March 31, 2026
Does your lease, credit agreement, or other contract require that either party provide the other with an “audited statement”?
THE ISSUE
What does this mean? What happens if the requirement is not met?
A QUALIFIER
In Canadian law, interpreting words in a contract no longer depends, as it once did, primarily on the dictionary meaning. The basic rule now is that words are interpreted in the context of the entire agreement, and the surrounding facts, to attempt to determine the objective intention of the parties at the time that they created the contract. Dictionary definitions are now just a starting point.
THE CASE
The dispute in Denny’s Lube Centre (2016) Inc. v. 1121209 Ontario Inc. involves a seemingly simple provision common to commercial leases and other agreements. Under the lease, the Landlord was required to provide an “audited statement” to support the calculation of additional rent payable by the tenant.
Both the Superior Court judge hearing the initial application for interpretation of the lease, and the Ontario Court of Appeal, agreed with the tenant that this meant that the Landlord needed to provide a statement prepared by a public accountant duly licensed in accordance with the Public Accounting Act, 2004, S.O. 2004, c. 8. They did not accept the landlord’s argument that it was only required to provide “back up information” to support its calculations,
The courts agreed with the tenant that the Landlord’s interpretation would make the phase “audited statement” meaningless.
The Landlord argued that it was correct relying on its practice after the lease was initially in force. This argument was not successful because conduct AFTER the lease is signed does not show what the agreement was AT THE TIME the agreement was entered into.
The Landlord also argued that the term only meant that the additional rent calculation had to be prepared by an independent party other than the Landlord. The courts disagreed, referring to the purpose of an audit, which is to “provide reasonable assurance that the statement is free of misstatement”. It was significant that the calculations prepared by the accountants included a disclaimer that :
under the scope of their retainer they “did not perform an audit engagement or a review engagement … [and] do not express an audit opinion or a review conclusion, or provide any form of assurance…” with respect to the calculation.
As the Court of Appeal points out “Such a calculation could not be an “audited statement” of Additional Rent as required by the lease.”
The application judge ruled that no additional rent was payable from the beginning of the lease until the Landlord complied with the lease, as interpreted by the courts. The additional rent for later periods would be adjusted in favour of the tenant if, once the Landlord provides audited statements, there was an overpayment.
Promissory estoppel
Promissory estoppel is a concept of equity which , if it applies, prevents one party (such as the Landlord) from saying one thing, and doing another.
Promissory estoppel typically involves a promise made with the intention that the other party relies on it, and that the other party does actually rely on it.
In the Denny’s Lube, the Landlord was found to have waived rent during the initial term of the lease based on this principle. The Court of Appeal agreed.
TAKEAWAYS
- Words matter.
- Always read the fine print of your agreement.
- Make sure that you understand the terms.
- What the words mean in your agreement depend upon the surrounding circumstances.
- If you do not understand or are unsure about whether the written agreement matches your intentions, get legal advice before you sign.
- Actions matter. But the timing of those actions matters also.
- It is often best to work with a lawyer to prepare the agreement. If you do so, make sure that your lawyer understands your intentions.
- Be wary of making promises. Courts do not like it when you fail to keep your promises.
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 your agreement, 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 agreement.
If you have an issue under an existing agreement, 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 promissory estoppel, 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 agreement, amending a current agreement, or need to resolve a dispute under an agreement, Weilers LLP may be the right lawyers for you.