



COURT OF APPEAL FOR ONTARIO

CITATION:
AIM
    Health Group Inc. v. 40 Finchgate Limited Partnership,
2012 ONCA 795

DATE: 20121120

DOCKET: C54997

Feldman, Gillese and Epstein JJ.A.

BETWEEN

AIM Health Group Inc. (formerly known as CPM
    Health Centre Inc.)

Applicant (Respondent)

and

40 Finchgate Limited Partnership

Respondent (Appellant)

V. Ross Morrison and Natalie Schernitzki, for the
    appellant

John Russo and Marc D. Whiteley, for the respondent

Heard: June 22, 2012

On appeal from the order of Justice Joseph M. Fragomeni
    of the Superior Court of Justice, dated January 6, 2012, with reasons reported
    at 2012 ONSC 169.

Gillese
    J.A. (dissenting):

[1]

This appeal raises interesting questions about the interpretation of a
    lease.  In particular, the court must decide whether a lease gave the tenant
    the right to stay in occupation on the expiration of the initial term of the
    lease.

[2]

At first instance, the judge found in favour of the tenant and held that
    the landlord acted wrongfully when it locked out the tenant from the leased
    premises.

[3]

In my view, the decision below is correct.  As a result, I would dismiss
    the landlords appeal.

BACKGROUND

[4]

AIM Health Group Inc. (the Tenant or AIM Health) operated a chronic
    pain management facility (the Clinic) from leased premises located at unit
    224A, 40 Finchgate Blvd. in Brampton, Ontario (the Property).  William J.
    Danis was AIM Healths Senior Vice President of Operations and Finance at the
    relevant times.

[5]

40 Finchgate Limited Partnership (the Landlord) is a limited partnership
    registered in the province of Ontario under the
Limited Partnerships Act
,
    R.S.O. 1990 c. L.16, as amended.  It owns the Property and is the landlord. 
    Susanne Gilbert represented the property manager that the Landlord had engaged
    to manage the Property.

[6]

The Landlord and AIM Health entered into a commercial lease agreement in
    February of 2007 (the Lease).  The term of the Lease was for 5 years,
    beginning on January 1, 2007.  The term was to expire on December 31, 2011, but
    there was an option to renew for an additional 5 years.

[7]

The Clinic was staffed with four physicians and seven full and part-time
    staff and technicians.  It facilitated approximately 700 patient care visits
    per month.

[8]

In the spring of 2010, the Ontario government enacted legislation
    requiring certain medical facilities to comply with premise inspection
    standards published by the College of Physicians and Surgeons of Ontario (the
    College).

[9]

In February of 2011, the Colleges inspection team attended at the
    leased premises to conduct an inspection.

[10]

In
    the spring of 2011, Mr. Danis told Ms. Gilbert that AIM Health would not renew
    the Lease because the Clinic was going to relocate.  However, he let her know
    that it was likely that the Clinic would need to stay in the leased premises for
    a few weeks or months after the term expired at the end of 2011.  He was unable
    to be more definite about how long the Clinic would need to stay after the term
    ended because it was not clear when the Colleges inspection process would be
    completed.  Before the Clinic could be relocated, it had to pass the Colleges
    inspection regime.  By law, it could not operate from another location prior to
    receiving a passing designation.

[11]

In
    light of AIM Healths decision that it would not exercise the option to renew,
    the Landlord took steps to locate a new tenant.

[12]

Ms.
    Gilbert and Mr. Danis had a number of conversations in the spring, summer and
    fall of 2011 about the delays involved in relocating the Clinic and AIM
    Healths need for an extension at the end of the term.

[13]

In
    October of 2011, AIM Health advised the Landlord, through Ms. Gilbert, that it
    would likely need an extension of the Lease until mid or late February of 2012
    because of delays with the inspection.  AIM Health was given no indication that
    such an extension would be problematic.

[14]

In
    mid-December of 2011, Mr. Danis communicated again with Ms. Gilbert, making it
    clear that AIM Health had been further delayed in relocating due to the
    inspection process, and that it would require a longer extension of the Lease.

[15]

By
    letter dated December 19, 2011, the Landlord advised AIM Health that it
    required vacant possession of the leased premises by December 31, 2011, because
    it had secured a new tenant for January 1, 2012.

[16]

On
    December 21, 2011, the Landlord entered into a new lease agreement with a new
    tenant.  The new lease was to begin on January 1, 2012, and run for a term of
    four years.

[17]

Also
    on December 21, 2011, AIM Health made a written request for a three-month
    extension of the Lease.  The Landlord refused because it had secured the new
    tenant.  While the Landlord offered AIM Health alternative space in the
    Property from which to run the Clinic, this was not a viable alternative due to
    the inspection regime.

[18]

The
    term of the Lease expired on December 31, 2011.  AIM Health continued to occupy
    the leased premises.

[19]

On
    January 1, 2012, the Landlord changed the locks on the leased premises.  On
    January 3 and 4, 2012, it removed the Tenants property from them.

[20]

AIM
    Health brought an emergency application in which it sought, among other things,
    a declaration that it was entitled to re-enter the leased premises.  It claimed
    to be an overholding tenant pursuant to s. 3.05 of the Lease.  As such, it
    maintained that the Lease had become a month to month tenancy, which the
    Landlord had not given notice to terminate.

[21]

Section
    3.05 is the overholding provision in the Lease.  It sets out the conditions
    that apply when the Tenant stays in occupation after the expiration of the term
    of the Lease.  It reads as follows:

3.05   Overholding

If, at
    the expiration of the initial Term
or any subsequent Term or
    any subsequent renewal or extension thereof,
the Tenant shall continue to occupy the Leased Premises
    without further written agreement
, there shall be no tacit
    renewal of this Lease, and
the
    tenancy of the Tenant thereafter shall be from month to month only and may be
    terminated by either party on one months notice
. Rent shall be
    payable in advance on the first day of each month equal to the sum of 150% of
    the monthly instalment of Basic Rent payable during the last year of the Term
    and one twelfth (1/12) of all Additional Rent charges herein provided for,
    determined in the same manner as if the Lease had been renewed and all terms
    and conditions of this Lease shall, so far as applicable, apply to such monthly
    tenancy.  [Emphasis added.]

[22]

AIM
    Health contended that in light of s. 3.05, the Landlords entry into the
    premises and removal of its property was a breach of the terms of the Lease.

[23]

Section
    7.08 of the Lease provides that the Tenant must surrender the leased premises
    at the expiration or sooner termination of the Lease.  It reads as follows:

7.08   Surrender
    of Leased Premises

At the expiration or sooner termination of this Lease, the
    Tenant shall peaceably surrender and give up unto the Landlord vacant
    possession of the Leased Premises in the same condition and state of repair as
    the Tenant is required to maintain the Leased Premises throughout the Term and
    in accordance with its obligations in Section 7.07 hereof.

[24]

The
    Landlord argued that pursuant to s. 7.08 of the Lease, the Tenant was required
    to surrender the leased premises on December 31, 2011, when the term expired. 
    As AIM Health had not delivered up vacant possession by January 1, 2012, the
    Landlord said that it had no alternative but to retake possession so that it
    could comply with its obligation to the new tenant.

[25]

The
    application judge found in favour of the Tenant.  He held, among other things,
    that the Tenant was validly overholding pursuant to s. 3.05 of the Lease. 
    Consequently, he declared, the Tenant was entitled to re-enter the leased
    premises.

[26]

The
    Landlord appeals.  The essence of its position is that s. 7.08 of the Lease
    applies, rather than s. 3.05, and accordingly, at the expiration of the term of
    the Lease, AIM Health was required to give up vacant possession of the leased
    premises.

[27]

By
    the time the appeal was heard, the live dispute between the parties had
    disappeared.  The Landlord had given AIM Health one months notice to vacate
    and AIM Health had done so.  As well, AIM Health had tendered, and the Landlord
    had accepted, payment on account of AIM Healths overholding.  The Tenant
    submitted that as the dispute between the parties was moot, the court should
    decline to hear the appeal.

[28]

The
    issues decided by this appeal are significant to many more than just these
    parties.  Moreover, they are likely to arise again.  For those reasons, the
    court acceded to the Landlords request and exercised its discretion to hear
    and decide the appeal.

THE RELEVANT LEASE PROVISIONS

[29]

The
    relevant Lease provisions are set out below.

1.01   Summary
    of Basic Terms

(g)     (i)
Term
:                                       Five
    (5) Years,                                                                subject
    to Section                                                            3.04.

(ii)
Commencement
January 1, 2007,
Date
:                              subject
    to Section                                                            3.04.

(iii)
End
    of Term
:                  December 31,                                                                 2011,
    subject to                                                              Sections
    3.03 and                                                            3.04.

...

(m)
Special
    Provisions
:                 Set out in                                                                        Schedule
    D.

...

2.01   Definitions

...

(q)
Term
means the period specified in Subsection 1.01(g)(i) and any additional period
    during which the Landlord shall accept rent as provided in this Lease.

...

3.03   Term

The Term shall commence on the Commencement Date, run for the
    period set out in Subsection 1.01(g)(i) and end on the date set out in
    Subsection 1.01(g)(iii) unless terminated earlier pursuant to this Lease.

...

3.05   Overholding

If, at the expiration of the initial Term or any subsequent
    Term or any subsequent renewal or extension thereof, the Tenant shall continue
    to occupy the Leased Premises without further written agreement, there shall be
    no tacit renewal of this Lease, and the tenancy of the Tenant thereafter shall
    be from month to month only and may be terminated by either party on one
    months notice. Rent shall be payable in advance on the first day of each month
    equal to the sum of 150% of the monthly instalment of Basic Rent payable during
    the last year of the Term and one twelfth (1/12) of all Additional Rent charges
    herein provided for, determined in the same manner as if the Lease had been
    renewed and all terms and conditions of this Lease shall, so far as applicable,
    apply to such monthly tenancy.

...

7.08   Surrender
    of Leased Premises

At the expiration or sooner termination of this Lease, the
    Tenant shall peaceably surrender and give up unto the Landlord vacant
    possession of the Leased Premises in the same condition and state of repair as
    the Tenant is required to maintain the Leased Premises throughout the Term and
    in accordance with its obligations in Section 7.07 hereof.

...

13.04 Notices

Any notice, delivery, payment, or tender of money or documents
    to the Landlord hereunder may be delivered personally or sent by prepaid
    registered or certified mail to it addressed at the address set out in Section
    1.01(a)(i) hereof, with copy to the Property Manager as the address set out in
    Section 1.01(a)(ii) hereof, or to such other address as the Landlord may in
    writing direct, and any such notice, delivery or payment so delivered or sent
    shall be deemed to have been well and sufficiently given or made and received
    upon delivery of the same or on the next business day following such mailing of
    same as the case may be.

Any notice, delivery, payment, or tender of money or documents
    to the Tenant hereunder may be delivered personally or sent by prepaid
    registered or certified mail to the Tenant at the Leased Premises, or to such
    other address as the Tenant may in writing direct, and any such notice,
    delivery or payment so delivered or sent shall be deemed to have been well and
    sufficiently given, made and received upon delivery of the same on the second
    business day following such mailing of same, as the case may be.



SCHEDULE
    D: SPECIAL PROVISIONS

4.       OPTION
    TO EXTEND

Provided the Tenant is then in good standing under the terms
    and conditions of this Lease, the Tenant shall have the option to extend the
    Term of the lease for one (1) additional five (5) year period on the same terms
    and conditions except for the amount of Basic Rent, any rent-free period,
    leasehold improvements, allowance or other tenant inducements and except that
    there shall be no further option to extend. The Tenant may exercise this option
    to extend by giving the Landlord notice in writing at least six (6) months
    prior to the expiry of the Term herein. If the Tenant exercises this option to
    extend, the basic rent payable on a per square foot per annum basis during such
    extension period shall be negotiated between the Landlord and the Tenant....

THE ISSUES

[30]

The
    Landlord submits that the application judge erred in:

1.

finding that the
    Lease did not contain a renewal term;

2.

concluding that
    the Landlord had to give notice in accordance with s. 13.04 of the Lease; and,

3.

concluding that
    the Tenant was overholding pursuant to s. 3.05 of the Lease.

ANALYSIS


Did the Lease contain a renewal term?

[31]

At
    para. 12 of his reasons, the application judge states that the Lease does not
    contain a renewal term.  This is not correct.  Section 4 of Schedule D to
    the Lease, set out above, is a renewal option pursuant to which the Tenant had
    the right to extend the term of the Lease for one additional five year period
    on the same terms and conditions (except for the amount of basic rent) by
    giving the Landlord notice in writing at least six months prior to the expiry
    of the term of the lease.

[32]

Despite
    para. 12, however, at para. 2(c) of the reasons the application judge recites
    that the Lease contained an option to renew for an additional five years.

[33]

In
    any event, if the application judge did erroneously find that there was no
    renewal option, the error is of no significance to the decision below.  The
    presence or absence of the renewal clause does not materially bear on the
    interpretation of ss. 3.05 and 7.08 of the Lease, the provisions upon which the
    application was decided.

Did the Landlord have
    to give notice in accordance with s. 13.04 of          the Lease?

[34]

In
    para. 17 of his reasons, the application judge states:

In the case at bar there was no further written agreement as
    set out in s. 3.05.  Further,
the
    correspondence sent to Danis indicating that AIM must vacate the premises by
    December 31, 2011 is not proper notice in accordance with 13.04
. 
    [Emphasis added.]

[35]

The
    second sentence in para. 17, which has been emphasized (the impugned
    statement), is the basis for this ground of appeal.

[36]

The
    Landlord submits that the impugned statement is wrong in law.  It says that the
    Tenant was obliged to comply with s. 7.08 without notice.  Therefore, contrary
    to the impugned statement, it was not required to give notice to the Tenant, in
    accordance with s. 13.04, that it had to vacate the leased premises.

[37]

I
    agree with the Landlord that  absent a provision in the Lease to contrary 
    when the tenancy by the terms of the lease comes to an end, no notice to quit
    is necessary to terminate it: see, for example,
Imperial Oil Ltd. v.
    Robertson
[1959] O.R. 655 (C.A.), at para. 4, a case considered more fully
    below.

[38]

However,
    while the impugned statement is somewhat ambiguous, I do not share the
    Landlords view as to its meaning.  I do not understand the impugned statement
    as saying that the Landlord had to give notice, in accordance with s. 13.04,
    for the purposes of s. 7.08.  Rather, I understand it to say that the Landlord
    had not given notice pursuant to s. 3.05, a notice that would have had to have
    complied with the requirements of s. 13.04 to be valid.

[39]

My
    view of the impugned sentence flows from a reading of the reasons as a whole,
    particularly paras. 13 to 17.

[40]

In
    para. 13 of his reasons, the application judge states that ss. 3.05 and 7.08
    are the Lease provisions that dealt with what was to happen at the expiration
    of the initial term.

[41]

In
    para. 14, the application judge holds that s. 3.05  the overholding provision
     governs.  He notes that although the Lease term had ended, AIM Health
    continued to occupy the leased premises and the Lease became a month to month
    tenancy that [might] be terminated by either party on one months notice.

[42]

In
    paras. 15 and 16, the application judge considers jurisprudence dealing with
    overholding clauses in lease agreements.

[43]

Paragraph
    17 consists of two sentences.  The first sentence expressly refers to s. 3.05,
    noting that there was no further written agreement between the parties.  The
    second sentence is the impugned statement.

[44]

In
    short, after recognizing that either s. 3. 05 or s. 7.08 governed, the
    application judge held that s. 3. 05 applied.  Thereafter, until the impugned
    statement, he deals either with the specific overholding provision in the Lease
    or the caselaw on overholding.  In the first sentence of para. 17  (i.e. immediately
    before the impugned statement), the application judge again refers to s. 3.
    05.  Accordingly, when the application judge makes the impugned statement, I do
    not understand him to be referring to s. 7.08.  Rather, it appears that he is
    referring to the notice required by s. 3.05.  It will be recalled that s. 3.05
    provides for termination of the month to month tenancy by one months notice by
    either party.

[45]

On
    this view of the impugned statement, the application judge was correct.  At the
    time of the application, the Landlord had not given the notice required by s.
    3.05.  By its terms, s. 13.04 applies to any notice that the Landlord is to
    give to the Tenant.  Therefore, for a notice given pursuant to s. 3.05 to be
    proper, it would have to comply with the requirements of s. 13.04.

[46]

However,
    even if I have misunderstood the impugned statement, given my interpretation of
    the lease provisions below, the result on appeal remains.

Was the Tenant overholding pursuant to s. 3.05
    of the Lease?

[47]

The
    Landlord submits that the application judge wrongly interpreted the Lease when
    he concluded that AIM Health was lawfully overholding pursuant to s. 3.05 of
    the Lease.  Its many arguments in support of this submission can be summarised
    as follows.

[48]

First,
    interpreting s. 3.05 as giving the Tenant the option to occupy after the end of
    the term is inconsistent with the renewal option provision and renders
    meaningless s. 7.08, which required the Tenant to give up vacant possession of
    the premises.  A proper interpretation should give effect to all of the
    relevant Lease provisions.

[49]

Second,
    the application judges interpretation is not commercially reasonable because
    it gave the Tenant the unilateral option to convert the Lease into a month to
    month tenancy on the expiration of the term, thereby frustrating the Landlords
    efforts to move a new tenant into the lease premises.  In order to interpret
    the Lease provisions in a way that avoids commercial absurdity, s. 3.05 must be
    interpreted as requiring the consent of the Landlord.  Because the Landlord did
    not expressly or impliedly permit the Tenant to continue to occupy the leased
    premises after December 31, 2011, s. 3.05 does not apply.  Therefore, s. 7.08
    dictates that the Tenant was obliged to give up possession at the end of the
    term on December 31, 2011.

[50]

Third,
    overholding arises when a landlord accepts rent, after the termination of the
    lease, in circumstances that permit the inference to be drawn that a new
    tenancy has been created.  Here, the Landlord gave two notices in December 2011
    that the Tenant was required to deliver up vacant possession on the expiry of
    the term.  As the Tenant remained in occupation after permission had been
    revoked and the Landlord had not accepted payment of rent, there could be no
    inference that a new tenancy had been created.  Therefore, the Tenants
    occupation amounted to trespass, not justified by s. 3.05.

[51]

Fourth,
    in
Imperial Oil
, there was no requirement for landlord consent in the
    overholding clause but this court held the clause was of no effect because the
    parties had not agreed to a new tenancy.  Based on
Imperial Oil
, s.
    3.05 should be of no effect as the Landlord had not agreed to a new tenancy.

[52]

As
    I will explain, I do not accept these arguments.  In my view the application
    judge correctly concluded that s. 3.05 of the Lease governed the situation
    when, on January 1, 2012, the Tenant remained in occupation of the leased
    premises.  Having found that s. 3. 05 applied, its terms governed: the Tenant
    was in lawful occupation on January 1, 2012, on the basis of a month to month
    tenancy.

The Governing Principles

[53]

There
    is no dispute over the principles to be followed when interpreting the Lease
    provisions.  Each provision is to be read in the context of the Lease as a
    whole and with regard to the surrounding circumstances.  Where there are
    apparent inconsistencies between different provisions, the court should attempt
    to find an interpretation that can reasonably give meaning to each of the
    provisions in question.  See
BG Checo International Ltd. v. British
    Columbia Hydro & Power Authority
, [1993] 1 S.C.R. 12, at para. 9.

[54]

Moreover,
    as the Supreme Court has cautioned, the court should not interpret a contract
    so as to bring about an unrealistic result or one that would not be contemplated
    in the commercial atmosphere in which it was contracted:  see
Consolidated-Bathurst
    Export Ltd. v. Mutual Boiler Machinery Insurance Co.
(1979), 112 D.L.R.
    (3d) 49 (S.C.C.), at p. 901.

Interpreting the Relevant Lease
    Provisions

[55]

For
    ease of reference, ss. 3.05 and 7.08 of the Lease are set out again now.

3.05   Overholding

If, at
    the expiration of the initial Term
or any subsequent Term or
    any subsequent renewal or extension thereof,
the Tenant shall continue to occupy the Leased Premises
    without further written agreement
, there shall be no tacit
    renewal of this Lease, and
the
    tenancy of the Tenant thereafter shall be from month to month only and may be
    terminated by either party on one months notice
. Rent shall be
    payable in advance on the first day of each month equal to the sum of 150% of
    the monthly instalment of Basic Rent payable during the last year of the Term
    and one twelfth (1/12) of all Additional Rent charges herein provided for,
    determined in the same manner as if the Lease had been renewed and all terms
    and conditions of this Lease shall, so far as applicable, apply to such monthly
    tenancy.  [Emphasis added.]

7.08   Surrender
    of Leased Premises

At the expiration or sooner termination of this Lease, the
    Tenant shall peaceably surrender and give up unto the Landlord vacant
    possession of the Leased Premises in the same condition and state of repair as
    the Tenant is required to maintain the Leased Premises throughout the Term and
    in accordance with its obligations in Section 7.07 hereof.

[56]

By
    its terms, s. 3.05 applies if (i) at the expiration of the initial term, (ii)
    the Tenant continues to occupy the leased premises, (iii) without further
    written agreement.

[57]

That
    is precisely what occurred.  The initial term expired on December 31, 2011, and
    the Tenant continued to occupy the leased premises without further written
    agreement.

[58]

At
    the time the parties entered into the Lease, by means of s. 3.05 they agreed on
    their respective rights and obligations in the event that the Tenant remained
    in occupation, after the expiration of the initial term and without the benefit
    of a further written agreement.  They agreed that the Tenants occupation would
    be a month to month tenancy, that the tenancy might be terminated by either
    party on one months notice, and that the Tenant would pay rent at the
    increased sum of 150% of the monthly Basic Rent payable during the last year on
    the term, as well as one twelfth of all additional rent charges.

[59]

There
    is no reason not to enforce the terms of their agreement.

[60]

If
    the Landlords consent was to be a necessary precondition to the Tenants
    remaining in occupation, it would have been a simple matter to have included
    that requirement.  It was not.

[61]

Contrary
    to the Landlords assertion, this interpretation of s. 3.05 does not render
    either s. 7.08 or the renewal option provision meaningless.  These three
    provisions can be read harmoniously and with effect.  They each apply in
    different circumstances.  Had the Tenant wished to renew the Lease, s. 4 of
    Schedule D governed.  Had the Tenant given up occupation at the end of the
    initial term, s. 7.08 governed. By its terms, the Tenant would have had to
    deliver up vacant possession of the leased premises in the same condition and
    state of repair as was required throughout the term. If, however, as was the
    case, the Tenant remained in occupation after the expiration of the initial
    term, s. 3. 05 governed, unless the parties entered into a further written
    agreement in which case that further agreement would have governed.

[62]

This
    interpretation of the Lease provisions is reinforced by a close consideration
    of the wording of s. 7.08.  Section 7.08 does not require AIM Health to give up
    occupation at the expiration of the initial term.  Section 7.08 provides that
    at the expiration or sooner termination of this Lease, the Tenant shall give
    up vacant possession.  If the drafters of the lease had intended that s. 7.08
    should apply at the expiration of the initial term they could easily have said
    so.   Instead, by its terms, s. 7.08 applies to the expiration
of the Lease
.  The
    Lease did not expire on December 31, 2011.  Because the Tenant stayed in
    occupation pursuant to s. 3.05, the Lease remained operative.  Thus, the Lease
    did not expire on December 31, 2011, although the initial term did.

[63]

Moreover,
    giving effect to s. 3.05 according to its terms does not bring about a
    commercially unrealistic result. Section 3.05 does give the Tenant the power to
    convert the Lease into a month to month tenancy on the expiration of the
    initial term, absent the parties coming to a further written agreement. 
    However, three points need to be made in relation to this.  First, given that
    the Landlord agreed to this provision at the time the parties entered into the
    Lease, it ought not now to complain about it.  Second, s. 3.05 benefits both
    parties, not just the Tenant.  The Landlord receives a benefit in the form of
    increased rent of 150% of the base rent.  Third, s. 3.05 did not expose the
    Landlord to a lengthy month to month tenancy as it could be brought to an end
    by either party on one months notice.

[64]

Thus,
    s. 3.05 appears to be a commercially realistic bargain for both parties.  Under
    its terms, the Landlord would receive a significantly enhanced rent, and it
    faced exposure to only one additional months occupation by the Tenant.  The
    Tenant had the peace of mind of knowing it could stay in occupation at the end
    of the initial term, albeit at a significantly enhanced rent.

[65]

On
    a related point, the Landlord argued that once Aim Health advised that it would
    not exercise the renewal option, it had to find a new tenant to take up the
    leased premises at the end of the initial term.  The findings of the
    application judge meet this point.

[66]

The
    application judge recognized that the Landlord relied on AIM Healths
    representation that it would not exercise the renewal option.  However, he
    found that the Landlord was aware that AIM Health was delayed in its plans to
    relocate and that at the time it entered into the new tenancy agreement, the
    Landlord knew that AIM Health could not relocate by December 31, 2011.  Despite
    that, the Landlord went ahead and entered into a new lease which required
    occupancy on January 1, 2012.

[67]

While
    the Landlord was free to look for a new tenant, it had to honour its obligations
    under the Lease.  Those obligations constrained the Landlords ability when
    choosing the start date for the new tenancy.  Given the findings of the
    application judge, it could have come as no surprise to the Landlord that the
    Tenant intended to stay in occupation past December 31, 2011.

[68]

The
    Landlords third argument, it will be recalled, is that historically the
    purpose of an overholding clause was to protect the landlord in the event that
    a tenant continued to occupy the leased premises after the lease expired
    without a further written agreement.  It is inserted for the benefit of the
    landlord.  See
Medalist Holding Ltd. (c.o.b. as Harvester Executive Part )
    v. General Electric Capital Equipment Finance Inc.
[1997] O.J. No. 1995,
    at para. 58.  Consequently the Landlord argued, it was for the Tenant to prove
    that it remained in occupation only with the permission of the Landlord.

[69]

The
    answer to this argument is simple: s. 3.05.  By its terms, s. 3. 05
    pre-authorized the Tenants continued occupation after the expiration of the
    initial term.  That is, s. 3.05 amounts to the Landlords permission that the
    Tenant could remain in occupation.  There is nothing in the purpose of an
    overholding clause that would inhibit the parties from crafting their own terms
    of any continued occupation.

Imperial Oil Considered

[70]

The
    Landlords fourth argument, it will be recalled, is based on
Imperial Oil
.

[71]

In
Imperial Oil
, the parties entered into a lease dated July 1, 1958, for
    a term of 12 months to expire on June 30, 1959.  The lease contained an
    overholding clause, which read as follows:

If the lessee shall hold over after the term hereby demised,
    the resulting tenancy shall be a tenancy from month to month and not a tenancy
    from year to year, subject to all the terms, conditions and agreements herein
    contained insofar as the same may be applicable to a tenancy from month to
    month.

[72]

In
    a notice dated May 28, 1959, the landlord advised the tenant that he was
    required to deliver up vacant possession on the expiry of the lease.

[73]

On
    June 28 and 30, 1959, representatives of the landlord attended at the leased
    premises and asked the tenant what he intended to do on the expiration of the
    lease.  On the first occasion, the tenant would not disclose his position.  On
    the second, he said that he would not be leaving the premises peacefully.  At
    around that time, the tenant sent a cheque dated July 1, 1959, to the landlord,
    for the usual amount of the rent.  On the face of the cheque were the words
    July rent.

[74]

Although
    instructions had been given that personnel of the landlord company were not to
    accept rent for the month of July from the tenant, the cheque was endorsed and
    deposited in the landlords bank.  Shortly thereafter the landlord wrote to the
    tenant, advising him that a clerk had accepted the cheque through inadvertence
    and contrary to the landlords instructions.  Included with the letter was a
    cheque for the amount of the July rent.

[75]

The
    tenant brought proceedings under the then-prevailing landlord and tenant
    legislation.

[76]

At
    first instance, the court found in favour of the landlord on the basis that it
    intended neither to accept rent for July nor create a new tenancy.

[77]

The
    tenant appealed to this court.

[78]

The
    question for the court was whether a new tenancy had been created by virtue of
    the landlords receipt of the July rent cheque.

[79]

Justice
    Morden, writing for the court, observed that by the terms of the lease, the
    tenancy came to an end on June 30, 1959, and that no notice to quit was
    required to terminate it.  At para. 8, he explains that because the tenancy had
    ended, the burden was on the tenant to demonstrate that a new tenancy had been
    created.  Acceptance of rent was an important factor in meeting that burden. 
    However, as the landlord had made it very plain to the tenant that he was to
    vacate at the expiry of the lease, the court held that the tenant had failed to
    show that the July rent cheque had been accepted with the mutual intention that
    a new tenancy should be created at the expiration of the old tenancy.  That is,
    the tenant had failed to discharge his burden of showing that a new tenancy had
    been created.

[80]

Accordingly,
    the court dismissed the tenants appeal.

[81]

Imperial
    Oil
, it can be seen, is very different from the present case.

[82]

In
Imperial Oil
, the question for the court was whether the landlord had
    agreed to a new tenancy by the inadvertent acceptance of a rent cheque after
    the expiration of the initial term of the lease.  The focus in
Imperial Oil
was on the actions and conduct of the parties  questions of fact.  The case
    turned on whether the tenant had, on the facts, met his burden of demonstrating
    that a new tenancy was created.  The result in
Imperial Oil
was not
    based on the overholding provision in the lease, or any other provision for
    that matter.  It was based on the conduct of the parties.

[83]

Unlike
Imperial Oil
, this is not a case about whether a new tenancy had been
    created based on the conduct of the parties.  This case turns on the proper
    interpretation of the Lease provisions, particularly ss. 3.05 and 7.08.

[84]

Accordingly,
Imperial Oil
does not assist the Landlord.  There is nothing in
Imperial
    Oil
that speaks to the interpretation of s. 3.05 of the Lease, which is
    the central issue in this case.

DISPOSITION

[85]

For
    these reasons, I would dismiss the appeal with costs to the respondent fixed at
    $5,000, inclusive of disbursements and all applicable taxes.

E.E.
    Gillese J.A.



Feldman
    J.A.:

[86]

Having
    had the benefit of reading the reasons of my colleague, Gillese J.A., I
    respectfully disagree with her on the legal issue of the meaning and effect of
    the overholding clause, and therefore, on the proper outcome of this appeal.

[87]

The
    factual circumstances are fully set out in the reasons of my colleague. The
    issue before the court is a question of law: the proper interpretation of the
    provisions of a lease. Neither party seeks to rely on extrinsic evidence.

[88]

The
    parties entered into a written lease of commercial premises, the appellant as
    landlord and the respondent as tenant. The term of the Lease was five years
    commencing on January 1, 2007 and ending on December 31, 2011: ss. 1.01(g)(i)-(iii).
    Section 3.03 of the Lease provides that the term runs for the five-year period
    from January 1, 2007 to December 31, 2011, unless terminated earlier under the Lease.

[89]

Section
    7.08 is the Surrender clause. I quote it here for ease of reference:

7.08
    Surrender of Leased Premises

At the expiration or sooner termination of this Lease, the
    Tenant shall peaceably surrender and give up unto the Landlord vacant
    possession of the Leased Premises in the same condition and state of repair as
    the Tenant is required to maintain the Leased Premises throughout the Term and
    in accordance with its obligations in Section 7.07 hereof.

[90]

Although
    this type of surrender clause is often found in leases, the co-authors of
Williams
    & Rhodes

Canadian Law of Landlord and Tenant
, loose-leaf
    (2012-Rel. 1), 6th ed., (Toronto: Carswell 1988), at para. 13:1:1, explain that
    this covenant is not necessary because there is an implied obligation on the
    tenant to deliver up the premises to the landlord upon the expiration or
    earlier termination of the tenancy:

The covenant often found in leases binding the lessee to yield
    up possession at the end of the term is not strictly necessary, since there is
    an implied obligation on the tenant not only to give up possession, but also to
    restore the absolute possession to the landlord:
Henderson v. Squire
(1869), L.R. 4 Q.B. 170;
Doe d. Miller v. Tiffany
(1848), 5 U.C.Q.B.
    79 (C.A.);
Harrison v. Pinkney
(1881), 6 O.A.R. 225;
Hyatt v.
    Griffiths
(1851), 17 Q.B. 505, 117 E.R. 1375;
Toronto v. Ward
(1909), 18 O.L.R. 214 (C.A.).

[91]

The
    landlord gave the tenant written notice that it required the premises on
    January 1, 2012. The question that arises in this case is, what are the
    obligations of the parties when the tenant does not leave at the end of the
    lease term?

[92]

At
    common law, if a tenant remains in possession following the expiry of the term
    of the lease, there are four possible legal relationships that can then be
    created between the tenant and the landlord: 1) a tenancy at sufferance; 2) a
    tenancy at will; 3) a deemed new periodic tenancy, referred to as a holdover
    tenancy; and 4) a trespass.

[93]

A
    tenancy at sufferance arises when a person remains without consent after the
    persons right to be in possession has ended but where no demand for possession
    has been made:
Re Lyons and McVeity
(1919), 46 O.L.R. 148 (C.A.), at
    pp. 150-51;
Gasner v. Bellak Brothers Ltd.
, [1945] O.R. 499 (C.A.), at
    p. 516. Once the former landlord demands possession, the former tenant is no
    longer there at sufferance and becomes a trespasser: see Richard Olson,
A
    Commercial Tenancy Handbook
, loose-leaf (2012-Rel. 1), (Toronto: Carswell,
    2004), at pp. 12-1, 12-5.

[94]

In
    a tenancy at will, the tenant remains in possession with the consent of the
    landlord after the lease has expired, most often when they are negotiating a
    new lease. The tenancy at will lasts until some other interest is created,
    either by express grant or by implication by the payment and acceptance of
    rent:
Halsburys Laws of England
, vol. 27(1), 4th ed. (Reissue)
    (London, U.K.: Butterworths, 2006), at para. 201. A tenancy at will is
    determinable by either party indicating that it wishes the tenancy at will to
    end: see Olson, at p. 12-2.

[95]

Where
    a tenant remains in possession following the termination of a lease, or holds
    over, and where the landlord accepts rent from the tenant or otherwise consents,
    a new periodic tenancy arises at common law by implication on the same terms as
    the expired lease, subject to any evidence that the parties reached a different
    arrangement or understanding. If the original lease term was less than one
    year, the new tenancy is deemed to be month to month, whereas if the original
    lease term was for more than one year, the new tenancy is deemed to be year to
    year. The payment and acceptance of rent is considered evidence of the parties
    intent to enter into a new tenancy arrangement. Without agreeing on other terms,
    it would be on the same terms as the old lease: see Olson, at pp. 3-72.1, 12-3;
Halsburys
, at para. 212.

[96]

In
    order to avoid the deemed creation of a yearly tenancy when the tenant holds
    over and the landlord accepts rent, the overholding clause is frequently
    inserted into commercial leases, providing that the tenancy that is created is
    a month to month tenancy: see Olson, at p. 3-72.2; Harvey M. Haber,
The
    Commercial Lease: A Practical Guide
, 4th ed. (Aurora: Canada Law Book,
    2004), at p. 329. Such clauses often provide for higher rent than was paid
    during the original term of the lease.

[97]

But
    if the tenant remains without paying rent, then at common law, the tenant is
    there at the sufferance of the landlord and is subject to ejectment: see
Doe
    dem. Burritt v. Dunham
(1847), 4 U.C.Q.B. 99 (Upper Canada Court of the Queens
    Bench).

[98]

In
    this case, s. 3.05 of the Lease, titled the Overholding clause, reads as
    follows:



3.05
    Overholding

If, at the expiration of the initial Term or any subsequent
    renewal or extension thereof, the Tenant shall continue to occupy the Leased
    Premises without further written agreement, there shall be no tacit renewal of
    this Lease, and the tenancy of the Tenant thereafter shall be from month to
    month only and may be terminated by either party on one months notice. Rent
    shall be payable in advance on the first day of each month equal to the sum of
    150% of the monthly instalment of Basic Rent payable during the last year of
    the Term and one twelfth (1/12) of all Additional Rent charges herein provided
    for, determined in the same manner as if the Lease had been renewed and all
    terms and conditions of this Lease shall, so far as applicable, apply to such
    monthly tenancy.

[99]

The
    tenants position is that the overholding clause in this lease has a different
    meaning and effect than the common law meaning and effect of overholding,
    because it does not say that a month to month tenancy is created only on the
    payment and acceptance of rent or on the consent of the landlord. Because those
    words are not there, the tenant says that the meaning and effect of the clause
    is to give the tenant the unilateral option not to vacate the premises at the
    end of the lease, as required by the surrender clause, but to remain in
    possession, creating a new month to month tenancy without the landlord having
    accepted rent or otherwise given consent.

[100]

Two Ontario
    decisions have considered the operation and meaning of similarly-worded
    overholding clauses in two commercial leases, one a decision of the Court of
    Appeal and the other a decision of Gale C.J.H.C. when he was Chief Justice of
    the High Court and before he became Chief Justice of Ontario. As in the present
    case, the overholding clause in these cases did not refer to the landlords
    acceptance of rent. Nonetheless, the courts required the landlord to have
    accepted rent after the term of the lease had expired as a precondition for
    finding that a new tenancy had arisen.

[101]

In
Re
    Imperial Oil Ltd. & Robertson
, [1959] O.R. 655 (C.A.), the overholding
    clause was quoted in the reasons for judgment as follows:

[I]f the lessee shall hold over after the term hereby demised,
    the resulting tenancy shall be a tenancy from month to month and not a tenancy
    from year to year, subject to all terms, conditions and agreements herein
    contained insofar as the same may be applicable to a tenancy from month to
    month.

[102]

The lease term
    was for one year, ending June 30, 1959. The landlord sent the tenant a notice
    dated May 28, 1959 advising that it required the tenant to deliver vacant
    possession upon expiry of the lease. Then on June 28th and June 30th,
    representatives of the landlord attended the premises to ask what the tenant
    intended to do on expiry of the lease. On the 30th, the tenant said that he
    would not be leaving peacefully on that date. The tenant also sent the landlord
    a rent cheque for $275, which was the monthly rent under the lease. Although
    the landlord had instructed its personnel not to accept a rent cheque for July
    from the tenant, someone mistakenly accepted and deposited it. On July 2nd, the
    landlord served a demand for possession on the tenant. On July 8th, the
    landlord advised the tenant that the acceptance of the cheque was inadvertent
    and contrary to instructions and returned the cheque. The tenant responded in
    kind by returning the cheque. On July 10th, the landlord instituted the
    proceedings for possession of the premises.

[103]

The court
    referred to the service of the notice to quit and held that, the term having
    come to an end, no notice to quit was necessary to terminate the tenancy (at p.
    658). The issue in the case, as described by both the County Court judge and
    the Court of Appeal, was whether the landlord had intended to accept the rent
    cheque from the tenant following the termination of the written lease, and
    whether the landlord intended to create a new tenancy. The payment and
    intentional acceptance of rent would be very strong evidence of an agreement to
    create a new tenancy. The Court of Appeal set out the law as follows, at p.
    662:

[W]hen a lease has terminated either by its terms or by the
    operation of a valid notice to quit, the tenancy is at an end and if the tenant
    is thereafter to retain possession he must show that there was a new tenancy:
McIntyre
    v. Bird
, [1946] O.W.N. 905 (C.A.). The payment by him and the receipt by
    the landlord of the money equivalent of rent is a very important factor in
    determining whether there was, in fact, a new tenancy. If this were the only
    evidence on the issue, a Court or jury would be entitled to find a new tenancy.
    The evidence in the case at bar goes beyond that. By notices before and after
    the expiration of the lease, by personal interviews prior to its expiration,
    the landlord, by its representatives, made it very plain to the tenant that he
    was to vacate at the expiry of the lease. The only contrary factor was the
    receipt and deposit of the tenants cheque for the July rent. In the
    circumstances, which I will now review, the appellant in my view has failed to
    show that this money was received with the mutual intention that a new tenancy
    should be created upon the expiration of the old tenancy.

[104]

The overholding
    clause in
Imperial Oil
, like that in the present case, did not include
    language requiring the consent of the landlord or the acceptance of rent as a
    condition precedent to the creation of a month to month tenancy. However, the court
    did not suggest that that wording of the overholding clause gave the tenant the
    unilateral right to remain in possession after the termination of the lease
    without consent. Rather, the month to month tenancy would only arise if the
    landlord intentionally accepted rent. The only issue in the case was whether,
    in fact, that had occurred.

[105]

Imperial Oil
was a case that involved a similarly-worded overholding clause. The entire
    analysis of the Court of Appeal focused on whether there was evidence of the
    landlords consent to the overholding.

[106]

In
Rafael v.
    Crystal
, [1966] 2 O.R. 733 (H.C.J.), the lease was for 28 months from
    August 1, 1961. Gale C.J.H.C. observed that the lease was on a standard printed
    form and contained what he described as the usual term which read:

AND it is hereby agreed between the parties hereto that should
    the Lessee remain in possession of the said premises after the determination of
    the term hereby granted, without other special agreement, it shall be as a
    monthly tenant only, at a rental of $400 per month, payable in advance on the
    first day of every month, and subject in other respects to the terms of this
    lease.

[107]

Toward the end
    of the term, the parties were negotiating a renewal of the lease but had not
    reached any agreement by the end of the lease term. Gale C.J.H.C. stated:  when
    the plaintiff (tenant)
was allowed
to remain in possession following
    the expiration of the 28 months granted by the lease, he became an overholding
    monthly tenant pursuant to the printed clause which I have already quoted.
    [Emphasis added.]

[108]

Both
Rafael
and
Imperial Oil
demonstrate an important point. An overholding clause
    that does not refer to the consent of the landlord has nevertheless been interpreted
    and applied to mean that it is only with the consent of the landlord that a
    month to month tenancy is created when the tenant overholds by remaining in
    possession following the termination of the lease.

[109]

Thus, both the
    leading texts on commercial leasing and longstanding judicial authority make it
    clear that for an overholding tenancy to arise, the landlord must agree that
    the tenant may stay in the premises, which agreement is normally evidenced by
    the landlords acceptance of rent. The judicial authority consistently interprets
    the overholding clause in a commercial lease that does not refer to the
    landlords acceptance of rent as effectively implying that term.

[110]

In my view, to
    interpret the overholding clause at issue in the present case in the same way
    that such a clause has always been interpreted and understood makes commercial
    sense for two reasons.

[111]

First, there is
    no benefit for the landlord to draft a clause that limits its right to obtain
    vacant possession at the end of the lease term and to create uncertainty for itself
    as to whether or not it is going to receive vacant possession as required by
    the lease.

[112]

Interpreting the
    overholding clause as giving the tenant the unilateral option to remain in the
    leased premises would make the clause commercially unreasonable. The landlord would
    then be in the position where it could not safely re-let the premises commencing
    on the day following the end of the lease term because it would not know
    whether the tenant would, in fact, vacate the premises at that time.
    Interpreted as my colleague suggests, the tenant need not tell the landlord
    whether it intends to stay or not. Therefore, at best, the landlord could only
    re-let the premises beginning one month following the end of the lease term.
    And if the tenant were to vacate at the end of the lease term, the landlord would
    be burdened with unrented premises for at least one month because of the
    uncertainty created by the tenants unilateral right to stay on a month to
    month basis.

[113]

Moreover, the competing
    interpretation of the overholding clause affords little benefit or certainty to
    the tenant. If the tenant stays against the will of the landlord, then the
    landlord is entitled to immediately give the tenant one months notice to
    terminate and the tenant must vacate the premises thereafter.

[114]

Second, as a
    matter of contractual interpretation of the intention of the parties, clauses
    that are well-understood to have a particular legal meaning and consequence,
    such as those found in standard form contracts including insurance contracts,
    should be consistently interpreted in order to foster certainty and predictability
    in the law: see for example,
Co-Operators Life Insurance Co. v. Gibbens
,
    2009 SCC 59, [2009] 3 S.C.R. 605, at para. 27; Geoff R. Hall,
Canadian
    Contractual Interpretation Law
, 2d ed. (Markham: LexisNexis, 2012), at p.
    111.

[115]

In addition to
    being an interpretation that accords with principles of commercial efficacy and
    good business sense, interpreting the overholding clause in s. 3.05 of the
    Lease in the same way that such a clause has always been interpreted and
    understood by courts and commentators gives full effect to the surrender clause
    in s. 7.08 of the Lease. The surrender clause requires the tenant to deliver
    vacant possession at the expiration of the Lease. I disagree with my
    colleagues view that the Lease did not end on December 31, 2011 (the
    expiration of the lease term) and the tenant was not required to vacate the
    premises on that date because the tenant chose to remain under the overholding
    clause.

[116]

The overholding
    clause in s. 3.05 does not extend the Lease; it specifically provides not that
    the Lease continues, but that a new month to month tenancy arises. Properly
    interpreted, if the tenant overholds with the consent of the landlord, the
    landlord has effectively waived the tenants obligation to vacate. Without such
    a waiver, the tenant is obliged to comply with the surrender clause.

CONCLUSION

[117]

In this case,
    the landlord made it clear by notice to quit that it required the premises at
    the end of the term. The tenant remained in possession without the consent of
    the landlord. The landlord did not create a new tenancy with the respondent tenant.
    Rather, it signed a new lease with another tenant. The tenant, having refused
    to deliver vacant possession at the end of the term, therefore became a
    trespasser.

[118]

I note that
    although the tenant refused to deliver vacant possession after the lease term
    ended, it did not tender the increased rent to the landlord on January 1, 2012
    as specifically required by the clause that it subsequently purported to rely
    on.

[119]

In my view, the
    tenant was in breach of its obligation to deliver vacant possession of the
    premises at the end of the term of its lease. On a proper interpretation of the
    overholding clause, the tenant was not entitled to unilaterally remain in the
    premises under that clause absent evidence that the landlord consented.

[120]

I would
    therefore allow the appeal, set aside the order of the application judge, and
    dismiss the application with costs of the appeal to the landlord fixed at $9,500
    inclusive of disbursements and H.S.T.

Released:
K.F. November 20,
    2012

K.
    Feldman J.A.

I
    agree Gloria Epstein J.A.


