Executive Summary: Key Legal and Evidentiary Issues

• Interpretation of the lease term “audited statement” in the context of Additional Rent, including whether it required a full professional audit by a licensed public accountant.
• Assessment of whether the landlord’s provision of a third-party calculation, expressly stated as not being an audit or review, satisfied the contractual audited statement requirement.
• Consideration of post-contract correspondence as part of the factual matrix and whether it could alter or dilute the clear obligation to provide an audited statement plus back-up information.
• Application of promissory estoppel to a landlord’s representation that rent would not be charged until January 1, 2021, and whether that promise could later be revoked retroactively.
• Evaluation of the evidentiary foundation for finding a clear representation, reasonable reliance, and prejudice/unfairness sufficient to ground promissory estoppel.
• Determination of appellate intervention limits, including deference to the application judge on lease interpretation and factual findings, and the resulting costs order against the landlord.

Facts of the case
Denny’s Lube Centre (2016) Inc. operated as a commercial tenant under a lease with its landlord, 1121209 Ontario Inc., for premises that were affected by both road construction and pandemic-related stay-at-home orders. The lease required the tenant to pay base rent plus “Additional Rent,” subject to an annual reporting obligation on the landlord’s part. As part of the commercial arrangement, the parties agreed that the landlord would provide the tenant each year with an “audited statement” of the Additional Rent payable, language that later became central to their dispute.
Following the commencement of the tenancy, the landlord did not initially charge rent for a period before January 1, 2021. According to the tenant, this reflected a representation that rent would not be charged until that date, a point that later gave rise to a claim of promissory estoppel. The tenant also began questioning the landlord’s calculations and documentation related to Additional Rent, seeking clarity and supporting documentation.

Lease provisions and policy-type terms
The key contractual clause required the landlord to provide an “audited statement” of Additional Rent each year. The application judge interpreted this term to mean a statement prepared by a public accountant duly licensed in accordance with Ontario’s Public Accounting Act, 2004, and prepared in accordance with the professional standards of an audit engagement, including reasonable assurance that the statement was free from material misstatement. The lease further contemplated that the tenant could request back-up information in addition to, and not instead of, the audited statement. The landlord argued that, in practice, “audited statement” should be read more loosely, as a requirement to provide supporting documentation or a calculation of Additional Rent, rather than a formal audited financial statement. It relied in part on later correspondence from the tenant requesting “back-up” information, asserting that this showed the parties did not intend a formal professional audit. However, the courts treated this post-contract correspondence as part of the parties’ later dealings, not as something that could rewrite or dilute the meaning of the original lease wording.

Background to the dispute and initial application decision
The disagreement escalated when the tenant challenged whether the landlord had met its obligation to provide an audited statement and whether the tenant owed rent for the period before January 1, 2021. The landlord eventually obtained a calculation of Additional Rent from accountants, but those accountants expressly disclaimed having performed an audit or review, and stated that they provided no assurance or audit opinion of any kind. This raised a stark question: could such a non-assurance compilation satisfy a lease obligation that explicitly required an “audited statement”? At first instance, the application judge found that the lease wording was clear and that “audited statement” meant what it said: a professional audit by a duly licensed public accountant, conducted in accordance with applicable standards. On that basis, the judge held that the landlord’s non-audit compilation did not meet the contractual requirement. The judge also found that the doctrine of promissory estoppel applied to the landlord’s representation that rent would not be charged until January 1, 2021. The judge concluded there was a clear representation intended to affect the parties’ legal relationship, reasonable reliance by the tenant, and conduct by both sides consistent with the promise. In light of the tenant’s decision to accept and operate from the premises during a difficult economic period marked by construction and stay-at-home orders, the judge held that it would be unfair, unjust, and inequitable to allow the landlord to recover the earlier rent after the fact.

Issues on appeal
On appeal to the Court of Appeal for Ontario, the landlord challenged two main aspects of the application judge’s decision. First, it attacked the interpretation of “audited statement,” arguing that the judge read the term too strictly, treated it as requiring a licensed public accountant to conduct a full audit, and improperly ignored later correspondence and the landlord’s practical approach to providing back-up information. The landlord also contended that the judge had decided matters outside the pleadings by giving the term such a precise professional meaning. Second, the landlord contested the finding of promissory estoppel. It argued that the judge improperly relied on cross-examination evidence to supplement the tenant’s affidavit and that there was no sufficient representation that rent would not be charged before January 1, 2021. The landlord further submitted that, even if a promissory estoppel had arisen, it should have been terminable by later notice, allowing the landlord to recover previously deferred rent once it purported to revert to its strict contractual rights. Finally, the landlord suggested that the judge had failed to identify detrimental reliance, an essential element of promissory estoppel.

The appellate court’s analysis of the lease and audited statement
The Court of Appeal confirmed that lease interpretation is a mixed question of fact and law and therefore attracts deference absent an extricable error of law or palpable and overriding error. It held that the application judge correctly referred to, and applied, the modern principles of contractual interpretation, including reading the contract as a whole and considering the factual matrix at the time of contracting. The court rejected the suggestion that the judge had gone beyond the pleadings: the meaning of “audited statement” was squarely at issue in the application, and the judge was entitled to determine its proper construction.
With respect to the landlord’s reliance on post-lease correspondence, the Court of Appeal endorsed the application judge’s view that such correspondence could not be used to change the meaning of clear lease language. The lease expressly required both an audited statement and, upon request, back-up information. To treat “audited statement” as meaning only that the landlord must provide back-up information would render the words “audited statement” meaningless and undermine the parties’ chosen language. The court also emphasized that the relevant factual matrix for contractual interpretation is what existed at the time of contracting; later correspondence does not retroactively alter the agreed wording.
The Court of Appeal further dismissed the landlord’s argument that an “audited statement” merely required a calculation of Additional Rent prepared by a third party. Because the accountants expressly stated that they had not performed an audit or review and were providing no assurance, the court held that their work product could not qualify as an audited statement in the professional sense required by the lease. In other words, the lease obligated the landlord to obtain and provide a genuine audit, not a non-assurance compilation.

The appellate court’s analysis of promissory estoppel
Turning to promissory estoppel, the Court of Appeal upheld the application judge’s conclusion that all required elements were met. It rejected the landlord’s argument that the judge had improperly gone “beyond” the tenant’s affidavit by considering cross-examination evidence. In an application proceeding, the judge was entitled to consider the full evidentiary record, including affidavits and cross-examinations, when determining what representations were made and how the parties conducted themselves.
On the question of notice and termination of the estoppel, the Court of Appeal confirmed that promissory estoppel may be ended prospectively, but not retroactively. Once the landlord had represented that no rent would be charged until January 1, 2021 and the tenant had relied on that representation, the landlord could not later give notice and then insist on collecting rent for the earlier, promised-free period. Any notice would only affect obligations going forward, not revive past obligations waived by the promise.
As to detrimental reliance, the Court of Appeal noted that modern authorities require some evidence of prejudice, inequity, unfairness, or injustice before a promisor is held to its assurance under promissory estoppel. The appellate court pointed out that the application judge had expressly addressed the tenant’s conduct in reliance on the landlord’s representation—specifically, accepting and operating the business from the premises despite road construction and stay-at-home orders that negatively affected trading conditions. By finding that it would be unfair, unjust, and inequitable to allow the landlord to recover the full rent shortfall, the judge was effectively finding the requisite detrimental reliance. The Court of Appeal therefore concluded that the judge had correctly applied the law on promissory estoppel.

Ruling and overall outcome
The Court of Appeal for Ontario dismissed the landlord’s appeal in its entirety, leaving intact the application judge’s conclusions on both lease interpretation and promissory estoppel. The landlord’s attempt to narrow the meaning of “audited statement” to a non-assurance calculation by a third party failed, and the finding that a formal audit by a duly licensed public accountant was required under the lease remained undisturbed. Likewise, the appellate court confirmed that the landlord’s earlier representation that rent would not be charged until January 1, 2021, coupled with the tenant’s reliance in difficult trading conditions, created a promissory estoppel that barred recovery of rent for the pre-2021 period. In the result, Denny’s Lube Centre (2016) Inc., the tenant, emerged as the successful party on appeal, with the Court of Appeal ordering the landlord, 1121209 Ontario Inc., to pay costs of the appeal fixed at CAD $11,500 (inclusive of disbursements and taxes), while the exact monetary value of the rent forgiven for the period before January 1, 2021 is not specified in this decision and cannot be determined from it alone.