When negotiating complex business contracts such as commercial leases, business people often lose patience with lawyers. The legal profession’s focus on perfecting the language of the document can become irritating, especially when the transaction has been agreed to in principle. However, the devil really is in the details: the recently decided case of Fairweather Ltd. v. Riocan YEC Holdings Inc. (“Fairweather”) provides us with a stark reminder of the importance of the exact language of a contract.
In Fairweather, a retail tenant negotiated an extension to its lease in a shopping centre. Over the course of its negotiations with the landlord, the tenant was made aware that the shopping centre was a target for redevelopment, and that during this redevelopment the section in which it was located would be rendered inoperable. In fact, it was commonly known amongst all of the tenants in the building that the landlord intended to redevelop the shopping centre.
In accordance with its redevelopment plans, the landlord negotiated a termination clause into its extension agreement with the tenant. The clause stated that if plans were put in place to demolish, redevelop or renovate “all or any part” of the shopping centre, that the landlord could terminate its lease with the tenant on three months notice. In Fairweather, the court determined that the tenant was acutely aware of this termination clause and signed the extension agreement despite its inclusion.
After the landlord eventually decided to redevelop the shopping centre, it exercised its option to terminate the lease. The tenant responded by demanding to be provided with details about the landlord’s intended redevelopment project. The tenant argued that the landlord could only terminate the lease if its continued presence directly interfered with the project. In response, the landlord stood firm and insisted upon termination of the lease.
In Fairweather, the lease and the extension agreement were interpreted by the court. Ultimately, the court ruled in favour of the landlord. In its commentary, the court ruled that the language of the extension agreement (i.e. “all or any part” of the shopping centre) was clear and unambiguous. As a result, the agreement’s wording was strictly interpreted and the tenant was not permitted to enter outside evidence to alter, vary, interpret or contradict the words used in the actual document. The court relied upon well-established legal principles to interpret the extension agreement at face value, and the court formed its opinion using the actual, true language of the contract.
Thus, the key lesson from Fairweather is a simple one, and yet it cannot be understated: Our courts tend to interpret commercial contracts strictly, particularly when both parties are sophisticated entities.
Accordingly, it is important to have experienced legal counsel by your side – counsel that can assist you to ensure that the broad framework of your deal precisely matches up with the “legalese” in your contract. If your legal work is not completed properly at the outset, correcting the issue may require double the time and double the resources (at double the expense). By retaining experienced real-estate counsel to assist you with your deal, you can protect yourself from future headaches. A classic example of the old adage: “An ounce of prevention is worth a pound of cure.”
Eli Udell is an Associate at BrazeauSeller.LLP. He practices real estate law. To find out more about Eli, please visit www.brazeauseller.com. To contact Eli, email firstname.lastname@example.org or call 613-237-5000 ext. 204.