Who does what? The Hazards of Ambiguity in Commercial Tenancies
A commercial tenancy can be defined as an agreement made between a landlord and a commercial tenant to rent a space for business. As with all important commercial contracts, it is important for these agreement to be clear and unambiguous with respect to the obligations of both the landlord and the tenant. In today’s blog post, we will discuss the case of Orillia (City) v. Metro Ontario Real Estate Ltd., 2021 ONCA 291, and examine the consequences of ambiguity on each party’s obligations to repair in a commercial tenancy.
On March 1, 1979, the landlord, the City of Orillia, entered into a lease agreement with the commercial tenant, Metro Ontario Real Estate Ltd (Metro) for an initial term of 25 years. The expiry date of the lease was February 28, 2004, and Metro had a right to five successive renewal periods of five years each. Therefore, the ultimate expiry date was to be February 2029, or a maximum of 50 years from the date the lease commenced.
In 1999, the parties negotiated an amendment to the lease which, extended the term of the lease by ten years, commencing on March 1, 2004 and expiring on February 28, 2014. The amendment gave Metro the option to extend the term of the lease for three additional periods of five years each for a total of five options or 25 years. Orillia brought an application for a declaration that the maximum term of the lease is 50 years, expiring in 2029. However, Metro argued that the lease extends until February 2039.
Another issue in contention was which party had the obligation to replace the roof of the property, which was being used as a grocery store. The roof of the grocery store started leaking in 2016, and Metro had to replace many of the ceiling tiles in the store. Months later, Metro determined that the roof needed to be replaced. Orillia took steps to implement a roof overlay solution but later asserted that it had no obligation to repair the roof. Metro brought an application for the City of Orillia to replace the roof, alleging that the agreement stated that Metro was responsible for only repairs and not replacement. The City of Orillia argued that the roof, whether it requires repair or replacement, was Metro's responsibility.
Lower Court Decision
The application judge held that the lease was ambiguous on the lease expiry date, and examined extrinsic evidence to hold that the lease could be extended to 2039, in favour of Metro. The application judge also held that Orillia had no duty to replace the roof. The lease provided that Metro had an obligation to maintain and repair the “leased premises.” This included the roof and the judge did not feel the need to distinguish between “repair” and “replace.”
On appeal, the Court was of the view that the lease agreement should be interpreted as a whole and courts should not create an ambiguity where none exists. In examining the amendment within the context of the original lease, the court held that the expiry date of the lease is 2029 and not 2039 as Metro argued.
On the issue of the roof repair, the Court examined the lease agreement, which provided that the obligation to repair fell on the tenant, subject to some narrow exceptions. Metro did not argue that the roof repairs fell within the exceptions, rather, that the roof repair was a "replacement rather than a repair." The Court held that the City of Orillia did not have any duty to replace the roof, as there was no provision to that effect under the agreement. The Court was also of the view that the roof overlay solution would not be brand new and would not itself even bring the property back to its original condition.
From this case, we can see how important it is for the respective terms and obligations of the tenant and the landlord to be clear under any commercial lease agreement. It is therefore, advisable to engage the services of a knowledgeable real estate lawyer specializing in commercial leasing before entering into lease agreements which often form a long-term ongoing relationship, this will help to prevent unnecessary conflict and litigation.
If you have any questions about commercial lease agreements and how to properly structure them in order to protect your interests in future real estate matters, kindly book a free consultation with Northview Law by following this link, or contact us at 416-639-7639. We look forward to hearing from you soon.