DEALING WITH THE LEASE: Legal Principles & Litigation Perils! LEXPERT Conference Toronto, Ontario November 21, 2013

Legal Principles & Litigation Perils! Legal Principles Affecting the Lease

1. What is a contract? A contract is a legally binding agreement between 2 or more parties for a particular purpose Parties to a contract are bound by law to carry out their “promises”

1. What is a contract? 5 conditions for a contract to be valid / legally binding: –Mutual consent –Contractual capacity –Must have an object or a purpose –Valuable consideration –Valid written instrument (generally)

1. What is a contract? 3 elements of a contract: –Offer –Acceptance –Consideration

1. What is a contract? Why does contract law exist? –To ensure parties keep their promises –If they do not, the law will enforce them.

1. What is a contract? Differences and Similarities between contracts and leases Commercial contracts: –Specific to a transaction, and for a particular duration –Describe and administer continuing commercial relationships over long periods of time

1. What is a contract? Lease: –a division of rights to the property between the parties –Landlord retains ownership, but Tenant is granted right to possession during the Term –the parties attempt to foresee and deal with all of the many contingencies that may arise

1. What is a contract? Lease must contain 6 elements to be binding: –The parties –A description of the premises to be demised –The commencement –The duration of the term –The rent, if any –All the material terms of the contract not being matters incident to the relation of the Landlord and Tenant, including any covenants or conditions, exceptions or reservations

2. Lease Interpretation Intent Ontario courts look to ascertain what the parties meant by the words the parties used in their agreement, to declare the meaning of what was written in the agreement, NOT what was intended to have been written.

2. Lease Interpretation Meaning Words are given their generally accepted meanings by the court, except in a case where an agreement shows that a term was used in a technical or special sense.

2. Lease Interpretation Where language, construed literally, would render a term of an agreement ineffective, or lead to an absurdity, the court will not adhere to literal construction if the language will permit another construction with the rest of the document.

2. Lease Interpretation Interpretation The court will look at the document as a whole, with regard to all of the provisions. Where an instrument, read as a whole, affords proof of the real intention of the parties, such intention will be given to it as will carry out the real intention.

3. Rules of Construction When developing the wording of lease provisions, particular diligence should be exercised in order to minimize the potential for ambiguity. In cases of ambiguity or doubt, clauses will be interpreted against the drafter.

3. Rules of Construction Ensure the language of the contract is clear and definite. Revise ambiguous language for clarity. Keep an eye out for inconsistencies.

3. Rules of Construction Cartareal Corporation, N.V. v. Canada (Minister of Public Works and Government Services) “The Lessee shall have the right to terminate the lease effective May 31, 2004, upon delivering to the Landlord at least six months prior written notice together with a penalty equal to three months rent.”

3. Rules of Construction BC Ltd. v. Concord International Lands Ltd. Calloway REIT (Westgate) Inc. v. Michaels of Canada ULC

4. Contra Proferentem One principle often applied by courts when interpreting contracts is the principle of contra proferentem. Pursuant to this principle, courts construe any ambiguity in an agreement against the one responsible for drafting it.

4. Contra Proferentem If a lease was extensively negotiated by the parties and the final form was considerably different from the original, the contra proferentem rule might have less impact.

4. Contra Proferentem Logikor Inc. v. Bessey Tools Inc Ontario Inc. v. GolfNorth Properties Inc.

5. Parole Evidence Rule Another principle often applied by courts when interpreting contracts is the parole evidence rule. Parole Evidence Rule: Extrinsic evidence cannot be [admitted] to contradict, vary, add to or subtract from the terms of a written agreement.

5. Parole Evidence Rule However, if it is shown the document was not intended to express the entire agreement between the parties, the parole evidence rule will have no application. An “entire agreement” clause [is used] to define what is and what is not part of an agreement Ontario Inc. v. Sallewsky

6. Integration Provisions Integration provision may also be referred to as an “entire agreement clause” or “merger clause”. SAMPLE CLAUSE: “The Lease, along with any exhibits, appendices, addendums, schedules, and amendments hereto, encompasses the entire agreement of the parties, and supersedes all previous understandings …

6. Integration Provisions … and agreements between the parties, whether oral or written. The parties hereby acknowledge and represent, by affixing their hands and seals hereto, that said parties have not relied on any representation, assertion, guarantee, warranty, collateral contract or other assurance, except those set out in this Lease, made by or on behalf of any other party or any other person or entity …

6. Integration Provisions … whatsoever, prior to execution of this Lease. The parties hereby waive all rights and remedies associated with the gross negligence, wilful misconduct or fraud of any person or party taking place prior to, or contemporaneously with, the execution of this Lease.”

6. Integration Provisions interpreted by common law “plain meaning” rule lease exhibits integration provision in a lease will ensure that none of the preliminary agreements will bind the parties once a lease is fully-executed

6. Integration Provisions However, Courts will set aside entire agreement clauses for equitable reasons in the following circumstances: –Where it is found that reliance on the exclusion clause will cause a result that is unreasonable; –Where there has been fraudulent misrepresentation; –If there is a collateral agreement created by extrinsic negotiations; and –If there is a negligent or innocent misrepresentation through extrinsic negotiations/inducements

6. Integration Provisions In a recent case, the Ontario Court of Appeal has held that in certain circumstances: (i) contracting parties owe a duty of good faith to one another; (ii) that an entire agreement clause will not preclude the implication of a duty of good faith as a term of a contract because an implied term is already part of the existing contract; (iii) the entire agreement clause in the contracts at issue did not expressly preclude terms being implied into the agreement; and (iv) if the conduct at issue was covered by the entire agreement clause, the court had the discretion to refuse to enforce it where to do so would be unconscionable, unfair, unreasonable, or otherwise contrary to public policy

7. Mutatis Mutandis Literal translation: with those things having been changed which need to be changed More simply: only the necessary changes having been made

8. Consensus Ad Idem Agreement/ / meeting of the minds Parties fully understand a contract and their role in it Ron Ghitter Property Consultants Ltd. and Beaver Lumber Company Limited Stevens v. Stevens

9. Ejusdem Generis “of the same kind” When a generic description follows specific items, the more generic description is read to apply only to things belonging to the same group or class as the specific items.

9. Ejusdem Generis Ziegler Estate v. Green Acres (Pine Lake) Ltd.