Court of Appeal Decision of the Week

Commercial Leases: What Does it Take to Revoke a Waiver?

Case: North Elgin Centre Inc. v. McDonald’s Restaurants of Canada Limited, 2018 ONCA 71 (CanLII)

Keywords: Commercial Lease; Revocation of Waiver; Petridis v. Shabinsky, 1982 CanLII 1829 (ON SC), 35 O.R. (2d) 215 (H.C.); Planning Act, R.S.O. 1990, c. P. 13

Synopsis:

The Appellant, McDonald’s Restaurants of Canada Ltd., and the Respondent, North Elgin Centre Inc., bring applications to determine their respective rights under a commercial lease. The lease is a twenty-year ground lease for lands in Richmond Hill, Ontario where McDonald’s has built and renovated a restaurant.

The lease includes an option to renew. Although Mcdonald’s gives proper notice of its intention to renew, the Application Judge determines more is required. For the Application Judge, because the Parties failed to agree on a rental rate nine months before the end of the original lease term, McDonald’s is obliged to either refer the issue to arbitration or revoke its intention to renew. Since McDonald’s does neither, the Application Judge finds the renewed lease uncertain as to the rental rate, a material term.

Further, the Application Judge determines that although the Respondent waived its right to insist on strict compliance with the terms of the renewal provision, it later revoked its waiver.

On appeal, McDonald’s submits the Application Judge erred in her analysis and seeks an order for specific performance requiring the Respondent to pursue an application for consent under s. 50(3)(f) of the Planning Act, R.S.O. 1990, c. P. 13. The Court of Appeal allows the appeal, finding the Application Judge made a palpable and overriding error of mixed fact and law in finding the Respondent revoked its waiver.

Importance:

This case is significant because it clearly sets out the principle of waiver and provides helpful guidance as to whether revocation of a waiver will be considered effective. Citing Petridis v. Shabinsky, 1982 CanLII 1829 (ON SC), 35 O.R. (2d) 215 (H.C.), at para. 20, the Court of Appeal set out the principle as follows:

…if one party leads another party to believe that its strict legal rights under a contract will not be insisted upon, intending that the other party will act upon that belief and the other does so, then the first party may not afterwards insist on its strict legal rights when it would be inequitable to do so. (See para. 8).

For the Court of Appeal, there was no error in the Application Judge’s finding the Respondent had waived strict compliance. Rather, the error was with her conclusion the waiver had been revoked by way of an email to McDonald’s. In clarifying this issue, the Court of Appeal set out a framework for determining when a waiver has been revoked:

For the revocation of a waiver to be effective it must provide reasonable notice to the receiving party: Petridis, at para. 20.  To qualify as reasonable, the notice must make clear that the party who granted the waiver will insist upon the strict enforcement of its legal rights. The notice must also afford the opposite party an opportunity to cure any defect resulting from its reliance on the waiver. (See para. 10).

The Court of Appeal determined both that the email did not clearly provide a revocation of the waiver, and that it did not provide McDonald’s a reasonable period to cure the breach of the lease. Accordingly, since the Court found it was an error to conclude the waiver was revoked, determination of the rental rate was referred to arbitration. (See para. 13).

As to the Planning Act issue, the Court of Appeal proposed that “…the most sensible order would be one in which McDonald’s was permitted to immediately bring an application for the consent, and North Elgin would provide all reasonable cooperation to obtain the consent.” (See para. 14).

Counsel for the Appellant: Ronald Slaght, Andrew Parley and Margaret Robbins (Lenczner Slaght Royce Smith Griffin LLP, Toronto)

Counsel for the Respondent: Martin Zarnett (Zarnett Law Professional Corporation, Toronto)

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Posted: Wednesday, January 31, 2018