1212763ONTARIO LTD. V. BONJOUR CAFÉ
examines whether an assignor's indemnity agreement can be
enforced by a landlord following an assignment of an amendment to
the lease. In this case, the Landlord sought to recover unpaid rent
from prior operators of a coffee shop. The Landlord originally
entered into a lease with the Tenant, Bonjour Café, for a
term of fi ve years from February 1996 to February 2001. The coffee
shop was run by a revolving door of operators as the Lease was
assigned six times between 1996 and 2004. The Lease was fi rst
assigned to 1312215 Ontario Inc. (the "First Assignee")
in 1998. The Landlord consented to the assigned and agreed to
extend the Term to February 2006 (the "First Extension
Term"). Upon each assignment, the Landlord required the
assignor to sign an agreement indemnifying the Tenant's
obligations under the Lease throughout the Term, notwithstanding
any subsequent assignments. The principal of one assignor,
Café Ebenezer, signed a supplementary indemnity agreement
that was to apply throughout the Term and "any extensions
In 2004, the final assignee extended the Lease to February 2009
(the "Second Extension Term") and the rent payable was
increased starting in the Second Extension Term. The Landlord did
not notify the former assignees about the rent increase. When the
last assignee stopped paying rent in 2005, the Landlord terminated
the Lease, leased the space to a third party at a signifi cantly
lower rate, and brought an action to recover lost rent from two of
the operators — the First Assignee and Café
The Court held that the former assignees were not
released from their obligations under the indemnity agreements when
the Lease was assigned without their knowledge. The assignments did
not constitute a material change to the Lease, as they did
not alter the rights and obligations of the parties under the
Lease. As well, the 2004 amendment had no effect on the indemnity
obligations of the assignees during the First Extension Term since
the rent increase did not come into effect until the Second
Extension Term. Accordingly, the Court found both assignors liable
for rent up to February 2006.
However, neither assignee was found liable for any rent during
the Second Extension Term. The First Assignee's liability was
limited to "the Term" which, at the time, included only
the First Extension Term. So what about Café Ebenezer, whose
supplementary indemnity clearly applied to the Term and "any
extensions thereof"? The Court indicated its liability would
have continued throughout the Second Extension Term had the Lease
simply been extended. However, Café Ebenezer's consent
was required for the increased rent and since it was not obtained,
the Court held that the supplementary indemnity was terminated when
the rent increase took effect.
Why wasn't Café Ebenezer liable for anything during
the Second Extension Term, even the base rent payable for the last
year of the First Extension Period? The Court ruled that
termination of the indemnity "is the effect of the application
of common law rules. The amendments are not to be read as if the
Landlord extended the Lease on the same terms and
Bonjour Café demonstrates the importance for
landlords to incorporate express language in their leases, consents
and indemnity agreements, that (i) stipulates liability will
continue during the initial Term of the Lease and "any
renewals or extensions thereof" and (ii) contemplates rental
increases during the renewal/extension terms. We question whether a
clause in the indemnity, which provided that the assignee would
remain liable for the fair market rent during any extension period,
would have been suffi cient to avoid termination of the indemnity
and enable the Landlord to recover some rent from Café
Ebenezer during the Second Extension Term.
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