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Real Estate

COMMERCIAL LEASING: All About Zoning, Renewals, and Extensions

Zoning

Disputes concerning the Smartcentres have been in the spotlight for much of this past year, illustrating the significant hurdles developers face when seeking approval for a large scale, primarily retail development. The cases have shown that proposals for large scale retail developments from now on must take into account policy directives developed under a municipality’s previous official plan. SmartCentres Inc. v. Toronto (City) relates to an appeal of two decisions of the Ontario Municipal Board (OMB). The first was an order of refusal to amend the Official Plan and the zoning by-law to permit a mixed use of commercial and retail development. The second dismissed a request to review that order in accordance with Section 43 of the Ontario Municipal Board Act (OMBA). As facts and figures made public by the OMB are binding and conclusive, the OMB’s appeal to the Divisional Court was only on a question of law following Section 96 of the OMBA.

SmartCentres Inc. (“SC”) wanted to make a large scale retail development on lands designated as “industrial” in the 1994 Official Plan (“1994 OP”), and requested permission. Applying Policy 9.18(b) under the 1994 OP to determine whether the proposal was in compliance, the OMB denied permission. Policy 9.18(b) inter-alia states: “Council will not consider re-designation of industrially-designated land so as to permit any non-industrial use…without first having considered a study of the area…” Nonetheless, the 2002 Official Plan (“2002 OP”) changed the designation of the surrounding lands as “employment area” and no lands were designated as industrial. In such newly designated employment lands, however, office and retail uses were permitted. Furthermore, the new policies under the 2002 OP admitted that large retail uses could be approved through by-law amendments provided that the “functioning of other economic activities within the Employment Areas and the economic health of nearby shopping districts are not adversely affected.” A method of testing the criteria is in Policy 9.18, which the OMB applied to the newly designated employment lands. The OMB concluded that that proposal did not represent good planning and would destabilize the area.

The court had no reason to object to the OMB’s decision. It observed that to conclude that Policy 9.18 was rendered inapplicable due to the 2002 OP amendments would result in the OMB assessing the project without considering the impact of the proposal on the surrounding lands, regardless of what they might be. The court found that reference to the ‘industrial / now employment’ lands is a factual description of the surrounding lands. The court supported the OMB’s finding that the intent to protect industrial/employment lands from threatening land uses is the objective of both Policy 9.18 and Policy 4.6.3. The OMB, therefore, is entitled to apply its policy expertise to determine that the policies share similar purposes and are connected. The court found no valid reason to challenge the legality of the OMB’s decision on a question of law.

Renewals and Extensions

Next follows a case, cautionary in nature, with regard to options to renew. It is prudent to be careful in drafting and implementing renewals and extensions because the result could be detrimental to an inattentive tenant.

Nasheim v. White Buffalo Wholesale Ltd.

In this case, the tenant entered into a lease in June 2005, with the landlord for land and a commercial building in Regina with an option to renew for a further term of five years at $5.00 per square foot. The renewal option also provided that once the option was exercised, the “the Landlord shall grant to the Tenant a renewal of the Lease on the same terms and conditions contained therein, save and excepting a right to further renewals and rent.” Simply stated, further renewals and rent were to be established between the parties and evidenced by agreement.

The current tenant, Regina City Freezers Ltd. (“RCF”) was assigned the lease in July 2005, and in December 2008, the landlord entered into negotiations with a view to selling the property. The sale did not materialize, but the current dispute between the parties regarding the option to renew cropped up.  The tenant maintained that it had a right to renew the lease from 2010 to 2015 at a rate of $5.00 per square foot per annum and that the lease also contained the provision for a further renewal beyond 2015, which was to be established by agreement between the parties. The court observed that the tenant was wrong and, in fact, the option provided the exact opposite with respect to further renewals. Firstly, there was no more reference to renewals. Secondly, the option makes it imperative that the landlord renew on the same terms and conditions as the existing lease “save and excepting” the right to further renewals and the rent. To put it simply, the possibility of any further renewal was specifically left out.

In regards to rent, the court observed that there existed an “obvious conundrum” between the $5.00 per square foot per annum and the rent to be established by agreement. According to the court, the rent provision was conflicting and irreconcilable and if possible the court would have given effect to the intention of the parties. At the same time, it is not for the court to write a contract for the parties. If the language of the contract is uncertain, vague or incomplete, and if it is difficult for the court to find out the intention between the parties, then the contract is void for uncertainty. Not only could the court not find an intent between the parties to renew, but also the terms of the renewal were inadequately expressed.

Don’t make a move before fully understanding your rights and obligations. For more information and assistance regarding commercial leasing or Real Estate in Ontario contact Levy Zavet PC (Levy Zavet) in Toronto, Ontario today.

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