Can Equity Save A Missed Renewal Of A Commercial Lease? The Limits Of Relief From Forfeiture

“Relief from forfeiture” sounds like a single remedy. In commercial leasing, it comes up in two different situations, and Canadian courts treat them very differently. The first is where a landlord has terminated a lease for breach and the tenant asks the court to restore it. The second is where a tenant did not strictly comply with lease extension conditions and asks the court to extend the lease anyway. The legal doctrine invoked is similar. The likelihood of relief being granted is not.

This bulletin draws on recent Canadian case law to explain how courts approach each context, what determines the outcome, and what both landlords and tenants need to understand about the relief from forfeiture remedy in a renewal scenario.

Key Takeaways

• Relief from forfeiture means different things in termination and renewal contexts. The doctrine is the same, but the threshold, the test, and the likelihood of success are not.
• In the termination context, courts weigh the conduct of both parties, the gravity of the breach, and whether the remedy is proportionate to the actual harm. The test, by its nature, tends to weigh more heavily in favour of the court granting relief.
• In the renewal context, option conditions are treated as strict contractual prerequisites. Where they are not satisfied, a tenant seeking relief must show genuine diligence to comply rather than mere equitable circumstances that warrant relief.

The Doctrinal Foundation

Relief from forfeiture is available in Ontario under s. 20 of the Commercial Tenancies Act and through the court’s equitable jurisdiction under s. 98 of the Courts of Justice Act. The rationale is the same in both contexts. Strict enforcement of contractual rights should not produce consequences grossly disproportionate to the breach or oversight that caused them. However, the operative concept is a forfeiture, which means something of value that is lost because of a contractual failure. Where no forfeiture exists, courts have held there is nothing left for equity to restore. That distinction is where the termination and renewal contexts diverge sharply.

The Termination Context: Broad Equitable Discretion

Where a landlord has terminated a lease for breach, courts apply the three-factor framework from Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 SCR 490:

1. Review of the Tenant conduct. Was the tenant’s behaviour around the breach reasonable? Did it take steps to address the problem, or did it ignore warnings and seek to run out the clock?
2. Consideration of the Gravity of the Breach. How serious was it? A monetary default curable by a single payment is treated very differently from a deliberate, ongoing, non-monetary breach.
3. Proportionality Between Breach and Termination. How does what the tenant stands to lose as a result of the termination (i.e. its business, its investment in the premises, its goodwill) compare to the actual harm the breach caused the landlord?

These factors are weighed together against the full history of the relationship.

Where a tenant can show it made reasonable efforts to avoid default, sought to address the problem in a timely manner upon receiving notice, would lose its business, substantial investment, or goodwill as a result of the termination, the case for equitable relief is easy to picture. For example, in Martineau Holdings v. Caudle et al., 2023 ONSC 358, a landlord sought to terminate a significant lease over $610.20 in disputed snow removal costs. The court intervened on proportionality grounds.

The Renewal Context: A Narrower and More Uncertain Jurisdiction

Before the merits are reached in the renewal context, a threshold question dominates and is very often dispositive. Is there actually a forfeiture to relieve against? Where a lease has simply expired without any renewal notice being delivered, courts have found there is nothing for equity to restore. The landlord did nothing other than wait for the term to end. For example, for landlords that received no valid renewal notice, did not contribute to any ambiguity about what compliance required, and took no step to prevent timely exercise of the option, the landlord’s position that there is no forfeiture to relieve against is generally strong. The tenant’s failure to exercise the option correctly is not a forfeiture in the traditional sense.

The focus of the case law considering relief in the renewal option context is therefore much narrower.

The Court of Appeal confirmed in McRae Cold Storage Inc. v. Nova Cold Logistics ULC, 2019 ONCA 452, that the precondition for relief in the renewal context is that the tenant made diligent efforts to comply with the lease that were unavailing through no default of its own. A tenant aware of a problem that could affect its renewal rights and that failed to move promptly to resolve it will not satisfy this test. For example, in McRae, the tenant had been on notice for months that a cost dispute could affect its option but failed to do anything until the month the lease was set to expire when it brought its application for relief from forfeiture. Relief was refused.

The equitable jurisdiction can, however, be engaged where the landlord’s own conduct contributed to the tenant’s failure to comply with the option conditions. Courts have drawn a distinction between passive conduct (a landlord’s silence or failure to volunteer information) and an active misrepresentation that bears directly on the tenant’s ability to exercise its option. For example, the Court of Appeal confirmed in Subway Franchise Restaurants of Canada Ltd. v. BMO Life Assurance Company, 2021 ONCA 349, that the duty of honest contractual performance does not require a landlord to correct a tenant’s independent mistake regarding the timeline to exercise a renewal option. Silence, without more, is not bad faith. However, that reasoning implies that a landlord who makes a positive false statement that causes or contributes to the tenant’s non-compliance with a precondition to an option, puts itself in the materially different position to engage the court’s equitable jurisdiction to intervene.

A review of the case law reinforces that a tenant’s inability to exercise an option in strict accordance with its condition will be forgiven in only the clearest of circumstances underscoring that the failure was out of the tenant’s control. For example, in 8750297 Canada Inc. v. Ambassador Realty Inc.,2025 ONSC 5479, a tenant who had operated a pizza restaurant for twelve years and invested approximately $100,000 in renovations missed the eight-month written notice deadline. The court granted relief based upon medical evidence establishing that the tenant’s principal was suffering from clinically diagnosed insomnia that materially impaired his daily functioning at the time notice was required. Critically, the court found that he had communicated a clear intention to renew to the landlord’s property manager during the renewal period, the landlord had previously sent renewal reminders on at least two occasions when the lease was expiring and up for renewal but failed to do so this time, and upon learning of the missed deadline the tenant responded the same day.

McRae, Subway, and Ambassador Realty, taken together, define the shape of the diligence requirement. Intention to renew is not enough. Good faith alone is not enough. What courts look for is genuine effort to comply and a failure to comply that resulted from circumstances outside the tenant’s control, rather than inattention, administrative failure, or the assumption that informal communications would suffice.

Practical Takeaways

The renewal context is inflexible in a way the termination context is not. In the termination context, courts weigh the full landscape, including the conduct of both parties, the nature of the breach, and whether the remedy is proportionate to the actual harm, and will intervene where it is fair and equitable to do so. In the renewal context, the court’s equitable jurisdiction is decidedly narrower. A tenant must show genuine diligence, not just sympathetic circumstances.

For landlords, the renewal context is generally more favourable than the termination context, provided the landlord has not done anything to create ambiguity about what compliance required or to actively mislead the tenant regarding the exercise of its renewal rights. On the other hand, a landlord that makes a false representation that impacts the tenant’s non-compliance with the option conditions can engage the court’s equitable jurisdiction to intervene.

For tenants, the renewal window requires the same discipline as any other firm contractual deadline. Renewal options should be diarized well in advance of the notice date, reviewed against the current lease to confirm the required form, timing, and any preconditions, and exercised in strict compliance with those requirements. Anything that could affect option eligibility, whether an unresolved default, a disputed payment, uncertainty about whether a prior breach has been waived, needs to be addressed before the deadline, not after. Informal expressions of intent to renew, conversations with a property manager, or a course of conduct suggesting the parties expect the lease to continue will not be a substitute for proper notice.

Navigating renewal disputes requires an understanding of both the lease and the litigation that follows when things go wrong. The lawyers in McMillan’s Commercial Leasing and Commercial Litigation groups work together to advise clients on all aspects of disputed renewal options. Please reach out for strategic advice tailored to your situation.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2025