NEWMARKET COURT FILE NO.: CV-21-1405
DATE: 20211101
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Jagtoo & Jagtoo, Professional Corporation
Applicant
– and –
Grandfield Homes Holdings Limited
Respondent
James Jagtoo, for the Applicant jjagtoo@jjlaw.ca
Michael Doyle, for the Respondent michael@doulebarteaux.com
HEARD: October 29, 2021
BRIEF REASONS FOR DECISION
LEIBOVICH J.
[1] The applicant, Jagtoo & Jagtoo, Professional Corporation (“Jagtoo”) entered into a lease agreement with the respondent, Grandfield Homes Holdings Limited (“Grandfield”) and took possession of the premises in November 2018. The lease is set to expire on October 31, 2021. The applicant wishes to have the lease renewed however he and the respondent cannot agree on the applicable rate. The rate had to be agreed upon by the end of September 2021. The applicant filed an application, requesting that: 1) the court find that it has the jurisdiction to set the market rate for the basic rent of the lease; 2) the court fix the market rate for the basic rent and extend the lease by three years, pursuant to its terms; and 4) the court find that the respondent is in breach of his duty to act in good faith. The respondent asks that the application be dismissed and submits that the court has no jurisdiction to intervene and that they acted in good faith. Therefore, the lease should simply be at an end since the parties did not agree on the renewal rate.
[2] The application was originally set to be heard on September 29, 2021. However, the respondent filed a motion to have counsel for the applicant removed. The motion was heard on September 29, 2021 and dismissed, resulting in the application being heard on Friday, October 29, 2021. At the conclusion, I told the parties that I would give them a bottom-line decision by Monday, November 1, 2021 with reasons to follow. The respondent agreed not to take any action until receipt of my bottom-line decision.
[3] The following are my brief reasons for dismissing the application. More fulsome reasons will follow.
The main issues
[4] The applicant has set out the main issues in his factum, as follows:
a) Does the court have jurisdiction to determine the market rate and extend the contract?
b) If the answer to a) is yes, what is the market rate for basic rent?
c) Has the respondent breached its obligation to act in good faith with the applicant to negotiate on a reasonable basis to determine the current market rate for basic rent of the premises?
d) If the answer to c) is yes, what is the appropriate remedy?
a) Does the court have jurisdiction to determine the market rate and extend the contract?
[5] The renewal clause at issue is set out at paragraph 3.3 of the lease. It states:
If the tenant is not at any time in default of the lease during the term, the tenant shall have a one-time option to renew the lease for a further term of three (3) years provided that: (i) the tenant shall notify the landlord in writing not less than six (6) months prior to the expiration of the term; (ii) there shall be no further right of renewal; (iii) the basic rent during the renewal term shall be based on the then market rate and shall be agreed upon by the landlord and tenant at least one (1) month prior to the expiration of the term, failing which the renewal option shall be revoked and the lease shall expire at the end of the term.
[6] There is no issue that the applicant has not been in default and has provided the adequate notice. There is also no dispute among the parties that the term market rate is not void for uncertainty. Courts can and have intervened to set the market rate when the parties have been unable to do so. The legal dispute among the parties is if the remainder of the clause prevents the court from intervening. The applicant submits that it does not. The respondent submit that it does.
[7] Blair J.A. set out the applicable law in Mapleview-Veterans Drive Investments Inc v. Papa Kerollus VI Inc, 2016 ONCA 93, [2016] OJ No 584 at paras. 29 and 30:
Here, however, there is a formula or other objective standard for establishing the rate -- namely, what is the “then current rate” at the time of renewal. Courts should not strive to set aside a commercial bargain that was intended to have legal effect where a clause in an agreement -- even if not precisely expressed -- has an ascertainable meaning: Hillas & Co. Ltd. v. Arcos Ltd. (1932), 147 L.T. 503 (Eng. H.L.), at p. 514; and Griffin v. Martens (1988), 1988 CanLII 2852 (BC CA), 27 B.C.L.R. (2d) 152 (C.A.), at p. 153. Adopting this approach in Empress Towers Ltd. v. Bank of Nova Scotia (1991), 1990 CanLII 2207 (BC CA), 73 D.L.R. (4th) 400, at p. 403, leave to appeal refused, [1990] S.C.C.A. No. 472, the British Columbia Court of Appeal concluded that “the courts will try, wherever possible, to give the proper legal effect to any clause that the parties understood and intended was to have legal effect.” I agree.
Here, I am satisfied that the parties intended to make a binding agreement as to the renewal rate; they simply declined to specify that rate in a dollar amount because neither wished to assume the risk of error (too high or too low, depending on their interest) 15 years later. This makes commercial sense. Expressing the renewal rate as the “then current rate” is the functional equivalent of saying the “then market value” or the “then prevailing market rate” -- expressions that have been found to be sufficient to overcome a void-for-uncertainty argument. See e.g. Mustard Seed (Calgary) Street Ministry Society v. Century Services Inc., 2009 ABQB 171, 79 R.P.R. (4th) 252, at paras. 31-39, 46 (the “then prevailing market rate”); Brown v. Gould, [1972] 1 Ch. 53, at pp. 60-62 (the “market value of the premises at the time”); Great Atlantic & Pacific Co., at para. 51 (an “objective standard such as 'market' rent”); and Empress Towers, at p. 404 (the expression “market rent prevailing at the commencement of [the] renewal term” would itself have sufficed, but the addition of the words “as mutually agreed between the Landlord and the Tenant” rendered the clause void for uncertainty in the circumstances).
[8] As can be seen from the extract above, Blair J.A. accepted the approach taken by the British Columbia Court of Appeal in Empress Towers Ltd. v. Bank of Nova Scotia (1991), 1990 CanLII 2207 (BC CA), 73 D.L.R. (4th) 400.
[9] The renewal clause in Mapleview was as follows:
Provided that the Tenant has paid the rent and all other sums payable under this Lease when due and, provided the Tenant has performed all other covenants under the Lease as and when the same are required to be performed, the tenant shall have the option to renew for one further term of Five (5) years each provided that written notice is given to the Landlord at least six (6) months prior to the expiry of the term or any previous renewal thereof, on the same terms and conditions as herein contained, save as to the rental rate which shall be the then current rate. [Emphasis added.]
[10] However, the renewal clause in the applicant’s lease case is not the same as the renewal clause in Mapleview. Rather, as the applicant stated in his written and oral submissions, his renewal clause is similar to the renewal clause in Empress Towers Ltd. v. Bank of Nova Scotia. In that case, the renewal clause read as follows:
The Landlord hereby grants to the Tenant rights of renewal of this Lease for two successive periods of five (5) years each, such rights to be exercisable by three (3) months' written notice from the Tenant, subject to all the terms and conditions herein contained excepting any right of renewal beyond the second five (5) year period and excepting the rental for any renewal period, which shall be the market rental prevailing at the commencement of that renewal term as mutually agreed between the Landlord and the Tenant. If the Landlord and the Tenant do not agree upon the renewal rental within two (2) months following the exercise of a renewal option, then this agreement may be terminated at the option of either party. [Emphasis added]
[11] The British Columbia Court of Appeal found that the term “market rental” was ascertainable and enforceable but it found, as Blair J.A. noted in Mapleview that “the addition of the words “as mutually agreed between the Landlord and the Tenant” rendered the clause void for uncertainty in the circumstances”. The British Columbia Court of Appeal stated:
In this case, if the parties had intended simply to say that if the tenant wished to renew it could only do so at a rent set by or acceptable to the landlord, then they could have said so. Instead, they said that if the tenant wished to renew it could do so at the market rental prevailing at the commencement of the renewal term. If nothing more had been said then the market rental could have been determined on the basis of valuations and, if necessary, a court could have made the determination. It would have been an objective matter. But the clause goes on to say that not only must the renewal rental be the prevailing market rental but also it must be the prevailing market rental as mutually agreed between the landlord and the tenant. It could be argued that the additional provision for mutual agreement meant only that the first step was to try to agree, but if that step failed then other steps should be adopted to set the market rental. However, the final sentence of clause 23, which contemplates a failure to agree giving rise to a right of termination, precludes the acceptance of that argument. In my opinion, the effect of the requirement for mutual agreement must be that the landlord cannot be compelled to enter into a renewal tenancy at a rent which it has not accepted as the market rental. [Emphasis added.]
[12] The renewal clause in the applicant and respondent’s lease has this very same “failure clause” which I find prevents the respondent from being compelled to accept a renewal tenancy at a rent that he has not accepted. I agree with the respondent that the inclusion of the last sentence which states, “shall be agreed upon by the landlord and tenant at least one (1) month prior to the expiration of the term, failing which the renewal option shall be revoked and the lease shall expire at the end of the term” prevents the court from intervening and setting the market rate, subject to the duty to act in good faith.
b) Has the respondent breached its obligation to act in good faith with the applicant and negotiate on a reasonable basis to determine the current market rate for basic rent of the premises?
[13] I agree with the applicant that the respondent had a duty to negotiate the market rate in good faith, otherwise the market rate clause would in effect be whatever the respondent decided. As stated by the British Columbia Court of Appeal in Empress Towers Ltd. v. Bank of Nova Scotia:
But, in my opinion, that is not the only effect of the requirement of mutual agreement. It also carries with it, first, an implied term that the landlord will negotiate in good faith with the tenant with the objective of reaching an agreement on the market rental rate and, second, that agreement on a market rental will not be unreasonably withheld. See Meehan v. Jones, per Mason, J. at p. 589, Lee-Parker v. Izzet, [1971] 3 All E.R. 1099 at p. 1105, per Goff, J., and Janmohamed v. Hassam (1976), 126 N.L.J. 696 per Slade, J.
[14] However, I disagree with the applicant’s submissions that the respondent breached his duty to act in good faith. I will provide more fulsome reasons on this point, but my review of the material shows that both parties negotiated in good faith, they simply did not reach an agreement, accordingly the lease is at an end.
Next steps
[15] As stated, this application was set to have been argued on September 29, 2021. The respondent’s last-minute failed motion to have counsel for the applicant removed resulting in this application being heard two days before the lease was set to expire. Had the application been heard on September 29, 2021, the hearing judge could have dismissed the application at that time and the applicant could have had the month to find other premises. It is evident from the record that the applicant did his best to get this matter heard in a timely manner. Therefore, in my view, it is only appropriate that the month lost because of the respondent’s motion be added to the term of the lease. Therefore, I extend the lease until November 30th, 2021 at its same terms and conditions.
Costs
[16] In the event that the parties cannot agree on costs, the respondent can submit to me his bill of costs and submissions on costs, totalling not more than three pages, by November 10, 2021. The applicant can submit his submissions on costs, totalling not more than three pages, by November 15, 2021.
Justice H. Leibovich
Released: November 1, 2021
NEWMARKET COURT FILE NO.: CV-21-1405
DATE: 20211101
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Jagtoo & Jagtoo, Professional Corporation
Applicant
– and –
Grandfield Homes Holdings Limited
Respondent
REASONS FOR decision
Justice H. Leibovich
Released: November 1, 2021