When a Binding Offer to Lease does not Translate into a Binding Lease
We have previously discussed in this space that in order to have a binding agreement for lease all material terms of the lease must be “unconditionally accepted or otherwise resolved.” If some material terms have not been accepted or otherwise resolved, the agreement for lease will not be seen as a concluded contract. Rather, courts will view it as being in the process of negotiation and, therefore, not enforceable.
Similarly, even where parties signed a binding offer to lease documenting all material terms, one party will not be able to compel another to execute a final lease agreement if a material term of the final lease agreement is at odds with the signed offer (unless the changes to that term have been unconditionally accepted or otherwise resolved).
The recent decision by the Ontario Court of Appeal in 365 Bay New Holdings Limited v. McQuillan Life Insurance Agencies Limited, 2008 ONCA 100 (CanLII), (2008), 233 O.A.C. 299 provides an example of a situation where the final lease agreement submitted for execution by one of the parties was at odds with the signed binding offer to lease.
In 365 Bay New Holdings Limited case the Landlord and the prospective Tenant signed a binding Offer to Lease. The signed Offer stated that the parties would use their best efforts to execute a lease within 20 days of the Offer. It provided that the Landlord was to deliver its Standard Form Lease agreement incorporating all terms of the signed Offer. In addition, the final lease was also subject to further “minor non-financial amendments as may reasonably be requested by the Tenant which are acceptable to both parties...”
After the Offer was signed, the Landlord submitted to the Tenant the revised Standard Form Lease agreement that incorporated the terms of the Offer to Lease. In response, the Tenant requested amendments to one hundred and six (106) sections the Landlord’s Standard Form Lease. The Landlord accepted changes to fifty two (52) sections of the Lease and sent the revised document to the Tenant. In response, the Tenant pressed for additional amendments to over ninety eight (98) sections of the Standard Form Lease.
The parties continued in this fashion for a period of 5 months. Finally, 5 months after the Offer to Lease was signed, the Landlord refused to negotiate further and sent the sixth version of the Standard Form Lease agreement to the Tenant for execution. The version six of the Standard Form Lease sent to the Tenant incorporated 74 amendments requested by the Tenant that the Landlord agreed to. However, the Tenant refused to sign the submitted lease document and rented different premises.
The trial judge found that the nature and the number of amendments to the Standard Form Lease went outside of the “minor non-financial amendments as may reasonably be requested by the Tenant which are acceptable to both parties...” contemplated in the Offer to Lease. The incorporated amendments contained significant substantive terms not found in the Offer. However, the parties came to a bilateral agreement regarding the terms of the Standard Form Lease. As such, the refusal by the Tenant to move forward was a breach of the Offer to Lease and of the subsequently reached agreement.
The Court of Appeal disagreed with the conclusion reached by the trial judge. The Court stated that the final lease agreement in the form specified in the Offer to Lease would have been binding on the Tenant. However, the Court felt that the parties did not reach an agreement on the substantive changes to the Standard Form Lease. As the changes were not accepted by both parties, the Landlord could not insist that the Tenant sign the Standard Form Lease in the form submitted. Essentially, the Landlord could not compel the Tenant to enter into a different lease and, consequently, the Tenant’s refusal to execute the lease submitted by the Landlord was not a breach of the signed Offer.
In summary, this case suggests that when the
parties proceed to negotiate changes to a lease form not contemplated by the
Offer to Lease, there must be agreement on all changes or the parties must
revert back to only those terms contemplated in the Offer to Lease. Here the Landlord accommodated some (but not
all) of the changes with a result that the Tenant was free to walk from the
deal when the Landlord sent an ultimatum requiring the lease to be signed with
only the changes that the Landlord was prepared to accommodate.
Anna Sosis, Articling Student
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Posted by: shazia | Dec 17, 2008 6:33:55 AM
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