Gallant v. Johnson, 2024 ONSC 5777
OSHAWA COURT FILE NO.: CV-23-00000174-0000 DATE: 20241017
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN: LORI GALLANT Applicant Sara J. Erskine, for the Applicant
– and –
SHERRIL JOHNSON and FITZROY JOHNSON Respondents Jerome H. Stanleigh, for the Respondents
HEARD: October 10, 2024
REASONS ON MOTION
McCarthy J.:
[1] The Respondents to the application move to strike the application for want of jurisdiction.
The Lease Agreement
[2] The dispute in question concerns a commercial lease entered into between the parties regarding Unit 4 at 677 Marksbury Road, Pickering, ON (the “premises”). On January 29, 2018 the Applicant signed an Agreement to Lease, which permitted her to lease the premises from the Respondents for a five-year term (the “lease agreement”).
[3] Schedule “A” to the lease agreement included the following lease renewal clause (the “renewal clause”):
The Tenant shall have the option to renew the lease for a further period of five (5) years, commencing upon the expiration of the initial term, on such term[s] and conditions as are contained in the lease, save and except for the rental rate for the renewed term, which shall be agreed upon by the Tenant and Landlord.
[4] The Applicant exercised the option to renew the lease agreement upon notice to the Respondents on October 5, 2022.
[5] The parties were unable to agree upon the rental rate for the renewed term.
The Application
[6] The Applicant commenced the application under rule 14.05(3)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, seeking an interpretation of the lease agreement by the court together with an order by the court fixing the rental rate for the renewal term (the “renewal term”) at the market rate as determined by it.
The Motion
[7] The Respondents argue that the court lacks jurisdiction to grant the relief sought in the application on the basis that the renewal clause contains:
- no mechanism for the resolution of a dispute about the rental rate;
- no mediation or arbitration clause;
- no indication that the rental rate will be the market rate;
- no clause binding the parties to a renewal term if they cannot agree on the rental rate;
- no clause calling upon a referral of the dispute to the court; and
- no guidelines as to the factors to consider for the rental rate.
[8] The Respondents contend that the parties entered into a business deal, the terms of that deal were agreed to, the terms are binding on the parties and the court should be reluctant to rewrite the contract or insert wording that was never agreed to or contemplated.
[9] The Applicant, responding to the motion, contends that it is an implied term of the contract that the parties would negotiate in good faith.
[10] The Applicant also argues that the court maintains the inherent jurisdiction to set the rental rate after a consideration of relevant evidence. In the alternative, should the court find that the renewal clause is ambiguous as to how the rental rate is to be determined, or is ambiguous as to how the renewal term is to be continued or terminated in the absence of an agreement, then the court may interpret the lease agreement by considering both the surrounding circumstances, and the intention of the parties at the time of signing the contract. In this regard, reference may be had to the conduct of, and the positions taken by the parties since the dispute over the rental rate for the renewal term arose.
Analysis
[11] In Mapleview-Veterans Drive Investment Inc. v. Papa Kerollus VI Inc. (Mr. Sub), 2016 ONCA 93, 393 D.L.R. (4th) 690, at para. 29 (“Mapleview”), Blair J.A. on behalf of the court wrote:
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 … “[T]he 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.” [Citations omitted.]
[12] In Jagtoo & Jagtoo v. Grandfield Homes, 2021 ONSC 7230, at para. 6, my brother, Leibovitch J., faced with a situation where a commercial landlord and tenant could not agree on market rate, stated that “[c]ourts can and have intervened to set the market rate when the parties have been unable to do so.”
[13] The obvious difficulty in the case at bar is that there is no mention of “market rate” in the renewal clause. Indeed, the problem of there being no language whatsoever to interpret or to consider in renewal option cases was considered by the Ontario Court of Appeal in Mapleview, at paras. 26 and 27:
The renewal option provides that the “rental rate” for the renewal period is to be the “then current rate.” This is a rate that can be readily ascertained through resort to expert evidence as to the rental rates for comparable spaces as at the renewal date. If the parties are unable to agree, the rate can be determined, as the application judge concluded, through judicial or other binding means.
It is trite law that the courts will not enforce “an agreement to agree” and that there must be reasonable certainty as to the length of the term of a lease or of a renewal option, as well as to the amount of rent to be paid. [Citations omitted.]
[14] In Great Atlantic & Pacific Company of Canada v. Topostar (Aurora) Inc., 2006 ONSC 7279 (Ont. S.C.), at paras. 50-52, the court considered the problem we have in the case at bar, where there is no formula for determining the rental rate. Cameron J. wrote as follows:
We must interpret the intent of the parties on the basis of the language used in the lease. We cannot make a new agreement for the parties.
The words are general words. They provide no agreed formula, let alone any objective standard such as “market” rent or other certainty. They do not provide for arbitration if rent cannot be agreed. They are merely an agreement to negotiate which is no agreement at all. [Citation omitted.]
This is nothing more than an agreement to agree which is no agreement at all. There being no formula for reaching an agreement and no other method, such as an arbitration clause, for determining the agreement in the event a negotiation fails, it is not enforceable. [Citations omitted.]
[15] I find the reasoning of Cameron J. compelling and consistent with the appellate authority in Mapleview, which was a case where there was a mechanism for the determination of the rental rate, which could be determined by the court with the assistance of expert evidence. In the case at bar, there is no such mechanism, only “an agreement to agree”, which is unenforceable.
Is the Renewal Clause Ambiguous?
[16] I am unable to find that the renewal clause in the lease agreement is in any way ambiguous. The fact that the parties never turned their minds to a mechanism for determining the rental rate for a potential renewal term five years on does not render the renewal clause ambiguous. Indeed, the renewal clause stipulates that the rental rate “shall be agreed upon” by the Tenant and Landlord. This is an agreement to agree which is not ambiguous.
[17] Similarly, the fact that the option to renew does not stipulate what will transpire if the parties fail to agree on rental rate does not render it ambiguous; it only renders it inoperative. The parties revert to their rights under the lease agreement.
[18] The Applicant asserts that the Respondents have agreed that the court has jurisdiction to determine the rental rate because they responded to the application with evidence of market rates and expert opinion on what the rental rate should be.
[19] I cannot accept this argument. The Respondents simply responded to an application being brought by gathering evidence to counteract that of the Applicant in the event that the court adjudicated in the fashion proposed by the Applicant. It was not the Respondents’ application. I see no admission from them on the jurisdiction of the court to fix the rental rate. Since I find no ambiguity in the renewal clause, recourse to extraneous evidence is unwarranted.
Bad Faith
[20] This leaves bad faith. The Applicant contends that the court has jurisdiction on an application to determine and fix the rental rate where a contracting party failed to negotiate the rental rate for the renewal period in good faith. It relies on the case of DAA Holdings Ltd. v. Teranet Inc., 2024 ONSC 794, at paras. 28-29 (“DAA”).
[21] I would distinguish DAA. That case, like the ones it follows, involved renewal and rate clauses, which contained mechanisms for the court to calculate and impose rental rates. In fact, the relevant clause [4.1(b)] in DAA required the parties to have regard to fair market rates, comparable properties, and inflation factors. Bad faith or not, there are simply no mechanisms or formulae in place in the lease agreement that would permit the court to impose a rental rate on a renewal term as a remedy.
[22] Regardless of the foregoing, I am not satisfied that the conduct of the Respondents in the negotiations on rental rate amounts to bad faith. The Respondents have engaged in negotiation and discussion. They prepared and circulated proposed draft lease proposals. They have retained the services of a licensed realtor and secured an affidavit and an opinion of market rate from him. The negotiations were acrimonious and contentious. The parties could not agree. That is unfortunate but not unprecedented.
[23] Notwithstanding, the Respondents have made their position clear and firm for some time now and have identified the rental rate that they are prepared to accept. There has been no attempt to evict the Applicant. The Respondents have not moved for vacant possession of the premises or attempted to change the locks. The Respondents’ conduct falls well short of the high threshold required for bad faith conduct.
Disposition
[24] For the foregoing reasons, the motion is allowed. The wording of the renewal clause in the lease agreement leaves the court without jurisdiction to grant the relief sought by the Applicant, that is the rental rate for any renewed term. The application is therefore struck. There was no cross-application for a declaration that the lease is at an end. I am not prepared to grant that relief on the materials before me.
[25] Should the parties be unable to agree on the issue of costs or should they be unable to agree on the content or form of any order arising from this decision, they may seek an appointment to appear before me from the trial coordinator to address these remaining issues.
McCarthy J.