Tenant had right to renew lease provided it exercised renewal right according to terms of lease

Real Property - Landlord and Tenant - Renewal of lease

Tenant leased commercial premises with right to renew for additional five years on expiry of initial term. Tenant sublet premises to third party with landlord's consent, but did not reserve last day of head lease term to itself. Head lease and sublease were set to expire on same day. Tenant attempted to exercise renewal option but landlord claimed tenant no longer had option. Tenant applied for declaration it had rightfully exercised its option to renew lease; order that landlord and subtenant deliver vacant possession of premises; and order that arbitrator be appointed to determine rent payable during renewal period. Application judge ruled tenant had claim for breach of contract against landlord, but found tenant suffered no damages. Tenant appealed. Appeal allowed. Application judge was obligated to resolve discrepancies between lines of authority relied on by parties. Application judge had to resolve issue that was argued before him because resorting to tenant's contractual rights to damages could not result in obtaining relief sought. When lease was assigned, landlord's privity of estate with original tenant came to end, but privity of contract remained. Sublease created no direct relationship between subtenant and landlord; there was no privity of contract or privity of estate between them. Section 3 of Commercial Tenancies Act (Act) was interpreted to mean that there may be sublease even if last day in head lease was not reserved, but only where there was sufficient evidence to show that objective intention of parties, as reflected in sublease, was not to create assignment. As commercial lease was not only conveyance but also contract, consideration should be given to objective intentions of parties to purported sublease to determine nature of impact on subletting party vis-à-vis its rights under head lease. This interpretation maintained distinction between subleases and assignments, which was consistent within scheme and wording of s. 3 of Act. Sublease was not treated as assignment and tenant had right to renew lease provided it exercised its renewal right in accordance with terms of lease. There was no basis to interfere with application judge's conclusion that tenant did not breach lease. Application judge erred in undertaking damages analysis in circumstances and order finding tenant suffered no damages was set aside. Order was made declaring tenant had rightfully exercised its option to renew lease for five-year period and it had right to lease premises for that period. Possession of premises was to be given to tenant and parties were to submit to arbitration, as contemplated under lease, to determine rent.

V Hazelton Limited v. Perfect Smile Dental Inc. (2019), 2019 CarswellOnt 7644, 2019 ONCA 423, C.W. Hourigan J.A., David Watt J.A., and Grant Huscroft J.A. (Ont. C.A.); reversed (2018), 2018 CarswellOnt 10023, 2018 ONSC 3958, E.M. Morgan J. (Ont. S.C.J.).

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