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Contracts - Option - Uncertainty as to Terms

Lease - Option - Relief from Forfeiture

Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc. (Mr. Sub) (Ont CA, 2016)

In this case the court considered when a contractual option (here to renew a commercial land lease) might be void for uncertainty as to it's terms (here the amount of rent on the renewed term). The court also considered whether another ground argued against the renewal, that the tenant was in breach of an option-preconditioning term requiring it not to be in arrears, could avail itself of the court's relief from foreiture discretion (it couldn't):
[27] It is trite law that the courts will not enforce “an agreement to agree” and that there must be reasonable certainty as to the length of the term of a lease or of a renewal option, as well as to the amount of rent to be paid. See e.g. Re Fice and Department of Public Works of Ontario (1922), 64 D.L.R. 535 (Ont. S.C. (A.D.)), at p. 539; Gourlay v. Canadian Department Stores Ltd., 1933 CanLII 9 (SCC), [1933] S.C.R. 329, at p. 331; and Re Calford Properties Ltd. and Kelly’s Billiards Ltd. (1973), 1973 CanLII 215 (AB QB), 37 D.L.R. (3d) 300 (Alta. S.C. (T.D.)), at pp. 303-5.

[28] However, contrary to Mapleview’s submission, this case does not involve “an agreement to agree” on the renewal rate. In the cases relied upon by Mapleview, there was neither a formula or other objective standard for establishing the rate, nor any mechanism for its determination in the event of a failure to agree: see Sheppard v. Czechoslovak (Toronto) Credit Union Ltd. (1989), 1 R.P.R. (2d) 290 (Ont. D.C.), at p. 293; Young v. Van Beneen, [1953] 3 D.L.R. 702 (B.C.C.A.), at pp. 704-5; Great Atlantic & Pacific Co. of Canada v. Topostar (Aurora) Inc., 2006 CanLII 7279 (ON SC), 2006 CanLII 7279 (Ont. S.C.), at paras. 51-52; and Delphi Management Corp. v. Dawson Properties, 2014 ONSC 354 (CanLII), at paras. 10-11.

[29] Here, however, there is a formula or other objective standard for establishing the rate – namely, what is the “then current rate” at the time of renewal. Courts should not strive to set aside a commercial bargain that was intended to have legal effect where a clause in an agreement – even if not precisely expressed – has an ascertainable meaning: Hillas & Co. Ltd. v. Arcos Ltd. (1932), 147 L.T. 503 (Eng. H.L.), at p. 514; and Griffin v. Martens (1988), 1988 CanLII 2852 (BC CA), 27 B.C.L.R. (2d) 152 (C.A.), at p. 153. Adopting this approach in Empress Towers Ltd. v. Bank of Nova Scotia (1991), 1990 CanLII 2207 (BC CA), 73 D.L.R. (4th) 400, at p. 403, leave to appeal refused, [1990] S.C.C.A. No. 472, the British Columbia Court of Appeal concluded that “the courts will try, wherever possible, to give the proper legal effect to any clause that the parties understood and intended was to have legal effect.” I agree.

[30] Here, I am satisfied that the parties intended to make a binding agreement as to the renewal rate; they simply declined to specify that rate in a dollar amount because neither wished to assume the risk of error (too high or too low, depending on their interest) 15 years later. This makes commercial sense. Expressing the renewal rate as the “then current rate” is the functional equivalent of saying the “then market value” or the “then prevailing market rate” – expressions that have been found to be sufficient to overcome a void-for-uncertainty argument. See e.g. Mustard Seed (Calgary) Street Ministry Society v. Century Services Inc., 2009 ABQB 171 (CanLII), 79 R.P.R. (4th) 252, at paras. 31-39, 46 (the “then prevailing market rate”); Brown v. Gould, [1972] 1 Ch. 53, at pp. 60-62 (the “market value of the premises at the time”); Great Atlantic & Pacific Co., at para. 51 (an “objective standard such as ‘market’ rent”); and Empress Towers, at p. 404 (the expression “market rent prevailing at the commencement of [the] renewal term” would itself have sufficed, but the addition of the words “as mutually agreed between the Landlord and the Tenant” rendered the clause void for uncertainty in the circumstances).

.....

[53] There appear to be conflicting authorities on whether a court can grant equitable relief from the failure to comply with a covenant that is a condition precedent to the renewal of a lease. In Re Pacella and Giuliana (1977), 1977 CanLII 1413 (ON CA), 16 O.R. (2d) 6, at p. 8, this Court concluded that the court “has power to relieve against forfeiture, but no power to excuse performance of conditions precedent.” While Re Pacella was a mortgage renewal case, the Court adopted the following statement from Sparkhall v. Watson, [1954] 2 D.L.R. 22 (Ont. H.C.), at pp. 25-26 – a lease renewal case – in support of its conclusion:
Counsel for the lessee also submitted that the order relieving against forfeiture wiped the slate clean and made it impossible to look at the prior default in the payment of rent in order to determine whether the right to renew was lost. The proposition is correct so far as the original term is concerned, but the order does not operate so as to excuse performance of conditions precedent to the right of renewal. The distinction is clearly made in Finch v. Underwood, 2 Ch. D. 310. The Court has power to relieve against forfeiture, but no power to excuse performance of conditions precedent. [Citation omitted.]
[54] More recently, the British Columbia Court of Appeal adopted a similar view in Clark Auto Body. At para. 30, Kirkpatrick J.A. said:
In my opinion, it is essential to distinguish between the court’s equitable jurisdiction to grant relief from forfeiture for the non-observance of covenants in an existing lease and from the failure to comply with conditions precedent to the exercise of an option to renew a lease. In the former, equity recognizes that a tenant may be permitted to cure its default and be relieved from forfeiture to allow it to retain the balance of the term of the lease. In the latter, there is no compulsion on the tenant to exercise the renewal option, but if it does so, the tenant must comply with the conditions precedent. If the tenant fails to comply, it does not suffer a penalty or forfeiture of an existing tenancy. Equity will not intervene.
[55] On the other hand, this Court has also concluded that the court does have jurisdiction to grant equitable relief in circumstances where there has been a failure to comply with a precondition to the renewal of a lease. But the jurisdiction to do so is a “narrow” or a “limited one”: see Ross v. T. Eaton Co. (1993), 1992 CanLII 7470 (ON CA), 11 O.R. (3d) 115 (C.A.), at pp. 124-25; 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., [1993] O.J. No. 2801 (Ont. C.A.), at para. 9; and Ole Miss Place Inc., at para. 80.

[56] It is not necessary to resolve the differences between these two lines of authority here because, in the circumstances of this appeal, Papa Kerollus is not entitled to the benefit of equitable intervention on either approach, in my view. The T. Eaton Co., 120 Adelaide Leaseholds, and Ole Miss Place Inc. line of authorities makes clear that one of the prerequisites for the exercise of any such equitable jurisdiction 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”: T. Eaton Co., at p. 125, cited in Ole Miss Place Inc., at para 80.

[57] That cannot be said in favour of Papa Kerollus here, for the reasons outlined above. It acknowledges that it was in default in payment of the admitted arrears of $251.92. This is a small amount, and had Papa Kerollus wished to preserve its position with respect to the renewal option, it could easily have paid it. Similarly, it could have paid the additional $1,017.00 monthly amounts for the period June 1, 2014 onwards – as the payment method in clause 3.C of the Lease required – and then sought a re-adjustment after receipt of the statement of actual expenses for the year 2014. But it did neither. Instead, it held tenaciously to its stance that it would pay nothing further until the dispute over the total amount of arrears owing was resolved. In my view, it was not entitled to do so under the terms of the Lease if it wished to preserve its option to renew.


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