When Assumptions Break Leases : 
The Need for Clear Terms

Commercial leasing disputes often come down to a single question: what did the parties actually agree to? The Ontario Superior Court of Justice tackled this issue in Malleum Real Estate Management Corp. v. Donut Monster Inc. (2025 ONSC 3997), a case that highlights the importance of clear drafting and managing expectations on commencement dates, landlord's work, and tenant obligations to take possession of the premises. This case serves as a reminder that courts will hold parties to the words of their agreement—even when unexpected circumstances, such as the COVID-19 pandemic—complicate performance.

Background

In November 2019, Donut Monster Inc. (Tenant) entered into a 10-year lease with Malleum Real Estate Management Corp. (Landlord) for a ground-floor unit in Hamilton. The lease stated that the term began on March 1, 2020 and included a six-week rent-free fixture period starting on this commencement date. The Landlord agreed to complete certain renovations, known as the “Landlord’s Improvements”, but the lease did not specify a deadline for when this work had to be completed. When the improvements were not finished by the commencement date, and with COVID-19 lockdowns adding further complications, the tenant never moved in. Instead, on May 20, 2020, the Tenant sent a "Notice of Frustration and Abandonment of Lease," claiming the agreement had terminated. The Landlord secured a new tenant at a lower rent and later sold the property. The Tenant argued that the commencement date was effectively conditional on those improvements being completed by March 1, 2020.

Legal Issues

The central issue before the court was how to interpret the lease. Specifically, the court had to decide what the lease actually said about the start date and the parties’ obligations, and whether either side had breached or repudiated the agreement. The key dispute was whether the Tenant’s obligations to occupy the premises began on March 1, 2020, regardless of the Landlord’s progress on renovations, or whether those obligations only arose once the Landlord’s improvements were complete. If the Tenant was found to have repudiated the lease, the court also had to determine what damages the Landlord was entitled to recover.

The Decision

Justice Sheard held in favour of the Landlord, finding that:

1. The lease clearly provided for a fixed commencement date of March 1, 2020. That date was not conditional on completion of the Landlord’s work.
2. The Tenant repudiated the lease by refusing to occupy and abandoning its obligations to provide input for the renovations.
3. The Landlord did not breach the lease or misrepresent its ability to complete improvements.

Reasons for the Decision

1. Text governs: The Court emphasized the principles of contractual interpretation from Sattva Capital v. Creston Moly (SCC, 2014): contracts must be read as a whole, in their ordinary meaning, and with commercial context in mind—but courts cannot rewrite clear language.
2. No implied conditions: The Tenant never negotiated for, nor was promised, a fixed date for completion of the improvements. The court rejected the Tenant's argument that their obligations were contingent on the Landlord completing renovations.
3. Good faith obligations: The landlord acted reasonably and in good faith, moving forward with work despite permit delays and COVID-19 shutdowns. The Landlord had no duty to “guess” what terms might be important to the Tenant; it was the Tenant’s responsibility to secure protections while negotiating the lease.
4. Commercial sense: The tenant’s interpretation—that it alone could decide when to occupy—was commercially absurd. It would have left the landlord bearing all the risk with no certainty of performance by the tenant.
5. Notice of Frustration rejected: While COVID-19 created challenges, the lease contained a force majeure clause. Both parties understood that building permit and construction timelines were uncertain. Temporary restrictions did not fundamentally alter the lease bargain, especially given its 10-year term.

Damages

The court awarded damages to put the Landlord in the position they would have been had the Tenant honored the lease. These included (i) lost rent up to the date of the property sale, (ii) diminution in property value, calculated at C$185,000, based on the difference between the property's value with the Donut Monster lease versus the replacement tenant's lease, and (iii) pre- and post-judgement interest in accordance with the Courts of Justice Act. The Landlord's claim for reimbursement of the cost of their own improvements was rejected, since those improvements were the basis for the rent the Landlord had bargained for.

Key Takeaways

For Landlords

• Clear lease drafting is critical. Specify commencement dates and obligations and avoid tying lease start dates to uncertain events like permits or renovations unless intended.
• Include a force majeure clause that expressly addresses government restrictions and unforeseen circumstances.

For Tenants

• Don’t assume that the landlord’s work will be finished by a certain date unless the lease says so. Assumptions about when improvements will be completed or when obligations begin cannot override written lease terms. If timing is critical, negotiate express conditions.
• Understand that rent obligations may begin even if premises are not yet fully built out.
• Be proactive in negotiations—raise all essential concerns before signing, or risk being bound by the landlord’s version of the deal.

Both landlords and tenants must ensure that their agreements capture their true intentions. Failing to do so can turn a promising business relationship into a costly legal battle.