The 2025 Ontario Court of Appeal decision of Gallant v Johnson (2025 ONCA 419) demonstrates the limitations of the Court to fix for the parties a rate of rent for a renewal term as part of a commercial tenancy.
Background
This case arises from a commercial lease entered into between the parties regarding a commercial property in Pickering, Ontario.
On January 29, 2018, the Tenant signed an Agreement to Lease, which permitted her to lease the premises from the Landlord for a five-year term. The Agreement to Lease provided the Tenant with an option to renew the lease for a further five-year term.
In respect of the rate of rent for the renewal term, the Agreement to Lease indicated that the rental rate “shall be agreed upon by the Tenant and Landlord”.
In October 2022, the Tenant exercised the option to renew the lease, however, the Landlord and the Tenant were unable to agree on the rate of rent for the renewal term.
The Superior Court Proceedings
The Tenant brought an Application in the Ontario Superior Court of Justice asking for the Court to fix the rate of rent for the renewal term of the tenancy based on the Court’s determination of what it believed to be the market rate of rent.
In response, the Landlord argued that the Court lacked jurisdiction to do so on the basis that the renewal clause in the Agreement to Lease lacked, among other things, a mechanism for the resolution of a dispute about the rate of rent and no indication that the rental rate would be the market rate.
At the outset of the Application Hearing, the Motion Judge raised that the Court may lack jurisdiction and directed the Landlord to bring a motion to strike. After the Landlord did so, the Motion judge granted the motion to strike and struck out the Tenant’s Application.
Appeal to the Court of Appeal
The Tenant appealed the Motion Judge’s decision to the Court of Appeal, arguing that the Motion Judge erred in concluding that the Court had no jurisdiction to establish a rental rate for the renewal term of the lease.
On appeal, the Court of Appeal held that the Motion Judge made no error in his interpretation of the renewal clause in the Agreement to Lease.
The Court of Appeal found that there was no basis in the Agreement to Lease to permit the Court to establish a rate of rent for the renewal term, and there was also no basis to read in any implied term establishing either the rental rate of the property or the means to establish it.
The Court of Appeal further concluded that the Agreement to Lease did not establish any method for determining the new rate of rent if the parties did not agree and did not require the parties to reach agreement on a new rent at “market rates”.
The Court of Appeal held that the Court did not “acquire authority” to fix a rate of rent for the parties simply because the Landlord had responded to the Tenant’s Application, and accordingly, the Court of Appeal dismissed the Tenant’s Appeal and upheld the Motion Judge’s decision that the Court lacked jurisdiction.
Takeaways
This decision reinforces the importance of having properly drafted commercial leases, as it demonstrates that the Court may not re-write or read in provisions to fix a poorly drafted Lease.
It also is an important reminder for landlords and tenants that there is no implied standard of rent at “market rate” for a renewal term, unless the Lease explicitly provides for that.
Further, this decision illustrates that a clause in a renewal provision that uses language stating rent “shall be agreed upon” is nothing more than an “agreement to agree”, and without having a fallback mechanism if the parties don’t agree (for example, a clause requiring arbitration or the Court to fix rent on a “fair market value” standard), parties will run the risk of the clause being found unenforceable.
Finally, this decision is an important reminder for lawyers that, while the Court has the jurisdiction to interpret contracts, that does not extend to matters such as setting a rate of rent when there is no mechanism or means for the Court to do so.
This blog post was written by Alex Bissonnette, Practice Lead of the Commercial Litigation team. Alex can be reached at 613-369-0358 or at alexander.bissonnette@mannlawyers.com.
