Lessons in lease agreements

Lessons in lease agreements

December 31, 2007

Parties in a landlord-tenant agreement must be clear with their intentions and expectations as they approach negotiations to renew the lease, says Windsor corporate lawyer Laura Stairs.

Stairs, an associate with Shibley Righton LLP, cited a recent case where such a discussion resulted in the landlord unintentionally waiving some of their rights

when negotiating with its corporate tenant after

its 20-year lease expired.

"To avoid any misinterpretation that you waived your rights, both parties have to be very clear in communicating their expectations and how they intend to conduct themselves in accordance to the lease agreement, or outside the lease agreement if they’re agreeing to waive some of those provisions," she says.

"The lower court found that the landlord had revoked that waiver in an email, so it gave the tenant an opportunity to then initiate arbitration right away, which the tenant did not, but the Court of Appeal later decided the requirements of revocation had not been met in this instance," Stairs tells AdvocateDaily.com.

She says it’s important that all parties involved in negotiating a contract be very clear in expressing their positions and intentions.

"In this case we find the Court of Appeal agreed with the tenant that the landlord had waived its rights under the lease," Stairs says.

She believes the parties in the case had different interpretations of what was going on.

"The tenant believed they were undertaking a negotiation process with the landlord, and that it would happen once the landlord provided their initial proposals for the rental rate," Stairs says. "Based on how the reasons were written, it seems the landlord was acting similarly, working under the premise that they would undertake a negotiation of the rental rate after they compiled their information and came up with their proposal.

"Suddenly, in a two-day period, the landlord decided — once they presented their proposal much later than the lease allowed — that they weren't going to actually engage in any sort of negotiations.”

Stairs says the ruling delves into precisely what constitutes a waiver in a lease agreement.

"Essentially, rights are waived when one party, by action or by what they say, leads the other party to believe that it will not insist on a strict legal compliance with their rights under the lease,” she says. "And if the other party acts on that, then the first party can't go back and insist their legal rights be enforced strictly.”

If the landlord decides to revoke the waiver, they must give the tenant reasonable notice that they intend to do so, Stairs says.

In its January judgment, the court stated that "to qualify as reasonable, the notice must make clear that the party who granted the waiver will insist upon the strict enforcement of its legal rights. The notice must also afford the opposite party an opportunity to cure any defect resulting from its reliance on the waiver."

Stairs says the appeal court found the landlord waived their rights under the lease by not providing an initial rental proposal within the time frame outlined in the lease agreement. By continuing to indicate the proposal was forthcoming, the landlord had essentially waived their right to insist the timelines be complied with, she says.

"The lesson would be that if you are going to step outside the lease agreement to negotiate with the other party, you must be clear about your expectations and how far you are willing to waive those rights," Stairs says.

"If you want to give the other party an extra 30 days or 60 days, be precise about the new timelines, and what you will accept or not accept to be done differently than what the lease agreement says. It is a requirement in contract law that we act in good faith in the performance of a contract and negotiate future agreements arising out of contracts honestly,” she says.