Executive Summary: Key Legal and Evidentiary Issues

• Dispute centers on whether a commercial lease agreement includes an implied term allowing the landlord, Ms. Mann, to terminate without cause on reasonable notice.

• Paragraph 10 of the Lease Agreement expressly grants the tenant, Paras Fashions, the right to cancel with two months' notice but is silent on any reciprocal right for the landlord.

• Ms. Mann argued that implied termination rights could arise from custom or usage, as a legal incident of the contract, under the business efficacy/officious bystander test, or through the doctrine of contra proferentem.

• Conflicting evidence was tendered regarding pre-signing discussions, with Ms. Mann claiming reciprocal termination was agreed upon and Mr. Chawla denying it.

• The Court found that both parties discussed termination before signing, yet the resulting written agreement only granted that right to Paras Fashions, undermining the argument that an implied term was "so obvious it goes without saying."

• Paras Fashions' petition was granted, affirming the validity of the Lease Agreement and the tenant's renewal, while Ms. Mann's petition was dismissed.

The facts of the case

Dilbaghjeet Kaur Mann is a commercial landlord who, among other properties, owns unit 305 in the Payal Business Centre in Surrey, British Columbia, which is a retail unit. Paras Fashions Ltd., directed by Mr. Paras Chawla, and its sister companies occupy certain other units within the Payal Business Centre, including one adjacent to the unit. At the relevant time, Paras Fashions wanted to expand and the unit's previous tenant was leaving. On December 31, 2018, Ms. Mann and Mr. Chawla met at the unit. They did not know each other but were introduced by the unit's then-tenant. Ms. Mann was accompanied by her husband, Mr. Mann, who has always helped her with her leases and acts as her authorized agent.

The Lease Agreement and its key terms

During that meeting, the parties signed a one-page lease agreement printed on Paras Fashions letterhead. The agreement contained ten numbered paragraphs and several notable provisions: a five-year initial term commencing January 15, 2019, with monthly rent of $3,500 for the first three years and a 5% increase thereafter; a renewal option for Paras Fashions for two successive five-year terms, each with a further 5% rent increase; a provision at paragraph six that if the owner wishes to sell the property, "first preference" shall be given to the lessee; and, at paragraph 10, a clause stating that the "Lease can be cancelled after giving 2 months notice to landlord without any penalty." The agreement was silent on any right of termination for the landlord. The document had some unusual features, including several typographical errors and reference to Paras Fashions renewing an existing lease with Ms. Mann, although there was no existing lease between the parties at that time.

Disputed pre-contractual discussions

Ms. Mann alleged that during the December 31, 2018 meeting, she and Mr. Chawla had discussed quite different terms than those ultimately recorded: only one five-year renewal option, renewal rent at market rate rather than a fixed percentage increase, and that either party could terminate the agreement without cause on 60 days' notice. She claimed that after these terms had been discussed, Mr. Chawla went to type them up while she and her husband waited, as they had stopped to meet with Mr. Chawla on the way to the hospital to visit her mother who was very ill. When Mr. Chawla returned and presented the Lease Agreement, she realized it did not reflect the terms they had just discussed. According to Ms. Mann, Mr. Chawla responded that she was in a rush, that it would take time to retype and reprint it, and they would work together to make changes to it. She nevertheless signed the agreement, as did Mr. Chawla. At the time of signing, some minor handwritten adjustments were made, in that two typos were corrected and Ms. Mann handwrote the date of her signature. Ms. Mann described the Lease Agreement as "a place holder to initiate the relationship" and said it was her practice to have leases for her commercial properties drawn up by a notary, but that she signed on the understanding that a more formal lease document would be drafted subsequently.

Mr. Chawla's account

Mr. Chawla initially deposed that it was Ms. Mann who had typed up the Lease Agreement and presented it to him for signature. He later changed his evidence to acknowledge he had been responsible for presenting the lease document to Ms. Mann and now says that it was his wife who typed it up. He maintained the Lease Agreement reflects the terms he and Ms. Mann had agreed to and denied any discussion of a term permitting the landlord to terminate without cause on 60 days' notice. He said he would not have agreed to such a term because, from a business perspective, he needed the assurance of a long-term lease. Among other things, he was subject to a ten-year lease in the adjacent unit and wanted to "run his businesses efficiently."

The renewal dispute and legal proceedings

Paras Fashions began occupying the unit shortly after the parties signed the Lease Agreement and later, with Ms. Mann's consent, sublet the unit to one of its sister companies. Rent was paid as required. There do not appear to have been any difficulties in the parties' relationship for almost five years, until shortly before the end of the Lease Agreement's initial term. On October 25, 2023, just over two months before the expiry of the initial term, Mr. Chawla gave notice of Paras Fashions' intention to renew for an additional five years. The same day, Mr. Mann responded with a proposal for a market rate rent increase. On November 1, 2023, Mr. Chawla emailed Mr. Mann refusing a market rate increase, relying on the Lease Agreement's provision for a 5% rent increase if Paras Fashions exercised its right to renew. Mr. Mann responded that renewal would only be entertained "based on market rate" and suggested that Paras Fashions could renew on that basis or else vacate the premises. Paras Fashions did not respond and did not vacate.

On December 18, 2023, counsel for Ms. Mann wrote to Mr. Chawla and gave notice of her intention to terminate the lease effective February 29, 2024, by which date Paras Fashions was to provide vacant possession of the unit. Ms. Mann asserted a right to terminate the lease without cause, subject to reasonable notice, relying on Canadian Resort Development Corporation v. Swaneset Bay Resort Ltd., 2000 BCCA 436. On February 16, 2024, Paras Fashions filed its petition seeking, among other things, declarations that the Lease Agreement and Paras Fashions' renewal are valid and enforceable. On February 29, 2024, Ms. Mann served a Notice to Quit and Demand for Possession, which were then stayed by court order dated March 4, 2024. On April 5, 2024, Ms. Mann filed her own petition seeking, among other things, a declaration that she had validly terminated the Lease Agreement. Paras Fashions remained in the unit pursuant to an interim consent order dated April 16, 2024, and rent continued to be paid.

The Court's analysis of implied terms

The Honourable Justice Bantourakis examined whether a termination right could be implied on three recognized bases. First, the Court rejected the custom or usage argument, finding that Ms. Mann's own past leasing practice did not qualify as "custom or usage," as opposed to established industry or trade practice. The Court also noted there was no evidence that Mr. Chawla had knowledge of Ms. Mann's broader practice at the time of contract formation and found that Ms. Mann's own practice varied, as some of her other leases made provision for lease termination without cause and some did not. Second, the Court dismissed the argument that a landlord's without-cause termination right should be implied as a legal incident of this particular kind of contract, noting Ms. Mann's submissions on this front were cursory at best. Third, and most critically, the Court applied the business efficacy and officious bystander tests. The Court found that the Lease Agreement's term and renewal provisions demonstrated the parties' shared intention to establish a commercial tenancy relationship of some duration with a significant measure of security and predictability at least over the medium term, and that an implied landlord termination right would significantly attenuate the Lease Agreement's term and renewal rate provisions. Notably, both parties agreed that termination without cause, in some form, was considered and discussed in the immediate lead up to signing the contract, and the objective result was a Lease Agreement that only expressly accorded that right to Paras Fashions — distinguishing this case from situations where the parties simply failed to turn their minds to the issue.

Contra proferentem and commercial reasonableness

Ms. Mann's alternative argument invoking the doctrine of contra proferentem was also rejected. The Court found that paragraph 10 of the Lease Agreement is clear and unambiguous in granting Paras Fashions the right to terminate without cause, and its silence with respect to Ms. Mann's termination rights does not give rise to any ambiguity that could be resolved by applying the doctrine. Moreover, Ms. Mann had a meaningful opportunity to negotiate the contract; she confirmed at the hearing that there was no particular urgency from her perspective and repeatedly took the position that she was in fact the party in the stronger bargaining position. As for commercial reasonableness, while the Court accepted that the absence of a provision entitling Ms. Mann to terminate without cause had become commercially undesirable for her, possibly due to post-Lease Agreement increases in market rate rent, it held that commercial reasonableness is not a means of avoiding contractual obligations simply because they prove to be undesirable or unusual, and that the record was insufficient to establish that the failure to provide for reciprocal without-cause termination rights was commercially absurd.

The ruling and outcome

The Court concluded that there is no implied term permitting Ms. Mann to terminate the Lease Agreement without cause and her petition was dismissed. Paras Fashions, as the successful party, was granted the orders sought at paragraphs one and two of its petition, affirming the validity of the Lease Agreement and its renewal. The Court considered the order sought at paragraph three of Paras Fashions' petition redundant and declined to make it. In the ordinary course, as the successful party, Paras Fashions is entitled to its costs, with the option for both parties to make written submissions on costs within 30 days of the release of the reasons for judgment. No specific monetary award was ordered, as the dispute concerned declaratory relief regarding contractual rights rather than damages.