How to Get Out of a Lease Without Really Trying

Many lenders and their solicitors have been following, with close interest, the saga of Goodyear Canada Inc., Burnhamthorpe Square Inc. and the Canada Life Assurance Company in their respective quests to overturn the decision of Mr. Justice Ground reported in Goodyear v. Burnhamthorpe Square Inc. (1997) 32 O.R. (3d) 657.  For those of you who are not familiar with this unfortunate decision which has now received in substantial part, a stamp of approval from the Ontario Court of Appeal, read on:

Facts

1. Aetna Life Insurance Company of Canada ("Aetna") entered into a construction mortgage and subsequently a takeout mortgage with the original builder (the "Developer") for a commercial office development in Etobicoke. The Developer then entered into a lease with Goodyear Canada Inc. for a substantial part of the building (approximately 30%) in December 1980 (the "1980 Lease").
2. Goodyear and Aetna subsequently entered into an attornment and non-disturbance agreement in respect of the 1980 Lease pursuant to which Goodyear received non-disturbance protection and Aetna received the agreement of Goodyear to attorn to Aetna in the event Aetna took over the property.
3. Subsequent mortgages were registered on the property in favour of Aetna and subsequently Canada Life.
4. Each of Aetna and Canada Life took both assignments of leases and assignments of rents as collateral security.
5. In 1987, Goodyear and the then owner of the property, Angeles Investment Properties Inc. ("Angeles") entered into new leases for the property to replace the 1980 lease. Although these leases contemplated obtaining non-disturbance agreements from the mortgagees, these were never obtained. In February, 1993, Aetna assigned its first and second mortgages to Canada Life together with the collateral assignment of rents and assignment of leases.
6. In June 1993, Canada Life appointed Ernst & Young Inc. as receiver/manager for Angeles as a result of default under the mortgage.
7. In December 1994, Ernst & Young Inc. was discharged as receiver. Canada Life then sent a notice to Goodyear confirming that it had taken possession of the property and requiring that future rent payments be made to V & A Properties Inc., the then existing property manager who was to continue to act on behalf of Canada Life.
8. In January 1995, Goodyear commenced making rent payments to V & A.
9. In August 1995, a purchase agreement was entered into with Canada Life as Vendor and V & A as Purchaser, which agreement was subsequently assigned to Burnhamthorpe.
10. In October 1995, Canada Life assigned its mortgages and assignment of rents to Burnhamthorpe and a foreclosure order was obtained in the name of Burnhamthorpe. Prior to closing of the transaction between Canada Life and Burnhamthorpe, Goodyear delivered an Estoppel Certificate confirming the terms of the lease and its existence. However, it specifically confirmed in its Estoppel Certificate that the existence of the lease was subject to the effect of the foreclosure action and "the legal effect of any other action taken pursuant to the charges or mortgages affecting the property, of which the Premises form part, might have".
11. In May 1996, Goodyear provided written notice to Burnhamthorpe confirming that it was terminating its year to year tenancy effective December 21, 1996, the second anniversary of the date of delivery of the notice by Canada Life that it was taking possession of the property.

For the complete article view the document below.