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Some tenants bring more baggage than you'd think

SNC-Lavalin building houses the U.S. Consulate in Montreal.

Christinne Muschi/Christinne Muschi

About 20 years ago, the owners of a classy new office tower in downtown Montreal snagged a prestigious tenant. For the developers - which included a subsidiary of engineering giant SNC-Lavalin - the lease with Montreal Consulate General of the United States of America was a coup.

But it turns out that having Uncle Sam in your building has its downside.

SNC-Lavalin Group Inc., which now occupies most of the space in the flagship building and is its 100-per-cent owner, has lost a key aspect of a court case against the U.S. government that goes back more than five years, to the period after the September, 2001, terrorist attacks and the 2003 launch of the war in Iraq.

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The dispute revolves around such issues as who should pay for post-Sept. 11 terrorism insurance and for the cost of cleaning up the mess after the many political and antiwar demonstrations outside.

The case, as well as a separate legal spat involving the Israeli consulate across town, underlines the pitfalls that commercial landlords may encounter when they lease to government delegations that have controversial domestic or foreign policies or are terrorist targets.

Shortly after Sept. 11, on the advice of a broker, SNC-Lavalin bought additional terrorism coverage on the building, then sent the bill to the U.S. government.

The government sued SNC-Lavalin's real estate subsidiary, Bleury-Dorchester Realties Inc., saying the company had no right to make it pay the full amount for terrorism coverage - which came to $368,966.81 for the 17-month period ending Dec. 31, 2003 - because it was a corporate decision of SNC-Lavalin to get the extra coverage, according to the filing.

In a recent decision, Quebec Superior Court Judge Diane Marcelin agreed with the U.S. consulate that it should be responsible for only 11 per cent of the premium, the proportion of the building that it occupies.

But SNC-Lavalin won on the issue of costs related to numerous protests outside the office building, which have over the years been staged by everyone from groups protesting U.S. policy in the Middle East to those challenging the Cuban blockade and the alleged genocide of the Tamil people in Sri Lanka.

The judge ordered the consulate to pick up the tab for cleanup and security costs related to demonstrations outside the building, accepting Bleury-Dorchester's argument that the costs are exceptional and should not fall under operating expenses.

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"While the Consulate desires to be treated as an ordinary tenant, one must bear in mind that it incurs an uninvited and unprecedented number of incidents that are in no way related to the operation of a sedate tenant," Mme. Justice Marcelin noted.

No details regarding the annual costs of the terrorism coverage, or the tab for cleaning up after protesters, were provided.

SNC-Lavalin spokeswoman Gillian MacCormack would not comment on the specifics of the case, saying company lawyers and officials are still reviewing it. She added that the company is mulling whether or not to appeal.

A U.S. Embassy spokesperson in Ottawa said the government is satisfied with the judgment. "This is the only issue like this we have had in Canada," she said.

The U.S. owns many of its diplomatic properties in Canada - such as in Quebec City, Ottawa and Toronto - but leases commercial space in most other locations. But the potential for trouble has made many landlords wary of housing a consulate or embassy, said Denis Paquin, a commercial property lawyer at Fasken Martineau in Montreal.

"Between having an office filled with quiet accountants and a consulate that attracts a lot of to-ing and fro-ing and possible demonstrations, they prefer having the accountants' office," Mr. Paquin said.

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Sometimes, neighbouring tenants would prefer it, too. Last year, Robert Teitelbaum, a family law practitioner in Montreal, filed suit against the Consulate General of Israel, with whom he shares space on the sixth floor of a building in tony Westmount Square, west of downtown. Mr. Teitelbaum and a colleague complained that their security and peaceful enjoyment of the premises were threatened by what they alleged was a "strongly fortified bunker" built to protect the consulate.

"I don't think consulates like these should be in ordinary buildings where commercial tenants are present," Mr. Teitelbaum said in an interview. But his case was dismissed on the grounds that Israel had the protection of state immunity in this case.

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

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