You are a landlord with a prime commercial property and redevelopment plans. Your anchor tenant has occupied the premises for decades and holds renewal options with no intention of leaving, but the consent needed under the Planning Act to extend the lease beyond 21 years was never secured. Can you rely on that failure to terminate the anchor tenant's lease and freely proceed to pursue your plans for redevelopment?
Not so fast. According to the Ontario Court of Appeal, the answer is no—at least not when the consent process is still alive and the lease obligates you to cooperate in obtaining approval under the Planning Act.
In a recent decision, McDonald's Restaurants of Canada Limited v. North Elgin Centre Inc. (McDonald's v. North Elgin), the Court of Appeal summarily affirmed a Superior Court ruling that refused to let a landlord walk away from a long-term commercial lease, even though the Planning Act approval required to extend the lease beyond 21 years remained outstanding. The decision sends a clear message: where parties have committed to a long-term leasing relationship and have assumed contractual obligations to pursue Planning Act consent, neither side can simply abandon the arrangement and treat their lease as terminated because bureaucratic wheels are turning slowly. For landlords, tenants and the lawyers who advise them, this case deserves careful attention.
The 21-Year Rule Under the Planning Act
Ontario's Planning Act contains subdivision control provisions that, among other things, prohibit any agreement that has the direct or indirect effect of granting the use of or right in land for a period of 21 years or more, unless a consent is obtained under Section 53. This prohibition poses a trap for the unwary in that it applies not only where the initial lease term exceeds 21 years, but also where options to renew could hypothetically push the total term past that threshold. As Sidney H. Troister in The Law of Subdivision Control in Ontario (3rd ed.) puts it, "a lease with a term of 25 years and a lease of 15 years with an option to renew for a further 10 years (whether or not the tenant ever exercises the option) are both prohibited agreements." In practice, this means that many long-term commercial leases—including in many instances, those involving anchor tenants in retail centres—will trigger the requirement.
What happens when consent has not been secured? Under Section 50(21), the lease does not convey any interest in the land. The Planning Act, however, does not render such ineffective agreements null and void for all purposes. As the Court of Appeal explained in Bluestone v. Enroute Restaurants Inc. (Bluestone), the statute "does not declare a contravening agreement or instrument to be null and void, or brand it as illegal for all purposes"—rather, it addresses only the planning concerns raised by the contravention.
Importantly, Section 50(14) operates as a curative provision. If consent is eventually obtained—even years after the fact—it retroactively removes any impediment to the enforcement of the lease and deems there to have been no statutory contravention. Or, as the Court of Appeal put it in Bluestone: "What the Planning Act took away, the Planning Act can restore." This retroactive curing power lies at the heart of the McDonald's v. North Elgin decision that a landlord could not terminate while consent was being processed.
It should be noted that the caselaw is not entirely settled. Some authorities suggest that a lease that neither expressly limits the term pending consent (more on this so-called "saving clause" below) nor obliges the parties to pursue Planning Act approval may be void ab initio (void from the beginning), leaving either party free to walk away.1 Nevertheless, the better view—particularly in light of the strong, recent authority of McDonald's v. North Elgin—is that the Planning Act does not automatically render a contravening lease void for all purposes, although prudent drafters will still want to address these issues to avoid ambiguity.
The caselaw provides one other wrinkle: continuous occupancy for more than 21 years does not necessarily contravene the Planning Act if it results from separate agreements reached through genuinely independent negotiations and not a cooperative effort to evade the Planning Act. This potential exception turns on these highly particular facts, however, and likely will not offer a practical workaround in most cases.2
The McDonald's Dispute
The facts of McDonald's v. North Elgin illustrate how the statutory scheme plays out in practice. North Elgin Centre Inc., the landlord of a commercial property, and McDonald's Restaurants of Canada Limited (McDonald's) entered into a long-term lease with two successive ten-year renewal options. When McDonald's exercised the first renewal, the total term exceeded 21 years, triggering the Planning Act's consent requirement.
The lease had anticipated this. Section 19.10 included what is commonly known as a "saving clause", providing that until any necessary consent under the Planning Act was obtained, the term of the lease would be limited to 21 years less one day. The clause also placed the primary obligation on the landlord to "diligently proceed to obtain any consent necessary under the Act" and, failing that, permitted the tenant to bring the application itself with the landlord obliged to provide its cooperation.
This was not the first round of litigation. The Court of Appeal had already declared the lease renewed for its first renewal term as part of an earlier proceeding and directed the tenant to obtain Planning Act approval, with all reasonable cooperation from the landlord. But the approval process progressed very slowly, and the landlord—now seeking to redevelop the property—applied for a declaration that the lease was at an end. The Superior Court refused, holding that termination would be "most inequitable" when it was clear that Planning Act approval might be granted retroactively, and the original intentions of the parties could therefore still be realized.
Why the Landlord Could Not Terminate
The Superior Court's analysis, which the Court of Appeal summarily affirmed in McDonald's v. North Elgin, rested on several interlocking findings.
First, the parties intended to enter into a long-term relationship. Applying modern principles of contractual interpretation, the court looked beyond the four corners of the lease to consider the surrounding circumstances. The renewal options, the obligations set out in the "saving clause", and McDonald's position as a long-term anchor tenant at the time the lease was executed made it "easy to conclude" the landlord had originally been supportive of the tenant remaining in the premises for up to 40 years. The landlord's subsequent preference for redevelopment did not alter the original intentions of the parties, which governed interpretation of the lease.
Second, the consent process was still alive. Because Planning Act consent could still be granted such that the lease would be "cured" retroactively under Section 50(14), and because the municipality had in fact recommended approval of the application for consent, the court found it would make "little commercial sense" for a delay attributable to the municipality or its Committee of Adjustment to deprive the tenant of its renewal rights—especially since the lease had given the landlord primary control and responsibility over the consent application process. The court also rejected the landlord's claim that the tenant had failed to take adequate steps to seek Planning Act approval, pointing to meetings and discussions that had occurred and concluding that the prior Court of Appeal decision had not imposed an obligation "to do more than apply for the consent," at which point the matter was in the hands of the municipality.
Third, the landlord had waived its contractual objection. As an alternative finding, the court held that the landlord had waived any alleged breach on the part of McDonald's by continuing to accept rent and operating as though the lease remained valid for approximately five years after the point at which it argued before the court that the lease had expired. During that entire period, the parties had communicated with each other and with the municipality as though the lease was a valid and subsisting agreement—conduct the court found wholly inconsistent with the landlord's belated assertion that the lease had come to an end.
Finally, the landlord was ordered to stop undermining the Planning Act approval process. The court ordered the landlord to cease all communications with the municipality regarding the application, other than to express its consent for approval, after finding that the landlord had been acting directly contrary to its contractual obligation to cooperate with the tenant in bringing the application.
On appeal, the Court of Appeal affirmed the trial court's analysis in full and specifically declared that the interpretation permitting renewals subject to Planning Act approval was consistent with its prior decisions.
Takeaways
McDonald's v. North Elgin carries several practical implications for landlords, tenants, and their counsel:
- "Saving clauses" matter: These provisions preserve enforceability while consent is pending. Any lease that could stretch past 21 years—factoring in renewals—should include this safeguard.
- Consent obligations will be enforced: Courts will hold parties to their commitment to pursue Planning Act consent. A landlord who agrees to cooperate will not be permitted to later obstruct the process when its commercial interests shift.
- Consent cures—retroactively: Section 50(14) of the Planning Act means that once consent is granted, it removes any impediment to enforcement. As long as a consent application remains alive and has not been denied, a party generally cannot treat the lease as terminated on the basis that consent is outstanding.
- Municipal delay is not a termination trigger: Neither party controls the speed of the municipality's process. Courts will not permit one party to exploit administrative delay to escape a lease it no longer favours.
- Conduct counts: Continuing to accept rent and operate under a lease for years after the alleged termination event may well constitute waiver of any obligation to secure Planning Act consent. Landlords considering termination must act promptly and consistently.
- Denial of consent limits the lease's effect: If Planning Act consent is ultimately denied, the lease cannot be given effect beyond the 21‑year period, and the parties are no longer contractually bound by the renewal.
The overarching lesson of McDonald's v. North Elgin is one of foresight. For landlords who may one day wish to redevelop, the time to negotiate flexibility—whether through demolition clauses, early termination rights, or carefully scoped renewal options—is at the drafting table. And for tenants making a long-term investment in a commercial location, a carefully negotiated lease with robust consent provisions, a clear "saving clause", and express cooperation obligations remain prudent safeguards.
*The authors are grateful for the assistance of Jane Helmstadter, Partner & Co-Head of Commercial Real Estate Practice, Bennett Jones LLP*
1 In Londry v. Dean, 1994 CanLII 7339 (ON SC), a lease granted for an indefinite term expiring on the death of the last tenant was held to be void ab initio for contravening Section 50. Similarly, in Pasternak v. 3011650 Nova Scotia Ltd., 2014 ONSC 1012, affirmed 2015 ONCA 391, the courts appeared open to treating leases that contravene the Planning Act's subdivision control provisions as void from their inception. However, as Alison Butler & Ian Rogers suggest in Canadian Law of Planning and Zoning (2nd ed.), the Londry decision may stand only for the much narrower proposition that a lifetime lease granted where the landlord owns abutting property is void ab initio.
2 In Spooner v. Arcand, 1993 CanLII 8455 (ON SC), the parties entered into a 20-year lease in 1973, followed by a separate agreement seven years later allowing for a further 20-year renewal. The court held that because the two agreements (i) did not grow out of one transaction or negotiation; (ii) were not an attempt to evade the Planning Act; and (iii) were formed between parties dealing at arm's length, neither agreement was prohibited by Sections 50(3) and (5).
