LEASE INTERPRETATION: WHEN THE FACTS MATTER
The firm has recently been engaged in a matter involving the early termination of a lease where the status of the lease itself was unclear given that the tenant had stopped payment on the deposit to secure the lease, but where the parties had nonetheless acted as if the lease was in force and the tenant had embarked on leasehold improvements. If the lease was valid and the early termination carried out in accordance with the provisions of the lease, the legal result would be determined in accordance with written provisions of the lease, in particular, with respect to leasehold improvements and the rights thereto on termination. On the other hand, if the lease was not valid, the parties’ rights would stand or fall by the law of restitution or unjust enrichment. The lease was not a work of art. This is not uncommon when a lease goes through several drafts as a result of ongoing negotiations with the parties.
In the recent case of 1079268 Ontario Inc., the Goodlife Fitness, the Ontario Court of Appeal considered a written lease replete with ambiguities and contradictions, in light of all the surrounding facts and negotiations. The Court found that the trial judge had committed an error of law by failing to interpret the lease in regard to the circumstances as a whole, including all the correspondence between the parties’ lawyers, so as to ascertain the intentions of the parties. In other words, while the proper approach is not to ignore the explicit wording of the lease, the lease must nevertheless be given commercial efficacy consistent with the apparent intentions of the parties as expressed in correspondence and by conduct of the parties while the lease was extant (or considered to be so by them).