A lease granted an option to renew (or extend) the term only if the tenant were not in default at the time of the exercise of the option. Landlord and tenant had an ongoing dispute (unrelated to the option) as to whether the lease called for increased payments of rent. When tenant did not pay the amount demanded, landlord advised tenant that non-payment would be considered a default under the lease and that, if it did not pay the rent requested, it would not be permitted to exercise its option to renew the lease. The application judge interpreted the contract to determine that the tenant ought to have paid the rent that landlord claimed and, accordingly, was in breach of the lease. The judge noted that the normal rules for relief from forfeiture did not apply when dealing with conditions set for an option to renew. In that case, the tenant had to show that it made diligent efforts to comply with the terms of the lease, “which are unavailing through no default of his or her own.” The judge held that tenant could easily have complied with the terms of the lease by paying the amount requested under protest and then seeking a resolution of the dispute. Tenant appealed, but only on the relief from forfeiture issue. The Court of Appeal dismissed the appeal, agreeing with the reasons of the application judge.
Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.