COURT OF APPEAL FOR ONTARIO

CITATION: 2324702 Ontario Inc. v. 1305 Dundas W Inc., 2020 ONCA 353

DATE: 20200605

DOCKET: C67817

Feldman, Lauwers and Huscroft JJ.A.

BETWEEN

2324702 Ontario Inc.

Applicant/Respondent by way of cross-application (Appellant)

and

1305 Dundas W Inc.

Respondent/Applicant by way of cross-application (Respondent)

Sam A. Presvelos, for the appellant

Robert B. Cohen and Melissa Winch, for the respondent

Heard: In writing

On appeal from the order of Justice Shaun S. Nakatsuru of the Superior Court of Justice, dated March 29, 2019, with reasons reported at 2019 ONSC 1885, 100 R.P.R. (5th) 223.

REASONS FOR DECISION

[1] The appellant leased a commercial lounge and event space at 1305 Dundas Street West in Toronto from the respondent’s predecessor, as part of a five-year lease beginning March 1, 2008. The appellant operated a restaurant and lounge called Remix on the premises. On September 5, 2013, the parties signed a lease amending agreement, which extended the original term to the end of September 2018 and gave the appellant a unilateral option to renew the lease for a further five years. The lease renewal option reads as follows:

Provided that the Tenant is: (a) 2324702 Ontario Inc.; (b) in occupation of the whole of the Premises; and (c) not in default under this Lease, the Tenant shall have the option exercisable on no less than nine (9) months’ and no more than eleven (11) months’ written notice to the Landlord prior to the expiry of the then current Term to extend the Lease with respect to the Premises for one (1) additional term of five (5) years each on the same terms and conditions as the Term save and except:

(i) there will be no further right to extend the Term following the second extension term;

(ii) the basic rent rate for each extension term shall be the then fair market Minimum Rent rate for comparable premises in the area, provided that in no event shall such rate be less than the Minimum Rent payable during the last twelve (12) month period immediately preceding the commencement of the then current extension term; and

(iii) there shall be no leasehold improvement allowance, Landlord’s Work, rent-free period or other inducements.

If the parties are unable to agree on the Minimum Rent for an extension term on or before the date that is sixty (60) days prior to the commencement of such extension term, then such Minimum Rent shall be determined by arbitration before a sole arbitrator in accordance with the Arbitration Act, 1991 (Ontario), or its successor legislation. The parties shall execute a lease extension agreement prepared by the Landlord to reflect the terms of the extension term.

[2] The respondent bought the building in July 2017 and became the appellant’s landlord. The application judge found that although the parties communicated by email with respect to renewal, the appellant had not renewed the lease in accordance with the terms of the option to renew. He also refused to grant relief from forfeiture. On this appeal, the appellant submits that the application judge erred in both respects.

[3] For the reasons that follow, we find that the application judge made no reviewable error and the appeal must be dismissed.

A. Facts

[4] The renewal option in the lease amending agreement required the appellant to give “no less than nine (9) months’ and no more than eleven (11) months’ written notice to the Landlord prior to the expiry of the then current term” in order to renew the lease. This meant that written notice of renewal had to be given between November 1, 2017 and December 31, 2017. The application judge found that the appellant did not provide written notice of renewal during that period.

[5] On May 15, 2017, the appellant requested a meeting with its investment group and the respondent. On May 18, 2017, the respondent said it was prepared to meet as requested. On June 6, 2017, after the parties met, the respondent sent a follow-up email indicating that it was still considering its future plans for the building and that if the lease were to be extended, the rent would be closer to market rent for commercial space in the area. On October 16, 2017, the appellant emailed that it wished “to discuss our 5yr lease option with you it is very important to us to have this spelled out at this time as our interested investors were waiting for this information to decide on our new plans for the venue.” The appellant proposed a rent rate, and hoped they could “work this out […] as soon as possible.”

[6] These conversations all took place before the renewal period, which began on November 1, 2017.

[7] The parties exchanged a number of emails on November 3, 2017, discussing and disputing the fair market rent value. In the course of the exchange, the respondent stated that it would be “more than happy to extend your lease, but we do need it to be adjusted to the market price”, and later, that it was willing to “discuss more in details and hopefully reach an agreement.” Ultimately, the respondent asked the appellant to present its best offer, to which the appellant responded that it was “waiting for the compatibles” and that it would “get back […] early next week.” However, no best offer was ever presented in writing.

[8] The renewal period concluded at the end of December 2017.

[9] When the appellant failed to pay the February 2018 rent, the respondent terminated the lease. The appellant then commenced an application on February 21, 2018 for a declaration that the lease had not been validly terminated, or for relief from forfeiture. The respondent brought a cross-application on July 12, 2018 for a declaration that the lease was terminated. Counsel reached an interim, without prejudice agreement that the appellant could remain in the premises pending the outcome of the litigation on payment of rent. Then, on September 11, 2018, the application judge granted the appellant an adjournment on terms that included the ongoing payment of rent. The application was heard on February 20, 2019. In the interim, two rent cheques were paid late, one of which was returned for non-sufficient funds (NSF).

B. Reasons of the Application Judge

[10] The first issue before the application judge was whether the respondent had validly terminated the lease for failure to pay rent in February 2018. He found that it had. The next issue was whether the appellant should be granted relief from forfeiture for its breach of the lease in February 2018. The application judge granted the appellant relief from that forfeiture. The appellant does not challenge these findings on appeal.

[11] With the original lease still in effect, the main issues on the applications were whether the appellant had validly exercised its option to renew the lease for five years, whether the respondent had waived strict compliance with the lease renewal provision and was estopped from relying on it, and if not, whether the appellant should be relieved from forfeiture for failing to validly renew.

[12] The first issue was whether the appellant had validly exercised the option to renew the lease. The application judge found, at para. 45, that the email correspondence from the tenant did not contain an exercise of the option to renew in accordance with the terms of the lease amending agreement, given that the case law requires strict compliance with the renewal provisions of a lease: see 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., [1993] O.J. No. 2801 (C.A.), and Doria v. 66 Degrees Inc. (2000), 30 R.P.R. (3d) 287 (Ont. S.C.). Rather, the appellant was looking to negotiate and agree on the rent as a condition of renewal: at paras. 47, 51. These communications were “far from an unequivocal and clear exercise of [the appellant’s] option to renew”: at para. 47. The words “exercise the option” were never used, nor did the appellant activate the arbitration process: at para. 50. The application judge specifically rejected the affidavit evidence on behalf of the appellant to the extent that it stated that the email correspondence indicated an understanding that the option had been exercised: at para. 51.

[13] The next issue was whether the landlord had waived the need for strict compliance. At para. 55, the application judge found that the two requirements of waiver that the Supreme Court set out in Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC), [1994] 2 S.C.R. 490, had not been met: 1) a full knowledge of rights; and 2) an unequivocal and conscious intention to abandon those rights. He concluded, from the lack of further discussion between the parties about rental rates following the November 3, 2017 emails, that “[t]he ready inference […] is that the [respondent] stopped discussing it as [the appellant] stopped pushing for it because [the appellant] had not given the required written notice”: at para. 55.

[14] The application judge also rejected the argument that the respondent was estopped by its silence or otherwise from relying on strict compliance with the lease terms. The appellant argued that the respondent’s statement in one of the November 3 emails that it would be happy to extend the tenant’s lease constituted an estoppel. The application judge did not accept this submission: at para. 58. The phrase was used in the context of the rent being set at market price, but there was no meeting of the minds on this issue: at para. 58. Nor did the respondent use silence to mislead the appellant into believing that it viewed the option as exercised: at para. 59. There were no ongoing negotiations or other conduct after the renewal period that could have misled the appellant: at para. 60.

[15] The application judge then turned to relief from forfeiture, although he commented that it had not been specifically requested. He found, at para. 63, that the appellant’s conduct was not reasonable, that it was hedging its bets, and that it had not made diligent efforts to comply with the terms of the lease, as required by 120 Adelaide Leaseholds Inc. for a grant of relief from forfeiture. He also found that the appellant was not unsophisticated regarding knowledge of its rights: at para. 64. Further, unlike in other cases, such as Velouté Catering Inc. v. Bernardo, 2016 ONSC 7281, 135 O.R. (3d) 32, or Firkin Pubs Metro Inc. v. Flatiron Equities Limited, 2011 ONSC 5262, 8 R.P.R. (5th) 312, the respondent had not, by misrepresentation or conduct, led the appellant to believe it had effectively renewed: at para. 66.

[16] Finally, the application judge found that the appellant’s conduct did not warrant an award of equitable relief that would result in a five-year lease extension. The fact that the appellant had missed paying rent on time three times, including in the face of a court order, went to the heart of the relationship, leading the application judge to conclude, at para. 67: “To be blunt, it would not be fair to the [respondent] to enforce a renewal that [the appellant] did not properly renew, in these circumstances.”

C. Issues on Appeal

[17] The appellant argues that the application judge erred by 1) failing to find that the respondent waived its right to require written notice of the lease renewal, and 2) failing to grant the appellant relief from forfeiture for failure to deliver written notice of renewal.

D. Analysis

(1) The respondent did not waive the right to require strict compliance with the written notice provision of the renewal option

[18] The appellant submits that the application judge misapprehended the evidence of the effect of the email correspondence negotiations, which it says reflected a mutual understanding that the lease was going to be renewed, pending determination of the rent. The appellant relies on the fact that the respondent never told the appellant that the appellant had not actually exercised its option to renew. The appellant also submits that the application judge erred by putting weight on the fact that the appellant never invoked the arbitration clause for determining the fair market rent, when it was effectively precluded from doing so when the respondent terminated the lease for failure to pay rent in February 2018. Finally, the appellant argues that the application judge erred by relying on Doria, at para. 8, where Low J. held that a course of negotiation without a clear exercise of a renewal option will not amount to waiver, because that case was distinguishable on the facts.

[19] We see no error in the approach or the overall findings of the application judge. Both parties were prepared to renew if the rent could be agreed upon. But the application judge’s reading of the negotiations led him to the conclusion that it was the appellant which was not prepared to commit to the renewal by actually exercising the option before it knew what the rent would be. We agree that the lease was terminated more than 60 days before the end of its term, and therefore before the time when the appellant could have invoked the arbitration clause. However, the application judge’s misperception that the appellant had failed to invoke the arbitration clause was a minor additional factor in his overall assessment that the appellant was hedging and did not intend to exercise the option before the rent was agreed.

[20] It is true, as submitted by the appellant, that the option to renew was unilateral and the respondent did not have to agree to it. However, the appellant wanted the respondent to agree on a rental figure before it committed itself to the renewal. We see no error in the application judge’s conclusion that, in adopting this posture, the appellant effectively sought to deny the respondent the certainty that a lease renewal option of this kind is meant to provide. We also see no error in the application judge’s assessment of the evidence, to which this court defers.

[21] Moreover, we see no basis to interfere with his application of the test for waiver from Saskatchewan River Bungalows. The appellant never sent its best offer and there were no further negotiations after the expiry of the option period, as in the three cases referred to by the appellant: Directors Film Co. v. Vinifera Wine Services Inc. (1998), 1998 CanLII 14658 (ON SC), 38 O.R. (3d) 212 (Gen. Div.); Petridis v. Shabinsky et al. (1982), 1982 CanLII 1829 (ON SC), 35 O.R. (2d) 215 (H.C.); and Doral Holdings Ltd. v. Bargain Books Ltd., [1994] O.J. No. 3103 (Gen. Div.). The respondent did nothing to indicate that it was abandoning its right to expect a written notice of renewal within the notice period.

(2) The application judge did not err by failing to grant relief from forfeiture

[22] The Commercial Tenancies Act, R.S.O. 1990, c. L.7, allows the court to grant “such relief as […] the court thinks fit”, having regard to all the circumstances, where a landlord seeks to enforce a right of re-entry or forfeiture following a tenant’s breach: ss. 19, 20(1). The Saskatchewan River Bungalows case also established the test for granting relief from forfeiture. In granting the discretionary and equitable remedy of a relief from forfeiture, a court is to consider the conduct of the applicant, the gravity of the applicant’s breaches of the lease, and the disparity between the value of the forfeited property and the damage caused by the breach: Saskatchewan River Bungalows, at p. 504.

[23] Although the failure to renew the lease is not a breach of the lease, the court may grant relief from forfeiture where a party seeks to renew the lease but has not complied with the formal requirements or preconditions for doing so. However, this relief is available only in circumstances more narrowly confined than the three-pronged test from Saskatchewan River Bungalows. As recently restated in McRae Cold Storage Inc. v. Nova Cold Logistics ULC, 2019 ONCA 452, at para. 10:

With respect to the renewal of a lease, a precondition for the exercise of any such equitable discretion is that the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own: 120 Adelaide Leaseholds Inc., at para. 9; Ross v. T. Eaton Co. (1992), 1992 CanLII 7470 (ON CA), 11 O.R. (3d) 115 (C.A.), at pp. 124-125; 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 2003 CanLII 57436 (ON CA), 67 O.R. (3d) 161 (C.A.), at para. 80; Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc., 2016 ONCA 93, 344 O.A.C. 363, at paras. 55-56.

[24] The application judge found that equitable relief was not warranted here because of the appellant’s conduct. First, the appellant had not made diligent efforts to comply with the renewal term, but instead hedged its bets by seeking to negotiate without committing to renew. Second, the appellant’s failure to pay its rent on time, including one time when it delivered an NSF cheque, was not the type of reasonable conduct that a court looks for as the basis to grant equitable relief. Although the appellant has a large investment in the premises which it stands to lose, this consequence is effectively a result of its own decisions regarding its conduct in relation to the respondent.

[25] The appellant argues that in assessing its conduct, the application judge misapprehended the evidence by stating that the appellant had experience in exercising a renewal option for the premises. In fact, the appellant says, it had not previously exercised a renewal option but rather, entered into a lease amending agreement. We reject this argument. The application judge’s point was that the appellant had a level of sophistication in dealing with the lease of the premises, which was partly based on its prior dealings with the respondent’s predecessor in negotiating and concluding the lease amending agreement. That experience spoke against any misunderstanding of the renewal requirements.

E. Conclusion

[26] For these reasons, the appeal is dismissed with costs to the respondent fixed at $10,000, inclusive of disbursements and HST. In addition, as requested by the respondent, the August 29, 2019 order of Kiteley J., staying the order below pending appeal, is vacated.

“K. Feldman J.A.”

“P. Lauwers J.A.”

“Grant Huscroft J.A.”