In Grains Boivins inc. v. Élevages St-Georges inc. (2025 QCCS 25), a decision dated January 10, 2025, the Superior Court handed down a decision reminding landlords that they must negotiate with tenants in good faith when renewing a commercial lease by making proportional and reasonable offers. This decision involves behaviour bordering on bad faith by the landlord in conducting the negotiations and adds to the considerations raised by the Court of Appeal on this issue in 2177 23rd Avenue Holdings v. Pival International Inc. (2025 QCCA 19) (the “Pival Decision”).
Recent jurisprudence
In the Pival Decision, it was held that the failure to come to an agreement during negotiations to renew a lease does not necessarily mean that the parties acted in bad faith. When the parties’ proposals are reasonable and well-founded under the circumstances, even if the other party rejects them, the parties are considered to have acted in good faith. The renewal option was therefore null and void due to the lack of an agreement between the parties. This decision reminds us of the importance of setting out the consequences of failing to come to an agreement when renegotiating a commercial lease (for example, the use of arbitration).
However, in Grains Boivins inc. v. Élevages St-Georges inc., the Superior Court was presented with a situation in which the landlord’s conduct in renegotiating the rent was held to border on bad faith.
The facts
The tenant had rented land from the landlord since 2012. In 2019, a five-year lease was entered into for a price of $80 per acre for the first three years and it provided that the landlord and tenant would come to an agreement for the last two years, i.e. for 2022 and 2023. The clause in question did not say what would happen if the parties could not agree on the rent. At the beginning of negotiations, an initial rent of $100 per acre was considered, but was reduced to $80 per acre due to arguments based on the profitability of exploiting the land.
In 2021, a promise to sell the landlord’s shares was entered into with third parties—the nephews of the landlord’s representatives, who had taken possession of part of the land and had not come to an agreement with the tenant on the last two years’ rent. In February 2022, the landlord, not the third party purchasers, offered to let the tenant rent the land for $350 per acre, a 438.25% increase, due in particular to the allegedly high investment interest the third party purchasers had to pay after purchasing the land. The tenant responded with an offer of $100 per acre, which he considered appropriate under the circumstances since the quality of the land had improved. That rent was for the reduced surface area of the land and the tenant also claimed compensation for the loss of the ability to exploit part of the land. The landlord refused that offer and therefore considered the lease to have been resiliated.
The tenant brought legal proceedings to claim payment of the lost profit caused by the unilateral resiliation of the lease in 2022 and 2023.
Superior Court decision
In its judgment, the Superior Court answered the following question regarding the renewal of the agreement: Did the landlord have the right to unilaterally resiliate the lease?
The Superior Court held that the term of the contract was five years and that the option to renegotiate the rent for the last two years constituted a continuation, not a renewal, of the lease. The parties therefore had an obligation of means to agree on a new proportional and reasonable rent for those two years. Due to the history of negotiations between the parties since 2012, it was held reasonable for the tenant to expect that the parties would agree on the rent and that the lease would continue.
The landlord’s offer to set the rent at $350 per acre, a 438.25% increase, was held to be disproportionate and unreasonable. In making the offer, he committed an abuse of contractual right. The landlord was trying to take advantage of the sale of the company’s shares to avoid his commitments to the tenant since he knew or should have known that the tenant would have no choice but to refuse the offer. The landlord only took into account his own personal financial interests, which completely upset the contractual balance between the parties. The landlord’s actions clearly went beyond acceptable conduct in negotiating contracts and his conduct was held to border on bad faith since the landlord’s offer was not intended to harm the tenant but rather was made to protect the financial interests of the third party purchasers.
The Superior Court therefore awarded $60,583.63 as damages for the loss of profit associated with 2022 and 2023 due to the unilateral resiliation of the contract.
Conclusion
This decision presents a specific situation in which the landlord was bound to attempt to agree with the tenant on a reasonable rent when renegotiating the lease. The landlord was held to have acted in a manner bordering on bad faith by making disproportionate and unreasonable offers to the tenant in renegotiating the amount of the rent. This decision affirms that a new rent that is 400% greater than the previous rent is unreasonable. What is the magic figure for an offer not to be made in bad faith—25%, 40%? It is clearly impossible to answer that question but in the Pival Decision, the Court of Appeal held that the landlord’s offers were reasonable and made in good faith since he was able to provide evidence of rent for comparable premises and made several attempts to negotiate with the tenant, without success. The renewal clause in the Pival Decision also expressly provided that the renewal option would be null and void if an agreement was not reached. The renewal clause in Grains Boivins inc. v. Élevages St-Georges inc. did not seem to have the same consequence if the parties could not agree on the rent.
These two recent decisions remind landlords that, even if they do not have an obligation to come to an agreement, they must make reasonable offers, not abuse the right to renegotiate provided for in a contract in order to avoid their commitments, and expressly provide for the consequences of failing to reach an agreement when renegotiating a contract.
The author would like to acknowledge the support and assistance of Audrey Ménard, student at law.
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