ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 2262/14 & 2461/14
DATE: 2014-06-17
BETWEEN:
Lenco Investment Ltd.
Plaintiff
– and –
1440825 Ontario Inc.
Defendant
1440825 Ontario Inc.,
Plaintiff
-and-
Lenco Investment Ltd.
Defendant
Mark Shapiro, Counsel for the Plaintiff
William Kort, Counsel for the Defendant
HEARD: June 11, 2014
REASONS FOR JUDGMENT
TRIMBLE J.
[1] These two applications are cross-applications, seeking an interpretation of a right of first refusal contained in a lease between Lenco (the lessor) and 1440825 Ontario Inc. (“1440”, the lessee). Each party’s application, in effect, is the response by that party to the other’s application.
THE LEASE PROVISIONS:
[2] The Parties entered into a lease on February 7, 2013. The last clause under “Additional Agreements”, contains the following wording, inserted at the insistence of the principals of 1440:
“In the event that the Landlord receives an Offer to Purchase the property, then the Landlord shall give this Tenant notice, and the Tenant shall have 30 business days from receipt of the Offer to Purchase to match or negotiate with the Landlord …. 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.” [Emphasis added.]
The relevant part of paragraph 11.01 is subsection (2), which reads:
“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 terminated this Lease after March 1, 2014, by giving 3 months’ notice in writing to the Tenant;
THE FACTS:
[3] On February 26, 2014, Lenco received an Offer by way of a proposed Agreement of Purchase and Sale dated February 24, 2014. The deal was negotiated and all conditions waived by March 31, 2014. One of the terms was vacant possession on closing set for April 30, 2014. Clause 22 of the Agreement of Purchase and Sale allowed the closing to be extended until vacant possession could be obtained.
[4] Lenco never gave 1440 notice of the Offer. Rather, on March 21, 2014, Lenco’s principal served on the principal of 1440, directly, an undated notice pursuant to 11.01 attaching the Agreement of Purchase and Sale, and advising that the tenancy would terminate on June 30, 2014 [see Affidavit of Ali Eksir, para. 8]. On March 27, 2014 1440’s lawyers wrote advising that 1440 intended to enforce its rights under the Lease. On April 24, 2014, 1440 provided “NOTICE OF EXERCISE OF RIGHT OF FIRST REFUSAL” dated April 24, 2014 saying “TAKE NOTICE THAT the undersigned [1440] hereby exercises the Right of First Refusal upon the terms set out in the Lease.” In the cover email sending the Notice, dated April 26, 2014 the solicitor for 1440 says “Please note that our client expects to complete the transaction in accordance with the terms of the Lease.” No further steps were taken by the tenant.
[5] The sale of this property awaits the decision of this Court in terms of the operation of the Right of First Refusal clause.
LENCO’S POSITION:
[6] Lenco says that the Lease provides a complete code of procedure, when it comes to termination. It says that having received an Agreement of Purchase and Sale and having notified 1440 of the termination of the Lease under s. 11.01(2) after March 1, 2014, 1440’s right of first refusal, is terminated. Lenco has complied with the terms of the Lease, and 1440 must leave the premises.
[7] Lenco says that the closing phrase of the right of first refusal clause, “This right … is terminated if either the Landlord or Tenant gives notice of termination as set out in paragraph 11.01 of this lease” makes the right of first refusal subject to paragraph 11.01, and allows the Landlord to terminate the Lease on receipt of the Agreement of Purchase and Sale, provided notice is given. Since the right of first refusal clause was inserted at the request of the tenant, if there is a conflict it is the tenant’s issue, not the landlords.
[8] Lenco seeks a declaration it has acted within the terms of the Lease.
1440’S POSITION:
[9] 1440 says that Lenco is in breach of the Lease because it failed to notify 1440 of the offer it received. 1440 says that once the offer is received, the right of first refusal crystalizes into an option to purchase, giving 1440 the right to purchase the property on the same terms as contained in the Agreement of Purchase and Sale. It says that under the Lease it had 30 business days from March 21, 2014 to match or negotiate its own purchase of the Lease. That 30 business days would have expired May 2, 2014.
[10] 1440 also says that the notice under s. 11.01 has no effect. Once the offer comes in, Lenco must notify 1440, since the tenant has equitable interest in the land as of the date of the Offer. The right of first refusal, once triggered, cannot be taken back or limited. Since the covering email of April 26, 2014 enclosing1440’s notice to exercise is made before May 2, 2014 and says that 1440 intends to complete the purchase, 1440’s rights are preserved.
[11] Since Lenco refused to allow 1440 to perform an environmental review, and in the face of Lenco’s position on the right of first refusal, 1440 has not been able to arrange mortgage financing. 1440 seeks a declaration that it has met its obligations under the Lease, and that given Lenco’s position, 1440 has 60 days to “honour its obligations” under the Agreement.” It argues that on the offer’s arrival, the right of first refusal became an option to purchase the property on the same terms as the offeror, and became an equitable interest of 1440 in the property.
[12] 1440 says that to accept Lenco’s interpretation of the operation of the first right of refusal clause and paragraph 11.01(2) would make the right of first refusal clause meaningless.
ANALYSIS:
[13] The central question in these applications before me is whether the right of first refusal is limited by the last line of that paragraph, thereby allowing the landlord to end it, after negotiating an Agreement of Purchase and Sale, and notifying 1440 under paragraph 11.01? I think it does.
[14] The Lease requires that once Lenco receives an offer, it “shall give this Tenant notice”, and 1440 “shall have” 30 business days to match the offer or negotiate another. The time for the notice is not specifically stated, but a commercially sensible reading of the first four lines of the right of first refusal clause says that the notice to the tenant should be as soon as possible after the landlord receives the offer.
[15] 1440, in advancing its argument, relies on Harris v. McNeely, 2000 5649 (ON CA), 2000 CarswellOnt 469, 47 O.R. (3d) 161 (C.A.) at paras. 25-29 and Benzie v. Kunin, 2012 CarswellOnt 14109 at paras. 67-68.
[16] I agree with the statements made in those cases by this Court and the Court of Appeal, respectively, regarding the general nature of a right of first refusal and the obligations between the parties to act in good faith. Both cases however are inapplicable here since, in both of those cases, the right of first refusal was not limited, other than in the time by which the one party must match the offer the other party received. There was no ability for either party to end the relationship or limit the right of first refusal.
[17] With the Lenco/1440 Lease, on a plain reading of the Lease, the right of first refusal was specifically limited by the mechanisms set out in clause 11.01. The Lease makes the right of first refusal subject to termination of the right of first refusal (and the tenancy) under 11.01(2), provided that notice of termination can only be given after March 1, 2014. This is what the parties intended. Therefore, even if Lenco had given 1440 notice of the offer (as opposed to the Agreement of Purchase and Sale), it was still open to the landlord to terminate the right and tenancy on notice under clause 11.01(2).
[18] Accordingly, I find that Lenco was correct in its interpretation of the Lease and acting as it did.
[19] If I am wrong on my interpretation of the lease, I accept, as 1440 urges me, that notice under the right of first refusal section was the notice delivered by Lenco on March 21, 2014, and the time within which the tenant could match the offer expired May 2, 2014. I also find that the notice on April 26, 2014 was sufficient notice that 1440 intended to “match” the offer Lenco received.
[20] In terms of costs, the parties have 14 days from the date of the release of this endorsement within which to exchange and submit costs submissions, not exceeding three typewritten pages, to address who should pay costs and in what amount.
Trimble J.
Released: June 17, 2014
ONSC 3536
COURT FILE NO.: 2262/14 & 2461/14
DATE: 2014-06-17
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Lenco Investment Ltd.
Plaintiff
– and –
1440825 Ontario Inc.
Defendant
1440825 Ontario Inc.,
Plaintiff
-and-
Lenco Investment Ltd.
Defendant
REASONS FOR JUDGMENT
Trimble J.
Released: June 17, 2014