Author: Dan Waldman, Partner, Pallett Valo LLP.
When it comes to renewing commercial leases, courts are adamant that deadlines must be strictly met. If a tenant is required to exercise its option to renew by a certain date, the right will be lost if it’s not exercised on time. In a recent decision from the Ontario Court of Appeal, it was affirmed that this rule remains true regardless of whether the landlord cooperates with the tenant in informing them of when the right to renew must be exercised.
In Subway Franchise Restaurants of Canada Ltd. v. BMO Life Assurance Company, a Subway location was required to renew its lease at least between nine months and one year prior to the expiration of the term. Subway signed its lease with a previous landlord, which was later taken over by BMO. When BMO assumed the lease, Subway acknowledged that it was required to exercise its renewal option between August 24, 2017 and November 23, 2017.
In early 2017, Subway sent a letter to the landlord and asked it to confirm the deadline to exercise the renewal option. The letter stated that “in the event that any of these dates differ from your records, please contact us in writing immediately as your silence will be an acknowledgement and authorization of their accuracy and our reliance”. The letter was not answered by the landlord and Subway sent numerous follow-up letters, which also went unanswered. Subway ended up exercising its option to renew outside of the deadline, which was not accepted by the landlord.
Subway then commenced an application seeking relief from forfeiture of its lease. It contended that, by ignoring its requests for confirmation about the renewal date, the Landlord failed to act in good faith. It was held that the landlord’s conduct did not amount to bad faith, specifically because the landlord did not knowingly mislead Subway or create any sort of false impression regarding the renewal of its lease. Although BMO did not respond to Subway’s inquiries regarding the renewal date, its silence did not amount to bad faith. Subway was therefore denied relief from forfeiture of its lease.
This decision confirms that the duty of good faith has its limits. In order to breach the duty, there has to be an intention to knowingly mislead, which must be demonstrated by a party’s acts. Merely staying silent and not taking positive