COURT FILE NO.: C-9166-20
DATE: 2021-08-30
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
RHP Training Centre Inc.
Applicant
– and –
Ponterio Developments Inc.
Respondent
COUNSEL:
Rose Muscolino, for the Applicant
Claude Lacroix and Rene Leduc, for the Respondent
HEARD: June 4, 2021
REASONS FOR JUDGMENT
R. D. GORDON J.
Overview
[1] RHP Training Centre Inc. (“RHP”) is the tenant of Ponterio Developments Inc. (“Ponterio”) under the terms of a commercial lease dated March 3, 2010 for premises located at 1351, Building F, Kelly Lake Road in Sudbury.
[2] The principal of RHP is Mr. Savard. The principal of Ponterio is Mr. Gregorini. Mr. Gregorini authorized Mr. Kettle to represent Ponterio’s interests in the lease and any business arising from it.
[3] The initial term of the lease was ten years with an expiry date of March 31, 2020. The lease contains an option to renew for two further terms of five years each. RHP failed to provide notice of its intention to renew as required by the lease and Ponterio eventually indicated its intention to take possession of the premises at the lease end.
[4] RHP contends that Ponterio waived or is otherwise estopped from relying upon strict compliance with the renewal provisions in the lease. In the alternative, it takes the position that relief from forfeiture should be granted.
[5] This application raises the following issues: (1) What was required of RHP to renew the lease? (2) Was RHP required to strictly comply with those requirements, or was substantial compliance sufficient? (3) Did Ponterio waive compliance with the requirements to renew? (4) Should RHP be granted relief from forfeiture?
Analysis
Renewal Requirements
[6] The lease contained the following renewal provisions in Article II:
- Provided that the Tenant is not then in material default, and has not during the Term been in continuing default, of any of its covenants and obligations hereunder, the Tenant shall be entitled to renew or extend the Term of this Lease for Two (2) further consecutive terms, each of Five (5) years …
3, If the Tenant chooses to exercise its right to renewal each such renewal shall be exercised upon written notice from the Tenant to the Landlord delivered no later than six (6) months prior to the Expiration date…failing delivery of any of which notices the Tenant shall be deemed to have waived its right hereunder to further renew or extend the Term.
If the Tenant chooses to exercise its right of renewal each such Renewal Term shall be on the same terms and conditions as are contained herein, save as to any further or other right of renewal and save as to Minimum Rent during the Renewal Term…
In the event the Landlord and Tenant are unable to agree upon a Minimum Rent for any Renewal Term by that date which is no later than four (4) month prior to the Expiration Date…such Minimum Rent shall be determined by a single arbitrator…
[7] From these provisions, it is apparent that absent equitable considerations, RHP was obliged to give written notice of its intention to renew by September 30, 2019. Further, it was only entitled to exercise its right of renewal if, when written notice was given, it was not in material default and had not, during the term of the lease, been in continuing default, of any of the covenants and obligations required of it.
Strict Compliance or Substantial Compliance Required?
[8] Ponterio argues that an option to renew a lease must be strictly complied with by the entity exercising that option and that it must demonstrate its compliance in clear, explicit, unambiguous, and unequivocal terms. In support of this argument it cites Reference: 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., [1991] OJ No 1507, affirmed [1993] OJ No 2801 (CA). Although the issue is not central to my decision, I do not agree that strict compliance is required in every case.
[9] In Sail Labrador Ltd. v. Challenge One (The) 1999 (SCC), [1999] 1 SCR 265 the Supreme Court of Canada held that whether the terms of an option must be strictly complied with or substantially performed depends on whether the contract which contains the option clause establishes a single, bilateral contract or two separate contracts, one bilateral and the other unilateral. To determine this, the court must examine the text of the contract and the context surrounding it in order to determine the intention of the parties. Some factors for consideration are whether they are based on the same consideration, whether the option is specifically made dependent on the performance of the terms of the lease, and whether the option and the lease relate to the same property.
[10] In this case, the right to renew and the lease in which it is contained are intimately connected to one another. As in Sail Labrador it is reasonable to assume that consideration for the right to renew is based on the same consideration as the underlying lease, namely the lease payments. As in Sail Labrador the right to renew is made dependent on the performance of the terms of the lease. As in Sail Labrador the right to renew and the lease involve the same property. Finally, in the event of renewal, the same lease provisions continue to bind the parties, save as to the rent to be paid.
[11] Having regard to these factors there is a single bilateral contract between RHP and Ponterio requiring substantial performance of the contract terms to enable RHP to take advantage of the renewal provision.
The Issue of Waiver
[12] The law relating to waiver was succinctly summarized by the Ontario Court of Appeal in North Elgin Centre Inc. v. McDonald’s Restaurants of Canada Ltd. [2018] ONCA 71:
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 , 1982 (ON SC), 35 O.R. (2d) 215 (H.C.), at para. 20.
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.
Did Ponterio Waive Compliance with the Renewal Provisions?
[13] Mr. Kettle, Mr. Gregorini and Mr. Savard met in early September of 2019. During cross-examination on his affidavit, Mr. Kettle was asked and answered the following question:
Q: …first of all, at that meeting, I assume that the discussion was we’re going to be renewing the lease, but the issue is going to be what are the terms, correct?
A: Right.
[14] There followed several months of good faith negotiations between the parties without any hint from Ponterio to RHP that its right to renew could not be exercised. In these circumstances it was entirely reasonable for RHP to have believed that Ponterio would not be relying upon its strict legal rights concerning the renewal of the lease. Indeed, as Ponterio grew increasingly frustrated with the lack of a commitment by RHP it sent an email dated January 28, 2020 which stated: “If we cannot come to some agreement by Thursday, we will not be renewing your lease under modified conditions to your existing lease. Meaning we only be obligated to renew your current lease at current market rates.” From this email it is clear Ponterio felt it remained obligated to honour the renewal provisions of the lease. It is a clear acknowledgment that it had, at least until that time, waived the requirements for renewal set out in the lease.
[15] On January 30 Mr. Kettle sent a further email advising that Mr. Savard’s personal guarantee would be required for a modified lease and that if he did not agree to provide it by 3:00 p.m. the next day: “…we see no purpose in trying to agree to a modified version of your current lease. Unless you are willing to renew your current lease at market rates, your lease will come to an end at March 31, 202.” This is another clear acknowledgment that Ponterio continued to consider itself bound to the renewal provisions. The reasonable inference is that it had waived the requirements for renewal.
Did Ponterio Revoke its Waiver?
[16] Notwithstanding Mr. Savard’s failure to agree to the proposed personal guarantee by 3:00 p.m. the next day, negotiations continued regarding a modified lease. Those negotiations came to an apparent head with Mr. Kettle’s letter of February 6:
Thank you for your offer to lease received by us this morning. Your offer has many items that are unacceptable to us. We are not in agreement to your proposal on the personal guarantee, your proposal to pay one month’s rent late each year, your request to withhold rent payment for remedying a Landlord default, the change in the lease term or the utility reimbursement rate for the office area. We are no longer interested in negotiating modified conditions of your lease renewal and rescind any offers to lease issued before today’s date.
As of today, the unpaid rent on your premises, including the rent for February 2020 is $29,421.17. You have represented a number of times that you would bring the rent up to date and have failed to do so. You are and continue to be in material default of your lease. Article 2 – Term & Renewal of your lease states: “Provided that the Tenant is not then in material default, and has not during the term been in continuing default, of any of its covenants and obligations hereunder, the Tenant shall be entitled to renew or extend the Term of this Lease for Two (2) further consecutive terms, each of Five (5) years…”
In Addition the Lease states “If the Tenant chooses to exercise its right of renewal each such renewal shall be exercised upon written notice from the Tenant to the Landlord delivered no later than six (6) months prior to the Expiration date,” We have not received written notice of your intention to renew.
Also, your lease states “If the Tenant chooses to exercise its right of renewal each such renewal shall be on the same terms and conditions as are contained herein, save as to any further or other right of renewal and save as to Minimum Rent during the Renewal Term, which Minimum Rent shall be agreed upon by the Landlord and Tenant based on then current fair market rentals for similar properties in the same geographic vicinity…”
Your lease also allows for the fair market rent to be determined by an arbitrator under the provisions of the Arbitration Act, 1991 (Ontario).
Please inform us in writing by Wednesday February 12, 2020 at 5:00 local time, that it is your intention to renew your current lease with no changes save as to fair market rent. Also please inform us of your intention to proceed with an arbitrator in the determination of fair market rent. Also we will require your unpaid rent to be paid in full to proceed.
If your intention is not to renew your current lease please inform us of that fact and when we can expect payment on your account. It is our intention to let the space and will proceed to look for other tenants to mitigate our losses.
Please govern yourself accordingly.
[17] On February 12 there was a further discussion between Mr. Savard and Mr. Kettle in which Mr. Savard asked for Ponterio’s position on fair market rent. Mr. Savard did not indicate in writing his intention to renew his current lease nor did he then pay his rent current. There is no evidence that Ponterio waived compliance with the requirements of its letter of February 6 at that time.
[18] On February 13 Mr. Kettle sent RHP the following email: “As per our discussion yesterday we are getting back to you on what we feel market rents would be for your location. Our real estate broker feels $9.50 per square foot and $5.75 CAM would be in the range for a similar size building in a similar location. We would be willing to accept $9.00 per square foot base rent and $5.75 CAM. Thanks.”
[19] On February 17, RHP paid its rent current.
[20] On February 18 a meeting was held with Mr. Savard, Mr. Kettle and Mr. Gregorini in attendance to discuss lease terms. It was left that Mr. Kettle and Mr. Savard arrange a further meeting to discuss options for a lease that Mr. Savard could then discuss with his lawyer.
[21] On February 19, Mr. Savard sent Mr. Kettle an email to inquire of his availability to meet. He also requested clarification of zoning issues that had apparently arisen with respect to the availability of certain of the premises for use as office space.
[22] Mr. Kettle replied with a letter dated February 20 which contained, in part, the following: “Our last letter to you dated February 06, 2020 requested a response from you by February 12, 2020 as to your intention to renew your current lease with no changes save as to fair market rent. As of today we have not received a response from you. We are continuing to look for other tenants for the building to mitigate our losses and repurpose the building. With no lease renewal in place, the lease will be ending and you will be required to vacate the premise by March 31, 2020.”
[23] On February 21 Mr. Savard emailed Mr. Kettle indicating his disappointment with the negotiations and asking how they could get back to negotiating the most recent offers to lease that had been exchanged. Having received no reply, he sent a further email to Mr. Kettle on February 25 asking if a meeting could be scheduled for the following day.
[24] Mr. Kettle replied by email on February 25 that Ponterio was “not interested in having any further discussions concerning the Lease renewals, other then what has been expressed in our last two letters to you. Your lawyer contacted our lawyer today, in the future you may communicate concerning your lease renewal through our respective lawyers.”
[25] On February 26 the lawyer for RHP corresponded with the lawyer for Ponterio indicating for the first time in writing that her client intended to renew the current lease with the only change being to fair market rent. Ponterio advised RHP on March 3 that it would not be renewing. It reiterated its position in a letter dated March 5. RHP then brought this application.
[26] Ponterio was entitled to revoke its waiver provided its notice to that effect made clear it would be relying upon strict compliance with the renewal provisions in the lease and provided a reasonable amount of time to comply with those provisions. Ponterio’s letter of February 6 did just that. It recited the lease renewal provision requiring that RHP not be in material default of the lease and pointed out that it was currently in arrears of rent. It recited the lease renewal provision requiring written notice of renewal and pointed out that none had been received. Ponterio clearly indicated its intention to rely on these provisions of the lease and provided RHP with six days to comply. Six days to provide written notice of renewal cannot be said to be onerous as it would require only a brief email. Six days to pay rent that was then well overdue is reasonable and there is no evidence to suggest that RHP could not meet this requirement. The requests for compliance were reasonable as was the time limit provided. Neither request was complied with by the date specified in the notice– not in part and not in whole. As of February 12, Ponterio had done nothing to lead RHP to believe that the terms of its letter of February 6 would not be insisted upon.
[27] RHP takes the position that the letter of February 6 was not in strict compliance with the lease because it did not expressly give RHP an opportunity to enter into discussions regarding minimum rent as contemplated by Article II, section 4 of the lease. However, the notice requested by Ponterio was not required until February 12. That left 6 days for RHP and Ponterio to negotiate minimum rent. Is that a reasonable amount of time? In the context of the circumstances of this case it was. The premises is a large industrial property generating rent of more than $220,000 annually for Ponterio. The lease was set to expire on March 31. As of February 6, it had no commitment from RHP to renew in accordance with the lease renewal provisions and no commitment from RHP to lease on new terms. It was faced with having a substantial asset sit vacant and unproductive unless it had a commitment from RHP to renew or was able to begin searching out other tenants. It was reasonable for Ponterio to want to know, by February 12, whether RHP was going to continue as tenant at either an agreed rent or at a rent to be set through arbitration. RHP made no effort to negotiate market rent within the required timeframe.
[28] By February 26, 2020 when RHP finally communicated in writing that it wished to renew the current lease with the only change being fair market rent, Ponterio had already confirmed in writing on both February 20 and February 25 that it was no longer interested in doing so. Once Ponterio revoked its waiver, there was no substantial compliance with the renewal requirements by RHP until the reasonable timeframe for doing so imposed by Ponterio had long passed.
Should RHP Be Afforded Relief from Forfeiture?
[29] Sections 19 and 20(1) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7 give the court authority to grant such relief as it 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. Section 98 of the Court of Justice Act also provides the court with authority to grant relief against penalties and forfeitures on such terms as to compensation or otherwise as are considered just.
[30] As set out in Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 (SCC), [1994] 2 S.C.R. 490: “The power to grant relief against forfeiture is an equitable remedy and is purely discretionary. The factors to be considered by the Court in the exercise of its discretion are the conduct of the applicant, the gravity of the breaches, and the disparity between the value of the property forfeited and the damage caused by the breach: Shiloh Spinners Ltd. V. Harding, [1973] A.C. 691 (H.L.); Snell’s Equity (29th Ed. 1990), at pp. 541-42.”
[31] However, when a party seeks to renew a lease but has not complied with the formal requirements or preconditions for doing so, the jurisdiction to grant equitable relief is narrower than the test set out in Saskatchewan River and requires as a precondition that the tenant has made diligent efforts to comply with the terms of the lease and has been unable to do so through no fault of his or her own. [See McRae Cold Storage Inc. v. Nova Cold Logistics ULC [2019] O.J. No. 2875 (Ont. C.A.); 2324702 Ontario Inc. v. 1305 Dundas W Inc. [2020] ONCA 353].
[32] Once Ponterio provided notice to RHP on February 6 that it required compliance with the lease renewal provisions by February 12, RHP did nothing to comply. There is no evidence of any effort made to get the rent paid current by that date and no evidence of any effort made to provide notice of its intention to renew in writing. The precondition of diligent effort to comply with the renewal provisions is not established and relief from forfeiture is therefore not an available remedy.
Conclusion
[33] Somewhat regrettably, I conclude that RHP did not exercise its right to renew in substantial compliance with the lease terms and is not entitled to relief from forfeiture. There can be little doubt this will mean not insignificant hardship for RHP and I encourage Ponterio, as it indicated it would, to provide a reasonable amount of time to RHP to find an alternate site for its operations and to effect its move from the premises.
[34] In the event the parties are unable to agree on costs they may make written submissions to me, not to exceed five pages plus attachments each, within 45 days.
The Honourable Mr. Justice R.D. Gordon
Released: August 30, 2021
COURT FILE NO.: C-9166-20
DATE: 2021-08-30
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
RHP Training Centre Inc.
Applicant
– and –
Ponterio Developments Inc.
Respondent
REASONS FOR JUDGMENT
R.D. Gordon J.
Released: August 30, 2021