In Veloute Catering Inv. v. Bernardo, 2016 ONSC 7281 (S.C.J.), Veloute Catering Inc. (Veloute), the tenant, and Bernardo, the landlord, entered into a lease in 2011 for a 5 year term with a right to renew for a further 5 year period. The lease required that the right to renew to be exercised by October 20, 2015.
On at least two occasions Bernardo told Veloute that, in effect, the lease would end in April of 2017 rather than April 2016 meaning that, at least in Bernardo’s mind, the right to renew only had to be exercised by October 20, 2016 and not 2015. One was by way of letter dated April 29, 2015 and the other was by way of text message sent November 10, 2015. After the text was sent, both Veloute and Bernardo checked their respective copies of the lease and satisfied themselves that the lease was ending in April of 2016.
Veloute testified that they first discussed renewing the lease with Bernardo in July of 2014. Later in the summer of 2014, Veloute indicated to Bernardo that they looked forward to many more years at their location. In the summer of 2015, Veloute discussed constructing a back deck to the restaurant with Bernardo but that they would only construct the deck if they were going to be a long term tenant. On October 17, 2015, Veloute met with Bernardo and indicated that they wished to renew the lease (Veloute knew at that point that the lease ended in April of 2016). Veloute also testified that each time they discussed lease renewal issues with Bernardo, Bernardo told them that they were in the fourth year of the lease so that they did not have to deal with it.
Bernardo denied that Veloute discussed the renewal of the lease with him prior to the expiry of the renewal option on October 20, 2015. He further testified that they only discussed the renewal of the lease on November 10, 2015 after they realized that the lease was in its final year. The court ultimately accepted Veloute’s evidence over that of Bernardo’s.
In November of 2015, Bernardo met with a commercial real estate agent to discuss the potential redevelopment of the property. He also called an architect to prepare some drawings. Bernardo ultimately submitted an application for a building permit to the city in January of 2016. If the lease was renewed, Bernardo would not be able to proceed with the redevelopment.
On November 29, 2015, Bernardo told Veloute that the right to renew the lease had expired. On January 18, 2016, Veloute’s lawyer sent a letter to Bernardo wherein they formally exercised the renewal option under the lease. Ultimately, Veloute brought an application for relief from forfeiture.
The court first considered whether or not Bernardo waived the right to receive notice of the renewal of the lease by October 20, 2015. The court stated the principle of waiver as follows: “The principle of waiver is simply this: If one party, by his conduct, leads another to believe that the strict rights arising under the contract will not be insisted upon, intending that the other should act on that belief, and he does act on it, then the first party will not afterward be allowed to insist on the strict legal rights when it would be inequitable for him to do so…” In the case of a renewal provision, the court held that a landlord may be found to have waived their right to demand strict compliance with the terms of a renewal provision if it has participated in negotiations for the renewal of the lease after the expiry of the time for exercise of the option. The court found, however, that Bernardo’s conduct, after October 20, 2015, did not expressly recognize the right to renew the lease after the expiry of the option. Therefore, Bernardo had not waived the requirement that written notice of the renewal had to be provided by October 20, 2015.
The court then went on to consider whether or not it ought to grant relief from forfeiture. The court held that it had the power to grant relief from failure to properly renew a lease, and, in the circumstances of the case, it granted relief from forfeiture for the following reasons:
1. Veloute told Barnardo many times that it wished to renew its lease before the October 20, 2015 deadline. Bernardo led Veloute to believe that it was only in the fourth year of its lease and therefore a notice of renewal would not be required until October 20, 2016;
2. Once Veloute was aware on November 10, 2015 that the lease would expire in April 2016, Veloute attempted to arrange a meeting with Bernardo in an attempt to renew the lease; and
3. Veloute had made a significant investment in improvements and repairs to the property which would be lost because of the failure to provide timely notice.
The moral of the story: don’t take any risks with lease renewal provisions. Be sure to familiarize yourself with the date you must exercise your renewal by, diarize it and make sure, even if you are in discussions with your landlord, to deliver a written notice of renewal in strict compliance with your lease. Otherwise, like Veloute, you may find yourself spending thousands of dollars on legal fees in obtaining relief from forfeiture which you have no guarantee of obtaining.