1785192 Ontario Inc v. Ontario H Limited Partnership: A Not-So-Tender Lesson on Tendering

1785192 Ontario Inc. v. Ontario H Limited Partnership^[1] is a case involving a contentious dispute between a landlord and tenant over the tenant’s exercise of an option to purchase two commercial properties in Whitby, Ontario, where the tenant operated car dealerships. The lease agreement between the parties included a clause allowing the tenant to purchase the properties, with the purchase price to be determined as the midpoint of independent appraisals conducted by both parties. However, when the tenant later exercised the option, a major disagreement arose over the purchase price.

The lease required appraisals to be based on the “highest and best use” of the properties, which became the focal point of the dispute.^[2] The landlord’s appraisal, assuming rezoning for residential condo development, valued the properties at $31,200,000. In contrast, the tenant’s appraisal, based on their current use as car dealerships, valued the properties at $11,746,000. The substantial gap in valuations led the tenant to refuse the calculated midpoint of $21,473,000 as the purchase price. Instead, the tenant tendered only $11,746,000 and placed the remaining $9,727,000 in trust with its solicitor. Without notifying the landlord of this arrangement or reaching an agreement on the purchase price, the tenant sent closing documents reflecting the partial tender. Unsurprisingly, the landlord rejected the tender, asserting that it did not satisfy the requirements of the option as set out in the lease agreement. This prompted the tenant to initiate legal proceedings seeking specific performance of the contract, while the landlord countered with a request to declare the option void and remove its registration from the property title.^[3]

The Application Hearing

The application judge addressed three central issues: (i) the determination of the purchase price, (ii) the validity of the tenant’s exercise of the option clause and (iii) the sufficiency of the tenant’s tender to close the transaction. First, the judge turned to the lease framework, noting that it allowed each party to obtain appraisals based on reasonable assumptions that aligned with their respective interests. This, in fact, was exactly what occurred – both parties secured appraisals that were deemed compliant with the lease’s terms. Accordingly, the judge determined that the purchase price should be set at the midpoint between the two valuations, concluding that both appraisals were compliant with the fair market standards outlined in the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP).^[4]

Turning to the validity of the tenant’s exercise of the option, the application judge found that the tenant had properly given notice, thereby affirming their right to purchase the properties for the amount determined by the pricing mechanism set out in the lease. The landlord did not dispute this aspect of the case, effectively leaving the issue uncontested.^[5] Finally, the judge addressed the tenant’s actions in tendering payment, which later became the primary issue on appeal. Given the disagreement over the final purchase price, the judge expressly concluded that the tenant’s actions were justified. According to the application judge, the partial tender of the undisputed amount, combined with holding the disputed balance in trust, constituted sufficient compliance with the tender obligation and was not a breach of the requirement to tender the midpoint of the two appraisals.^[6]

The Court of Appeal

The Court of Appeal for Ontario, however, disagreed with the application judge’s conclusions. In its view, once the tenant exercised the option, both parties became bound to complete the purchase and sale under the precise terms established in the option clause. By failing to meet this requirement, the tenant was deemed to have breached the contract of purchase and sale. Further, the court rejected the tenant’s argument that case law on abatement supported the notion that partial tender – adjusted for the disputed portion of the purchase price – could constitute sufficient tender if the remaining amount was secured. Instead, it drew a distinction between cases involving an abatement of the purchase price due to issues with the quality of the real estate, where security for a disputed amount might be appropriate, and the circumstances of this case.^[7] The court emphasized that the tenant failed to cite any authority supporting the proposition that a purchaser can unilaterally withhold part of the purchase price. It also found that abatement cases involving a vendor’s efforts to discharge a certificate of pending litigation did not substantiate the tenant’s position.^[8] In light of the requirements set forth in the option clause, the court stated:

“Were this court to accede to the proposition advanced by the Tenant, it would mean that vendors would be required to convey property in any circumstance where, as here, the purchaser disputes the purchase price, potentially resulting in a substantial part of the proceeds of sale being held up indefinitely, pending years of litigation. In the present case, the Landlord did not agree to the funds being held in trust, and the funds were not even placed in trust irrevocably, but were later returned to the Tenant, which used them to purchase other car dealerships.”^[9]

Ultimately, the court expressed concern that allowing partial tender in cases of price disputes could lead to prolonged commercial uncertainty and litigation. It noted that, in this case, the landlord had not agreed to the trust arrangement, and the funds were later returned to the tenant, who used them to purchase other properties. As a result, the court held that the landlord was not in breach for refusing to convey title, and the order of specific performance was overturned.

Key Takeaways

This case serves as a clear reminder of the importance of precise and unambiguous drafting in contractual agreements. The entire dispute over the validity of the option could likely have been avoided altogether had the option clause been drafted with greater clarity and explicit wording. For instance, the use of the term “highest and best use” in the language of the option left room for differing interpretations, creating the ambiguity that ultimately gave rise to the dispute. Clearer language could have pre-empted much of the litigation by removing opportunities for misunderstanding.

Even more important, however, are the lessons that can be drawn from the Court of Appeal’s analysis regarding what constitutes sufficient and proper legal tender. The court’s reasoning provides valuable guidance on how tender obligations should be met and highlights the need for strict adherence to contractual terms when exercising options.

Lessons on Tendering

Strict Compliance With Option Terms: The obligation to tender is generated by the exercise of an option. They are irrevocable offers requiring unconditional acceptance. Tendering anything less than the agreed-upon amount undermines the agreement. In this case, the tenant’s partial tender failed to meet the specific terms and, having exercised the option without completing the sale transaction, it was rendered null and void.^[10]

Strategic Litigation Considerations: If a party disputes the purchase price, the appropriate course is to tender the full amount required by the agreement and litigate the dispute afterward. The Court of Appeal criticized the tenant’s strategy of withholding funds while attempting to negotiate a lower price, viewing it as an improper attempt to secure an unfair advantage.^[11]

Commercial Sophistication Matters: Courts expect commercially sophisticated parties, represented by counsel, to understand the risks of non-compliance. The Court of Appeal stressed that the tenant, as a sophisticated commercial party, had alternatives to safeguard its interests without breaching its agreement.^[12]

The Court of Appeal’s decision underscores the importance of adhering strictly to tendering requirements in real estate transactions. Disputes over price or methodology do not excuse partial tender; the full price must be tendered to preserve the option. This case serves as a cautionary tale for parties to strictly comply with contractual obligations, especially in high-stakes real estate transactions.

For more information or to discuss a matter regarding the foregoing, please contact the authors or a member of our Real Estate Group.

[1] 1785192 Ontario Inc. v. Ontario H Limited Partnership, 2024 ONCA 775.