April 16, 2024
Commercial leases typically contain a clause which restricts the type of use that the tenant can have in the leased property.
If the use designated is too narrow, this can come back to bite the tenant.
The use clause in Metro 1 Development Corp. Ltd. v. Michael Garron Hospital limited the use of the space to be “used solely for the purpose of operating a Tim Hortons.” An affiliated company of the tenant had the Tim Horton franchise and operated there for nine years of the 15-year term. Then it lost the franchise.
The tenant hoped to regain the franchise, find another franchise, or operate the space as an independent coffee shop. The landlord hoped to be able to get the franchise itself, presumably to reap the profit.
The tenant took the position that clause in the lease which permitted it to make changes to the menu with consent of the landlord (which consent could not be unreasonably withheld) as evidence that the parties knew there was no guarantee that the space would actually be used for specifically a Tim Horton’s for the entire duration of the lease. The landlord also knew that Tom’s had the right to terminate the franchise.
This argument failed at both the Superior Court and Court of Appeal levels. As the Court of appeal put it “the lease could not be clearer in requiring Metro 1 to operate a Tim Hortons restaurant”. In addition to the use clause, the “Tenant’s Trade Name” is defined in the lease as “Tim Hortons”. Implying the term sought by the tenant would be inconsistent with the express terms of the lease, which is not allowed. The proper reading of the menu change provision was limited to changes to a Tims menu. It did not permit operating a different restaurant.
The tenant took the risk of early termination of its franchise and paid the price.
The court further held that the doctrine of relief from forfeiture did not assist the tenant- the lease was terminated due to the tenant’s breach, not any actions by the landlord. The use clause was an important consideration for the landlord, who brought in a Tim Hortons specifically to satisfy its staff. Relief from forfeiture is an equitable remedy, and the equities favoured the landlord.
The concept of honest performance of contract also did not assist the tenant. Recent decisions make it clear that this principle does not extend to force a party to disregard its own interests.
The early termination of the lease was upheld.
TAKEAWAYS
- Read your draft lease carefully before you sign it.
- Every clause in the lease is important.
- Courts will not imply terms that contradict the express wording of your lease.
- Relief from forfeiture is not simple to obtain, and you cannot rely on that to fix your breach of lease.
- Better to get the terms correct in the drafting phase.
- The duty of honest performance is being applied in a very limited fashion. It is also unlikely to save you.
WHAT WEILERS LLP CAN DO TO HELP YOU
At Weilers LLP part of our proud tradition is paying attention to all of the terms of the lease, and their suitability for our particular client’s interests. Part of our progressive approach is trying to protect our clients from the unexpected. Perfection in that regard is impossible, but because we take the time to work with our clients and understand their concerns and their needs, we believe that we achieve better results than a lawyer who simply drafts or approves a boilerplate lease.
If you have an issue under an existing lease, the litigation team at Weilers LLP collaborates with our commercial lawyers to achieve the best possible results. Our particular interest in understanding and applying equitable principles, including relief from forfeiture, often enables us to provide timely and appropriate advice which leads to a favorable cost-effective resolution of the dispute.
Whether you are drafting a fresh lease, amending a current lease, or need to resolve a dispute under a lease, Weilers LLP may be the right lawyers for you.