1251614 Ontario Ltd v. Gurudutt Inc., 2015 ONSC 2141
This case concerned the interpretation of a renewal provision in a commercial contract. The court considered whether a tenant was required to execute the landlord’s then current standard form lease in order to exercise its right to renew its lease. The court held that by the terms of the renewal provision, the landlord could insist that the new standard form lease in place at the time of renewal be executed if there were to be changes.
The landlord and original tenant had entered a lease in 2002 for a ten year period with rights of renewal. In 2005, the original tenant had assigned the lease to the current tenant with the landlord’s consent. The lease contained the following renewal provision:
“Any such renewal to be on the same terms and conditions as are contained in this Lease except:
(iii) the form of renewal Lease shall be, at the landlord’s option, a lease extension agreement or a new lease in the landlord’s then current standard form.”
The tenant objected to the inclusion of a demolition clause in the new standard form lease, and argued that the current standard form lease must be on the same terms and conditions as were contained in its original lease. The tenant argued that the inclusion of the demolition clause would significantly reduce the value of the tenant’s business if it were to attempt to sell; likewise, the landlord argued that the absence of such a clause would significantly reduce the value of the landlord’s property if it were to sell.
The court found that the original lease had been reviewed and negotiated between sophisticated business parties who had full legal advice prior to executing the document. The court concluded that “the words “except” after the words “same terms and conditions” must mean that there could be an exception to “the same terms and conditions” or the word is meaningless.”
This case serves as a cautionary tale to both commercial tenants and their lawyers to consider carefully the lease agreement before executing it. If the tenant fails to negotiate modifications to the “then current standard form” requirement of the renewal provision, then the consequences may be great should the landlord exercise its right to include material changes in its new standard lease.