ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-13-0442

DATE: 2014-01-16

B E T W E E N:

Delphi Management Corporation,

Daniel Matson, for the Applicant

Applicant

and -

Dawson Properties a division of 2182566 Ontario Inc.,

Derek E. Zulianello, for the Respondent Dawson Properties

Respondents

HEARD: January 6 and 9, 2014,
at Thunder Bay, Ontario

Mr. Justice J. deP. Wright

Decision On Application

[1] Delphi Management Corporation, brings this application under section 20 of the Commercial Tenancies Act.

[2] Delphi Management is a tenant in commercial premises. Dawson Properties is the landlord. The lease expires on January 31, 2014. The tenant seeks a declaration that the lease has been validly renewed for another term of five years, at a rent to be agreed upon or determined by binding arbitration, which lease shall be subject to a right to renew at the end of its term. To the extent that it can be argued that the preconditions to such a renewal have not been met the tenant asks for relief from forfeiture.

CONCLUSION

[3] Having heard well- presented argument over two days I have concluded that the relief sought by the tenant should not be allowed because:

• the right of renewal contained in the Third Amending Agreement is unenforceable because it is an agreement to make an agreement.

• the pre-conditions of the option to renew were not met

• the court should not intervene because:

S. 20 of the Commercial Tenancies Act does not apply to this situation,

There are no equitable grounds such as waiver or estoppel which would justify the court ignoring the tenant’s default. The landlord did not by its actions waive its rights to insist upon due compliance nor is it estopped from demanding strict compliance with the renewal provisions.

Even if there was conduct upon which waiver could be plead s. 6.10 contains a non-waiver agreement

Innocent third parties have now acquired rights to claim a leasehold interest contrary to that of the tenant.

FACTS:

[4] The parties and their predecessors have had a long business relationship. The original lease commenced 1 February 1994 and ran for a five-year term to January 31, 1999. That lease contained a clause entitled "option to renew". That clause provided:

S. 5.11: if the tenant duly and regularly pays the said rent and performs all and every covenant, proviso and agreement contained herein and on the part of the tenant to be paid and performed, the landlord, at the expiration of the term, and upon the tenant’s written request, mailed or delivered to the landlord not less than nine (9) months before the expiration of the term, shall grant to the tenant renewal of the lease of the leased premises for a further term of five (5) years at a monthly rent to be determined by agreement and subject to all other terms and provisions contained herein save and except the right of renewal. If the parties cannot agree on the amount of the monthly rent, the matter shall be referred to arbitration. Monthly rent to be set at an amount similar to then existing rents for similar premises, monthly rent in no event to increase by more than the cost of living in the City of Thunder Bay as measured by the movement in the Consumer Price Index.

[5] The lease expired on January 31, 1999. It has been extended on three occasions. The first renewal was effective February 1, 1999 and expired January 31, 2004. The second renewal was effective February 1, 2004 and expired January 31, 2009. Each time the tenant was late in delivering notice of its intention to renew but each time the lease was renewed by the landlord without objection to the time issue.

[6] On 14 January 2009 the parties entered into a "Third Amending Agreement" which, amongst other things, recited that pursuant to section 5.11 of the lease the tenant had the right to renew the lease for a third renewal period of five years commencing February 1, 2009 and expiring January 31, 2014. Accordingly it provided that the third renewal term was to commence on February 1, 2009 and run for an additional period of five years.

[7] It appears clear that the original lease, as it might be amended by agreement, was to " remain in full force and effect as amended, binding upon the parties hereto together with their successors and assigns." (Last paragraph of the Third Amending Agreement.)

[8] This "Third Amending Agreement" of 14 January 2009:

• extended the lease for an additional period of five years commencing February 1, 2009 and ending January 31, 2014,

• set the rent which was calculated on the basis of $14.50 per square foot of rentable area

• set a tenant improvement allowance, and

• amended the lease as follows:

s. 4: section 5.11 of the lease pertaining to option to renew, is thereby [sic] amended to read as follows:

if the tenant duly and regularly pays the said rent and performs all and every covenant, proviso and agreement contained herein and on the part of the tenant to be paid and performed, the landlord, at the expiration of the third renewal term, at a cost to the tenant and upon the tenants written request, mailed or delivered to the landlord not later than six months before the expiration of the third renewal term, shall grant to the tenant a renewal of the lease of the leased premises for a further term of five years (the "fourth renewal term”) at a monthly rent to be determined by agreement and subject to all other terms and provisions and contained herein save and except the right of renewal.

REASONS:

Enforceability Of The Right To Renew

[9] The Third Renewal Agreement, which governs this matter, provides that the landlord shall grant a renewal of the lease at a monthly rent to be determined by agreement. The lease previously provided that if the parties could not agree on the amount of the rent the quantum was to be determined by reference to market rents with any increase being limited by the cost of living in Thunder Bay. If the parties could not agree then the issue was to be referred to binding arbitration. I accept that a renewal is not void for uncertainty merely because the rent was not agreed upon in advance if the rent can be reasonably ascertained by the court or arbiter (if one is provided for.) (666465 B.C. Ltd. v. Concord International Land Ltd. 80 R.P.R. (4th) 79.) Or if a mechanism for determining rent by arbitration is provided. The tenant submits that the fact the parties were able to come to an agreement on prior occasions indicates that they intended to apply the same criteria on this occasion namely a reasonable market rate. The tenant argues that the landlord having renewed the lease several times previously on this basis it is now estopped from denying the applicability of that standard in this case.

[10] ‘"The general rule is that the law does not recognize a contract to enter into a contract, nor a contract to negotiate." (Cedar Group Inc. v. Stelco Inc., [1995] O.J. No.3998 ¶ 5 citing In L.C.D.H. Audio Visual Ltd. I.S.T.S Verbatim )

[11] Without specific guidelines for the calculation of rent, or a provision for arbitration, the new Option To Renew was just an unenforceable invitation to treat.

Compliance With Preconditions Of Renewal:

[12] The tenant acknowledges that there were three preconditions to the right to renew:

a) Due and regular payment of the rent,

b) Performance of all and every covenant, proviso and agreement contained in the lease as amended, and

c) A written request, mailed or delivered to the landlord by July 31, 2013.

[13] The tenant acknowledges that none of these preconditions was complied with.

Effect of Section 20 Of The Commercial Tenancies Act

[14] The tenant brings this application pursuant to s. 20 of the Commercial Tenancies Act which is headed: Relief Against Re-entry Or Forfeiture.

[15] S. 20 (1) provides:

Where a lessor is proceeding by action or otherwise to enforce a right of re-entry or forfeiture, whether for nonpayment of rent or for other causes, the lessee may in the lessors action, if any, or if there is no such action pending, then in an action or application in the Superior Court of Justice brought by the lessee, apply to the court for relief, and the court may grant such relief as, having regard to the proceeding and conduct of the parties under section 19 and to all the other circumstances, the court thinks fit, and on such terms as to payment of rent, costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future as the court considers just.

[16] The landlord argues that section 20 recognizes ”the distinction between the court’s equitable jurisdiction to grant relief from forfeiture for the non-observance of covenants in an existing lease and from the failure to comply with conditions precedent to the exercise of an option to renew the lease. In the former, equity recognizes that the tenant may be permitted to cure its default and be relieved from forfeiture to allow it to retain the balance of the term of the lease. In the latter, there is no compulsion on the tenant to exercise a renewal option, but if it does so, the tenant must comply with the conditions precedent. If the tenant fails to comply, it does not suffer a penalty or forfeiture of an existent tendency. Equity will not intervene." (Clark Auto Body Limited v. Integra Custom Collision Ltd. (2007), 2007 BCCA 24, 277 D.L.R. (4th) 201 ¶30 (BCCA)

[17] In this case the landlord is not attempting to re-enter during the term. It is content to allow the term to run its course.

[18] S. 20 does not apply to this situation.

Relief From Forfeiture

[19] Equity is a shield, not a sword.

[20] The tenant is not trying to use s. 20 or Equity as a shield to protect that which it has but rather as a sword to obtain that which does not have. (1556724 Ontario Inc. v. Bogart Corp. 2011 ONSC 2204 ¶¶ 26 & 27).

‘. . . Relief from forfeiture, traditionally, was not available to excuse performance of a condition precedent. . . Stated otherwise, defaults caused by the tenant's own want of diligence (as compared to the landlord having caused the default) preclude relief from forfeiture". (1183882 Alberta Limited v. Valin Industrial Mill Installations Ltd. 2011 ABQB 440 ¶52)

Waiver, Estoppel

[21] Did the landlord, by its conduct, waive its rights? Is it estopped from asserting its right to require complete compliance with the terms and conditions on which the option is to be exercised?

[22] The tenant admits that rent was often late over the many years of its tenancy but it argues that over the history of the lease the landlord never insisted upon due and regular payment of rent and in fact even when demanding late rent the landlord would offer time to pay and always took the late rent when proffered. (E.g. Ex E Responding Record p.18)

[23] Similarly, the tenant admits that it never complied with the time requirement for giving notice of renewal but points out that the landlord always renewed in any event.

[24] The tenant submits that it was justified in not paying the rent due on August 1 because the surrender of that rent was a term of the offer to vacate early which the tenant had made and for which it was awaiting a reply.

[25] The tenant submits that against this background of dealings the landlord must be taken to have surrendered its right to demand timely compliance with the obligations under the lease.

[26] The landlord argues that the court should not accept this argument from the tenant. The landlord argues that the tenant is itself estopped from relying upon a course of conduct based upon its own default because of the estoppel certificate (Responding Record tab J) given by the tenant in the year 2008 when the present landlord took over the premises.

[27] The landlord relies upon the comments of Low, J. in Dora v. 66 Degrees Inc. (2000) 30 R.P.R. (3rd) 287:

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. . . . 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 the 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-à-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 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.. . . (emphasis mine)
Not being in default of the lease is a condition precedent to the option to renew. . . Where an absence of default is a condition precedent, the tenant must not be in default not only at the date of the exercise of the option but it must continue not to be in default up to the expiry of the existing term of the lease. . .

[28] The landlord notes that not only was the tenant in default of payment of rent when it purported to give notice in August, it was again in default of payment of rent in September.

[29] There is no basis for waiver or estoppel.

Consideration of The Rights Of Innocent Third Parties

[30] The landlord has now entered into a binding agreement with a third party for the lease of some or all of the space in question. The tenant was aware that the landlord was negotiating with a third-party. The landlord claims that these negotiations were begun in June after the tenant had contacted the landlord in April about the possibility of downsizing the space occupied by the tenant. The negotiations with the third-party did not ripen into an agreement until conditions were waived on 30 August. By this time the landlord and tenant had met on 24 July when the tenant, being aware of the landlord’s conditional agreement with the third-party, offered to vacate October 1 if the rent for August and September was waived. A day later, on 25 July the tenant confirmed its ability to move out by October 1 and suggested that the landlord use this date when talking to the third-party. On 12 August the landlord informed the tenant that its proposal was not acceptable. On 21 August the landlord received the purported notice of renewal from the tenant. The following day the landlord unequivocally rejected it. (See Responding Record tab 1(D).

“Relief against forfeiture will not be granted if it will hurt the interests of an innocent third party” . . . (Computer science Canada Inc. v. 1142543 (K.D. financial services Limited [2000] 37 R.P.R. (3d) 123 ¶69)

Effect of S. 6.10 – Non-Waiver Agreement

[31] S. 6.10 of the lease reads:

"no condoning, excusing or overlooking by the landlord of any default, breach or non observance by the tenant at any time or times in respect of any covenants, provisos or conditions herein contained shall operate as a waiver of the landlord's rights hereunder in respect of any continuing or subsequent default, breach or non observance or so as to defeat or effect such continuing or subsequent default or breach, and no waiver shall be inferred from or implied by anything done the hard matted by the landlord save only expressed waiver in writing it."

Effectiveness of the Notice To Renew: (Responding Record p. 15)

[32] The notice whereby the tenant purported to extend the lease reads as follows:

“As referenced in section 5.11 of our current amended lease with Dawson properties, we would like to consider renewing our lease for a Fourth Renewal Term.

Delphi Management would also like to meet to discuss the option of further leasehold improvements to be completed before the end of our third term.

You can reach branch owner. . . . . To arrange a meeting.”

[33] A notice to renew must be "clear, explicit, unambiguous and unequivocal".. (Doria v. 66 Degrees Inc., ¶8). This is not. The tenant was not committing itself to an extension of the lease.

[34] Application dismissed. I may be spoken to with regard to costs and any other matter not dealt with.

“Original Signed By”

The Hon. Mr. Justice J. deP. Wright

Released: January 16, 2014

COURT FILE NO.: CV-13-0442
DATE: 2014-01-16

ONTARIO
SUPERIOR COURT OF JUSTICE