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COMMERCIAL TENANCIES - Lease - Renewal

Wednesday, February 21, 2018 @ 8:48 AM  


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Appeal by the tenant from an order declaring that the ground lease terminated in May 2017 and that the tenant had not properly exercised its option to renew in accordance with the lease. In March 1997, the parties entered into a 21-year ground lease in respect of the premises. The tenant operated a restaurant on the premises and had built and renovated the restaurant, investing significant funds. The parties agreed the original term of the lease would end on March 10, 2017. The lease included an option to renew for two consecutive additional 10-year terms. The tenant gave proper notice of its intention to renew the lease prior to the end of the original term, but the parties could not agree on the rent. The application judge held that the renewal provision required the tenant to do more than provide notice of its intention to renew. She further found that because the parties could not agree on the rent at least nine months prior to the end of the original term, the tenant was required to refer the issue to arbitration or revoke its intention to renew. As the tenant had done neither, the application judge found that the lease came to an end on March 10, 2017, because the tenant failed to comply with the renewal provision. She went on to find that the landlord waived its right to insist on strict compliance with the terms of the renewal because the parties were engaged in negotiations, but that it later revoked the waiver. She also found that relief from forfeiture was not available. The tenant appealed arguing that the judge erred in her analysis of the lease, the revocation of waiver and the remedy of relief from forfeiture.

HELD: Appeal allowed. The application judge made a palpable and overriding error of mixed fact and law in her finding that the landlord properly revoked its waiver. The landlord waived strict compliance with the renewal provision under the lease. The revocation of the waiver was not effective as it did not provide reasonable notice to the tenant. The email which the application judge took as revocation of the waiver did not clearly indicate that the landlord would be insisting upon the strict enforcement of its legal rights. The email also did not provide the tenant with a reasonable period to cure the breach of the lease. Because the waiver had not been revoked, the issue of fair market rent was referred to arbitration.

North Elgin Centre Inc. v. McDonald's Restaurants of Canada Ltd., [2018] O.J. No. 449, Ontario Court of Appeal, S.E. Pepall, C.W. Hourigan and D.M. Brown JJ.A., January 29, 2018. Digest No. TLD-Feb192018006