In 1972, Scotiabank first leased property from Empress Towers - this lease expired in 1984. In 1984, the parties entered into a new lease which contained the clause stating Scotiabank could renew for two successive periods of five years each provided it gave three months written notice, and the "rental for any renewal period, which shall be the market rental prevailing at the commencement of that renewal term as mutually agreed between the Landlord and the Tenant". On May 25, 1989 Scotiabank exercised its option to renew for a further 5 years from September 1, 1989. On June 23, 1989 Scotiabank proposed a rate of $5,400 a month, up from $3,097.92 under the existing lease, but they received no written reply from Empress Towers. On August 31 Empress Towers responded stating Scotiabank would be allowed to stay if they made a payment of $15,000 before September 15 (an employee of Empress Towers had been robbed of $30,000 in that branch of the bank and only $15,000 of insurance was paid) and rent of $5,400 per month thereafter, and that tenancy would be terminable on 90 days notice going forward. Empress Towers sought a writ of possession. Scotiabank was successful at trial, which Empress Towers appealed.
- Was the clause void either because of uncertainty or because it was an agreement to agree?
Lambert, writing for the majority, held there were two courses of action:
- follow May & Butcher Ltd. v R - if there are things to be agreed upon then there is no contract; or
- follow Hillas & Co., Ltd. v Arcos, Ltd. (1932) - the courts should strive to find meaning if there is an agreement between parties.
He held there were three approaches for determining rent:
- rent to be agreed - cannot be enforced
- rent to be established by formula, but no machinery to do so - the courts will generally supply machinery
- a formula given but it is defective - the courts will cure the defect
He interprets the section of the clause requiring the parties to agree on the rent to mean:
- Empress could not be compelled to enter into a market rental value;
- there was an implied term that landlord will negotiate in good faith; and
- an agreement on market rate would not be unreasonably withheld.
Implying these terms was acceptable for reasonability and for reasons of business efficacy. In the evidence adduced, Empress had not negotiated in good faith by adding the $15,000 "penalty".
- Agreements to agree cannot be enforced.
- The court will try, wherever possible, to give the proper legal effect to any clause that the parties understood and intended to have legal effect.