



COURT OF APPEAL FOR ONTARIO

CITATION: 2324702 Ontario Inc. v. 1305
    Dundas W Inc., 2020 ONCA 353

DATE: 20200605

DOCKET: C67817

Feldman, Lauwers and Huscroft
    JJ.A.

BETWEEN

2324702 Ontario Inc.

Applicant/Respondent by way of cross-application

(Appellant)

and

1305
    Dundas W Inc.

Respondent/Applicant by way of cross-application

(Respondent)

Sam A. Presvelos, for the appellant

Robert B. Cohen and Melissa Winch, for
    the respondent

Heard: In writing

On appeal from the order of Justice Shaun
    S. Nakatsuru of the Superior Court of Justice, dated March 29, 2019, with
    reasons reported at 2019 ONSC 1885, 100 R.P.R. (5th) 223.

REASONS
    FOR DECISION

[1]

The appellant leased a commercial lounge and
    event space at 1305 Dundas Street West in Toronto from the respondents
    predecessor, as part of a five-year lease beginning March 1, 2008. The
    appellant operated a restaurant and lounge called Remix on the premises. On
    September 5, 2013, the parties signed a lease amending agreement, which extended
    the original term to the end of September 2018 and gave the appellant a unilateral
    option to renew the lease for a further five years. The lease renewal option
    reads as follows:

Provided that the Tenant is: (a) 2324702
    Ontario Inc.; (b) in occupation of the whole of the Premises; and (c) not in
    default under this Lease, the Tenant shall have the option exercisable on no
    less than nine (9) months and no more than eleven (11) months written notice
    to the Landlord prior to the expiry of the then current Term to extend the
    Lease with respect to the Premises for one (1) additional term of five (5)
    years each on the same terms and conditions as the Term save and except:


(i)

there will be no further right to extend the Term following the
    second extension term;


(ii)

the basic rent rate for each extension term shall be the then fair
    market Minimum Rent rate for comparable premises in the area, provided that in
    no event shall such rate be less than the Minimum Rent payable during the last
    twelve (12) month period immediately preceding the commencement of the then
    current extension term; and


(iii)

there shall be no leasehold improvement allowance, Landlords Work,
    rent-free period or other inducements.

If the parties are unable to agree on the
    Minimum Rent for an extension term on or before the date that is sixty (60)
    days prior to the commencement of such extension term, then such Minimum Rent
    shall be determined by arbitration before a sole arbitrator in accordance with
    the
Arbitration Act, 1991
(Ontario), or its successor legislation. The
    parties shall execute a lease extension agreement prepared by the Landlord to
    reflect the terms of the extension term.

[2]

The respondent bought the building in July 2017
    and became the appellants landlord. The application judge found that although the
    parties communicated by email with respect to renewal, the appellant had not
    renewed the lease in accordance with the terms of the option to renew. He also
    refused to grant relief from forfeiture. On this appeal, the appellant submits
    that the application judge erred in both respects.

[3]

For the reasons that follow, we find that the
    application judge made no reviewable error and the appeal must be dismissed.

A.

Facts

[4]

The renewal option in the lease amending
    agreement required the appellant to give no less than nine (9) months and no
    more than eleven (11) months written notice to the Landlord prior to the
    expiry of the then current term in order to renew the lease. This meant that
    written notice of renewal had to be given between November 1, 2017 and December
    31, 2017. The application judge found that the appellant did not provide
    written notice of renewal during that period.

[5]

On May 15, 2017, the appellant requested a
    meeting with its investment group and the respondent. On May 18, 2017, the
    respondent said it was prepared to meet as requested. On June 6, 2017, after
    the parties met, the respondent sent a follow-up email indicating that it was
    still considering its future plans for the building and that if the lease were
    to be extended, the rent would be closer to market rent for commercial space in
    the area. On October 16, 2017, the appellant emailed that it wished to discuss
    our 5yr lease option with you it is very important to us to have this spelled
    out at this time as our interested investors were waiting for this information
    to decide on our new plans for the venue. The appellant proposed a rent rate,
    and hoped they could work this out [] as soon as possible.

[6]

These conversations all took place before the renewal
    period, which began on November 1, 2017.

[7]

The parties exchanged a number of emails on
    November 3, 2017, discussing and disputing the fair market rent value. In the
    course of the exchange, the respondent stated that it would be more than happy
    to extend your lease, but we do need it to be adjusted to the market price, and
    later, that it was willing to discuss more in details and hopefully reach an
    agreement. Ultimately, the respondent asked the appellant to present its best
    offer, to which the appellant responded that it was waiting for the
    compatibles and that it would get back [] early next week. However, no best
    offer was ever presented in writing.

[8]

The renewal period concluded at the end of
    December 2017.

[9]

When the appellant failed to pay the February
    2018 rent, the respondent terminated the lease. The appellant then commenced an
    application on February 21, 2018 for a declaration that the lease had not been
    validly terminated, or for relief from forfeiture. The respondent brought a
    cross-application on July 12, 2018 for a declaration that the lease was
    terminated. Counsel reached an interim, without prejudice agreement that the
    appellant could remain in the premises pending the outcome of the litigation on
    payment of rent. Then, on September 11, 2018, the application judge granted the
    appellant an adjournment on terms that included the ongoing payment of rent.
    The application was heard on February 20, 2019. In the interim, two rent
    cheques were paid late, one of which was returned for non-sufficient funds
    (NSF).

B.

Reasons of the Application Judge

[10]

The first issue before the application judge was
    whether the respondent had validly terminated the lease for failure to pay rent
    in February 2018. He found that it had. The next issue was whether the appellant
    should be granted relief from forfeiture for its breach of the lease in
    February 2018. The application judge granted the appellant relief from that
    forfeiture. The appellant does not challenge these findings on appeal.

[11]

With the original lease still in effect, the
    main issues on the applications were whether the appellant had validly
    exercised its option to renew the lease for five years, whether the respondent had
    waived strict compliance with the lease renewal provision and was estopped from
    relying on it, and if not, whether the appellant should be relieved from
    forfeiture for failing to validly renew.

[12]

The first issue was whether the appellant had
    validly exercised the option to renew the lease. The application judge found,
    at para. 45, that the email correspondence from the tenant did not contain an
    exercise of the option to renew in accordance with the terms of the lease
    amending agreement, given that the case law requires strict compliance with the
    renewal provisions of a lease: see
120 Adelaide Leaseholds Inc. v. Oxford
    Properties Canada Ltd.
, [1993] O.J. No. 2801 (C.A.), and
Doria v. 66
    Degrees Inc.
(2000), 30 R.P.R. (3d) 287 (Ont. S.C.). Rather, the appellant
    was looking to negotiate and agree on the rent as a condition of renewal: at
    paras. 47, 51. These communications were far from an unequivocal and clear
    exercise of [the appellants] option to renew: at para. 47. The words
    exercise the option were never used, nor did the appellant activate the
    arbitration process: at para. 50. The application judge specifically rejected
    the affidavit evidence on behalf of the appellant to the extent that it stated
    that the email correspondence indicated an understanding that the option had
    been exercised: at para. 51.

[13]

The next issue was whether the landlord had
    waived the need for strict compliance. At para. 55, the application judge found
    that the two requirements of waiver that the Supreme Court set out in
Saskatchewan
    River Bungalows Ltd. v. Maritime Life Assurance Co.
, [1994] 2 S.C.R. 490, had
    not been met: 1) a full knowledge of rights; and 2) an unequivocal and
    conscious intention to abandon those rights. He concluded, from the lack of
    further discussion between the parties about rental rates following the
    November 3, 2017 emails, that [t]he ready inference [] is that the [respondent]
    stopped discussing it as [the appellant] stopped pushing for it because [the
    appellant] had not given the required written notice: at para. 55.

[14]

The application judge also rejected the argument
    that the respondent was estopped by its silence or otherwise from relying on
    strict compliance with the lease terms. The appellant argued that the respondents
    statement in one of the November 3 emails that it would be happy to extend the
    tenants lease constituted an estoppel. The application judge did not accept this
    submission: at para. 58. The phrase was used in the context of the rent being
    set at market price, but there was no meeting of the minds on this issue: at
    para. 58. Nor did the respondent use silence to mislead the appellant into
    believing that it viewed the option as exercised: at para. 59. There were no
    ongoing negotiations or other conduct after the renewal period that could have
    misled the appellant: at para. 60.

[15]

The application judge then turned to relief from
    forfeiture, although he commented that it had not been specifically requested.
    He found, at para. 63, that the appellants conduct was not reasonable, that it
    was hedging its bets, and that it had not made diligent efforts to comply with
    the terms of the lease, as required by
120 Adelaide Leaseholds Inc.
for a grant of relief from forfeiture. He also found that the appellant was not
    unsophisticated regarding knowledge of its rights: at para. 64. Further, unlike
    in other cases, such as
Velouté Catering Inc. v. Bernardo
, 2016 ONSC
    7281, 135 O.R. (3d) 32, or
Firkin Pubs Metro Inc. v. Flatiron Equities
    Limited
, 2011 ONSC 5262, 8 R.P.R. (5th) 312, the respondent had not, by misrepresentation
    or conduct, led the appellant to believe it had effectively renewed: at para.
    66.

[16]

Finally, the application judge found that the appellants
    conduct did not warrant an award of equitable relief that would result in a
    five-year lease extension. The fact that the appellant had missed paying rent
    on time three times, including in the face of a court order, went to the heart
    of the relationship, leading the application judge to conclude, at para. 67:
    To be blunt, it would not be fair to the [respondent] to enforce a renewal
    that [the appellant] did not properly renew, in these circumstances.

C.

Issues on Appeal

[17]

The appellant argues that the application judge
    erred by 1) failing to find that the respondent waived its right to require
    written notice of the lease renewal, and 2) failing to grant the appellant relief
    from forfeiture for failure to deliver written notice of renewal.

D.

Analysis

(1)

The respondent did not waive the right to
    require strict compliance with the written notice provision of the renewal
    option

[18]

The appellant submits that the application judge
    misapprehended the evidence of the effect of the email correspondence
    negotiations, which it says reflected a mutual understanding that the lease was
    going to be renewed, pending determination of the rent. The appellant relies on
    the fact that the respondent never told the appellant that the appellant had
    not actually exercised its option to renew. The appellant also submits that the
    application judge erred by putting weight on the fact that the appellant never
    invoked the arbitration clause for determining the fair market rent, when it
    was effectively precluded from doing so when the respondent terminated the
    lease for failure to pay rent in February 2018. Finally, the appellant argues
    that the application judge erred by relying on
Doria
,

at para.
    8, where Low J. held that a course of negotiation without a clear exercise of a
    renewal option will not amount to waiver, because that case was distinguishable
    on the facts.

[19]

We see no error in the approach or the overall findings
    of the application judge. Both parties were prepared to renew if the rent could
    be agreed upon. But the application judges reading of the negotiations led him
    to the conclusion that it was the appellant which was not prepared to commit to
    the renewal by actually exercising the option before it knew what the rent
    would be. We agree that the lease was terminated more than 60 days before the
    end of its term, and therefore before the time when the appellant could have invoked
    the arbitration clause. However, the application judges misperception that the
    appellant had failed to invoke the arbitration clause was a minor additional factor
    in his overall assessment that the appellant was hedging and did not intend to
    exercise the option before the rent was agreed.

[20]

It is true, as submitted by the appellant, that
    the option to renew was unilateral and the respondent did not have to agree to
    it. However, the appellant wanted the respondent to agree on a rental figure
    before it committed itself to the renewal. We see no error in the application
    judges conclusion that, in adopting this posture, the appellant effectively
    sought to deny the respondent the certainty that a lease renewal option of this
    kind is meant to provide. We also see no error in the application judges
    assessment of the evidence, to which this court defers.

[21]

Moreover, we see no basis to interfere with his
    application of the test for waiver from
Saskatchewan River Bungalows
.
    The appellant never sent its best offer and there were no further negotiations
    after the expiry of the option period, as in the three cases referred to by the
    appellant:
Directors Film Co. v. Vinifera Wine Services Inc.

(1998), 38 O.R. (3d) 212 (Gen. Div.);

Petridis v. Shabinsky et
    al.

(1982), 35 O.R. (2d) 215 (H.C.);

and

Doral Holdings Ltd. v. Bargain Books Ltd.
, [1994] O.J. No. 3103 (Gen.
    Div.)
.
The respondent did nothing to indicate that it was abandoning its
    right to expect a written notice of renewal within the notice period.

(2)

The application judge did not err by failing to
    grant relief from forfeiture

[22]

The
Commercial Tenancies Act
, R.S.O.
    1990, c. L.7, allows the court to grant such relief as [] the court thinks
    fit, having regard to all the circumstances, where a landlord seeks to enforce
    a right of re-entry or forfeiture following a tenants breach: ss. 19, 20(1). The
Saskatchewan River Bungalows
case also established the test for
    granting relief from forfeiture. In granting the discretionary and equitable
    remedy of a relief from forfeiture, a court is to consider the conduct of the
    applicant, the gravity of the applicants breaches of the lease, and the
    disparity between the value of the forfeited property and the damage caused by
    the breach:
Saskatchewan River Bungalows
, at p. 504.

[23]

Although the failure to renew the lease is not a
    breach of the lease, the court may grant relief from forfeiture where a party
    seeks to renew the lease but has not complied with the formal requirements or
    preconditions for doing so. However, this relief is available only in
    circumstances more narrowly confined than the three-pronged test from
Saskatchewan
    River Bungalows
. As recently restated in
McRae Cold Storage Inc. v.
    Nova Cold Logistics ULC
, 2019 ONCA 452, at para. 10:

With respect to the renewal of a lease, a
    precondition for the exercise of any such equitable discretion is that the
    tenant has made diligent efforts to comply with the terms of the lease which
    are unavailing through no default of his or her own:
120 Adelaide
    Leaseholds Inc.
, at para. 9;
Ross v. T. Eaton Co.
(1992), 11 O.R.
    (3d) 115 (C.A.), at pp. 124-125;
1383421 Ontario Inc. v. Ole Miss Place
    Inc.

(2003), 67 O.R. (3d) 161 (C.A.), at para. 80;
Mapleview-Veterans
    Drive Investments Inc. v. Papa Kerollus VI Inc.
, 2016 ONCA 93, 344 O.A.C.
    363, at paras. 55-56.

[24]

The application judge found that equitable
    relief was not warranted here because of the appellants conduct. First, the appellant
    had not made diligent efforts to comply with the renewal term, but instead
    hedged its bets by seeking to negotiate without committing to renew. Second,
    the appellants failure to pay its rent on time, including one time when it
    delivered an NSF cheque, was not the type of reasonable conduct that a court
    looks for as the basis to grant equitable relief. Although the appellant has a
    large investment in the premises which it stands to lose, this consequence is
    effectively a result of its own decisions regarding its conduct in relation to
    the respondent.

[25]

The appellant argues that in assessing its conduct,
    the application judge misapprehended the evidence by stating that the appellant
    had experience in exercising a renewal option for the premises. In fact, the
    appellant says, it had not previously exercised a renewal option but rather,
    entered into a lease amending agreement. We reject this argument. The
    application judges point was that the appellant had a level of sophistication
    in dealing with the lease of the premises, which was partly based on its prior
    dealings with the respondents predecessor in negotiating and concluding the
    lease amending agreement. That experience spoke against any misunderstanding of
    the renewal requirements.

E.

Conclusion

[26]

For these reasons, the appeal is dismissed with
    costs to the respondent fixed at $10,000, inclusive of disbursements and HST.
    In addition, as requested by the respondent, the August 29, 2019 order of
    Kiteley J., staying the order below pending appeal, is vacated.

K. Feldman J.A.

P. Lauwers J.A.

Grant Huscroft J.A.


