Reasons for Judgment

Court File No.: CV-24-87198 & CV-24-86659
Date: 2025-02-18
Ontario Superior Court of Justice

Between:
Baketree Inc.
Applicant
(M. Kestenberg and K. Schoenfeldt, for the Applicant)

-and-

Nico Properties Inc.
Respondent
(R. Liebs-Benke, for the Respondent)

Heard: December 19, 2024

The Honourable Justice S. Antoniani

Overview

[1] The Applicant, Baketree Inc. (“Baketree"), is in the business of producing baked goods for resale to food retailers. The Applicant is a tenant of the Respondent, Nico Properties Inc., at a warehouse and production facility located at 815 Gana Court in Mississauga, Ontario.

[2] The tenancy agreement was signed on February 19, 2020, and the Applicant took possession of the premises on March 1, 2020. On April 12, 2024, the Applicant gave notice of its intention to exercise the first of three options to extend the lease for an additional five years. The Respondent takes the position that the Applicant is in default of the lease, and that as such it is not entitled to exercise the option to extend.

Issues

[3] The parties agreed that this Application, and Application bearing Court File No. 24-00086659-0000 would be heard together, as both Applications ask the court to determine the same issues between them, as follow:

1. Whether the Applicant’s exercise of the option to extend the lease is valid, or whether the Applicant is in default of the lease and therefore the option was not available to them; or, in the alternative,
2. Whether, if the Applicant is in default such that the option to extend was not available, the court will grant relief from forfeiture; and
3. If the Applicant is not entitled to extend the lease, on what terms is the Respondent entitled to have the lease terminated; and
4. Does the Applicant continue to have the right to the opportunity to negotiate a purchase, as per Schedule E of the lease agreement?

Decision

[4] For the reasons that follow, I find that the Applicant’s exercise of the option to extend the lease is valid, and the Applicant’s lease has been extended by five years.

[5] Further, had I found that the Applicant was in breach of any of the conditions precedent to the exercise of the option to extend, I would have granted relief from forfeiture.

[6] I find that the Applicant has lost its opportunity to negotiate a purchase as per Schedule E, as it was in default of the terms of the lease for non-payment of rent, and that default is not entitled to the protection of s. 65.1 of the Bankruptcy and Insolvency Act, RSC 1985, c B-3, or to relief from forfeiture.

Facts

[7] There are few facts in dispute. The primary factual issue is whether the Applicant’s financial circumstances in 2024, when Baketree exercised the option to extend, were diminished in relation to its financial circumstances in February 2020 when the tenancy agreement was signed. On this issue, the parties agree that the court may rely on the documents in the record in coming to a decision, as the documents are not in dispute.

Background

[8] The parties entered into a lease agreement on February 19, 2020, with the initial expiry being in May 2025. The Applicant took possession of the property on March 1, 2020, days before the COVID-19 pandemic was declared.

[9] The pandemic had a severe impact on the business of the Applicant, and revenue fell to as low as 1/3 of pre-pandemic numbers.

[10] To add to the Applicant’s challenges, the Canada Revenue Agency (“CRA”) rejected the Applicant’s claim for input tax credits (“ITCs”) in relation to HST it had paid when it hired employees from a temporary employment agency, during a period from 2015-2019. The current disputed amount with the CRA as of May 2024 was approximately $1.8 million.

[11] As a result of the circumstances above, the Applicant failed to pay rent or made incomplete payments of rents for several months in 2021. The last incomplete payment was in relation to the June 1, 2022, payment.

[12] By mid-2022, the Applicant’s circumstances were so dire that on June 9, 2022, it filed a Notice of Intention to Make a Proposal to creditors (the “NOI”), eight days after the last incomplete payment of rent. On July 8, 2022, it filed a Notice of Proposal to its creditors. In December 2022, the majority of the Applicant’s creditors, including the Respondent, voted in favour of the proposal.

Prior to the NOI, the Respondent took no steps to act on the Applicant’s defaults under the lease.

The Exercise of the Option to Extend

[13] The clause of the lease that is the focus of this Application is clause 1.04, the option to extend, the relevant portion of which reads:

Option to Extend 1.04
If the Tenant pays the Rent as and when due and punctually observes and performs the terms, covenants and conditions to be performed by it hereunder, and provided that the financial strength of the Tenant has not diminished from that existing as at the date of this Lease, the Tenant shall have the option to extend this Lease for three (3) further terms of five (5) years each upon the same terms and conditions contained in this Lease….

[14] The parties agree that the notice to exercise the option to extend was provided in the correct format and was on time. The only issue is whether the preconditions for exercise of the option, as indicated in clause 1.04, were met.

Analysis

[15] The parties agree that under clause 1.04 there were three preconditions for exercising the option to extend:

I. That the rent was paid when due;
II. That the Applicant was not otherwise in default of the terms, covenants and conditions of the lease; and
III. That the financial strength of the Applicant has not diminished from that existing as at the date of the signing of the lease in February 2020.

I: Was the rent paid when due?

[16] The Applicant relies on ss. 65.1(1) and 65.1(5) of the Bankruptcy and Insolvency Act to argue that the rents were paid in full pursuant to the terms of the lease, at the times that are relevant, taking into account these provisions of the BIA.

[17] Section 65.1 reads:

Certain rights limited
65.1 (1) If a notice of intention or a proposal has been filed in respect of an insolvent person, no person may terminate or amend any agreement, including a security agreement, with the insolvent person, or claim an accelerated payment, or a forfeiture of the term, under any agreement, including a security agreement, with the insolvent person, by reason only that
(a) the insolvent person is insolvent; or
(b) a notice of intention or a proposal has been filed in respect of the insolvent person.

Idem
(2) Where the agreement referred to in subsection (1) is a lease or a licensing agreement, subsection (1) shall be read as including the following paragraph:
“(c) the insolvent person has not paid rent or royalties, as the case may be, or other payments of a similar nature, in respect of a period preceding the filing of
(i) the notice of intention, if one was filed, or
(ii) the proposal, if no notice of intention was filed.”

Provision of section override agreement
(5) Any provision in an agreement that has the effect of providing for, or permitting, anything that, in substance, is contrary to subsections (1) to (3) is of no force or effect.
[Emphasis added.]

[18] The Applicant argues that since the last non-payment of rent (non-compliance) was on June 1, 2022, and the NOI was filed on June 9, 2022, any non-payment of rent preceding June 9, 2022, is subject to the protective cover of s. 65.1 of the BIA, and cannot now be used by the Respondent to cause Baketree to forfeit the term of the lease. It is agreed that rents since June 9, 2022 have been paid in full and when due.

[19] The Respondent does not take issue with the fact that s. 65.1 of the BIA protected the Applicant from having its lease terminated prior to the end of the initial five-year period. However, the Respondent argues that the protection of s. 65.1 of the BIA from “a forfeiture of the term” must be narrowly construed such that it does not extend to additional terms obtained by exercising the “option to extend”. The Respondent argues that it was required to allow the tenant to remain under the original five-year term, but that the Respondent is permitted to rely on the non-payment of rents as a default, and to disallow any extension of the term.

[20] The position of the parties relies on differing interpretations of what constitutes the “term” of the lease. On examination of the language of the lease agreement, I reject the Respondent’s interpretation that the term of the lease is the original five-year period. I find that the term of the lease includes any extension which is properly exercised by the Applicant pursuant to clause 1.04.

[21] The lease agreement specifically defines “Term” as follows:
"Term" means that period of time set out in Section 1.03 of this Lease (and any and all extensions or renewals thereof, as may be applicable). [Emphasis added.]

[22] Two sophisticated commercial parties entered into an agreement which provides an unambiguous definition of “Term” to include up to a total of 20 years, at the option of the tenant.

[23] In addition, I have considered the fact that the lease agreement provides the Applicant an option to extend, and not an option to renew, the term by a total of up to 15 years. I find that the combined effect of the definition of “Term” and the fact that the option is an “option to extend” evidences an intention that the term was to encompass the original five years along with any extensions.

[24] Other courts have recognized a difference between options to renew and options to extend, even where the parties have not defined “Term” specifically to include the extensions, as the parties did here. In Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415, para 29, the Supreme Court of Canada considered the difference between an extension and a renewal. Specifically, at para. 29, the court stated:

Both Black’s legal dictionary and The Oxford Dictionary give separate and distinct definitions of the terms extension and renewal. Black’s Law Dictionary (5th ed. 1979) at p. 1165 defines “renewal” as “[t]he act of renewing or reviving. A revival or rehabilitation of an expiring subject; that which is made anew or re-established”, while it defines “extension” at p. 523 as “[a]n increase in length of time (e.g. of expiration date of lease, or due date of note).”

[25] The dispute in Manulife was in relation to the interpretation of mortgage documents, but I note that the court’s example of an extension is with reference to a lease.

[26] In Vancouver City Savings Credit Union v. New Town Investments Inc., 2008 BCSC 1617, para 13, the court distinguished between a renewal of a lease and an extension of that lease. In that case, prior to the expiry of the original term of the lease, the parties had negotiated an extension of the lease, which they had referred to as the “2002 Agreement”. The start and end dates of the 2002 Agreement did not line up with the dates of the existing options to renew that were embedded in the lease document.

[27] Upon the tenant’s exercise of their first option to renew, following the extension, the landlord argued that the tenant had already exercised its right of renewal via the 2002 Agreement and was not then entitled to an additional option to renew. In deciding that the 2002 Agreement was an extension of the lease which operated in addition to any option to renew, the court found, at para. 13 that there was a meaningful difference between the 2002 Agreement, and the options found in the lease:

In my view, the language of the 2002 Agreement is conclusive. It refers to an extension of the lease, and not to a renewal, which is a defined term in the Original Lease. This interpretation is supported by Black's Law Dictionary, 8th ed., which defines "extension" in part as:
n. 1. The continuation of the same contract for a specified period.” [Emphasis added.]

[28] I find that the term of the lease here included any extensions, and that the entire term was entitled to the protective cover of s. 65.1 of the BIA.

II: Was the Applicant otherwise in default of any term, covenant or condition of the lease?

[29] The Respondent argues that the Applicant was also in default of a term of the lease to provide documentation.

[30] Paragraph 60 of the affidavit of Eric Shtapler, Baketree’s President, states:
“Since the commencement of the Lease, to the best of my knowledge, Nico has never provided notice to Baketree that it has failed to perform any terms, covenants, or conditions under the Lease other than the incomplete Payment of Rent.”

[31] This evidence was not refuted nor was it challenged. Other than the issue as to the financial strength of the Applicant, discussed in detail below, I find that there is no evidence upon which I might conclude that the Applicant was in default of any term, covenant or condition of the lease. I find therefore that the second precondition under clause 1.04 to extending the lease has been satisfied.

III: Has the financial strength of the tenant diminished from that existing at the time of entering into the lease?

[32] I begin this part of the analysis with a consideration of the available evidence on this issue. At paras. 63 and 64 of his affidavit, Mr. Shtapler states:

63. In Baketree’s fiscal year ending May 31, 2020, the fiscal year in which it entered into the Lease, it had a net loss of $796,417. In the fiscal year ending May 31, 2024, the fiscal year in which it provided the Notice [to extend], Baketree had a net income of $685,175.

64. By almost any metric, Baketree’s financial position in 2024 was stronger than in 2020. For example, in 2020, Baketree had assets of $4,587,122 and liabilities of $4,628,559, a difference of -$41,437. Conversely, in 2024 Baketree had assets of $5,611,285 and liabilities of $3,936,008, a difference of $1,675,277.

[33] To support Mr. Shtapler’s claims, the Applicant’s financial statements for the years ending May 31, 2020 - May 31, 2024 were attached to his affidavit. In 2020 Baketree showed total sales of $8,640,518, and a net loss of $796,417. In 2021, the financial statement shows total sales of $6,759,218, and the net operating loss was reduced to $345,897. In 2022 total sales were $7,819,328 and the net loss was further reduced, to $257,973. In 2023, total sales increased to $9,447,735, and a net income of $1,635,409 was reported. Finally, in 2024, total sales of $11,043,187, and a net income of $685,175 was reported.

[34] Further, Mr. Shtapler’s evidence is that the assets on the balance sheet have increased by over $1 million from 2020-2024, and that the liabilities have diminished by over $692,000, for a net improvement of $1,675,277.

[35] The Applicant argues that on the basis of this evidence, Baketree has improved viability of about $1.5 million in 2024, as compared to 2020. The Applicant argues that, overall, the evidence available shows that Baketree has become viable again and is in fact in a financially stronger position than it had been in. The Applicant further argues that their evidence as to the financial strength of the business is unchallenged, as the Respondent did not present evidence to refute Mr. Shtapler’s affidavit, and conducted no cross examination.

[36] In arguing that the Applicant’s financial situation is diminished since entering into the lease, the Respondent relies heavily on one item, found in the Applicant’s materials: the existence of a dispute with the CRA, which as of 2024 is in excess of $1.8 million. It argues while this dispute has been ongoing, the Applicant shows this amount as a “receivable” in assets on the financial statements, thereby distorting the assets amount.

[37] From 2015-2019, the Applicant relied on temporary employees hired via an employment agency. According to Mr. Shtapler’s affidavit, the Applicant claimed the related ITCs. Although the employment agencies were HST registrants, the CRA denied the ITCs because the agencies failed to remit the HST.

[38] As indicated above, no cross examination was conducted on Mr. Shtapler’s affidavit. As such, this evidence is unchallenged, and I find that Mr. Shtapler’s conclusion that the Applicant is “cautiously optimistic” that it will succeed in the dispute with the CRA is a reasonable one. I also note that the ITCs issue arose prior to the parties entering into the lease, since the claims were made for the period of 2015-2019. As such, the impact of the dispute would affect all of the years since the inception of the lease.

[39] The ITCs issue existed in 2020 and continued to exist in 2024. I agree that the quantum in issue as of 2024 is significantly higher. If the Applicant is successful in its objection to the reassessment, its financial situation will be significantly improved in current day over what it was in 2020. If it fails, then the claimed receivable of $654,443 would be lost for 2020, and in 2024 the lost receivable would be $1,821,356. This would reduce the asset/liability improvement claimed in Mr. Shtapler’s affidavit by $1,166,913, reducing the favourable change to $508,364.

[40] The Respondent’s factum claims that the proposal to creditors itself represents evidence of a diminished financial circumstance in 2022. The lease agreement does not require that the financial strength of the Applicant is to be measured at every point during the term. Although neither party made any submission as to how to interpret clause 1.04 in this regard, I find that it is evident that the intention must have been to compare the financial strength of the Applicant at the date of the lease, to the financial strength of the Applicant at the time that it exercised the option to extend, and not on every day between those dates.

[41] The Respondent’s evidence suggests that an email between counsel for the parties is further evidence of diminished financial circumstance. I agree with the Applicant, that the email between counsel, marked without prejudice, ought not to have been included in the Respondent’s materials, or considered on this application. Nevertheless, as I have read the exchange, I would comment that I disagree with the Respondent’s characterization of it. The relevant part of the email correspondence stated, from the Respondent’s lawyer, “[i]s Eric going to pay the arrears given the amount of profits being recorded?” The Applicant’s lawyer replied, “[r]egarding payment, even though the income is good, all the profits go back into acquiring inventory and product and making sure they keep current with all their payables.” In my view, this exchange suggests the opposite conclusion to that proposed by the Respondent, as the Respondent’s lawyer is commenting on favourable profits reported.

[42] Finally, the Respondent points to the existence of forbearance agreements in 2024 as an indication that the Applicant’s financial situation is dire. I was not provided with any specific evidence as to the forbearance agreements, other than evidence that they were in good standing at the time of the preparation of the 2024 financial statements.

[43] At the application hearing, there were no expert reports or opinions. There was no evidence provided by the Respondent, and they conducted no cross examinations. On a balance of probabilities, I find that the Applicant’s financial position is stronger in 2024 than it was in 2020, and that it has not in any event diminished.

[44] As such, I find that the third precondition to the exercise of the option was met.

[45] Having concluded that, on a balance of probabilities, all three preconditions of clause 1.04 of the lease have been met, I conclude that the Applicant’s notice to extend is valid.

Would the Applicant be entitled to relief from forfeiture?

[46] Had I found that the Applicant was in default of one of the preconditions to exercise the option to extend the lease, I would have granted relief from forfeiture.

[47] Section 98 of the Courts of Justice Act, RSO 1990, c C.43, provides as follows:
A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.

[48] This provision empowers the court “to protect a person against the loss of an interest or a right because of a failure to perform a covenant or condition in an agreement or contract”: Kozel v. The Personal Insurance Company, 2014 ONCA 130, para 28.

[49] Relief from forfeiture is an equitable remedy that is purely discretionary, the exercise of which discretion requires the court to consider three factors: 1) the conduct of the party seeking relief from forfeiture; 2) the gravity of the breach giving rise to the forfeiture; and 3) the disparity between the value of the property forfeited and the damage caused by the breach giving rise to the forfeiture: see Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490, p. 504.

[50] The factors set out in Saskatchewan River Bungalows are not a “three-part test” that requires all parts to be satisfied but they are factors for the court to consider in deciding whether to exercise its discretion: see Scicluna v. Solstice Two Limited, 2018 ONCA 176, para 29.

[51] In considering relief from forfeiture under a commercial lease, the court should consider the conduct of the applicant asking for relief, and the conduct of the respondent landlord: 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., 1993 CarswellOnt 5327 (Ont. C.A.), at para. 3. In this case, I find that on the evidence before me, there was nothing in the conduct of the Respondent which influences the consideration.

[52] In order to be entitled to relief from forfeiture, the tenant must show that it has “made diligent effort[s] to comply with the terms of the lease which are unavailing through no default of his or her own”: see Ross v. T. Eaton Co., 11 O.R. (3d) 115 (Ont. C.A.).

[53] In coming to the conclusion that I would grant relief from forfeiture, I have considered the principles articulated in the aforementioned case law, the evidence on this application, and the submissions of the parties. Specifically, I have considered the three factors outlined in Saskatchewan River Bungalows, as articulated below.

1) The conduct of the Applicant

[54] I have considered that both parties agree that the Respondent is expected to be made whole in relation to the rents not paid during 2021 and 2022. This is because the personal guarantor, Mr. Shtapler agreed to pay the rent arrears personally. This demonstrates an acknowledgment of the debt owing and an intention to meet the Applicant’s obligations.

[55] The Applicant took possession of the premises days before the declaration of the COVID-19 pandemic. The evidence is that the Applicant spent $1.8 million in leasehold improvements, fixturing and equipment.

[56] I have considered that the COVID-19 pandemic had a serious and obvious impact on the economy. I have also considered the fact that the onset of the pandemic was outside the Applicant’s control.

[57] I note that the Respondent does not suggest any intentional or deceitful behaviour that would show that the Applicant ought not to be granted an equitable remedy.

[58] The Applicant made a proposal to its creditors which was supported by more than 95% of them, including the Respondent. The Applicant is not in any default of its obligations pursuant to the proposal.

[59] I take into account that, at the time that it voted in favour of the proposal to creditors, the Respondent was already aware that the Applicant had been in default of rent payments. The acceptance of a proposal in 2022 which involved payouts to creditors over 60 months, while intending to terminate the lease less than three years later, are incongruous positions.

[60] In my view, a consideration of the conduct of the Applicant favours the granting of the relief from forfeiture.

2) The gravity of the breach giving rise to the forfeiture

[61] I did not find the Applicant to be in breach of the lease agreement. However, if in fact there had been a breach, it could only have been related to the term to provide documents, or to pay rent when due, or to the precondition that the financial strength of the Applicant had not diminished. Therefore, I have considered the availability of relief from forfeiture in the event of either of these breaches.

[62] If there was a breach in relation to the non provision of any documents, I note that no documentation was ever demanded. As to non-payment of rent, the gravity of the breach must be considered in light of the COVID-19 pandemic, and the obvious impact it had on the Applicant’s businesses. A review of the month over month revenues in that period is self explanatory. The evidence shows a sharp decline in revenues in March 2020, and a slow resumption of revenue in the following months. In my view, a breach for non-payment of rent is less grave during the pandemic than it would have been in a non-pandemic economy. I also take into account that the Respondent will be repaid all or most of the outstanding rents as relevant to a consideration of the gravity of the breach.

[63] If a breach was in relation to a finding of a diminished financial position, I take into consideration that the outcome of the CRA objection will substantially impact the Applicant, either for the better or worse. I take into account that the Applicant’s objection to the CRA’s reassessment appears to have a solid basis and is not frivolous.

[64] I would also consider that the Applicant has not been in default of any condition of the lease or missed any payments since 2022.

[65] A consideration of the gravity of the breach favours the granting of relief from forfeiture.

3) The disparity between the value of the property forfeited and the damage caused by the breach giving rise to the forfeiture

[66] The Respondent led no evidence whatsoever of what prejudice it may suffer if the Applicant has relief from forfeiture of the option to extend.

[67] Further, I take into account that clause 12.01 of the lease provides for fifteen separate events of default that entitle the Respondent a right of re-entry and/or termination of the lease. In the event that the Applicant’s financial circumstances were to fail, and it did not meet all of its obligations under the lease, the Respondent could take immediate action under the default provisions. I note that these same events of default and corresponding rights of re-entry or termination were available to the Respondent in 2021/2022, but it evidently determined not to exercise its right to re-entry or termination during the pandemic.

[68] I take into account the irreparable prejudice to the Applicant in the event that it loses the lease. In Firkin Pubs Metro Inc. v. Flatiron Equities Limited, 2011 ONSC 5262, para 51 citing Towcon Holdings Inc. v. Pinnacle Millwork Inc., paras 62-66, the court considered the fact that the consequences of forfeiture of the tenant’s right to extend its lease would be very significant; “[i]t will lose a franchise location, the franchisee will lose its business and numerous employees will lose their jobs. Such losses are inequitable and warrant relief in the circumstances.”

[69] Here, the Applicant spent $1.8 million in leasehold improvements and in equipment in fixturing the property. The Applicant’s evidence is that since making the proposal to creditors, Baketree is no longer in a position to borrow funds to finance a move to another location. The undisputed evidence is that a loss of the current lease would be devastating to the Applicant and that it would go out of business as a result.

[70] The affidavit of Mr. Shtapler at para. 19 indicates that the option to extend was essential to the applicant, and the lease, including the cost of improvements and equipment, would not have been economically viable without it. Further, Mr. Shtapler clearly states that without the option to extend, the Applicant would not have signed the lease.

[71] In considering this final factor, I consider that the Applicant’s staff of 113 would become unemployed if Baketree went out of business.

[72] I have also considered that over 100 creditors will go unpaid if the Applicant goes out of business as Baketree will be unable to meet its obligations under the accepted BIA proposal.

[73] I take into account that the uncontradicted evidence before me is that the Respondent will receive payment of the rent arrears from the pre-June 2022 period.

[74] I find that this third Saskatchewan River Bungalows factor weighs heavily in favour of the Applicant in determining whether it would be appropriate to grant relief from forfeiture. In considering all of the evidence, and all three factors, I find that each favours the granting of relief.

[75] Having considered all of the relevant factors, had I found that the Applicant was in default of one of the preconditions to exercise the option to extend the lease, I would have exercised my discretion to grant relief from forfeiture of the options to extend the lease.

Schedule E and the Opportunity to Purchase

[76] The lease provides that Baketree has a first opportunity to negotiate the purchase of the property, provided certain preconditions are met. These preconditions are similar to the ones in relation to the term. The provision reads, “Provided that the Tenant: a) is the original Tenant; and b) is not and has never been in default under the Lease, the Tenant shall have a one-time first opportunity to negotiate the purchase of the Leased Premises, as follows: [detailed terms follow].”

[77] I am not persuaded that the protection of s. 65.1 of the BIA provides a protective cover in relation to the opportunity to purchase. On a plain reading of the s. 65.1, the Respondent cannot terminate or amend the lease on account of the proposal, but there is nothing to prevent the Respondent from otherwise relying on the terms as agreed. As such, the Respondent is entitled to consider that the Applicant was in default of the lease when it failed to pay rents for the purpose of a consideration of the right to exercise the opportunity to purchase.

[78] Indeed, the parties agree that the Applicant was in breach of the agreement by failing to pay complete rents over an extended time from 2021-2022, and as such was clearly in default of the lease. Section 65.1 of the BIA does not protect against the loss of all rights and options. The wording of s. 65.1(1) is very specific that “no person may terminate or amend any agreement … or claim accelerated payment, or a forfeiture of the term, under any agreement”. [Emphasis added.]

[79] On a balance of probabilities, I find that the Applicant lost its first opportunity to negotiate under Schedule E when it failed to pay rents, notwithstanding the reality that the defaults occurred during the pandemic, where the circumstances were outside of the Applicant’s control.

Relief from Forfeiture of the Opportunity to Negotiate a Purchase

[80] I have considered the three Saskatchewan River Bungalows factors as they relate to the opportunity to negotiate a purchase, and do not find that this is a situation where the court is compelled on the basis of equity to grant the relief.

[81] My analysis of the conduct of the Applicant and the gravity of the breach (the first two factors in Saskatchewan River Bungalows) would remain the same as my consideration above in relation to the option to extend. Both of those considerations support relief from forfeiture.

[82] In my view, the third factor does not support the granting of equitable relief. The creditors and the landlord will have been paid, and the Applicant has a significant period during which it may make other arrangements. I have no reason to believe that the Applicant would go out of business, or that its employees would lose their jobs if the Applicant does not have the first right to negotiate a purchase. I have no evidence as to whether the Applicant was or will ever be in a position to purchase the building and as such, I have no evidence as to the relative importance of the clause to each party.

[83] The Applicant entered into a lease which can be extended for a total of 20 years, from its inception in 2020. Unless the Respondent decided to sell the property during the course of the coming 15 years, the opportunity to negotiate a purchase would not be triggered. Unlike the option to extend provisions, where the Applicant’s evidence is that they would not have entered into the lease without them, there is no evidence as to how much the Applicant relied on the opportunity to purchase provision.

[84] The Respondent is entitled to enforce the provisions of the lease, and to insist on the extinguishment of an option where the preconditions for extinguishment are met.

[85] In considering all of the factors, I do not find that this is a circumstance where the court should intervene. Two commercial entities negotiated a lease and, absent exceptional circumstances, or the operation of a law which takes priority over their private bargain, as I found to be the case on the issue of the term, their bargain should stand. I would therefore not exercise my discretion to grant relief from forfeiture of the Applicant’s opportunity to negotiate a purchase.

Conclusion

[86] For the reasons articulated above, I find that the Applicant’s exercise of the option to extend the lease is valid and the parties’ lease has thus been extended by five years. Had I found that the Applicant was in breach of any of the conditions precedent to its exercise of the option to extend, I would have granted relief from forfeiture.

[87] Further, the Applicant has lost its opportunity to negotiate a purchase as per Schedule E and this is not an appropriate case to grant relief from the forfeiture of this opportunity.

Costs

[88] I would urge the parties to agree on costs. If the parties are unable to agree, then costs submissions may be made as follows:

a. Within 15 calendar days of the distribution of these reasons to counsel, the Applicant, Baketree Inc. shall serve and file their written costs submissions, not to exceed three pages, double-spaced in 12pt font, together with a draft bill of costs and copies of any pertinent offers;

b. The Respondent, Nico Properties Inc. shall serve and file its responding costs submissions of no more than three pages, double-spaced in 12pt font, together with a draft bill of costs and copies of any pertinent offers, within 25 calendar days of the distribution of these reasons;

c. The Applicant’s reply submissions, if any, are to be served and filed within 30 calendar days of the distribution of these reasons, and are not to exceed two pages;

d. If no submissions are received within the times allocated by either party, said party shall be deemed to have no submissions; and

e. If no submissions are received by either party, the parties will be deemed to have resolved the issue of the costs, and costs will not be determined by me.

S. Antoniani

Released: February 18, 2025