ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-13-482011
COURT FILE NO.: CV-13-483180

DATE: 20140523

BETWEEN:

PREMIUM PROPERTIES LIMITED
Applicant (Landlord)

– and –

SUBWAY FRANCHISE RESTAURANTS OF CANADA, LTD.
Respondent (Tenant)

Krista Chaytor and Hayley Peglar (student-at law), for the Applicant

Ian J. Cantor, for the Respondent

AND BETWEEN:

SUBWAY FRANCHISE RESTAURANTS OF CANADA, LTD.
Applicant (Tenant)

– and –

PREMIUM PROPERTIES LIMITED
Respondent (Landlord)

Ian J. Cantor, for the Applicant

Krista Chaytor and Hayley Peglar (student-at law), for the Respondent

APPLICATIONS UNDER Rule 14 of the Rules of Civil Procedure

HEARD: May 21, 2014

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

1There are two competing Applications before the court.

2In the first Application, the Applicant Premium Properties Limited, a landlord of a commercial building in Toronto, Ontario, seeks declarations that the lease of the Respondent, Subway Franchise Restaurants of Canada, Ltd., a tenant in the building, was not extended and that “Subway Franchise Restaurants” is an overholding tenant.

3Because of a critical argument made by Premium Properties, discussed below, it shall be important to treat Subway Franchise Restaurants as a discrete part of what to the public is a monolithic enterprise known as “Subway Restaurants” or simply “Subway,” which is a well-known fast-food chain.

4In the second Application, Subway Franchise Restaurants seeks a declaration that it validly exercised its option to extend the lease at Premium Properties’ building, or, in the alternative, it seeks a declaration that it still has the option to extend the lease. In its factum, Subway Franchise Restaurants also seeks, if necessary, relief from forfeiture.

5For the reasons that follow, I dismiss Premium Properties’ Application and I grant Subway Franchise Restaurants’ Application.

6In my opinion, Subway Franchise Restaurants validly exercised its right to extend the lease. I find further that if the right to extend has not been validly exercised, then Subway Franchise Restaurants’ right to extend remains extant and may be exercised.

7Having regard to the above conclusions, it is not necessary to deal with Subway Franchise Restaurants’ late arriving request for relief from forfeiture. It is also not necessary to address its arguments that Premium Properties waived strict compliance with the terms of the option to extend or breached a duty of good faith in the circumstances of this case.

B. DISCUSSION AND ANALYSIS

1. Introduction

8For the purposes of deciding the competing Applications, it is convenient to combine the discussion and analysis with the description of the factual background. In this way, I will be better able to address Premium Properties’ argument that Subway Franchise Restaurants did not validly exercise its right to extend the lease between the parties and the competing arguments that the option to extend was exercised or remains available for exercise.

9I will begin the discussion by setting out the law that applies to the exercise of options to renew or extend a lease. That discussion will be followed by a description of the pertinent terms of the lease between Premium Properties and Subway Franchise Restaurants.

10With that background, the factual background can be discussed, divided by the events up to and including the purported exercise of the option, and then the events that followed after Premium Properties stated that the option was null and void.

2. The Law about the Exercise of Options to Renew or Extend a Lease

11An option, be it an option to grant a lease, to renew a lease, or to extend a lease, is a unilateral contract in which the landlord makes an offer to rent premises.

12As with respect to any unilateral contract, to create a lease contract, the offer must be accepted by the grantee (the putative tenant), and the law is that the grantee of the option must strictly comply with the conditions of the offer and must actually communicate acceptance of the offer: 120 Adelaide Leaseholds Inc. v. Oxford Properties of Canada Ltd.¹

13An expression of an intention to accept the option offer is not sufficient; the grantee must actually exercise the option and the optionee must bind itself unequivocally as a contracting party: 120 Adelaide Leaseholds Inc. v. Oxford Properties of Canada Ltd., supra.

14In the 120 Adelaide Leaseholds Inc. case, Justice Colin Campbell explained that the rationale for the law requiring express, explicit, and unequivocal acceptance of the option is that the landlord is not required to guess whether or not the tenant has accepted the offer and the landlord needs to know whether or not it must hold rental space for the grantee or whether the landlord is free of its commitment to rent. Justice Campbell stated:

The renewal of an option requires explicit certainty and direct, unequivocal communication to the optionor. The optionor must be able to say at any time: has the optionee actually renewed or not? Can I rent to someone else at a higher rate or am I stuck with this tenant? If the rental market suddenly falls, do I have this tenant on the hook for the agreed rent?

Notice means explicit, express, and unequivocal notice. The landlord is not required to guess whether or not the tenant is keeping its options open in its dealings with third parties. The landlord is not required to guess whether or not the tenant in its internal documents is expressing an intention it may or may not carry out. The landlord is not required to guess whether or not the tenant is puffing its rights in its dealings with third parties or overstating its rights internally. The landlord is entitled to direct and explicit and unequivocal notice that the tenant exercises its right vis a vis the landlord. The tenant cannot keep the landlord in a state of suspended animation by stating to third parties it will renew or has renewed and then tell the landlord it has not renewed if the rental market drops.

15In the 120 Adelaide Leaseholds Inc. case, the tenant of an existing lease intended to renew its lease, thought that it had renewed its lease, acted with third parties as if it had renewed its lease, but despite the landlord’s denial that the lease had been renewed, never actually went beyond expressing an intention to renew to actually renewing the lease. Justice Campbell concluded that the tenant failed to give the landlord express and unequivocal notice of a renewal of the lease.

16In Doria v. 66 Degrees Inc.² Justice Low also explained the rationale for the law requiring express, explicit, and unequivocal acceptance of an offer; she stated:

The case law is now settled that the exercise of an option must be done in a manner which is clear, explicit, unambiguous and unequivocal. (see 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd. ...) ... It is not sufficient that the parties engage in a dance with each other; it is necessary that the optionee declare his intentions. And it is not, in my view, a sufficient exercise of an option to express a will to exercise it on conditions. Such an expression is no commitment at all and leaves the optionor without the degree of certainty that option clauses with time limitations are designed to provide. In a lease where there is a requirement for written exercise of an option on or before a stipulated date prior to the end of the lease term, there is little if any doubt that the business rationale for those requirements is to provide both landlord and tenant with certainty as to their future rights and obligations vis a vis each other. It gives the landlord certainty that if the option is not exercised in time, he is free to re-market the premises to another prospective tenant or indeed to the existing one. It gives the tenant the certainty that if he exercises the option in conformity with the lease, the landlord is bound to have him, and if he does not so exercise, that he is at liberty to negotiate a new lease with the landlord without obligation if those negotiations do not lead to a concluded agreement. To hold that a course of negotiation in the absence of a clear and unambiguous exercise of the option may constitute a waiver of compliance with the requirements of the option clause would effectively destroy the certainty that the parties bargained for. ...

17As an aspect of the law of contract, including unilateral contracts, the formation of a contract requires an offer, an acceptance, and communication of the acceptance of the offer. Under the law of contract formation:

• An offeror may stipulate that unless communication of acceptance is made in a specified way, then the offeror will not be bound by the acceptance. Where the means of communication of acceptance is mandatory, communication in another way is ineffective.³

• An offeror may stipulate means of acceptance but not insist upon acceptance only in the stipulated ways, and where the means of communication of acceptance is stipulated but is not made mandatory, communication of acceptance in another way is effective provided that: (a) the other way is no less advantageous to the offeror; and (b) the offeror actually receives the communication of acceptance by that alternative means.⁴

• If the manner of communication of acceptance is not mandatory, then another means of communication will form the contract provided that the acceptance is actually received by the offeror within the prescribed time.⁵

3. The Pertinent Terms of the Lease

18Subway Franchise Restaurants is just a part of the business enterprise known to the public as “Subway Restaurants” or “Subway.” The enterprise is a fast-food chain offering submarine sandwiches.

19More precisely, Subway Franchise Restaurants is the property arm of the enterprise; it leases properties for restaurant locations in Canada. Once it has secured a lease, then Subway Franchise Restaurants will sublease the premises to a franchisee to operate the restaurant. Franchise World Headquarters, LLC, another part of the business enterprise, provides leasing services for Subway Franchise Restaurants. Subway Franchise Systems of Canada, Ltd. is the franchisor of the restaurants in Canada.

20On April 1, 2002, Premium Properties entered into a lease with Subway Franchise Restaurants for premises municipally known as 42 and 36 Eglinton Avenue West, Toronto. The term of the lease was from May 1, 2002 to April 30, 2012. At the end of the term, the monthly rent was $5,802.32. If overholding, Subway Franchise Restaurants is obliged to pay 135% of the monthly rent; i.e. $7,833.13 per month.

21Since October, 2008, Ilesh Engineer and Deepak Patel have subleased the premises from Subway Franchise Restaurants. Messrs. Engineer and Patel own and operate the restaurant franchise.

22For the purposes of the Applications, the following provisions from the lease are pertinent:

THIS LEASE MADE THE 1ST DAY OF APRIL, 2002

BETWEEN:

PREMIUM PROPERTIES LIMITED (herein called the “Landlord”) OF THE FIRST PART

• and -

SUBWAY FRANCHISE RESTAURANTS OF CANADA LTD. (herein called the “Tenant”) OF THE SECOND PART

6.14 – NOTICE (a) that any notice, request or demand herein in this Lease provided for or given under this Lease, shall only be deemed to be sufficiently given, if mailed by registered mail in Ontario, postage prepaid; or by delivery

(i) to Tenant, then addressed to Tenant at the demised premises; and 325 Bic Drive, Milford, CT, USA 06460

(ii) to Landlord, then addressed to Landlord at Suita 400, 36 Eglinton Avenue West, Toronto, Ontario M4R IA1

(b) in the event of disruption of mail service, of the post office of Canada, any notice, request or demand shall be given and shall be deemed to be sufficiently given if personally delivered to the parties hereto at the address hereinbefore set out in this Article 6.14.

(c) that either the Landlord or the Tenant may at any time, give notice in writing to the other of any change of address of the party giving such notice and from and after the giving of such notice, the address herein specified shall be deemed to be the address of such party for the giving or notice, request or demand thereafter.

(d) that any notice, request or demand mailed or delivered as aforesaid, shall be conclusively deemed to have been given on the next business day following the day on which such notice, request or demand is mailed or delivered as aforesaid;

10.07 OPTION TO EXTEND - Provided that the Tenant has continuously and strictly performed all of its obligations under the Lease herein contained and has regularly paid its rental on the due times and dates, it shall have the option to extend the herein Lease on its expiry for a further term of three (3) consecutive periods of five (5) years on the same terms and conditions as herein contained, except for the rental, which will be at the prevailing market rates for similar space in the building. Such rate to be agreed on by Landlord and Tenant, but not less than the previous years’ rental, and except as to any further right of renewal; provided that the Tenant shall notify the Landlord by Registered Mail in writing of its intention to so extend at least One Hundred and Eighty Days (180) days prior to the expiration of the herein lease term, otherwise this option shall become null and void and of no effect whatsoever thereafter. If the Tenant and the Landlord are unable to agree on the rental rate for the extended term then such rate shall be determined by arbitration in accordance with the Arbitration Act Ontario. The decision shall be binding upon the parties. Until such rate is determined by Arbitration the tenant shall pay the Landlord’s suggested rental rate. Interest on the increased rental rate shall be payable to the Landlord with interest in accordance with Courts of Justice Act prescribed rate, from the commencement date of the extended term, and paid within 7 days of the Arbitrator’s decision of rental rate. Landlord agrees that the net rent for the first extension period shall not exceed the net rent of the last year of the first term by more than 15% per year. Notwithstanding anything to the contrary contained herein, minimum net rent for the extension term shall be not less than the Minimum Net Rent paid in the last year of the previous term.

Rider to Lease dated the 1st day of April 2002, made by and between Premium Properties Limited (“Landlord”) and Subway Franchise Restaurants of Canada, Ltd. (“Tenant”). ….

Notwithstanding any clause in this lease to the contrary, the following provisions shall prevail:

R.3 Landlord recognizes and acknowledges that the Tenant is a Canadian Corporation and that Tenant’s assets consist almost exclusively of leases, subleases, and options to purchase leased premises. Landlord also recognizes and acknowledges that the Tenant was organized principally for the purpose of negotiating and drafting leases with a view towards subletting the leased premises to franchisees/licensees of Subway Franchise Systems of Canada Ltd. (“SFSOCL”) …

Landlord further recognizes and acknowledges that no person or entity other than the tenant has made any representations of any kind with regard to the ability of the tenant to perform the tenant obligations hereunder…

The Landlord also recognizes and acknowledges that the Tenant intends to sublease the premises to person(s) who has or will be awarded a franchise/licence for a Subway® Sandwich Shop from SFSOCL, under which sublease the sublessee will pay rent and other charges directly to the Landlord so that the rental payment from such sublessee will normally not be received or held by the Tenant. Although the sublessee may open a business operation doing business as a Subway ® sandwich shop and may have franchise and other business relationships with corporations related to or associated by the general public with “Subway” as it is commonly known, the landlord recognizes and acknowledges that the sole and exclusive person or entity against which it may seek damages or any remedies under this or any other document in which the landlord and tenant or landlord and sublessee are parties …is the tenant. Further, it is expressly understood and agreed that there will not be any liability whatsoever against (a) SFSOCL [Subway Franchise Systems of Canada, Ltd.], its shareholders, directors, officers, employees and/or agents, and/or (b) any persons and entities who are the shareholders, directors, officers, employees, and/or agents of the tenant. Such exculpation of liability shall be absolute and without any exception whatsoever.

R.18 Tenant shall provide the Landlord with written notice of its intention to extend this lease at least ninety (90) days prior to the expiration of the then current term.

In the event Landlord does not receive Tenant’s notice as stated above, Tenant shall not lose its option to extend unless and until the Tenant has had at least ten (10) days after receipt of written notice from Landlord in which to exercise its option to extend.

For the purpose of this section only, notification via (facsimile) fax will be deemed sufficient provided a copy of such notice is also sent via regular mail.

R.19 In order to clarify the parties’ notice responsibilities for extensions and for no other purpose, Landlord and Tenant agree that this lease shall commence on May 1, 2002 and the initial term shall expire on April 30, 2012. Any and all option terms shall be determined from these stipulated dates.

23It needs to be noted that the lease provides an option to extend in section 10.07 and that the rider also speaks to the option to extend. The rider states that: “notwithstanding any clause in this lease to the contrary, the following provisions shall prevail.” The provisions of the rider thus adjust the terms of the option to extend found in section 10.07. Subject to the adjustments, section 10.07 remains operative.

24As the discussion of the facts below will reveal, Subway Franchise Restaurants correctly understood that it had to exercise its option to extend at least ninety (90) days before the expiration of the then current term pursuant to rider R.18. This was an adjustment of the one hundred and eighty (180) days prior notice required by section 10.07.

25Once the option is exercised under rider R.18, then under section 10.07, the rental is to be set at at the prevailing market rates for similar space in the building. The rate is to be agreed to by the parties but not less than than the previous years’ rental.

26If the parties are unable to agree on the rental rate for the extended term, then the rental rate is to be determined by arbitration in accordance with the Arbitration Act Ontario.

4. The Exercise of the Option to Extend

27On January 27, 2012, Premium Properties received the following written communication, which was delivered by courier:

SUBWAY – services by FRANCHISE WORLD HEADQUARTERS LLC

325 Bic Drive, Milford Ct….

January 26, 2012

PREMIUM PROPERTIES LIMITED …

RE: Renewal for SUBWAY Store #23968

42 Eglinton Ave. W., Toronto, ON Canada

To Whom It May Concern

Franchise World Headquarters, LLC has been hired by the Franchisor of SUBWAY® sandwich shops, Subway Franchise Systems of Canada Ltd., to administer and maintain the various lease agreements of its affiliated leasing companies. Please accept the following notice concerning the renewal options for the lease at the above referenced SUBWAY® location. You will note that the notice contained below has been signed by an authorized representative of the Tenant. Should you have any questions or comments please do not hesitate to contact me.

Sincerely,

Jane Bonnanzio

Leasing Representative

Leasing Department

cc. Dan Burns

Ilesh Engineer, Deepak Patel

Leasing File

NOTICE

This letter is to advise you that the Tenant hereby exercises its option to renew its lease for the above referenced location. As outlined in this lease agreement, the extended term shall run from May 01, 2012 through April 30, 2017. Should you have any questions or comments please do not hesitate to contact Jane Bonnanzio at extension 1663.

Looking forward to a continued mutually profitable business relationship.

I remain,

Yours very truly,

Ernest A. Oliver

Duly Authorized

28Milton Winberg, on behalf of Premium Properties, responded to the notice by registered letter dated February 9, 2012. The letter stated:

PREMIUM

Ms. Jane Bonnanzio

Leasing Representative,

Subway Franchise Restaurants of Canada Ltd.

325 Bic Drive

Milford, CT.

Re: Subway’s Store No. 23968

42 Eglinton Avenue West,

Toronto, Canada

Dear Ms. Bonnanzio;

We received your communication of January 26, 2012 regarding renewal of the Lease for the above location.

In your letter, the notice from Ernest A. Oliver advises that the Tenant wishes to exercise an option to renew the Lease as outlined in the Lease Agreement.

A review of the Lease Agreement states that the Tenant shall notify the Landlord by registered mail in writing of its intention to extend the Lease at least 180 days prior to the expiration of the Lease term, otherwise, the Option becomes null and void and of no effect whatsoever thereafter. The Notice we received from Subway is dated January 26, 2012 and received by use by FedEx delivery on January 27th, 2012. The initial term of the Lease will be completed on April 30, 2012, and accordingly, we did not receive a proper notice within the time required in the Lease. Therefore, the Renewal Option is null and void.

Yours very truly,

PREMIUM PROPERTIES LIMITED

M. WINBERG

c.c. Dan Burns

Ilesh Engineer

Deepak Patel

29As appears from Mr. Winberg’s letter and as more fulsomely argued by its counsel on the hearing of this motion, Premium Properties argues that the Option to Extend was not validly exercised and is, therefore, null and void.

30Mr. Winberg’s letter submits that the notice was deficient because: first, it was late; and second, the notice was delivered by courier and not by registered mail.

31Premium Properties’ counsel adds a third, fourth, and fifth alleged deficiency in the notice. Third, she submits that the notice was deficient because it was not unambiguously exercised by Subway Franchise Restaurants and rather the notice arguably was given by a related Subway entity notwithstanding that the lease makes it clear that only Subway Franchise Restaurants has liabilities under the lease.

32Fourth, it is submitted that the notice was not signed by a duly authorized representative of Subway Franchise Restaurants.

33Fifth, she submits that the notice is ambiguous because it refers to a “renewal” of the lease, which is something different from an “extension,” which is what the lease actually provides.

34In my opinion, all of Premium Properties’ submissions that the notice was deficient are devoid of merit.

35At the hearing of the Application, Mr. Winberg’s assertion that the notice was untimely was acknowledged to be wrong. The notice was given pursuant to the rights provided in rider R.18 and the notice was within the time provisions of r.18 of the rider. Mr. Winberg mistakenly thought the matter of extending the lease was governed exclusively by section 10.07 of the lease, but the provisions of r.18 of the rider expressly prevail over the provisions of section 10.07.

36Premium Properties’ submission that the notice was defective because it was delivered by courier and ought to have been delivered by registered mail pursuant to section 6.14 of the lease is wrong.

37Rider R.18, the provisions of which prevail over the provisions in the lease to the contrary, requires only that Subway Franchise Restaurants provide a written notice. Subway Franchise Restaurants complied with the provisions of rider R.18; it did provide a written notice.

38Rider R.18 does not make a means of providing notice mandatory. It provides one method of providing notice that will be deemed sufficient but the rider does not preclude other means of notice. As noted above in the discussion of the law, if the manner of communication of acceptance is not mandatory, then another means of communication may constitute the contract provided that the acceptance is actually received by the offeror within the prescribed time. That is precisely what occurred in the case at bar.

39Actually, Subway Franchise Restaurants provided more than what it was required to provide to make the extension available. Rider R.18 requires that it only express written notice of an intention to extend the lease. Subway Franchise Restaurants went beyond expressing an intention to extend; it actually exercised the option to extend.

40I note that Subway Franchise Restaurants could also have provided a written notice by fax combined with regular mail, but it did not avail itself of that choice of an electronic delivery of written notice. More importantly, during argument, Premium Properties volunteered that standing alone, the circumstance that the written notice was delivered by courier and not by registered mail would not have made Subway Franchise Restaurants’ notice defective.

41Premium Properties’ submission that there is ambiguity about who was giving the notice is incorrect.

42The notice states that “the Tenant exercises its option … for the above referenced location;” i.e., “SUBWAY Store #23968, 42 Eglinton Ave. W., Toronto, ON Canada. As known by Premium Properties, the “Tenant” of the “above referenced location” is “Subway Franchise Restaurants.”

43Further, the covering letter for the notice indicates that in the Subway enterprise, there is a franchisor, affiliated leasing companies (i.e. tenants), and an administrator to maintain the lease agreements. The covering letter asks Premium Properties to accept the notice concerning the renewal options for the lease at the above referenced SUBWAY® location; i.e., SUBWAY Store #23968, 42 Eglinton Ave. W., Toronto, ON Canada. As known by Premium Properties, the tenant with renewal options for the lease at the above referenced location is the leasing company (the Tenant), Subway Franchise Restaurants.

44As evidenced by its reply to the notice and correspondence from the Subway enterprise, from Premium Properties’ perspective, there was no perceived ambiguity about which particular Subway entity was exercising the option.

45Mr. Winberg sent his denial letter of February 9, 2012 to the Tenant of the Eglinton Ave. premise; i.e. his letter is precisely addressed to Subway Franchise Restaurants, notwithstanding that Subway Franchise Restaurants is only called the “Tenant” in Subway’s correspondence.

46There was no ambiguity and Premium Properties knew without misapprehension that Subway Franchise Restaurants was the tenant exercising its option. It is also worth repeating that the Tenant; i.e. Subway Franchise Restaurants did not express just an intention to exercise its option, it actually exercised the option.

47Premium Properties submitted that the notice sent by Ms. Bonnanzio in her January 26, 2012 letter permitted Subway Franchise Restaurants to take the position that it was not bound to an extended lease if it was unsatisfied with the rental terms for the extension. In other words, it submitted that Subway Franchise Restaurants had not bound itself to the extension and thus there was no proper exercise of the option. There is no merit to this submission. Premium Properties could then and it can now hold Subway Franchise Restaurants bound to all its obligations under the extended lease. As noted above, the precise rental terms will be determined by agreement or by arbitration under the Arbitration Act.

48Premium Properties made much of the provision in the lease in which it was required to acknowledge that the only entity to whom it could seek damages or any remedies was Subway Franchise Restaurants and not any associated Subway entities. I find that Subway Franchise Restaurants was the entity that exercised the option to extend.

49However, I also note that while the provision in the lease may have made it clear that Premium Properties’ remedies were (as is normal) confined by the doctrine of privity, the provision in the lease did not preclude the law of agency. There was nothing in the lease that would have precluded Subway Franchise Restaurants from using an agent to give notice of the exercise of the option on its behalf.

50Whether directly or by some agent charged with the authority to administer the lease, Mr. Winberg knew that it was the principle, Subway Franchise Restaurants, which was exercising the option to extend the lease.

51Premium Properties’ submission that the notice was not executed by a duly authorized representative of Subway Franchise Restaurants is without merit. There was no obligation under rider R.18 on Subway Franchise Restaurants to provide an authorization of Mr. Oliver’s authority to sign the notice in Ms. Bonnanzio’s letter. Further, Premium Properties was protected by the law of agency, the law associated with warranty of authority, and the indoor management rule.

52Premium Properties’ submission that there is ambiguity about whether the option to extend was being exercised because the notice refers to a renewal rather than an extension is also wrong.

53Subway Franchise Restaurants did not dispute that technically or doctrinally speaking, there is a distinction between a renewal and an extension of a lease, but in the case at bar, both parties knew that the rights being exercised were the rights found in the current lease for the premises owned by Premium Properties and leased to Subway Franchise Restaurants, however those rights might later be described by the parties.

54Premium Properties understood that Subway Franchise Restaurants was not renewing or renegotiating the lease but was exercising an option for a further term on the same terms and conditions except for the rental. It knew that Subway Franchise Restaurants was exercising its right to extend under the lease.

55Neither party was under any misapprehension that the rights were those found in section 10.07 of the lease as adjusted by the provisions in the rider. In the circumstances of this case, the difference between a renewal and an extension is a red herring. Both parties were loose in their descriptive language of the option, but both parties knew that Subway Franchise Restaurants was exercising the rights found in rider R.18, however they might be described.

56I conclude that notwithstanding Premium Properties’ letter disputing that the lease had been extended, Subway Franchise Restaurants, validly exercised the option to extend.

5. Premium Properties’ Refusal to Accept the Extension of the Lease and Current Status

57Following Premium Properties’ letter taking the position that the option to extend was null and void. Ms. Bonnanzio and several other representatives of Subway Franchise Restaurants attempted to connect with Premium Properties’ representatives including Mr. Winberg and Andy Pollock, the property manager.

58The expressed purpose of these communications from Subway Franchise Restaurants was to begin the process of settling the rental terms.

59To the extent that there were replies from Premium Properties, the replies consistently took the position that there was no extant option right and rather Premium Properties demanded possession of the premises at the conclusion of the term.

60Throughout all of these events, the subtenants have continued to pay rent directly to Premium Properties, their head landlord.

61Throughout all these events, Premium Properties has demanded Subway Franchise Restaurants vacate the premises and pay rent as overholding tenants, but the subtenants have remained in possession of their premises.

62The position of Subway Franchise Restaurants is that the rental terms for the extension remain to be determined by agreement or by arbitration and that the lease has lawfully been extended for the benefit of the subtenants.

63As an alternative position, relying on rider R.18, Subway Franchise Restaurants submits that it’s right to extend remains extant. In this regard, it may be recalled that rider R.18 states:

In the event Landlord does not receive Tenant’s notice as stated above, Tenant shall not lose its option to extend unless and until the Tenant has had at least ten (10) days after receipt of written notice from Landlord in which to exercise its option to extend.

64Subway Franchise Restaurants submits that if Premium Properties did not receive a notice as provided for by the lease then the tenant would not lose its option to extend until Premium Properties delivered a notice, perhaps better described as a demand, that the Tenant exercise the option within ten days, which has never occurred.

65Premium Properties, however, submits that because of the communications it sent to Subway Franchise Restaurants after February 2012 and with the lease term maturing, this notice (or demand) provision in rider R.18 was extinguished.

66In this regard, Premium Properties relies on the facts that; (1) on March 22, 2012, it wrote Subway Franchise Restaurants and notified it that the landlord required vacant possession of the premises on April 30, 2012; (2) on August 6, 2013, after the commencement of both Applications, Premium Properties sent Subway Franchise Restaurants a letter and a statement of account demanding the immediate payment of overholding rents of 135 percent of the rent during the previous term; (3) by letter dated April 24, 2013, Premium Properties’ lawyers advised Subway Franchise Restaurants that Premium Properties denied that the option to extend was properly exercised; and (4) on June 5, 2013, Premium Properties issued its Application, and the Notice of Application disclosed the reasons for denying the exercise of the option.

67This correspondence and court documents from Premium Properties obviously does not constitute a notice or a demand by Premium Properties that Subway Franchise Restaurants should exercise the right to extend found in the lease. It is a denial that the tenant has any such right.

68With respect, it is a nonsensical argument to submit that notices to the tenant to get out of the premises and communications denying the tenant has an option to extend are notices under rider R.18 or that these communications extinguish the option rights.

69Subway Franchise Restaurants bargained for this very favourable provision in the rider and, in my opinion, if I am wrong in my conclusion that the option to extend has been validly exercised, then the right to exercise the option remains extant because Premium Properties has never given written notice pursuant to rider R.18.

C. CONCLUSION

70For the above reasons, I dismiss Premium Properties’ Application and I grant the Application of Subway Franchise Restaurants.

71If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with Subway Franchise Restaurants’ submissions within twenty days from the release of these Reasons for Decision followed by Premium Properties’ submissions within a further twenty days.

Perell, J.

Released: May 23, 2014

COURT FILE NO.: CV-13-482011
COURT FILE NO.: CV-13-483180

DATE: 20140523

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Footnotes

1. 1[1991] O.J. No. 1507 (Gen. Div.), aff’d [1993] O.J. No. 2801 (C.A.).
2. 2[2000] O.J. No. 136 at para. 8 (S.C.J.). See also Rinaldo Hair Stylist Ltd. v. bcIMC Realty Corp., 2012 ONSC 2831, aff’d 2013 ONCA 255.
3. 3Manchester Diocesan Council for Education v. Commercial & General Investments Ltd., [1969] 3 All E.R. 1593 at pp. 1597-98; Ross v. T. Eaton Co. (1992), 1992 7470 (ON CA), 11 O.R. (3d) 115 (C.A.).
4. 4Manchester Diocesan Council for Education v. Commercial & General Investments Ltd., supra; Ross v. T. Eaton Co., supra.
5. 5Manchester Diocesan Council for Education v. Commercial & General Investments Ltd., supra; Ross v. T. Eaton Co., supra; Yates Building Co. v. R.J. Pulleyn & Sons (York) Ltd., 237 E.G. 183 (Eng. C.A.); D.W. Squared Ltd. Partnership v. Oxford Properties Ltd., [2001] O.J. No. 3919 (S.C.J.), aff’d [2002] O.J. No. 3642 (C.A.).