June 22nd - 2014

Legal Beat: Commercial tenant alleges breach of good faith

Is there a duty at common law to bargain in “good faith”? Various courts in the United States have replied that there is. However, most Canadian courts have responded that there is not.

Mervin Burgard Q.C.

by Mervin Burgard 

Is there a duty at common law to bargain in “good faith”? Various courts in the United States have replied that there is. However, most Canadian courts have responded that there is not.

In a recent case, the City of Toronto leased premises to Cinespace Studios under an Offer to Lease that commenced in 1994 and operated for 10 years.

It was for a film production centre and studio. It was alleged that the tenant would receive 18 months’ notice if it had to vacate but that it received significantly less than that. One judge, at an earlier stage of the case, stated that “The stand-alone duty of good faith allegations in the statement of claim have no chance of success.”

The tenant was unsuccessful in its appeal of that order. It then amended its claim and tried again. The tenant again alleges a breach of an implied duty of good faith; there is no explicit term of the agreement that specifies this.

As was stated in an earlier decision, “…whatever the scope of the doctrine of good faith in the law of contract, it does not go so far as to impose new obligations on a contracting party or additional obligations that are inconsistent with the terms of the contract… An implied duty of good faith cannot be used to alter the express terms of the [original] contract…”

The landlord had a right to terminate the agreement on notice. As noted by Justice Loukidelis in 962789 v. Ontario Ltd. Newmarket Plaza, “… A landlord has no control over the day-to-day operation of a tenant’s business and a lease is a typical commercial bargain between two parties considered to have equal bargaining power. There is no ‘good faith’ duty that requires a landlord to consider the interests of a tenant other than those expressly bargained for in a lease agreement.”

“The Ontario Court of Appeal has confirmed that a landlord may exercise its rights under a contract to terminate a lease without the requirement of good faith: 1397633 Ontario Inc. v. Oxford.”

1001411 Ont. Ltd v City of Toronto 2012 ONSC 5429


MERV’S  COMMENTS

Mervin Burgard Q.C.

There is a difference in the requirement of using “good faith” in a conditional Agreement of Purchase and Sale (APS). A party to an APS must use reasonable efforts in attempting to satisfy a condition made in good faith and should be ready to prove to the other party that it did so, especially if the document contains a specific clause requiring “best efforts”.

Mervin Burgard, Q.C.

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