On June 5, 2020, the Ontario Court of Appeal released its decision in 2324702 Ontario Inc. v. 1305 Dundas W Inc., 2020 ONCA 353, dismissing the appeal of a commercial tenant who was found to have failed to properly exercise a renewal option in its lease. In this case, the appellate court refused to grant relief from forfeiture to the tenant and found that the landlord had not waived strict compliance with the renewal provision, despite the fact that the landlord and tenant had engaged in ongoing negotiations insofar as fixing the amount of rent for the renewal period (in an effort to avoid arbitrating that issue, as contemplated by the lease renewal provision). More specifically, the appellate court found that the tenant, in negotiating the renewal rent with the landlord, was “hedging” and not committing to the exercise of the renewal, unless and until the parties had negotiated the renewal rent. The court also found that the landlord had not waived its right to demand strict compliance by the tenant with the renewal option, despite the negotiations between the parties, as the negotiations only took place before the expiry of the notice period for the exercise of the renewal option.
The case has important implications for tenants who try to negotiate the renewal rent in advance of exercising a renewal option where the renewal rent is subject to a fair market rent adjustment that is subject to binding arbitration in the event that the parties cannot agree upon the amount payable. In particular, tenants who wish to exercise that option must do so unequivocally, unconditionally and on a timely basis rather than communicate in a fashion that suggests to the landlord that the tenant is only prepared to commit to the exercise of the renewal option if and when the landlord and tenant actually agree on the specific amount of renewal rent payable.
The case also has important implications for landlords who engage in negotiations with tenants about the renewal rent in the context of a tenant considering the exercise of a renewal option. In particular, landlords who do not clearly reserve their rights to strict compliance with the renewal notice provision and who continue to negotiate with the tenant after the expiry of the notice period may be found to have waived strict compliance with the notice provision in a renewal option and thereby extend the tenant’s right to exercise the renewal option or may open the door for a court to grant relief from forfeiture in favour of a tenant.
Lawyers for the successful landlord in this case were Robert B. Cohen and Melissa Winch of Cassels Brock & Blackwell LLP.