An option for the renewal or termination of a lease generally
provides for the mechanism that is necessary to exercise the
option. Is the failure to comply with this mechanism fatal to the
exercise of the right? If the clause does not state that the
fulfillment of the conditions is necessary to validly exercise the
option, the clause will be construed in favour of the party
exercising the option, even where it has not scrupulously complied
with those conditions.
In the case of World Color Press Inc. v.
Édifice 800 Industriel Inc. 2012 QCCS 1774, the
court had to determine whether the lessee had validly exercised an
option to terminate the lease which provided that the lessee's
right had to be exercised by no later than March 31, 2011, for
purposes of terminating the lease on March 31, 2012, together with
the payment of a penalty of $1 million by no later than March 31,
2011 in "full and final payment of all the lessee's
obligations under the Lease". The lessee sent the notice on
March 30, 2011 indicating that a cheque in the amount of $1 million
was attached to the notice; however, no cheque was attached. On
discovering the omission, the lessee sent the cheque on April 8,
2011, but the lessor returned it, claiming that the option had not
been validly exercised and that the lease would continue until
March 31, 2017, the expiry date of the initial term.
In fact, the termination clause was reproduced upon each
renewal. Only the dates and amount of the penalty were changed.
However, according to the lessor, at the time of the last renewal,
the parties had wanted to make the payment of the penalty
concomitant with the notice of exercise of the option. On the other
hand, the lessee pleaded the whole agreement clause in order to
exclude the discussions surrounding the changes made to the last
version of the option to terminate.
Two issues were raised in court: was the non-payment of the
penalty by the specified date fatal to the exercise of the option
to terminate and, if the answer was no, did the penalty serve as
the payment of the rent until the end of the term in 2012, since
this penalty represented a "full and final payment of all the
lessee's obligations under the Lease".
The court held that the lessee had validly exercised the option
to terminate but that it still had to pay the rent until the end of
the term in 2012.
The court found that the entire agreement clause was inoperative
in the circumstances and that it did not prevent the court from
endeavouring to determine the parties' true intention since, on
the one hand, the option to terminate clause was incomplete and, on
the other hand, the literal application of the clause would have
had an absurd result from a commercial point of view.
The option to terminate clause was incomplete because it did not
specify the nature of the time limits, i.e. whether or not they
were mandatory. The court found that the parties never discussed
this point and, therefore, that the time limits were not mandatory
and that the lessee had validly exercised the option to terminate.
As for the penalty, the court held that it should not be considered
as rent paid in advance, otherwise, the concept of penalty would
lose all its meaning. Consequently, the lessee had to pay the rent
until the end of the term in 2012 despite the words "in full
and final payment of all the lessee's obligations under the
Lease," which could be given their full meaning under the
previous versions of the option to terminate when the penalty was
payable at the end of the term, but which would have yielded an
absurd result where the penalty was payable one year prior to the
end of the term, as in the present case.
NEW RULES RESPECTING SAFETY, HEALTH AND THE PROTECTION
In the December 2012 edition of this bulletin, we discussed the
draft Regulation to improve building safety (the
"Regulation") which will amend the
Quebec Safety Code, adopted under the Building
In general, the Regulation specifies, for the territory of Quebec,
the standards to be complied with by owners to improve building
safety. It contains standards applicable at the time of
construction and imposes maintenance requirements for building
façades and parking lots.
The Regulation has been adopted by the government and the first
provisions of the Regulation, i.e. those relating to the
maintenance of building façades and parking lots, came into
force on March 18, 2013.
We will discuss the new obligations imposed on owners under the
Regulation in a special bulletin to be published shortly.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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