Executive Summary: Key Legal and Evidentiary Issues

• Central dispute concerned whether the landlord breached the right of first refusal (ROFR) in the lease by failing to notify the tenant of a third-party offer and allow the tenant to match it.

• The ROFR clause’s wording and enforceability were examined, with the Applications Judge initially finding it ambiguous and ruling in favor of the landlord, discharging the caveat.

• On appeal, the appellate judge determined the ROFR was enforceable and required the landlord to notify the tenant of third-party offers and give the tenant the opportunity to match.

• The appellate decision addressed the duty of good faith in contract performance, finding the landlord’s conduct deprived the tenant of the benefit of the ROFR.

• The caveat was ordered to remain on title pending further proceedings, with the issue of specific performance not decided.

• No specific monetary award was determined; the relief granted was the preservation of the caveat and recognition of the enforceability of the ROFR.

Background and facts

Kensington Park Capital Ltd (“Kensington”) was assigned the lease for premises owned by Franjon Excavating & Trucking Ltd (“Franjon”) on or about November 30, 2023. The lease contained an Option to Purchase and a Right of First Refusal (ROFR). The ROFR clause stated: “In the event that the Property is offered for sale during the term of this Lease, the Tenant will be notified as soon as possible and given first right of refusal to purchase the property as noted above. If the tenant does not exercise this right of first refusal, any new owner must not breach this lease.” At the time of the assignment, the property was already listed for sale at $1.7 million, which was known to the tenant. In March 2024, the listing price was reduced to $1.49 million. Kensington offered to purchase the property for $1.2 million on or about March 25, 2024. Later that same day, Franjon received a third-party offer of $1.4 million, which it accepted without informing Kensington or allowing it to re-offer or match the third-party offer. Kensington then registered a caveat against the property, claiming an interest under the ROFR.

Initial decision and stay application

On July 16, 2024, the parties appeared before an Applications Judge. Franjon argued that the ROFR only required notifying Kensington that the property was for sale so it could make an offer. Kensington argued that Franjon failed to inform it of the third-party offer and did not give it a meaningful opportunity to match or counter the offer. The Applications Judge found the ROFR clause ambiguous and determined that Franjon had complied with its obligations. The judge discharged the caveat on the title to the premises. Kensington appealed and applied for a stay of the discharge order. Justice J.R. Ashcroft granted the stay on August 23, 2024, finding there was a serious issue to be tried, potential for irreparable harm to Kensington’s business, and that the balance of convenience favored Kensington. The stay was granted on the condition that Kensington provide an undertaking for damages, which it did.

Appeal decision and interpretation of the ROFR

On appeal, Justice M.H. Hollins reviewed the ROFR clause and the record. The appellate court found that the ROFR was enforceable, even though it lacked some typical details. The court held that the clause required Franjon to inform Kensington of any third-party offers and give it the opportunity to match, not just to make an offer based on the listing price. The court cited case law supporting the enforceability of similarly worded ROFRs and noted that the clause was intended to allow the tenant to match bona fide third-party offers. Justice Hollins also addressed the duty of good faith in contract performance, finding that Franjon’s failure to notify Kensington of the third-party offer deprived the tenant of the benefit of the ROFR. The appeal was allowed, and the caveat was ordered to remain on title. The court did not decide whether Kensington was entitled to specific performance or a proprietary interest in the land, as that issue was not before the court.

Outcome

Kensington Park Capital Ltd was successful on appeal. The appellate court ordered that the caveat remain on title, preserving Kensington’s interest pending further proceedings. No specific monetary amount was awarded or ordered in these decisions, as the main relief was the preservation of the caveat and recognition of the enforceability of the ROFR. The issue of costs was left open for further determination if the parties could not agree.