The Context Of Contract Negotiations Can Be Important To Interpreting Unclear Contracts.

The Ontario Court of Appeal recently used evidence from email negotiations to interpret the meaning of a lease agreement in 1079268 Ontario Inc. v. Goodlife Fitness Centers Inc. 2017 ONCA 12. The disagreement between the parties over the amount of rent was the result of an unclear contract that had contradictory clauses referring to the total area leased and the formula which would be used to calculate rent.

The lease agreement between the 1079268 Ontario Inc. and Goodlife Fitness Centers Inc. contained two contradictory clauses regarding the total area to be leased. The first clause defined the premises as “the entire property” whereas the second clause listed the price per square foot and implied that the premises excluded the basement.

At trial, the application judge applied the ruling in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, which stated that contractual interpretation is a mixed question of fact and law. This standard requires judges to look beyond the ordinary meaning of each word in the contract and analyze the context surrounding the contract to determine the intent of the parties.

During email negotiations, the landlord clarified that the lease contract applied to the entire premises of the building except for a portion of the basement which the landlord would use as storage. The parties would eventually drop the clause related to the basement and the landlord confirmed that the “entire premises” would be leased out, including the basement, on a lump sum basis. This context allowed the Ontario Court of Appeal to overturn the application judge’s decision.

The case serves as a reminder to counsel to look to evidence beyond the face of the contract when interpreting agreements. Both previous drafts and written negotiations can be used to determine the parties’ intent in drafting the document. This contextual understanding can then be used by courts to interpret unclear clauses.

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