Lease Renewal Options – 1398955 Ontario Inc. v. O’Shanter Development Co.
Many commercial leases contain a right or option in favour of the tenant to renew or extend the lease. It is very common for such options to have pre-conditions that must be complied with in order for the tenant to have the right to exercise the option. Often these pre-conditions include a requirement that the tenant not then be in default and/or not have been in default previously.
In 1398955 Ontario Inc. v. O’Shanter Development Co. (2005) 38 R.P.R. (4th) 44 the Ontario Superior Court of Justice had to determine whether or not the tenant had validly exercised its renewal option.
In this case, the lease provided that the tenant had the option to renew for a further five years so long as it had at all times faithfully performed all of the terms and conditions of its lease and was not in default at the time of exercise. This provided two separate pre-conditions. The tenant was not in default at the time it exercised its renewal option so the second pre-condition was not at issue.
However, the tenant had a history of making its rental payments late. The lease, as is typical, required the rent to be paid monthly on the first day of every month. The tenant rarely did so. An affidavit from the landlord indicated that on average in nine of the twelve months for the four preceding years the tenant did not pay on time. While sometimes the payments were on the second day of the month, they were often well later into the month.
The tenant’s position was that all rent had been paid and therefore it had in fact faithfully performed all of the terms and conditions of the lease.
The court looked at the definition of faithfully in the
Concise Oxford Dictionary and noted that the definition most applicable was
“constantly”. The court had the view
that the tenant had to establish that it had constantly performed all of the
conditions in the lease. It was obvious
from the payment record that it did not do so in that its rental payments were
not made on time.
The court also held that this provision should be strictly construed against the tenant and the tenant should not be relieved from its consequences. The tenant's repeated failure to pay rent as it became due resulted in the tenant losing the ability to renew the lease.
The structure that the plaintiffs’ were building did not conform to the variances granted, or zoning ordinances, and as such, the Township was within its power to halt the violations that occurred and attempt to prevent future violations.
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