1383421 Ontario Inc. v. Ole Miss Place Inc.

67 O.R. (3d) 161

[2003] O.J. No. 3752

Docket No. C39246

Court of Appeal for Ontario

Catzman, Feldman and Gillese JJ.A.

September 30, 2003

Landlord and tenant -- Renewal -- Waiver -- Tenant's right of renewal conditional on tenant not being in default under lease -- Tenant having onus of proving that conditions for renewal had been satisfied -- Landlord not required to give notice of default in order to refuse to renew lease -- Landlord's rights to terminate upon Tenant's default different from Landlord's rights to refuse renewal of lease -- Acceptance of rent after default not precluding landlord from refusing to renew lease because of tenant's continuing default -- Landlord not required to give notice of breach in order to refuse renewal.

Ole Miss Place Inc. (the "Landlord") owned a commercial building in Mississauga, and it leased premises to 1383421 Ontario Inc. (the "Tenant"), which carried on business as a bar. The lease contained an option to renew for a five-year term. The right to renew was conditional on the Tenant not being in default. The Tenant gave notice that it intended to renew, but the Landlord refused to renew on the ground that the Tenant was in breach of several provisions of the lease. The alleged breaches related to the Tenant serving alcohol to patrons until they became so intoxicated that they would vomit and urinate around the building, harass other occupants and create disturbances. The landlord took the position that the alleged breaches constituted acts of default. The Landlord purported to terminate the lease, but it continued to accept rent after delivering a notice of its intention to terminate. The lease expired on February 28, 2003, and the tenant applied for a declaration that it had validly exercised its right of renewal. The applications judge found that the Tenant was not in default because: (1) the Landlord ought to have given notice of the breaches and taken steps to remove the tenant; (2) based on the material before the court, it was not possible to make a final determination of the extent of the Tenant's misconduct; and (3) it was not possible to conclude that the Tenant was guilty of the outrageous breach of conduct alleged by the Landlord. The applications judge granted the Tenant's application. The Landlord appealed.

Held, the appeal should be allowed.

The Tenant was in default when it purported to renew the lease, and it could not validly exercise the option to renew. There was a subsisting breach of the lease on the operative date for renewal. The operative date is a matter of interpretation of the option to renew clause. In this case, the renewal clause required the Tenant to notify the Landlord 180 days prior to the expiry of the lease term of its intention to renew. The operative date in this case was August 1, 2002. The evidence overwhelmingly supported the conclusion that there was a subsisting breach of the lease on the operative date. The record also supported a finding that the breach continued after the operative date, and the Landlord was entitled to refuse to renew on that ground as well.

The Tenant's argument that the Landlord's acceptance of rent precluded it from refusing to renew