Court of Appeal for Ontario

Date: 2018-01-29 Docket: C63933

Judges: Pepall, Hourigan and Brown JJ.A.

Between

North Elgin Centre Inc. Applicant (Respondent)

and

McDonald's Restaurants of Canada Limited Respondent (Appellant)

Counsel

Ronald G. Slaght, Andrew Parley and Margaret Robbins, for the appellant

Martin P. Zarnett, for the respondent

Heard: January 22, 2018

On appeal from: The judgment of Justice Jasmine T. Akbarali of the Superior Court of Justice, dated May 30, 2017 with reasons reported at 2017 ONSC 3306.

Reasons for Decision

Introduction

[1] The appellant, McDonald's Restaurants of Canada Ltd. ("McDonald's") and the respondent, North Elgin Centre Inc. ("North Elgin") brought applications to determine their respective rights under a commercial lease (the "Lease"). The application judge found that the Lease came to an end on March 10, 2017 because McDonald's failed to comply with its renewal provision.

[2] McDonald's appeals that order. For the reasons that follow, the appeal is allowed.

Background Facts

[3] On March 11, 1997, McDonald's as tenant and North Elgin as landlord entered into the Lease, which was a twenty-year ground lease in respect of lands in Richmond Hill, Ontario upon which McDonald's has built and renovated a restaurant. The parties agreed the original term of the Lease would end on March 10, 2017.

[4] The Lease includes an option to renew for two consecutive additional terms of ten years each. There was no dispute that McDonald's gave proper notice of its intention to renew the Lease prior to the expiry of the original term. However, the application judge held that the renewal provision required McDonald's to do more than simply provide notice of its intention to renew. She found that because the parties had not agreed on a rental rate at least nine months before the end of the original term, McDonald's was obliged under the Lease to either refer the issue to arbitration or revoke its intention to renew.

[5] McDonald's failed to take either action. The application judge found, therefore, that the Lease was uncertain as to a material term — the rental rate. As such, the parties were left without an enforceable agreement. She went on to find that because the parties were engaged in negotiations North Elgin waived its right to insist on strict compliance with the terms of the renewal provision. However, she also found that North Elgin later revoked its waiver and reverted to its strict legal rights. As a result, the application judge held the doctrine of waiver did not apply and the Lease was at an end. The application judge also found that relief from forfeiture was not available.

Issues

[6] On appeal, McDonald's submits that the application judge erred in her analysis of the Lease, the revocation of the waiver, and the remedy of relief from forfeiture. McDonald's also submits that the application judge erred in failing to order North Elgin to pursue the necessary application for consent required under s. 50(3)(f) of the Planning Act, R.S.O. 1990, c. P.13, as required by the Lease to legally extend it beyond a twenty-one year term. It seeks an order for specific performance requiring North Elgin to do so.

Analysis

[7] We are of the view that the appeal must be allowed on the ground that the application judge made a palpable and overriding error of mixed fact and law in her finding that North Elgin properly revoked its waiver.

[8] The principle of waiver provides that if one party leads another party to believe that its strict legal rights under a contract will not be insisted upon, intending that the other party will act upon that belief and the other does so, then the first party may not afterwards insist on its strict legal rights when it would be inequitable to do so: Petridis v. Shabinsky, 35 O.R. (2d) 215 (H.C.), at para. 20.

[9] We see no error in the application judge's conclusion that North Elgin waived strict compliance with the renewal provision under the Lease. Where the application judge erred was in finding that the waiver had been revoked by North Elgin in an email to McDonald's dated August 31, 2016.

[10] For the revocation of a waiver to be effective it must provide reasonable notice to the receiving party: Petridis, at para. 20. To qualify as reasonable, the notice must make clear that the party who granted the waiver will insist upon the strict enforcement of its legal rights. The notice must also afford the opposite party an opportunity to cure any defect resulting from its reliance on the waiver.

[11] In our view, the August 31, 2016 email does not clearly indicate that North Elgin would be insisting upon the strict enforcement of its legal rights. The email raises the issue of whether McDonald's intended to let the Lease expire or whether McDonald's wanted North Elgin to refer the rental rate issue to arbitration. There is no clear revocation of the waiver.

[12] The August 31, 2016 email also does not provide McDonald's with a reasonable period to cure the breach of the Lease. In its next communication to McDonald's, North Elgin advised via a lawyer's letter dated November 25, 2017, that it was of the view that the Lease would be at an end upon the expiry of the initial term. North Elgin also advised that if McDonald's did not agree with its position, it would bring an application to have a court declare the Lease to be at an end upon the expiry of the initial term. Therefore, no opportunity to cure the defect was provided to McDonald's.

[13] In our view, based on the evidence before her, it was a palpable and overriding error of mixed fact and law for the application judge to find that the waiver had been revoked. Because the waiver has not been properly revoked, the issue of fair market rental rates shall be referred to arbitration.

[14] With regard to McDonald's claim for an order requiring North Elgin to specifically perform its obligation to obtain a Planning Act consent, we note that the end of the 21st year under the Lease is fast approaching. We proposed to the parties in oral argument that the most sensible order would be one in which McDonald's was permitted to immediately bring an application for the consent, and North Elgin would provide all reasonable cooperation to obtain the consent. The parties were agreeable to that order, and it shall issue.

Disposition

[15] The appeal is allowed. The orders below are set aside and an order will go as follows:

(i) A declaration will be granted that the Lease has been renewed for the renewal term;

(ii) McDonald's shall, within 30 days of the date of these reasons, refer to arbitration, in accordance with Articles XV and XVII of the Lease, the issue of the fair market rental rate for the renewal term commencing on March 11, 2017;

(iii) McDonald's shall, within 30 days of the date of these reasons, bring an application for the consent required under s. 50(3)(f) of the Planning Act and North Elgin shall provide all reasonable cooperation to obtain that consent;

(iv) North Elgin shall pay to McDonald's its costs of the applications in the all-inclusive sum of $10,000; and

(v) North Elgin shall pay to McDonald's its costs of the appeal in the all-inclusive sum of $15,000.

S.E. Pepall J.A.

C.W. Hourigan J.A.

David Brown J.A.