



COURT OF APPEAL FOR ONTARIO

CITATION: North Elgin Centre Inc. v. McDonald's Restaurants
    of Canada Limited, 2018 ONCA 71

DATE: 20180129

DOCKET: C63933

Pepall, Hourigan and Brown JJ.A.

BETWEEN

North Elgin Centre Inc.

Applicant

(Respondent)

and

McDonalds Restaurants of Canada Limited

Respondent

(Appellant)

Ronald G. Slaght, Andrew Parley and Margaret Robbins,
    for the appellant

Martin P. Zarnett, for the respondent

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 at
    2017 ONSC 3306.

REASONS FOR DECISION

[1]

The appellant, McDonalds Restaurants of Canada Ltd. (McDonalds) and
    the respondent, North Elgin Centre Inc. (North Elgin) brought applications to
    determine their respective rights under a commercial lease (the Lease).  The
    application judge found that the Lease came to an end on March 10, 2017 because
    McDonalds failed to comply with its renewal provision.

[2]

McDonalds appeals that order. For the reasons that follow, the appeal
    is allowed.

Background Facts

[3]

On March 11, 1997, McDonalds as tenant and North Elgin as landlord
    entered into the Lease, which was a twenty-year ground lease in respect of
    lands in Richmond Hill, Ontario upon which McDonalds has built and renovated a
    restaurant. The parties agreed the original term of the Lease would end on
    March 10, 2017.

[4]

The Lease includes an option to renew for two consecutive additional
    terms of ten years each.  There was no dispute that McDonalds gave proper
    notice of its intention to renew the Lease prior to the expiry of the original
    term. However, the application judge held that the renewal provision required
    McDonalds to do more than simply provide notice of its intention to renew. She
    found that because the parties had not agreed on a rental rate at least nine
    months before the end of the original term, McDonalds was obliged under the
    Lease to either refer the issue to arbitration or revoke its intention to renew.

[5]

McDonalds failed to take either action. The application judge found,
    therefore, that the Lease was uncertain as to a material term  the rental
    rate. As such, the parties were left without an enforceable agreement. She went
    on to find that because the parties were engaged in negotiations North Elgin
    waived its right to insist on strict compliance with the terms of the renewal
    provision. However, she also found that North Elgin later revoked its waiver and
    reverted to its strict legal rights. As a result, the application judge held
    the doctrine of waiver did not apply and the Lease was at an end. The
    application judge also found that relief from forfeiture was not available.

Issues

[6]

On appeal, McDonalds submits that the application judge erred in her
    analysis of the Lease, the revocation of the waiver, and the remedy of relief
    from forfeiture. McDonalds also submits that the application judge erred in
    failing to order North Elgin to pursue the necessary application for consent
    required under s. 50(3)(f) of the
Planning Act
,
R.S.O. 1990, c.
    P. 13, as required by the Lease to legally extend it beyond a twenty-one year
    term. It seeks an order for specific performance requiring North Elgin to do
    so.

Analysis

[7]

We are of the view that the appeal must be allowed on the ground that
    the application judge made a palpable and overriding error of mixed fact and
    law in her finding that North Elgin properly revoked its waiver.

[8]

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 O.R. (2d) 215 (H.C.), at
    para. 20.

[9]

We see no error in the application judges conclusion that North Elgin
    waived strict compliance with the renewal provision under the Lease. Where the
    application judge erred was in finding that the waiver had been revoked by
    North Elgin in an email to McDonalds dated August 31, 2016.

[10]

For
    the revocation of a waiver to be effective it must provide reasonable notice to
    the receiving party:
Petridis,
at para. 20.  To qualify as reasonable,
    the notice must make 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.

[11]

In
    our view, the August 31, 2016 email does not clearly indicate that North Elgin
    would be insisting upon the strict enforcement of its legal rights. The email
    raises the issue of whether McDonalds intended to let the Lease expire or whether
    McDonalds wanted North Elgin to refer the rental rate issue to arbitration. There
    is no clear revocation of the waiver.

[12]

The
    August 31, 2016 email also does not provide McDonalds with a reasonable period
    to cure the breach of the Lease. In its next communication to McDonalds, North
    Elgin advised via a lawyers letter dated November 25, 2017, that it was of the
    view that the Lease would be at an end upon the expiry of the initial term. North
    Elgin also advised that if McDonalds did not agree with its position, it would
    bring an application to have a court declare the Lease to be at an end upon the
    expiry of the initial term. Therefore, no opportunity to cure the defect was
    provided to McDonalds.

[13]

In
    our view, based on the evidence before her, it was a palpable and overriding
    error of mixed fact and law for the application judge to find that the waiver
    had been revoked. Because the waiver has not been properly revoked, the issue
    of fair market rental rates shall be referred to arbitration.

[14]

With
    regard to McDonalds claim for an order requiring North Elgin to specifically
    perform its obligation to obtain a
Planning Act
consent, we note that
    the end of the 21
st
year under the Lease is fast approaching. We
    proposed to the parties in oral argument that the most sensible order would be
    one in which McDonalds was permitted to immediately bring an application for
    the consent, and North Elgin would provide all reasonable cooperation to obtain
    the consent. The parties were agreeable to that order, and it shall issue.

Disposition

[15]

The appeal is allowed. The orders below are set aside
    and an order will go as follows:


(i)

a declaration will be granted that the Lease has been renewed for the
    renewal term;


(ii)

McDonalds shall, within 30 days of the date of these reasons, refer  to
    arbitration, in accordance with Articles XV and XVII of the Lease, the issue of
    the fair market rental rate for the renewal term commencing on March 11, 2017;


(iii)

McDonalds shall, within 30 days of the date of these reasons, bring an
    application for the consent required under s. 50(3)(f) of the
Planning Act
and North Elgin shall provide all reasonable cooperation to obtain that
    consent;


(iv)

North Elgin shall pay to McDonalds its costs of the applications in
    the all-inclusive sum of $10,000; and


(v)

North Elgin shall pay to McDonalds its costs of the appeal in the
    all-inclusive sum of $15,000.

S.E. Pepall
    J.A.

C.W.
    Hourigan J.A.

David Brown
    J.A.


