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Notices of Renewal and the Doctrine of Waiver: Case Comment on 1651788 Ontario Inc. v. 1628093 Ontario Inc.

Under the legal doctrine of waiver, a landlord’s failure to insist upon a tenant’s compliance with certain conditions of the lease may lead to the landlord being precluded from asserting that such original conditions are still operative and binding. An argument of waiver arose in the recent case of 1651788 Ontario Inc. v. 1628093 Ontario Inc. (2008 CanLII 45395 ON S.C.), where the Subtenant alleged that the Sublandlord’s oral agreement to renew the sublease was sufficient to waive the requirement in the sublease for renewal by written notice.

In that case, the parties entered into a sublease for a 145 square foot space in a shopping mall used by the Subtenant for the rental and sale of DVD's. The sublease contained a renewal clause under which the Subtenant could renew the term for a further period of 3 years at a rental rate to be agreed upon, so long as written notice of the renewal was given to the Sublandlord 60 days prior to the expiration of the term (which was by May 28, 2008). Failing agreement on the rental rate, rent for the renewal  period was to be determined by arbitration.

 

The Subtenant and Sublandlord had a cordial and informal relationship. The Subtenant alleged that it had discussions with the Sublandlord in April 2008 in which the Sublandlord acknowledged that the sublease would be renewed, although rent remained to be determined. The Subtenant further alleged that similar discussions took place again in mid and late May 2008, in which the Sublandlord confirmed renewal but would not commit to a rental rate for the renewal term.

 

In mid June the Sublandlord referred the Subtenant to the Sublandlord’s solicitor, who informed the Subtenant that as no written renewal notice had been given, a new Sublease was required. Following the meeting, the Subtenant wrote a letter to the Sublandlord requesting confirmation that the sublease had been renewed and claiming that the requirement for a new sublease was unfair. In mid July the Subtenant’s solicitor sent a further letter to the Sublandlord stating that a renewal had already been effected and including rent for July 2008.

 

In late June the Sublandlord entered into a new sublease with a new subtenant at an above market rental rate (although the parties agreed that the tenancy would be carried over until the litigation with the Subtenant was resolved).

 

At trial, the Sublandlord denied that there were any discussions or verbal agreements with the Subtenant regarding renewal of the sublease, and claimed that no part of its conduct could be interpreted as a waiver of the required term of 60 days written notice of renewal.

 

After hearing the parties’ evidence, Gilmore J. held that a renewal of the sublease took place during the discussions between the Sublandlord and Subtenant in April and May of 2008. The Subtenant’s actions in requesting that a contract be drafted and rental amount agreed upon reflected that the Subtenant was under the impression that the renewal was decided until the Subtenant met with the Sublandlord’s solicitor in June. Further, even if the communications of the Subtenant were insufficient to constitute an unequivocal renewal, the conduct of the Sublandlord was sufficient estoppel with respect to its right to rely on the strict terms of the renewal. Gilmore J. ordered the renewal of the sublease in accordance with the renewal option, and that rent for the renewal term be determined by arbitration in the event the parties were unable to reach agreement.

 

From a landlord’s perspective, this case demonstrates how a failure to insist on strict compliance with the terms of the lease may lead to waiver of the landlord’s rights. To the tenant, this case is a reminder of the importance of providing notice in writing where required so that debates such as occurred here are avoided.

Bob Fraser

January 25, 2009 in Leasing | Permalink

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Comments

It is good that a renewal of the sublease took place during the discussions between the Sublandlord and Subtenant in April and May of 2008.

Posted by: commercial Real estate firms | Sep 11, 2010 3:35:29 AM

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