A CASE COMMENTARY BY DOUG SMYTH

A CASE COMMENTARY BY DOUG SMYTH

Topic: Civil Litigation March 26, 2018 by Doug Smyth

Douglas Smyth

North Elgin Center Inc. V. McDonald’s Restaurants of Canada Limited

2018 ONCA 71 docket C63933

Heard January 22, 2018 on appeal from the judgment of Justice Jasmine T. Akbarali of the Superior Court of Justice dated May 30, 2017 with reasons reported 2017 ONSC 3306.

You are a commercial landlord. You have a tenant on a 21 year ground lease with an option to renew for two consecutive additional terms of 10 years each.  The tenant served notice that it wished to exercise the option to renew in time but failed in negotiations to agree to the new rental rate at least 9 months before the end of the original term as required in the lease. The Tenant has not referred the matter to arbitration or revoked its intention to renew as required by the lease.  By entering into negotiations with the tenant you have likely waived your right to strict compliance with the lease provisions relating to renewal provision. What do you do?

One route would be to have your lawyer send an email revoking your waiver and reverting to your strict legal rights to terminate the lease after the original term. But beware this must be done in the appropriate fashion.

The Original Application

In the subject case on the Landlord’s original application for a declaration that the lease be at an end upon the expiry of the initial term, it was found that due to circumstances as outlined above, the lease was uncertain as to a material term (the rental rate) and as such the parties were left without an enforceable agreement. Further due to the negotiations the landlord was found to have waived its right to insist on strict compliance with the renewal provision. However the landlord later revoked its waiver and reverted to its strict legal rights. Accordingly, it was found that the doctrine of waiver did not apply and the lease was at an end. It was also found that Relief from Forfeiture was not available.

The Principle of Waiver

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, 35 0.R. (2nd) 215 (H.C.) at paragraph 20.

The Appeal

On appeal by the tenant it was found that there was a palpable and overriding error of mixed fax and law made by the application judge.

The Court of Appeal found for a revocation of a waiver to be effective it must provide reasonable notice to the receiving party: Petridis at paragraph 20. To qualify as reasonable the notice must;

  1. make it clear that the party who granted the waiver will insist upon the strict enforcement of its legal rights;
  2. the notice must also afford the opposite party an opportunity to cure any defect resulting from its reliance on the waiver.

The emails sent by the landlord’s lawyer in the first instance did not provide a reasonable time to cure the breach of the lease and in the 2nd instance merely stated the position of the landlord that the lease was terminated at the end of its initial term and if the tenant didn’t agree, the landlord would bring a motion to terminate the lease. It was held that no opportunity to cure the defect was provided to the tenant in either instance.

The Appeal Decision:

The palpable and overriding error of mixed fax and law was that the application judge erred in finding that the waiver had been revoked when in fact it had not been properly revoked by reasonable notice. A declaration was granted that the lease was renewed for the renewal term with the issue of fair market rental rates being referred to arbitration; other incidental relief relating to the Planning Act was also granted. The tenant was to pay $10,000 to the landlord for its costs of the application and the landlord was to pay $15,000 to the tenant for its costs of the appeal.

Comment:

The $5000.00 moral of the story is if you’re going to revoke the waiver of your rights to rely on the strict provisions of an agreement, you must do so properly by reasonable notice which will include the following key features:

  • make it 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.

Disclaimer: This commentary is not intended as legal advice nor should it be taken as or be relied on as legal advice in any particular matter. The commentary is only a comment on the law as set out in the case reviewed. Each case turns on its own facts and we suggest that you seek legal advice as it may pertain to your own situation.  If you have a question regarding the enforcement of a contract, contact one of LMR’s litigation lawyers for information about your rights and obligations.

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