C. Options to Renew

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 144-147

Page 144

Some support for the enforceability of a duty to negotiate can be found in Canadian cases considering the enforceability of options to renew leases where the new rental rate is "to be agreed" by the parties. In Empress Towers Ltd. v. Bank of Nova Scotia,²²the British Columbia Court of Appeal ruled on the enforceability of an option to renew a lease for an additional five-year period at a rental "which shall be the market rental prevailing at the commencement of that renewal as mutually agreed between the Landlord and the Tenant."²³In addressing this issue, Lambert J.A. began by emphasizing, as Lord Wright had in Hillas, that courts should be disposed to enforce agreements created by the parties: "It is not the function of the courts to set interim agreements aside for uncertainty because they contain a clause that is not precisely expressed. If such a clause has an ascertainable meaning, then the courts should strive to find it.... As long as an agreement is not being constructed by the court, to the surprise of the parties, or at least one of them, the courts should try to retain and give effect to the agreement that the parties have created for themselves."²⁴Although Lambert J.A. does not make this point, we may wonder whether the general disposition to enforce agreements should carry additional weight in a context, such as the present, where the parties have been able to satisfactorily perform the agreement in question for a substantial period of time. Against this predisposition, however, Lambert J.A. noted: "it is well established that if all the parties say is that they will enter into a lease at a rental to be agreed, no enforceable lease obligation is created." He went on to suggest, "there may, however, be an obligation to negotiate."²⁵As Lambert J.A. noted, if the parties had simply provided for renewal at "the market rental prevailing," the agreement could have been enforced in these terms. A difficulty arose from the additional requirement that the rate be "as mutually agreed" by the parties. The effect of that provision, for Lambert J.A., was that the landlord could not be compelled to enter into a renewal tenancy at a rate that it did not find acceptable. He went on to observe, however, as follows:

Page 145

But, in my opinion, that is not the only effect of the requirement of mutual agreement. It also carries with it, first, an implied term that the landlord will negotiate in good faith with the tenant with the objective of reaching an agreement on the market rental rate and, secondly, that agreement on a market rental will not be unreasonably withheld.... Those terms are to be implied under the officious bystander and business efficacy principles in order to permit the renewal clause, which was clearly intended to have legal effect, from being struck down as uncertain. The key to implying the terms that I have set out is that the parties agreed that there should be a right of renewal at the prevailing market rental.²⁶The Court of Appeal upheld the trial...