed one adjustment after the expiry of the term and sent a bill to the tenant for CA$42,778.00. The tenant argued that it was not liable for the adjustment since the landlord did not bring its claim "as soon as practicable." The landlord’s position was that "period" was not defined and it could use a six-year period as the "period." Surprisingly, the Court agreed with the landlord and noted that the adjustment was made at the end of a "period" and that “[i]f the parties had wished to define the period, presumably they would have included such a definition in the lease" (paragraph 28).
In light of this decision, it would be wise to define "period" or to specify a time frame within which reconciliations must be completed (standard periods range anywhere from 90 to 180 days after the expiry of each calendar year). By defining the period and having a fixed date by which the reconciliation must be completed, it is clear when a landlord would be in breach of its obligations and, if necessary, a retailer could commence a claim.
Even when there are clear covenants on a landlord to perform adjustments, some landlords are fairly laidback about these obligations. Retailers should consider negotiating a right to suspend the obligation to pay any increase in additional rent estimates until the reconciliation for the prior year is completed to ensure the landlord has incentive to complete reconciliations in a timely manner.
Verification of additional rent
A prudent retailer will want to ensure that it has rights under its lease to verify any amounts charged to it. Many landlord reconciliation statements only summarize what is owed by the retailer and do not contain sufficient information to allow it to independently verify that the costs charged to it are in accordance with the lease. To ensure that it can verify the appropriateness of the costs charged to it, retailers will try to negotiate the following into their leases:
The obligation to deliver detailed statements that reflect the various exclusions and/or deductions contained in the lease (not a statement prepared based on the landlord’s standard lease form).
The right to request back-up information, including copies of invoices, receipts and records relating to amounts charged to the retailer.
The right to audit or review the landlord’s books and records relating to additional rent.
Landlords generally prefer to avoid granting these rights because of the nuisance factor so when they do, these rights will likely be subject to strict conditions. Common conditions include limiting the number of times a tenant can make such requests and the time period within which a tenant could make the request (i.e. the tenant can request back-up information once per year within 60 days of receiving the landlord’s annual statement).
If a lease does not provide a tenant with a right to back-up information or an audit, it can be difficult for a tenant to verify costs charged to it. While it is best to negotiate these rights in the lease, there is some case law which suggests that, in certain circumstances, these rights may be implied into a lease. The tenant in 663579 Ontario Ltd. v. First Choice Haircutters Ltd.  O.J. No. 1122 (First Choice), disputed some of the items included by the landlord in operating costs. The Court held that the tenant was entitled to review back-up documents to verify the costs charged to it. In paragraph 38, the Court states that the “landlord has a clear responsibility to afford the tenant a reasonable opportunity, if requested, by the tenant, of examining these invoices, bills and vouchers claimed as operating expenses”. In Loyaltyone Inc. v. The Cadillac Fairview Corporation Limited 2009 CanLII 19935 (ONSC) (Loyaltyone), the landlord requested an order to strike a paragraph in the tenant’s claim which sought to require the landlord to provide the tenant with back-up information for additional rent. The landlord’s motion was dismissed because it was not “plain and obvious on the basis of settled law,” that the tenant’s claim could not succeed (paragraph 4). Referring to the First Choice case, the Court noted that it supported the position that a landlord “can be obliged, whether as a matter of contract or good faith and fair dealing to produce the documentation sought” (paragraph 4). In the American case, P.V. Properties, Inc. v. Rock Creek Village Associates Limited 77 Md. App. 77; 549 A.2d 403; 1988 Md. App LEXIS 205 (P.V. Properties) (also cited in Loyaltyone), the landlord refused to provide the tenant with itemized operating costs and the tenant asked the Court to provide it with this information so that it could verify the charges. The Court found in favour of the tenant and held that the “obligation of good faith and cooperation implied in every contract gives rise to the implied requirement on the part of the landlord to disclose its cost data and the basis upon which the tenant’s common area maintenance liability was computed” (page 5).
While detailed information regarding additional rent could be obtained through litigation, this is not a practical means of verifying that costs have been properly charged to a retailer. When the landlord in P.V. Properties made this suggestion, the Court responded that this would be “… a waste of both the court's and the litigants' time and expense” (page 7).
Limitation periods and overcharges of additional rent
Another issue to consider with respect to additional rent adjustments relates to limitation periods. In Ontario, the Limitations Act, 2002 (S.O. 2002, c. 24, Sch. B) (the Limitations Act) deals with limitation periods not affecting real property. The Real Property Limitations Act (R.S.O. 1990 c.L.15) (RPLA) deals exclusively with real property. The Limitations Act does not apply to proceedings to which the RPLA applies.
Section 17(1) of the RPLA deals specifically with arrears of rent (providing a six-year limitation period) but does not address overcharges of rent by a landlord. As it is not specifically addressed by the RPLA, the generally accepted view (and prudent approach to preserve claims) is that the operative limitation period to bring a claim for repayment of an overcharge of rent is two years, pursuant to Section 4 of the Limitations Act. The recent decision in Pickering Square Inc. v. Trillium College Inc. (2014 ONSC 2629) (Pickering Square), supports this position. In Pickering Square, the Landlord claimed liquidated damages due to the tenant's failure to continuously operate. Once the tenant vacated the premises, it never re-occupied the premises; however, it did continue to pay rent until the expiry of the lease. After the lease expired (and years after the tenant vacated the premises), the landlord commenced an action against the tenant. The tenant argued that the claim was statute-barred in part because of the two-year limitation period under the Limitations Act. The landlord argued that the RPLA would apply because its claims were for rent. The Court rejected the landlord’s argument and held that “rent” within the meaning of Section 17 of the RPLA, means “the payment due under a lease between a tenant and a landlord as compensation for the use of land and premises” and the liquidated damages claimed were not “rent” (regardless of what the lease said).
Although there is still some uncertainty regarding which act would apply in the case of a tenant’s claim for overpayment of additional rent, Pickering Square supports the position that courts are going to narrowly apply the RPLA (which is consistent with the legislative intention to create one limitation period). While this may sound unfair (since a landlord has six years to bring a claim for arrears while a tenant only has two years to claim an overpayment of rent), the legislation (and the recent case law) does not appear to support any other position.
Discoverability of a claim
Assuming that the two-year limitation period in the Limitations Act applies to an overcharge of additional rent, the two-year clock starts running on the date that a claim is discovered. Section 5(1) of the Limitations Act provides that a claim is not discovered until a plaintiff knew or reasonably should have known that the loss or damage occurred.
To this author’s knowledge, the question of when a claim for an overcharge under a lease has been discovered has not been addressed in any reported decision. However, it is likely that a court would consider the following:
What obligations are contained in the lease regarding the delivery of year-end statements by the landlord?
If the landlord failed to deliver statements, did the tenant request them?
What was the level of detail in the statements? Was back-up information requested?
What are the retailer's standard practices with respect to year-end statements? Are procedures in place to review and verify the accuracy of the statements?
What information was given regarding the estimates?
Were the amounts owing for a particular year significantly more than historical amounts charged?
If statements are delivered, but the landlord has been improperly passing costs through to the tenant, at what point is the tenant considered to have discovered it has a claim for overpayment? This could be as early as the date the landlord delivers an incorrect statement. However, this assumes the statement provided sufficient detail for the tenant to identify the overcharge; if not, then there is an argument that the tenant could not discover until further detail is provided.
If no statements are delivered, then at what point would a tenant “discover” that it has been overpaying? Arguably, sophisticated retailers expect yearly adjustments so it would be prudent practice to demand them if they are not delivered. Failure to deliver a year-end statement when required would be a breach and the limitation period for any claims in respect of such breach would commence on the date that the landlord failed to deliver the statement. However, the limitation period for a claim for overpaid rent could not reasonably be expected to be discovered if the tenant has not received the statement.
Retailers should ensure that they have established practices in place which allow them to discover claims in a timely manner and, if necessary, to commence proceedings within two years of discovery. Ultimately, any savings or recovery of overpayments in respect of additional rent will improve the tenant's bottom line.