COURT OF APPEAL FOR ONTARIO

2014 ONCA 903

DATE: 20141216

DOCKET: C59031

Cronk, Juriansz and Epstein JJ.A.

BETWEEN

1440825 Ontario Inc.

Applicant

(Appellant)

and

Lenco Investment Ltd.

Respondent

(Respondent in Appeal)

Mark S. Shapiro and Mordy Mednick, for the appellant

William C. Kort, for the respondent

Heard and released orally: December 11, 2014

On appeal from the judgment of Justice Jamie K. Trimble of the Superior Court of Justice, dated June 17, 2014, with reasons reported at 2014 ONSC 3536.

ENDORSEMENT

[1] The appellant tenant appeals from the application judge’s ruling that a commercial lease between the parties and a right of first refusal in favour of the tenant contained in the lease were properly terminated by the respondent landlord.

[2] We conclude that the appeal must be allowed.

[3] The right of first refusal granted under Schedule C to the lease reads as follows:

Right of First Refusal

Purchase

In the event that the Landlord receives an Offer to Purchase the property, then Landlord shall give this Tenant notice, and Tenant shall have 30 business days from receipt of the Offer to Purchase to match or negotiate with the Landlord and failing agreement, this option shall be null and void and of no effect. In the event that the Tenant exercises its right to purchase the building, then the closing shall be no later than 60 days from receipt of the Notice of the Purchase delivered to the Tenant. This Right shall be applicable only during the first 5 years of the term and is terminated if either Landlord or Tenant gives notice of termination as set out in paragraph 11.01 of this lease.

[4] The point of controversy in this case concerns the limiting language set out at the last sentence of the right of first refusal. By that language, the parties agreed that the right of first refusal was subject to termination if either party terminated the lease in accordance with paragraph 11.01, the termination provision, of the lease. Paragraph 11.01(2)(a) reads as follows:

11.01 TERMINATION UPON NOTICE AND AT END OF TERM

(2) If the Premises are subject to an Agreement of Purchase and Sale or if the Premises are expropriated or condemned by any competent authority:

(a) the Landlord shall have the right to terminate this Lease after March 1, 2014 by giving 3 months’ notice in writing to the Tenant;

[5] The evidence before the application judge established that on February 26, 2014, the landlord received an offer to purchase the leased premises from a third party. On the same day, the landlord unconditionally accepted the offer and entered into an agreement of purchase and sale with the third party.

[6] On March 21, 2014, the landlord delivered a copy of the agreement of purchase and sale to the tenant, together with a notice of termination purporting to terminate the lease. The notice stipulated that the tenant had until June 30, 2014 to vacate the leased premises and provide vacant possession of the property to the landlord.

[7] At no point prior to accepting the third party’s offer to purchase did the landlord provide the tenant with notice of the offer to purchase or an opportunity to match the offer as contemplated under the contractual right of first refusal clause.

[8] In these circumstances, relying on the decision of this court in Benzie v. Kunin, 2012 ONCA 766, the tenant submits that it was denied any opportunity to exercise its right of first refusal in a timely or meaningful fashion notwithstanding that its right crystalized into an equitable option to purchase the leased premises once the landlord received and was prepared to accept the third party offer to purchase. The landlord, therefore, breached the terms of the lease and effectively denuded the right of first refusal of any meaning.

[9] We agree. The contractual right of first refusal and the termination clause in the lease must be read together and, to the extent possible, meaning must be accorded to each in accordance with the intentions of the parties as reflected in the language of the lease. When the landlord received an offer to purchase on February 26, 2014 that it was prepared to accept, it was obliged to inform the tenant of the existence of the offer and to afford the tenant an opportunity to match the offer. Until the landlord did so, it was not free to unconditionally accept a third party offer, thereby entering into an agreement of purchase and sale and positioning itself to terminate the lease under paragraph 11.01(2)(a) of the lease.

[10] The landlord says, in effect, that its compliance with the right of first refusal clause was entirely at its discretion.

[11] This interpretation of the lease must be rejected. The interpretation of the lease urged by the respondent renders the right afforded to the tenant under the right of first refusal valueless. It fails to accord any meaning to a key provision of the lease and is inconsistent with the landlord’s obligation of good faith dealings with the tenant.

[12] Accordingly, the appeal is allowed. Declarations are granted that: 1) the right of first refusal under the lease was not terminated by the landlord’s purported termination of the lease on March 21, 2014; and 2) the tenant exercised its right of first refusal in accordance with the terms of the lease.

[13] In addition, it is ordered that the landlord enter into an agreement of purchase and sale with the tenant on the same or similar terms and conditions as set out in the agreement of purchase and sale entered into by the landlord with the third party on February 26, 2014.

[14] The appellant is entitled to its costs of the appeal, fixed in the amount of $10,969.97, inclusive of disbursements and all applicable taxes. The appellant is also entitled to its costs of the proceeding before the application judge, in the total amount of $5,600, inclusive of disbursements and all applicable taxes.

“E.A. Cronk J.A.”

“R.G. Juriansz J.A.”

“Gloria Epstein J.A ”