720443 Ontario Inc. v. 2682543 Ontario Inc., 2025 ONCA 432
The Ontario Court of Appeal’s recent decision in 720443 Ontario Inc. v. 2682543 Ontario Inc., 2025 ONCA 432, offers valuable lessons for transactional real estate lawyers drafting commercial leases. This case involved a restaurant tenant that never opened, a landlord left holding an empty space during the pandemic, and damages exceeding $1 million. While the appeal focused on litigation issues, the underlying problems stemmed from lease drafting choices that left critical terms open to interpretation.
The Facts
A landlord and tenant entered into a lease for restaurant premises that required substantial work before operations could begin. The lease included Schedule C, which delineated which party was responsible for completing necessary tasks to prepare the gutted space. The landlord would complete certain base building work, after which the tenant would begin “fixturing” the space for restaurant use.
The landlord notified the tenant in late November 2019 that the space would be ready for possession on January 2, 2020, later extending this to February 3, 2020. Then COVID-19 arrived. The tenant never took possession, even though both parties agreed the landlord’s work was sufficiently advanced by mid-April 2020 for fixturing to begin. The landlord eventually re-leased the premises in summer 2021, but the damage was done. The trial judge awarded the landlord over $1 million in damages, holding both the corporate tenant and its personal guarantor liable.
The Joint Occupancy Issue
The tenant’s first argument on appeal centered on whether the lease permitted “joint occupancy,” a period where both the landlord’s contractors and the tenant’s contractors would be working simultaneously on the premises. Critically, the lease itself never used the term “joint occupancy.” However, another lease the landlord had entered around the same time did expressly include such a provision.
The tenant argued that this omission was meaningful: if the landlord wanted to permit overlapping work, it knew how to say so explicitly. Therefore, the tenant claimed it could wait until the landlord had completely finished all its work before beginning fixturing.
The Court of Appeal disagreed. The trial judge had identified specific lease provisions that contemplated simultaneous work by both parties. Section 3.01.1 stated that the landlord only needed to complete work “to a state sufficient to permit the Tenant to commence fixturing,” not complete all work. Section 13.02.2(c) gave the landlord the right to require the tenant to perform work before the landlord finished, and required the tenant to ensure its contractors worked “so as not to interfere with the Landlord’s contractors and employees.”
The Court found these provisions clearly contemplated overlapping work periods, regardless of whether the lease used the specific term “joint occupancy.”
The Repudiation Finding
The tenant’s second argument was that it hadn’t repudiated the lease because it continued negotiating with the landlord to find solutions during the pandemic. The Court rejected this argument, affirming that repudiation occurs when a party indicates through words or conduct that it will not honor its obligations when due.
Here, the tenant was obliged to take possession within 15 days of the fixturing period beginning. When it failed to do so despite the landlord’s notices and a final deadline of June 20, 2020, the landlord was entitled to accept the repudiation and terminate the lease. The tenant’s continued discussions didn’t negate its refusal to actually perform its fundamental obligation: taking possession and beginning work.
Practical Takeaways for Transactional Lawyers
- Express is Better Than Implied
While the landlord ultimately prevailed, this litigation could likely have been avoided with clearer drafting. If you intend to permit overlapping construction periods, say so explicitly. Include a “joint occupancy” clause or clearly state that the tenant must begin work once the landlord’s work reaches a specified milestone, even if other landlord work continues.
- Define Key Milestones Precisely
Rather than vague language about work being completed “to a state sufficient” for the next phase, consider defining specific completion criteria or using a formal substantial completion process with inspections and sign-offs.
- Compare Similar Agreements
This case demonstrates that courts may compare a disputed lease with other leases the parties executed around the same time. If you include specific provisions in one lease but omit them from another, be prepared to explain why. Maintain consistency in your templates unless there’s a deliberate reason for variation.
- Remember That Guarantors Pay the Price
The personal guarantor in this case became liable for over $1 million. When representing guarantors, ensure they understand the full scope of their exposure, including damages that might arise from repudiation during extraordinary circumstances like a pandemic.
- Possession Obligations Are Fundamental
Taking possession and commencing agreed-upon work are core lease obligations. Structure your leases to make these obligations clear and time-bound, with explicit remedies for failure to perform.
Conclusion
720443 Ontario Inc. v. 2682543 Ontario Inc., 2025 ONCA 432 is a reminder that what you don’t say in a lease can be just as important as what you do say and that silence can cost your clients dearly.
While this case was decided on appeal based on contractual interpretation and repudiation principles, the root issues trace back to lease drafting. Clear, explicit language about construction sequencing, possession obligations, and the rights and responsibilities of both parties during build-out periods can prevent expensive disputes. In an era where unexpected events can derail even the best-planned transactions, precision in drafting is more important than ever.
