Commercial leasing is unique compared to other types of leases. It occupies the intersection between property law and contract law. For example, in property law, the lease must deal with the rights that run with the land, such as the right of the tenant to quiet enjoyment and rights of assignment and sublease in favour of the tenant. In contract law, there could be unique covenants that are included as a result of negotiation between the parties, such as expansion rights and rights to parking. It is important to have a basic understanding of the requirements of the law in Ontario and the resulting obligations of the parties when agreeing to a commercial lease.

Commercial Tenancies Act and the Certainty of Five Terms in a Valid Lease

Ontario’s Commercial Tenancies Act is one of the most important statutes to consider in commercial leasing. It outlines tenants’ and landlords’ rights, responsibilities, and obligations, covering essential aspects such as rent, lease terms, security deposits, maintenance, repairs, and dispute resolution. The Commercial Tenancies Act also addresses issues related to eviction, lease termination, and lease assignment. Many of the below obligations derive from the Commercial Tenancies Act, and the common law has developed a rich caselaw to supplement its provisions.

For there to be a valid lease, there must be certainty as to several important terms, including:

• the parties (the landlord and tenant);
• the exact premises to be leased;
• the commencement date;
• the duration of the term; and
• the amount of rent being paid.

The contract may be void or voidable without sufficient certainty about these five terms.

Inclusion of Terms That are Material to One Party

There is also a “sixth” term that may be included depending on the circumstances. In certain situations, parties can raise terms that they communicate are important to them and to the operation of the relationship. This principle was created by Ossory Canada Inc. v. Wendy’s Restaurants of Canada, where matters of garbage disposal and pylon sign were important to Wendy’s in order for the company to lease the premises. This importance was communicated to the landlord and upon review, the Court of Appeal found no concluded contract between the parties as an agreement was not reached regarding these terms.

This case demonstrates the importance of having sufficient certainty of terms in the lease, not only for the five important terms but also for any term that is material to one party and has been communicated to the other.

The Statute of Frauds and Part Performance

The Statute of Frauds is also highly relevant to commercial leasing as it imposes a number of obligations on the parties. It generally requires that a lease be in writing; however, unlike the Residential Tenancies Act, there is no standard form. The lease can consist of various documents, correspondence, or letters at the parties’ discretion (as long as the above conditions are satisfied). As an exception, a lease not exceeding a term of three years, where the rent during the term is at least two-thirds of the full improved value of the premises being leased, is not subject to the requirement to be in writing.

Even where a commercial lease is not made in writing, it can still be saved under the doctrine of part performance. This doctrine refers to a legal principle that recognizes certain actions or conduct as evidence of an enforceable contract, even if the contract is not in writing. It applies to parties partially performing their obligations under an oral or informal agreement.

The doctrine was reviewed in Erie Sand and Gravel Ltd. v. Seres’ Farms Ltd. The case involved an agreement to purchase farmland, where the plaintiff brought an action for specific performance for the purchase. The defendants argued that although there was an agreement on certain terms, there was only an “agreement to agree,” which is generally unenforceable. The plaintiffs argued that the deal was enforceable due to part performance, partially because they had paid the money. The Court agreed, demonstrating the availability of the doctrine for agreements that are not completed in writing.Nevertheless, it is important to ensure that the agreement to lease complies with the Statute and that relying on the doctrine can result in costly legal action.

Contact the Property Lawyers at Bader Law for Commercial Real Estate Transaction Advice

Commercial real estate transactions represent some of the most complicated financial transactions in the life of any individual or company. As such, it is important to retain a law firm with the experience and skill necessary to ensure the lease is drafted to protect your interests. At Bader Law, our trusted business law team and real estate lawyers regularly advise our individual and corporate clients on various real estate matters and disputes. We represent clients in Mississauga and throughout the Greater Toronto Area. To schedule a consultation, contact us online or call us at (289) 652-9092.

The COVID-19 pandemic continues to have a broad range of effects on the commercial real estate market, particularly for commercial renters. Some leases include a “force majeure” clause, and depending on its specific wording, the clause can have ramifications for the parties’ obligations.

The Court of Appeal for Ontario recently considered a situation between a landlord and a commercial tenant where the clause had a significant impact on the operability of the lease as a result of mandated lockdowns.

Force Majeure: Intended Effect

A force majeure clause is a contractual provision that appropriates the risk of unforeseen events that may prevent or delay the performance of a contract. In essence, the clause can relieve one or both parties from the performance of the contract and the consequence that flows from the breach as long as the breach results from unforeseen events that are outside the parties’ control. It can also delay the performance of the contract.

The critical decision, which is often cited on the applicability and operation of force majeure clauses, is Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp and Paper Company Limited. In this case, the Supreme Court of Canada established the fundamental principle that for a force majeure clause to apply, the event in question must be explicitly mentioned in the clause.

Supreme Court of Canada finds that parties cannot rely on general catch-all language

In Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp and Paper Company Limited, the plaintiff, Atlantic Paper Stock, had entered into a contract with the defendant, St. Anne-Nackawic Pulp & Paper, to supply waste paper. However, the defendant could not fulfil its obligations due to unforeseen circumstances. The defendant argued that the force majeure clause, which referred to “an act of God, the Queen’s or public enemies, war, the authority of the law, labour unrest or strikes, the destruction of or damage to production facilities, or the non-availability of markets for pulp or corrugating medium” excused its non-performance. The key consideration on appeal from the Court of Appeal was whether the non-availability of markets for pulp or corrugating medium had discharged the defendant from their obligations.

The Supreme Court of Canada rejected the defendant’s argument, emphasizing that the force majeure clause discharges a party’s obligations when “a supervening, sometimes supernatural, event, beyond the control of either party, making performance impossible.” The event preventing performance must be outside the control of both parties, otherwise it cannot be invoked to excuse non-performance. Allowing the defendant to rely on this clause would enable it to prevent performance if it could not profit. This decision established that parties cannot rely on general catch-all language in force majeure clauses.

Force Majeure Clause in a Commercial Lease

In the recent case of Niagara Falls Shopping Centre Inc. v. LAF Canada Company, the operability of force majeure clauses were considered in the context of commercial lease agreements. The case involved the consideration of the rights and obligations of LAF Canada Company (the “Tenant”) to Niagara Falls Shopping Centre Inc. (the “Landlord”) in light of the mandatory closures of their fitness centres during the COVID-19 pandemic.

The Tenant had entered into a lease with a prior owner of the premises, and upon purchase in 2019, the lease was assigned to the Landlord. The lease included a force majeure clause, which stated:

“If either party is delayed or hindered in or prevented from the performance of any act required hereunder because of… restrictive laws… or other reason of a similar or dissimilar nature beyond the reasonable control of the party delayed, financial inability excepted (each, a “Force Majeure Event”), subject to any limitations expressly set forth elsewhere in this Lease, performance of such act shall be excused for the period of delay caused by the Force Majeure Event and the period for the performance of such act shall be extended for an equivalent period (including delays caused by damage and destruction caused by such Force Majeure Event). Delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events.”

Tenant Refuses to Pay Rent During Government-Mandated Closures

Not long after, the COVID-19 pandemic began and the government mandated the closure of all non-essential workplaces, including the fitness centre run by the Tenant. Eventually, the Tenant refused to continue paying rent, after which the Landlord brought an action for all unpaid rent. The Tenant counterclaimed.

Both parties sought to rely on the force majeure clause. The Tenant claimed that the Landlord breached the lease by failing to provide the Tenant with the quiet enjoyment of the premises, while the Landlord claimed breach for failure to pay the rent under the lease. The Tenant also submitted that the force majeure clause could extend the lease for a period equivalent to the mandatory closures.

Force Majeure Clause Did Not Preclude Obligation to Pay Rent

The motion judge held that the force majeure clause excused the Landlord from providing the premises to the Tenant, but not that the Tenant was excused from their obligation to pay rent. The judge noted that the force majeure clause contained a curative provision and that, in this case, the failure to pay rent could be cured by the payment of monies. She also did not accept the argument that the lease term would be extended, reasoning that such a result would be “commercially absurd.”

The Tenants appealed, claiming the motion judge erred in her interpretation of the force majeure clause, asking the Court to clarify the obligations owed by both parties.

Appeal Allowed; Commercial Lease Extended

The Court found that the motion judge erred in her interpretation of the force majeure clause as it related to the Landlord’s obligations to provide the Tenant with the premises. The Court noted that the wording of the clause included the stipulation that “the period for the performance of such act shall be extended for an equivalent period.” On this strict interpretation, the lease was allowed to be extended for the duration equivalent to the duration of the mandatory closures.

Concerning the Tenant’s obligations, the Court agreed that the Tenant was still required to pay rent during the closures. Considering the wording of the clause, it noted the Tenant was hindered in its ability to pay rent, but not because of the “Force Majeure Event.” Instead, the Tenant chose not to charge membership fees.

As such, the Tenant could not rely on the clause to exclude its obligations to pay rent. However, the Court held that since it had already paid rent during the closures and the lease was to be extended, the Tenant was not required to pay rent during the extension.

Contact Bader Law for Advice on Commercial Real Estate Disputes

At Bader Law, we have an extensively experienced business law team and regularly represent our corporate clients in various real estate matters in Mississauga and throughout the Greater Toronto Area. Our skilled real estate lawyers work with our clients to provide comprehensive advice and strategic representation on all commercial real estate transactions, including commercial leasing issues affecting landlords and tenants.

Bader Law prides itself on tending to real estate disputes in a timely and professional manner. To schedule a consultation with one of our lawyers, contact us online or call us at 289-652-9092.

The commercial real estate market continues to experience economic challenges following the COVID-19 pandemic. According to the Financial Post, stricter financing conditions and increasing vacancy rates will lend toward an uncertain future for commercial lenders and landlords in Ontario. This outlook could signal conditions ripe for tenants to breach their obligations and shelter from liability through their corporation.

A similar fact scenario was presented to the Court of Appeal in the context of an appeal by commercial landlords regarding a lower court’s decision to strike their action against a tenant under Rule 21.01(1)(b) of the Rules of Civil Procedure. In doing so, the Court considered whether a personal remedy could be sought under the oppression doctrine.

Shareholder Oppression in Ontario

In Ontario, oppression refers to a legal concept outlined in the Business Corporations Act (Ontario) (“OBCA”) and the Canada Business Corporations Act (“CBCA”). The provisions in this legislation relating to oppression are intended to protect shareholders, directors, and other stakeholders of a corporation against oppressive or unfairly prejudicial conduct by the corporation or its management.

The leading authority on oppression in Canada is the Supreme Court of Canada decision in BCE Inc. v. 1976 Debentureholders, which established the fundamental principles of oppression, including determining the shareholders’ reasonable expectations and balancing the interests of all stakeholders. The Supreme Court of Canada emphasized that the oppression remedy should be flexible and adaptable to different factual scenarios, which is demonstrated in the case below.

Owners of Commercial Premises Commence Claim Against Corporate Director

The case of FNF Enterprises Inc. v. Wag and Train Inc. involved a commercial lease between FNF Enterprises Inc. and 2378007 Ontario Inc. (the “Appellants”) to Wag and Train Inc. (the “Respondent”), a corporate entity running a pet care business. The Respondent allegedly vacated the premises approximately one year before the lease term ended, stopped paying rent, and left the premises in a condition that breached the lease.

The Appellants served a statement of claim that alleged several causes of action, including two key allegations that:

1. the sole director, officer, and shareholder of the Respondent corporation, Ms. Ross, had pierced the corporate veil through her improper conduct, which involved “stripping value” from the Respondent; and
2. as creditors under s. 248 of the OBCA, her conduct was unfairly prejudicial to and unfairly disregarded the interests of the Appellants.

Pleadings Struck by Motion Judge Under Rule 21

The motion judge found that it was “plain and obvious” that the action could not succeed.

When considering the facts, the motion judge found no evidence of conduct that could amount to fraud or improper conduct on the part of Ms. Ross, which is a key consideration in the relevant test set out in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (“Transamerica”), regarding piercing the corporate veil.

Similarly, the motion judge found a lack of particulars relating to the oppression claim, reasoning that if a matter concerns a breach of contract by the corporate entity, an action against that entity is the remedy. In doing so, the motion judge declined leave to amend the statement of claim, which the Appellants appealed.

The Court of Appeal partially allowed the appeal, enabling the Appellants to amend the statement of claim for the oppression claim against Ms. Ross personally.

The “Missing Link” in the Corporate Veil

The Court agreed with the result reached by the motion judge in denying the corporate veil claim but did not agree with the reasoning. The Court considered the two-part test of Transamerica, which required complete domination and control of the corporate entity, as well as fraudulent or improper conduct. In this case, the second limb of the test was at issue.

The Appellants alleged that Ms. Ross deciding on behalf of the Respondent to breach the lease and strip value from the Respondent, despite knowledge of its liabilities under the lease, was fraudulent or improper conduct. The motion judge found that this conduct “does not rise to such a level that application of the logic of Salomon would lead to a result that is flagrantly opposed to justice.”

The Court of Appeal, however, was more influenced by the “nexus between the liability the plaintiff sought to recover by piercing the corporate veil and the wrongful conduct directed by the individual in control of the corporation that gave rise to that very liability.” It distinguished this case from Shoppers Drug Mart Inc. v. 6470360 Canada Inc., where there was a “clear link” between the liability for the misappropriated funds and the wrongdoing.

In the Court of Appeal’s opinion, this link was missing, as it was not alleged in the statement of claim that the stripping of value constituted the misappropriation of funds, only that this conduct was fraudulent and improper. The Court of Appeal ultimately found that this conduct was more appropriately considered under the reasonable expectations of shareholders as part of the oppression remedy analysis.

Oppression: Maneuvers Against the Creditor

The Court considered the case of BCE Inc. v. 1976 Debentureholders to lay the oppression groundwork and further applied Wilson v. Alharayeri, which sets out the test for determining the personal liability of a director. In doing so, the Court of Appeal dismissed the motion judge’s reasoning that a breach of contract against the corporation should be the remedy in this case.

The Court of Appeal applied the logic from J.S.M. Corporation (Ontario) Ltd. v. The Brick Furniture Warehouse Ltd., which noted the difference between a creditor who failed to protect itself from risk and a creditor who finds its interest “compromised by unlawful and internal corporate manoeuvres against which the creditor cannot effectively protect itself.” The Court found that in this case, the Appellants fell within the second situation, where Ms. Ross had allegedly manoeuvred assets to prevent repayment, and the Appellants had no way to protect themselves as creditors. In other words, the Appellants had a reasonable expectation that this conduct would not occur. It is also noted that even though the Appellants did not specifically allege this reasonable expectation, it can be objectively derived.

Therefore, in the Court of Appeal’s eyes, the alleged stripping of value and misuse of corporate powers to her benefit enabled the Appellants to seek a personal remedy against Ms. Ross under oppression. The Court allowed the Appellants to amend this claim.

Contact the Commercial Lawyers Bader Law for Effective Commercial Real Estate Advice

The experienced lawyers at Bader Law help businesses navigate the complexities of commercial real estate and corporate law in Ontario. Our skilled team works to create unique legal solutions to ensure our client’s interests are protected in matters such as corporate financing, real estate, and corporate transactions. Located in Mississauga, our firm serves clients throughout the province of Ontario. To schedule a confidential consultation, call us at 289-652-9092 or complete our online form.

Commercial landlords and tenants should always be prepared if a conflict arises during the leasing relationship. Some landlords and tenants anticipate potential disputes and, therefore, include clauses in their lease agreement setting out mechanisms to resolve problems through arbitration. But what happens when a party is not satisfied with the outcome of an arbitration award?

In The Tire Pit v Augend 6285 Yonge Village Properties Ltd, a party sought to appeal an arbitration award it did not agree with. This case, heard before the Ontario Superior Court of Justice, explains when a court can lawfully set aside an arbitration award.

New landlord takes issue with the tenant’s choice to extend the lease

The former landlord and the tenant, Tire Pit, entered into a lease agreement on December 16, 2013. The former landlord sold the property to a company called Augend, which became the new landlord in July 2020. Augend and Tire Pit had previously entered into litigation in May 2021, when Tire Pit sought to extend its lease for five years beyond June 2019.

The Court found that Tire Pit had exercised its option to extend the lease appropriately, even though Tire Pit had not signed a new agreement. The Court also ordered that Augend and Tire Pit submit to arbitration to determine base rent as prescribed by Section 9.13 – Option to Extend in the original lease agreement. Section 9.13 read as follows:

“Base Rent for the extension Term shall be the Landlord’s then-current rent for premises in the Building or, if the Landlord then has no such premises available, such Rent shall be the fair market rental for similar premises in the area of the Building at the time of the extension, but in no event shall the Base Rent be less than the Base Rent payable during the last year of the Term. If the parties are unable to agree on the fair market rental, if applicable, within three months prior to the commencement of the extension Term, the matter shall be referred to arbitration in accordance with the Arbitrations Act, 1991 (Ontario).”

Tenant disagreed with arbitration award

In October 2021, the parties attended arbitration. The arbitrator determined the base rent amount “by examining the ‘fair market rental’ for similar premises in the area of the building at the time of the extension.” When comparing similar premises close by, the arbitrator determined that fair base rent for the property was $50 per square foot. Tire Pit was to be credited any rent paid over that amount.

Tire Pit appealed the order on numerous grounds, some of which the Court deemed repetitive, including:

• The arbitrator found that Tire Pit was a month-to-month tenant in 2020 until the sale of the property, while this Court had found that the Lease had been renewed for five years commencing January 1, 2020;
• The arbitrator failed to find that Tire Pit and the Former Landlord had agreed between them on the fair market renewal base rent;
• The arbitrator failed to follow the directions in the renewal clause of the Lease when determining the fair market rent;
• The arbitrator failed to act fairly and give sufficient legal effect to the word “fair” in determining fair market rent (which Tire Pit defines as rent that is just and reasonable in the circumstances); and
• The arbitrator did not clearly decide whether additional rent was payable.

A court is able to set aside an arbitration award in specific circumstances

The case of Alectra Utilities Corporation v Solar Power Network Inc set out various considerations for the courts when considering whether to set aside an arbitration award. In that decision, the Court held that an applicant must establish that the award relates to an issue which was not covered by an arbitration agreement. Alternatively, the applicant must show that the decision was beyond the scope of the arbitration agreement.

Arbitrators must operate within the limits of the authority granted to them by way of the arbitration agreement and with those prescribed by the Arbitration Act (the “Act”). Under section 45(1) of the Act, a court must grant permission to appeal an arbitration award if the arbitration agreement is silent on appeals. Further, section 46 of the Act provides reasons for a court to set aside an arbitration award.

In the case at hand, the arbitration agreement did not consider appeals.

Court denied the tenant’s request to appeal

The Court found that the arbitrator’s decision was primarily focused on the dispute that was referenced in the arbitration agreement as “i.e. the determination of the fair market rent for the Leased Premises commencing January 1, 2020, as per the provisions of the Lease, and nothing else.”

Concerning the scope and fairness of the arbitrator’s decision, the Court found that the arbitrator acted appropriately. While Tire Pit sought to understand what “additional rent” would be owed in addition to the base rent, this was not an issue which was presented before the arbitrator at the relevant time. The Court did not find that the arbitration had been conducted unfairly, contrary to Tire Pit’s allegations.

The Court refused to grant Tire Pet leave to appeal, explaining that “granting leave to appeal in this case would not contribute to ensure the consistency of the law, but, rather, would only provide a new forum for the parties to continue their private litigation.”

Contact the Lawyers at Bader Law in Toronto for Advice on Commercial Leasing Disputes

At Bader Law, our experienced business law team regularly represents corporate clients in real estate matters. Our business clients range from small family-run operations to large enterprises. Within the firm, our business law and real estate teams work together to provide comprehensive and strategic representation in a variety of commercial real estate transactions, including commercial leasing issues affecting landlords and tenants.

The real estate lawyers at Bader Law represent both individual and corporate clients regardless of whether they are buyers or sellers. We act on behalf of clients in residential and commercial real estate transactions within Mississauga and throughout the Greater Toronto Area. Our lawyers will help secure your interests and protect your financial investments. To learn how we can assist you in your next commercial transaction, contact us online or call us at (289) 652-9092 .

A buyer is generally entitled to damages when a seller in a commercial real estate transaction breaches an Agreement of Purchase and Sale by failing to complete the sale, but how do courts calculate the quantum of damages owing?

Typically, the standard measure of damages for a seller’s failure to complete a purchase of land is the difference between the contract price of the property that was to be purchased and the market value of the land. This is intended to represent the lost benefit of the bargain (for example, see Marshall v. Meirik).

However, this method of calculating damages may be changing. In a recent decision of the Ontario Superior Court, the seller under an Agreement for Purchase and Sale was held liable for the loss of the developer buyer’s expected business profits after the seller aborted the sale.

Parties enter into an agreement of purchase of sale

In The Rosseau Group Inc. v. 2528061 Ontario Inc., the parties entered into an Agreement of Purchase and Sale on January 17, 2017. The agreement stipulated that the defendant vendor would sell the property in question to the plaintiff purchaser at a purchase price of $10,500,000, with an initial deposit of $50,000, subject to certain conditions. One of the conditions required the purchaser to pay $400,000 to be held in the trust of the seller’s solicitor upon waiving all the conditions.

On March 10, 2017, the parties entered into an amended Agreement of Purchase and Sale. The purchase price was reduced to $6,615,000 to reflect a lower “net developable area” on the property than that set out in the original agreement.

The plaintiff purchaser “waived all the conditions” during the due diligence period but did not make the $400,000 payment following the waiver of the conditions. The defendant seller treated this failure to pay the $400,000 as a repudiation of the amended Agreement of Purchase and Sale and communicated this view to the plaintiff purchaser, returning the $50,000 deposit. The plaintiff initially sought an order for specific performance but then abandoned that relief and instead sought general damages for all expenses, losses, including economic losses, and lost profits arising from the defendant’s alleged failure to close the transaction.

Individual interpretations of the agreement unhelpful

The court applied the principles of contract interpretation to the original and amended Agreements of Purchase and Sale. It noted that while the surrounding circumstances will be considered in interpreting the terms of a contract, those circumstances cannot “overwhelm the words” of the agreement. The court must ground its interpretation in the contract’s text, looking at the objective evidence. Evidence of an individual’s interpretation of the agreement is not helpful. 

Overall, the court found no provision for a $400,000 deposit in the amended Agreement of Purchase and Sale, and there was no provision for it to be paid and be reduced from the amount payable on closing. The parties did not have to include an explicit deletion of the $400,000 deposit in the amended Agreement of Purchase and Sale. It was evident by the terms of the amended Agreement of Purchase and Sale that it was no longer payable.

Seller found to have committed anticipatory breach

The court found that the seller, through its words and conduct, repudiated the agreements before the buyer’s performance was due. As the court found that the further $400,000 deposit was not payable by the buyer at the time of waiver of the conditions, the seller repudiated the contract when it said in writing that it considered the Agreement of Purchase and Sale and amended Agreement of Purchase and Sale at an end and returned the $50,000 deposit. The seller clearly expressed an intention not to be bound by the contract before the performance was due.

Damages awarded for buyer’s estimated lost profits

In awarding damages for lost profits, the court relied on a 2002 Supreme Court of Canada decision which held that lost profits were an appropriate measure for damages in a development case. The buyer was a developer, and, in reviewing the evidence, the court found that the parties contemplated explicitly that the buyer was acquiring the property to develop it. In fact, as part of the conditions of the sale, the buyer was required to satisfy itself concerning zoning and restrictions and the economic feasibility of the development of the site.

In calculating its lost profits, the buyer submitted expert evidence from a development consultant who estimated the costs that would have been incurred to buy, develop, construct, and rezone the land and the associated tax and legal costs of this venture. In reviewing the buyer’s development plans, he concluded that the project could have yielded an estimated $21.5 million to $23.5 million in revenue, with a cost of $11 million. Therefore, the buyers’ estimated profit was between approximately $10 million and $12.1 million.

The court rejected the seller’s argument that the buyer had failed to mitigate its damages by not purchasing another comparable property. The evidence demonstrated that the buyer was constantly looking for properties and typically purchased between five and six annually. Further, the development work in the community for the proposed development had begun 12 years prior.

Given this analysis, the court held that the buyer was owed $11.1 million, which represented the midpoint between the estimated range provided by the buyer’s expert.

Contact Bader Law in Mississauga for Knowledgeable Advice in Commercial Real Estate Transactions

Bader Law represents individual and corporate buyers in commercial real estate transactions in Mississauga and throughout the Greater Toronto Area. Our experienced real estate lawyers take strategic action to reduce risk, secure clients’ interests, and protect their financial investments. To schedule a consultation, contact us online or call 289-652-9092.

Earlier this year, we provided a summary of court decisions on commercial rent relief cases in Canada during the COVID-19 pandemic.

More recently, an Ontario court ruled on a case in which a commercial landlord brought its tenant to court after it vacated the premises in breach of its lease during the COVID-19 pandemic.

Parties Agree To Commercial Lease With Renewal Clause

The landlord and tenant, who ran a physiotherapy clinic, signed a lease agreement in 2015 for a term of five years, ending on October 4, 2020. The base rent in 2020 was $12,825 per month. 

The lease also contained a renewal clause, which provided that the tenant had to provide six months’ notice prior to the expiry of the lease as to whether it wanted to renew or terminate the lease. The clause further stated that if the landlord did not receive the tenant’s notice, the lease would automatically renew for another term of five years. 

This meant that the tenant needed to inform the landlord of its decision to renew or terminate the lease by April 4, 2020.

On March 17, 2020, Ontario declared a state of emergency in response to the COVID-19 pandemic.

Tenant Abandons Premises During COVID-19 Pandemic

In March 2020, as a result of the COVID-19 pandemic and the declared health emergency, the tenant was forced to drastically reduce its services, which had a serious impact on its ability to earn revenue. As a result, the landlord agreed to the tenant’s request to defer its April 2020 rent until December 2020.

However, the tenant failed to provide the landlord with any notice of termination or renewal by April 4, 2020.

Instead, the tenant sent the landlord a letter on June 5, 2020 indicating that it intended to terminate the lease effective October 4, 2020. Three days later, the landlord responded stating that the renewal clause had been triggered and the lease would therefore renew for another five years.

At the end of September 2020, the tenant abandoned the premises and ceased paying rent. 

The landlord therefore went to court seeking summary judgment against the tenant.

The landlord submitted that the lease renewed automatically, while the tenant argued that the tenancy ended without renewal in October 2020.  

Court Rules in Favour of Landlord

The court noted the tenant’s main argument that the pandemic amounted to force majeure and nullified its obligation to give notice of renewal or non-renewal by 6 months prior to the renewal or termination date. The court observed, however:

“The [tenant]’s affiant deposes that due to the pandemic closure the clinic was in financial crisis and was in no position to consider renewal for another 5 years. That may be the case, but it does not explain why the [tenant] could not give notice of non-renewal. The [tenant] argues that the pandemic conditions prevented it from carrying on business as usual, but the Lease did not require business as usual and the [landlord] had already deferred some of the spring 2020 rent. All the [tenant] had to do in order to stop the automatic renewal of the term of the Lease was to give the [landlord] notice to that effect. The [tenant] failed to do so, and so the renewal provision was deemed to be exercised and the Lease was renewed for five additional years.”

Additionally, the court found that the wording of the renewal provision was precise, unambiguous and easy to interpret.

In the result, the court therefore ruled in favour of the landlord and ordered the tenant to pay the landlord damages for defaulted rent in the amount of $850,592.

Get Help

Real estate transactions represent some of the largest financial transactions in the life of any individual or company. Whether you are a first-time homebuyer or a large corporation acquiring a new space to grow your business, it is important to retain a law firm with the experience and skill necessary to ensure your interests are protected and the transaction closes without issue.

At Bader Law, we have an extensively experienced business law team and regularly represent our corporate clients in various real estate matters. We work with business clients ranging from small family-run operations to large enterprises, helping our clients manage their real property interests with an eye toward growth. Our business and real estate teams work closely together to provide thorough and strategic representation on all commercial real estate transactions, including commercial leasing issues affecting landlords and tenants.

The Mississauga real estate lawyers at Bader Law represent individual and corporate buyers and sellers in both residential and commercial real estate transactions in Mississauga and throughout Greater Toronto Area. We will advise you on your options, help secure your interests, and protect your financial investments. Contact us online or at (289) 652-9092to learn how we can help.

In a recent Ontario Court of Appeal decision, the court allowed a landlord’s appeal, finding that the application judge had erred in finding ambiguity in a lease where none existed.

Parties Go to Court over Term of Lease

A grocery store signed a lease in a shopping mall in March 1979 with an initial term of 25 years. The expiry date was February 28, 2004. The store also had a right to five successive renewal periods of five years each. As such, the ultimate expiry date was to be February 2029, or a maximum of 50 years from the date the lease commenced. 

However, in 1999, when the store was planning the construction of an addition, the parties negotiated an amendment to the lease which, among other things, extended the term of the lease by ten years, commencing on March 1, 2004 and expiring on February 28, 2014. The amendment gave the store the option to extend the term of the lease for three additional periods of five years each for a total of five options or 25 years. 

The landlord brought an application for a declaration that the maximum term of the lease was 50 years, expiring in 2029. The store argued that the lease extended until February 2039, at the latest.

There was also an issue raised regarding the replacement of the property’s roof, which will not be covered here.

Lower Court Finds in Favour of Tenant

The application judge dismissed the landlord’s application on the lease issue, finding in favour of the store and declaring that the lease would expire in 2039 at the latest. He found that the lease was ambiguous because there were two reasonable interpretations of the lease term clauses. 

The first interpretation, advanced by the landlord, was that the maximum 50-year term of the lease was not altered by the amendment. As such, it argued that the lease would expire in 2029 at the latest. 

However, the second interpretation, advanced by the store, was that the parties had wanted to extend the length of the lease and the amending agreement had added an additional ten years to the maximum potential length of the lease. Therefore, the lease would expire in 2039 at the latest.

Faced with such differing interpretations, the application judge held that the factual matrix did not help resolve the ambiguity in the lease. As a result, the application judge examined the extrinsic evidence presented. He found that the extrinsic evidence, including the notice of lease registered on title and an estoppel certificate (both of which stated that the lease could be extended to 2039), supported the store’s position that the amendment extended the maximum length of the lease by ten years.

The landlord appealed, arguing, among other things, that the application judge had erred in determining the lease was ambiguous by failing to consider the lease as a whole.

Court of Appeal Finds in Favour of Landlord

At the outset of its decision, the court stated plainly: “A contract must be interpreted as a whole.” 

The court then reviewed the terms of the lease and the amendment, following which it explained:

“The application judge committed an error of law by failing to consider the wording of the provisions in the context of the agreement as a whole. If he had not committed this error, he would have come to the conclusion that there was no ambiguity….

When the 1999 amendment is read within the context of the original lease, there is no ambiguity…

In short, the application judge fell into error in failing to consider the actual wording within the context of the lease as a whole, which led him to find that the provision was ambiguous. This was an extricable legal error…”

As part of its reasoning, the court explained that if the application judge’s interpretation was given effect, it would have led to an overall term of 60 years rather than 50, which had been specifically precluded by the original lease. However, the parties had not amended the 50-year limit provision. The court opined that if the parties had intended to vary the maximum lease term they would have done so, but did not.

As such, the court allowed the landlord’s appeal and declared that the expiry date of the lease was 2029, and not 2039 as the store had argued.

Get Help

Real estate transactions represent some of the largest financial transactions in the life of any individual or company. Whether you are a first-time homebuyer or a large corporation acquiring a new space to grow your business, it is important to retain a law firm with the experience and skill necessary to ensure your interests are protected and the transaction closes without issue.

At Bader Law, we have an extensively experienced business law team and regularly represent our corporate clients in various real estate matters. We work with business clients ranging from small family-run operations to large enterprises, helping our clients manage their real property interests with an eye toward growth. Our business and real estate teams work closely together to provide thorough and strategic representation on all commercial real estate transactions, including commercial leasing issues affecting landlords and tenants.

The Mississauga real estate lawyers at Bader Law represent individual and corporate buyers and sellers in both residential and commercial real estate transactions in Mississauga and throughout Greater Toronto Area. We will advise you on your options, help secure your interests, and protect your financial investments. Contact us online or at (289) 652-9092to learn how we can help.

In April 2020, the Canadian government introduced the Canada Emergency Commercial Rent Assistance for small businesses, which provided relief for small businesses experiencing financial hardship due to COVID-19. It was later replaced by the Canada Emergency Rent Subsidy.

Despite these programs, courts have now seen several cases in which commercial tenants have asked the court to excuse them from paying rent as a result of the COVID-19 pandemic and related government shutdowns.

In most cases, courts have refused to accede to the tenants’ requests, with one notable Quebec exception, as set out below.

Hengyun International Investment Commerce Inc. c. 9368-7614 Québec inc. (2020)

In this Quebec case, the commercial tenant operated a gym. However, because of the Quebec government’s emergency decree on the COVID-19 pandemic, the tenant had been forced to close its business from March to June 2020, when it went to court. The tenant thus asked for a reduction in rent during the period it had been closed. The tenant argued that the COVID-19 pandemic constituted superior force (which is a statutory principle under Quebec law, which is similar, but not identical, to force majeure principles in common law provinces). 

The court sided with the tenant and concluded that it was not liable for unpaid rent for the months of March, April, May and part of June, 2020. While the court rejected the tenant’s argument that it had been prevented from paying rent due to superior force, it held instead that superior force caused by the COVID-19 pandemic had prevented the landlord from fulfilling its part of lease and its obligation to provide the tenant with peaceable enjoyment of the premises, thus relieving the tenant from its obligation to pay rent.

 Durham Sports Barn Inc. Bankruptcy Proposal (2020)

The commercial tenant had closed its business from March to May 2020, due to public health mandated closures related to COVID-19 in Ontario. The tenant asked the court to relieve it of its obligation to pay rent during the shutdown period. The tenant argued frustration and force majeure.

The court held that the force majeure did not relieve the tenant from its obligation to pay rent. It held that because the tenant had not paid rent, the landlord’s obligation to provide quiet enjoyment had not arisen. As a result, the court rejected the tenant’s application.

Dorval Property Corporation c. Hudson’s Bay Company (2020)

The commercial tenant, Hudson’s Bay Company (“HBC”), had ceased paying rent in six different locations in Quebec beginning in April 2020. The landlords went to court seeking safeguard orders forcing HBC to pay rent. HBC argued that the burden posed by the pandemic should be shared fairly by both landlords and retailers.

In six separate decisions, HBC was ordered to pay 100 percent of its rent to the landlords for six months. This resulted in HBC paying over $1.8 million in unpaid rent to the landlords. 

(Note: The Quebec decisions were issued on the same day an HBC department store in B.C. was shuttered for non-payment of rent, and two weeks after an Ontario judge ordered HBC to pay half the rent owing at a Richmond Hill, Ont., store to stave off eviction.)

Quest University Canada (Re) (2020)

The tenant was a British Columbia university. It had filed for restructuring in the context of the COVID-19 pandemic and sought to defer the payment of rent owing on four of its student residences because its ability to use them had been limited by government decree.  

The court rejected the tenant’s argument, holding that the lack of physical occupation of the residences was not a determining factor, and that the word “use” had a more expansive meaning than that which the debtor had proposed.As a result, the court dismissed the tenant’s application for rent relief.

Groupe Dynamite inc. c. Deloitte Restructuring Inc. (2021)

In a more recent Quebec case, a company that had filed for restructuring sought a court order relieving it of its rent obligations in Manitoba and Ontario. The tenant argued that it was not “using” the premises due to government shutdowns and should therefore be relieved of its rent obligations.

The court rejected the tenant’s argument, finding that, while the tenant had limited use of the premises due to government shutdowns, it was still “using” the premises and was therefore liable for its rent obligations. 

Get Help

Real estate transactions represent some of the largest financial transactions in the life of any individual or company. Whether you are a first-time homebuyer or a large corporation acquiring a new space to grow your business, it is important to retain a law firm with the experience and skill necessary to ensure your interests are protected and the transaction closes without issue.

At Bader Law, we have an extensively experienced business law team and regularly represent our corporate clients in various real estate matters. We work with business clients ranging from small family-run operations to large enterprises, helping our clients manage their real property interests with an eye toward growth. Our business and real estate teams work closely together to provide thorough and strategic representation on all commercial real estate transactions, including commercial leasing issues affecting landlords and tenants.

The Mississauga real estate lawyers at Bader Law represent individual and corporate buyers and sellers in both residential and commercial real estate transactions in Mississauga and throughout Greater Toronto Area. We will advise you on your options, help secure your interests, and protect your financial investments. Contact us online or at (289) 652-9092 to learn how we can help.