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COMMERCIAL TENANCIES - Lease - Renewal - Assignment of tenancy

Wednesday, June 26, 2019 @ 6:28 AM  

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Appeal by the tenant from the dismissal of its application for declaratory and injunctive relief against the respondent landlord. The parties’ commercial lease gave the tenant a right to renew for an additional five years on the expiry of the initial seven-year term. With the landlord’s consent, the tenant sublet the premises to a third party but did not reserve the last day of the head lease term to itself. The head lease and sublease expired on the same day. The sublease provided that the tenant’s right to renew did not oblige it to renew on behalf of the subtenant and indicated the subtenant had no right to renew. The landlord maintained the tenant no longer had the option to renew the lease because it had in effect made an assignment and forfeited its leasehold rights. The subtenant remained in possession after the lease ended and paid the landlord the same rent it previously paid under the sublease. The application judge found the tenant had a claim for breach of contract against the landlord for its failure to negotiate the renewal in good faith but concluded the tenant suffered no damages.

HELD: Appeal allowed. The application judge failed to resolve the issue of whether the tenant had assigned the lease by reason of its failure to reserve the last day of the head lease term. In the absence of s. 3 of the Commercial Tenancies Act, the purported sublease would have operated as an assignment. Read in context, s. 3 of the Commercial Tenancies Act allowed for a sublease even if the last day in the head lease was not reserved but only when there was sufficient evidence to show that the objective intention of the parties, as reflected in the sublease, was not to create an assignment. Despite the fact the tenant did not reserve to itself the last day of the head lease term, the sublease provided sufficient evidence that the parties did not intend an assignment. The tenant had the right to renew the lease. The application judge erred in undertaking a damages analysis, given the tenant did not seek damages.

V Hazelton Limited v. Perfect Smile Dental Inc., [2019] O.J. No. 2659, Ontario Court of Appeal, D. Watt, C.W. Hourigan and G. Huscroft JJ.A., May 23, 2019. Digest No. TLD-June242019009