Hotchkiss v Budding Gardens Inc, 2020 ABQB 794

Court of Queen’s Bench of Alberta Citation: Hotchkiss v Budding Gardens Inc, 2020 ABQB 794 Date: 20201217 Docket: 2001 09804 Registry: Calgary Between: Paul Hotchkiss and Tracy Hotchkiss Applicants/Cross-Respondents - and - Budding Gardens Inc Respondent/Cross-Applicant _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice J.T. Eamon _______________________________________________________ Table of Contents I Introduction and issues . 2 II Sufficiency of evidentiary record . 3 III Facts . 4

(

a) The lease . 4 (

b) Rent negotiations . 7 IV Whether

section 3 of the lease is uncertain . 12 V Whether the parties came to an agreement concerning rent or access . 17 VI Remedy . 24 VII Conclusion . 24 I Introduction and issues [ 1 ] The parties made a lease dated June 1, 2019. The lease provides for a three year term from June 1, 2019. The Applicants are the landlord. The Respondent is the tenant. [ 2 ] The parties have a dispute whether the lease is enforceable after the end of the first year of its term. The landlord claims the lease is not enforceable and wants the tenant evicted.

The tenant claims the lease is enforceable, and seeks directions fixing the amount of rent under the lease for years two and three and regulating the landlord’s right of inspection under the lease. [ 3 ] The enforceability issue arises from the provision for rent after the first year in

section 3(

b) of the lease: 3. MINIMUM RENT

a) For the first year of this Lease, the Lessee agrees to pay to the Lessor minimum annual rent in the amount of $90,000.00 plus applicable GST in Canadian currency for the Demised Premises by monthly payments in the amount of $7875.00 ... commencing on the first day of June, 2019 and continuing on the 1 st day of each and every month up to and including the 1 st day of May 2019.

b) For the second and third years of this Lease, the Lessee will pay the Lessor an adjusted monthly rent amount, to be negotiated one month prior to the anniversary date of this Lease, and agreed to by both parties, based on a review of actual costs associated with utilities and upkeep of the Demised Premises. As with the first year of this Lease, the amount is to be paid per month ... [ 4 ] The tenant went into possession of the premises and paid rent for the first year under

section 3(

a) of the lease. In February 2020, the parties started negotiating the rent to be paid commencing June 1, 2020. These negotiations eventually led to a dispute over a draft addendum to the lease. The addendum was never signed. [ 5 ] The landlord claims

section 3(

b) of the lease is uncertain. Further, the parties did not come to an agreement concerning rent during their negotiations. Therefore, the uncertainty persists and the lease is not enforceable. [ 6 ] The tenant claims that the lease is not uncertain. Further, the tenant claims the parties came to an enforceable agreement that cured any uncertainty during their rent negotiations.

It claims this agreement arose from the landlord’s letter of June 11, 2020 or as a result of the landlord’s conduct in allegedly acting as if the parties had agreed on terms. [ 7 ] The tenant also seeks a declaration limiting the landlord’s right of access to the premises for inspection to once per month and requiring that it be supervised by the tenant. The tenant claims the landlord agreed to the limitations as part of the negotiation. The landlord says the negotiations did not result in any agreement. [ 8 ] The substantive issues are: (

a) Whether

section 3 of the lease fails the requirement for contractual certainty because rent for years two and three cannot be ascertained with reasonable certainty. (

b) Whether the parties agreed on the essential contractual element of rent for years two and three of the lease term, (

i) through their negotiations, or (ii) as a result of the landlord accepting the tenant’s position through its conduct. (

c) Whether the parties agreed to limit the landlord’s right of inspection through their negotiations or their conduct. (

d) What remedy should the Court grant, if it finds the lease uncertain? II Sufficiency of evidentiary record

[ 9 ] The matter was heard as an originating application and cross-application in chambers, on affidavit evidence and cross- examinations on affidavit before the hearing. Neither party asserted that oral evidence was necessary or desirable. [ 10 ] Although the parties’ views are entitled to some weight, nevertheless not all contested matters can be determined on a chambers application without a direction for oral testimony under R 3.14(

g) of the Alberta Rules of Court . The applicable principles are similar to those in

summary judgment applications ( Sandhu v Siri Guru Nanak Sikh Gurdwara of Alberta , 2015 ABCA 101 at paras 77-81 ; Shefsky v California Gold Mining Inc , 2016 ABCA 103 at paras 109-115 ; Krauss v Krauss , 2018 ABCA 367 at para 4 ). I must be satisfied that the record is sufficient to permit a fair and just determination of the merits.

This will be the case when “the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.” ( Hryniak v Mauldin , 2014 SCC 7 at para 49 , [2014] 1 SCR 87; Hannam v Medicine Hat School District No 76 , 2020 ABCA 343 at para 159-160 ; Sandhu at paras 77-81 ).

The judge must be left with sufficient confidence in the state of the record such that he or she is prepared to exercise the judicial discretion to summarily resolve the dispute ( Weir-Jones Technical Services Inc v Purolator Courier Ltd , 2019 ABCA 49 at para 47 ). [ 11 ] The issues pursued at the hearing are narrow. Both sides focussed on the lease language and the record of rent negotiations.

Other issues asserted by the landlord in its initial pleading were either withdrawn or not pursued at the oral hearing [1] . [ 12 ] Although some evidence is conflicting, the conflicts do not relate to the essential evidentiary matters – the surrounding circumstances necessary to interpret the meaning of the disputed provisions of the lease, and the negotiations of the rent to be paid after the first year of the lease said to have resulted both in an agreement for the rent payable on and after June 1, 2020 and the limitation on the frequency of the landlord’s inspections.

The surrounding circumstances were not contested, and the material negotiations were by written communication or, to the extent they were verbal, the evidence does not conflict. [ 13 ] The tenant argued, among other things, that the landlord acted in bad faith. Determining that issue would require me to resolve conflicting evidence and assess the credibility of the parties or their representatives. I would expect that analysis would normally require oral testimony.

The record is clear that the relationship soured between the parties, neither party trusted the other, and each felt the other was acting unreasonably or maliciously. The record does not reveal that either side took negotiating positions so unreasonable or inappropriate as to raise a concern of bad faith. One would likely need cross-examination to persuade a trier of fact that the conflict that developed between these parties elevated to bad faith in the negotiations.

However, the bad faith allegations are not relevant to the questions whether the lease was sufficiently certain or whether the parties, from an objective perspective, reached an enforceable agreement during their rent negotiations. [ 14 ] I also noted some gaps in the correspondence record. During the hearing, I raised with both sides whether I needed to see the tenant’s specific correspondence in response to the landlord’s June 3, 2020 letter. Neither indicated that I required it and neither offered it.

Having considered the content of the correspondence in that time frame, I am able to discern the substance of the tenant’s response to the landlord’s June 3, 2020 letter. It is quoted in the landlord’s June 11, 2020 letter and neither side suggested there was any other material language in the tenant’s correspondence.

I am satisfied a fair and just decision can be made without an actual copy of the tenant’s letter. [ 15 ] I am satisfied that the record is adequate to make a fair and just determination of the issues of contractual uncertainty and whether the parties came to an agreement to limit the lessor’s right of inspection under

section 22 of the lease. III Facts (

a) The lease [ 16 ] The landlord (Mr and Mrs Hotchkiss) own and operated a farm in rural Alberta. This farm includes a farm home, a barn with horse stables, a mechanic’s shop occupied by a residential tenant, a mobile home housing live-in farm and barn managers, greenhouse and processing space, and farm land. Before the parties met in early 2019, the Hotchkiss family operated a produce business on the farm and lived there.

They had no experience as commercial landlords, apart from informally “leasing” part of their barn to a not-for-profit horse charity. [ 17 ] When the Hotchkiss family retired from farming in 2015, they removed all but one of the greenhouses from the farm. Mr Hotchkiss used part of the remaining greenhouse for his hobby of growing tomatoes. [ 18 ] The farm also included a “pick and pack” building near to the remaining greenhouse, which the Hotchkisses had used to handle and package vegetables for sale as part of their farm business.

That building also houses the mechanical equipment that services the entire farm – water cistern, pump, filtration and purification, electrical service, gas metering, and backup generator. That building also housed the boiler heating system for the greenhouse and pick and pack building. (There is also reference in the evidence to the pick and pack building housing a back-up coal-fired boiler, but neither side saw much, if any, need for that). [ 19 ] In early 2019, Mr and Mrs Vanden Berg were searching for a greenhouse facility to rent and use for a start up cannabis micro- cultivation business.

Mr Vanden Berg approached the Hotchkisses to inquire about renting their greenhouse and processing building. He explained to them that they were looking for a property to develop a micro-growing facility for cannabis, and wanted a three year lease with an option to purchase that they could exercise at the end of the term.

Mr and Mrs Hotchkiss were looking to retire and spend time outside Alberta and were interested in selling the farm homestead. [ 20 ] The Vanden Bergs incorporated Budding Gardens, which eventually became the tenant and operator of the micro-cultivation business. [ 21 ] Budding Gardens and Mr and Mrs Hotchkiss signed a letter of intent in early February 2019. The letter acknowledged that the

purpose of the lease was to use the facilities for the purpose of cultivating cannabis under a license from Health Canada. The tenant would have the right, at its cost, to change the facility to meet licensing requirements and meet operational needs. The landlord would pay for the ongoing utilities to maintain the growing environment in the greenhouse and was responsible to maintain the facilities to ensure that they remained in working order.

The letter also set out the precise rent structure which has given rise to the dispute. [ 22 ] The parties signed a lease effective June 1, 2019, for the lease of only the greenhouse and pick and pack building (the Demised Premises referenced in the lease) situated on the farm (the Property referenced in the lease [2] ).

Among other things, the lease expressed its purpose of maintaining a cannabis cultivating operation under license granted by Health Canada. [ 23 ] As mentioned earlier, the “minimum rent” [3] (section 3(a)) for year one was fixed at $90,000 (plus GST) per annum, payable in 12 equal monthly amounts of $7875. The landlord proposed that amount. The tenant agreed to it without dispute or inquiry. The parties did not discuss the basis on which the first year rent was determined. The tenant tendered evidence of Mr Vanden Berg that it was not informed of how the landlord calculated that amount.

Mr Hotchkiss testified after the fact that the landlord took into consideration a number of factors that were difficult to quantify and the process for determining the number was arbitrary. Mr Vanden Berg testified after the fact that the tenant was comfortable with the proposed amount. [ 24 ] Rent for years two and three is set out in

section 3(

b) of the lease, quoted in para 3 above. There was a deadline to negotiate rent.

Section 3(

b) provided that the rent must be “negotiated one month prior to the anniversary date of this Lease [ie, May 1, 2020], and agreed to by both parties, based on a review of actual costs associated with utilities and upkeep of the Demised Premises”. [ 25 ] The lease provided that the landlord is responsible for (a) “the cost of utilities to maintain a growing environment in the Demised Premises.

The utilities will include electricity, natural gas, coal and water” (section 4(a)). (b) “all costs associated with the maintenance and upkeep of the property including but not limited to property taxes, mortgage payments, or any other charges arising out of ownership of the property” [4] (section 4(b)). (c) “the maintenance and repair of the buildings and mechanical equipment at the Demised Premises to ensure that they remain in reasonable working order.

The maintenance includes, but is not limited to, the regularly scheduled maintenance of the boiler heating systems, reverse osmosis water system, backup electrical generator, and greenhouse venting system, normal wear and tear excepted, and acknowledges that the systems have been inspected and are in good condition...” (section 4(c)). [ 26 ] The landlord was responsible for all structural repairs to the Demised Premises, excepting any necessitated by the neglect or misuse of the Demised Premises by the tenant (section 20). [ 27 ]

Section 22 of the lease provided the landlord “may enter upon the demised premises only during business hours and view the state of repair thereof ...”. [ 28 ] The lease required the landlord to maintain fire and extended coverage insurance on the Demised Premises, subject to such deductions and exceptions as the landlord may determine. The lease also contains a provision requiring the landlord to carry “boiler and machinery insurance against claims for bodily injury, including death and property damage ...”.

This is not boiler and machinery coverage in the conventional or extended sense, but appeared to be a sort of liability coverage against personal injury arising from accidents with the boiler or machinery. [ 29 ] The tenant was permitted under

section 8 to make various modifications to the premises at its cost, to meet Health Canada licensing requirements or operational needs for business efficiency. [ 30 ] The tenant was to indemnify the landlord for claims arising from the tenant’s occupation and use of the premises, and to obtain and pay for a comprehensive general liability policy. [ 31 ] The lease further provided in

section 25 that the parties intended the lessor would “pay all expenses relating to the Demised Premises, including, but not limited to, all expenses for utilities, upkeep and maintenance of the Demised Premises, all mechanical repair and maintenance, holding costs including any mortgage payments and interest, fire insurance and property taxes...”.

The tenant’s obligation was “limited to the rent payable hereunder, expecting [sic] its business operating expenses.” [ 32 ] The lease included a typical quiet possession clause in favour of the tenant. [ 33 ] The lease did not include an entire agreement clause of any form. [ 34 ] The lease contemplated the parties would execute an “Agreement for the Lessee to have the option to purchase the property” in the form appended to the lease. The attachment recognized the ongoing boundary adjustment process and identified the property would include all the farm homestead buildings and horse paddock.

The option would be open for three years after the start of the lease agreement. The consideration payable for the option was $1000. The purchase price in the event the option was exercised was specified in the form. The consideration was paid and the parties signed the lease attachment, entitled “Option to Purchase”, on March 14, 2019 presumably contemplating that they would sign the lease. I was not asked to adjudicate the validity of the option form in this application. (

b) Rent negotiations [ 35 ] In February 2020 the landlord commenced the negotiation for rent commencing June 1, 2020.

[ 36 ] The landlord’s initial approach was to aggregate its estimated costs occasioned as a result of leasing the greenhouse and pick and pack building to the tenant, and dividing them by 12 to arrive at a monthly rent of $17,500. It expressed the view that the provision was intended to allow them to re-visit monthly rent after approximately one year and “negotiate a higher rate as circumstances required and as actual costs dictated.” [ 37 ] This method reflected the landlord’s view that its costs were much higher than it initially expected when it agreed to lease the buildings to the tenant. (

d) The farm’s usage of natural gas and the greenhouse electricity consumption, increased substantially after the tenant went into possession. (

e) All the facilities were on a common well water supply, which required expensive upgrades to eliminate substances from the water and render sufficient quantities for use by the tenant. (

f) Property insurance was not commercially available for the greenhouse if occupied for a cannabis operation. The proposed rent included a reserve as a form of self-insurance. (

g) The landlord believed that the tenant was using a significant amount of the time of their live-in farm manager. The proposed rent included an allocation of his salary. (

h) Other maintenance items were coming due more quickly, such as the need to repair corrosion to parts of the piping and to replace roof panels on the greenhouse. The proposed rent included an estimate for such costs anticipated to be incurred during the term of the lease. [ 38 ] The tenant disagreed. In its opinion, the actual costs of utilities and upkeep to the Demised Premises should be apportioned to the Demised Premises, but capital costs or the costs of repairing or improving infrastructure, and “speculative costs” (the reserve for building loss), should be removed. It allowed nothing for profit. The requirement of clause 3(

a) that “minimum rent” be $90,000 plus GST did not appear to suggest to it that the landlord probably would not be expecting a drastic decrease in the rent for years two and three. It countered with monthly rent of $4200. [ 39 ] Not surprisingly, neither proposal for a fixed monthly rent (or subsequent revisions to each) was acceptable to the recipient. [ 40 ] To avoid the deadlock, on April 24, 2020 the landlord proposed a new model, sometimes referred to as the low rent framework.

The landlord’s letter [5] described the proposal as a “framework”, and hopefully one that could serve “as the springboard for finalizing the outstanding issues between Lessor and Lessee”. It observed that if the tenant agreed in principle to the framework, a meeting could be held to “hammer out the details”. [ 41 ] The framework avoided a main point of contention (actual cost of utilities and upkeep) by drastically reducing rent and making all costs of utilities and upkeep including insurance and taxes, payable by the tenant.

The landlord observed: “This proposal should be particularly attractive to you if you believe the actual costs of utilities and upkeep ... come in under $5000 per month ...”. [ 42 ] Under the framework, the tenant would pay a minimum monthly rent of $1000 and the utilities allocated to it, and assume responsibility for all future upkeep connected to the tenant and the Demised Premises, including but not limited to the landlord’s responsibility under the lease for maintenance and repair of the buildings and mechanical equipment under

section 4(

c) of the lease. As stated on behalf of the landlord, “If something breaks in the Demised Premises, Budding Gardens will fix it...”. [ 43 ] The tenant further would assume all liability for loss, accidental or otherwise, with respect to or arising out if its occupation of the Demised Premises. This assumption of liability included loss arising from or connected to any mechanical failures in the mechanical or boiler rooms.

This aspect of the proposal addressed the problem that the landlord had not succeeded in obtaining property insurance for the buildings and believed (based on professional advice) that property insurance would not be commercially available for the greenhouse so long as its intended use was to cultivate cannabis.

If the tenant assumed this risk, then the landlord would forego attempting to negotiate a reserve fund for building loss or damage. [ 44 ] The landlord also required agreement on certain operational issues which had arisen between the parties (including landlord’s access to mechanical and boiler rooms), and noted that the parties would also need to come to an agreement on those to move forward. [ 45 ] A prominent access dispute, which ultimately contributed to the failure of the negotiations, arose from the landlord’s right to access the Demised Premises to inspect and its need to access the Demised Premises to repair and maintain the buildings and equipment as required by

section 4(

c) of the lease. As mentioned earlier, this equipment did not only serve the pick and pack and greenhouse buildings. The entire farm relied on the electrical and water systems, and was vulnerable to loss or damage if the systems failed. [ 46 ] During the first few months of the lease, this access was not an issue. The landlord (often through its live-in farm manager) entered the mechanical areas of the pick and pack building and inspected and maintained the equipment, as they had in the past.

Then, in mid-March 2020, the tenant informed the landlord that upon receiving its cannabis license from Health Canada, it would implement a security protocol restricting entry to approved persons. As a result, the landlord’s representatives would not longer be permitted into the building to maintain the mechanical systems, except as permitted by the tenant. This became a reality shortly thereafter, when Health

Canada granted the tenant a cannabis license on April 17, 2020. [ 47 ] The tenant saw control of access to the buildings as a necessity to maintain its cannabis license under the Cannabis Regulations , SOR/2018-44, and focussed on the quiet enjoyment clause. The tenant also objected to the landlord’s use of its right of inspection during business hours.

In its view, the number of inspections was unreasonable. [ 48 ] In contrast, the landlord claimed it had a right of access to the mechanical room under its right to promulgate rules under the lease, and that the lease did not limit the number of landlord’s inspections during business hours or require tenant’s supervision or approval of its representatives. Further, the landlord was obliged to maintain the Demised Premises under the lease. It needed access to the mechanical systems to do so, particularly during after-hours emergencies. [ 49 ] Access for inspection and maintenance was important to the landlord.

The greenhouse was not commercially insurable because it contained a cannabis operation.

The landlord felt that unfettered maintenance and inspection access was required, for a variety of reasons: (1) the buildings needed proper attention because the greenhouse could not be insured; (2) the landlord was concerned that the tenant was not sufficiently familiar with the mechanical systems to effectively maintain them; (3) if the tenant were to assume responsibility for the maintenance and upkeep, the landlord needed mechanisms and remedies to assure it that the tenant was carrying out these responsibilities properly and not putting the buildings and systems at risk of loss; (4) the tenant’s representatives were not necessarily on-site and available to respond to after hours emergencies, which exposed the buildings to loss and negatively affected other parts of the farm that depended on the water and electrical systems in the pick and pack building. [ 50 ] The other access dispute arose from the tenant’s entry onto the farm, off of the east gate access road including patrols around the perimeter of the tenant’s security fence surrounding the greenhouse and pick and pack building.

The details of the proposed resolution of these issues did not preclude an agreement, so I will not detail them. It is enough to say that they contributed, along with other issues including disputes over access to mechanical systems, alleged smoking on the Demised Premises, and parking disputes, to bad feelings and mistrust on both sides and presented an additional obstacle to a collaborative negotiation. [ 51 ] The low rent framework became the basis for further negotiations.

In its initial response, the tenant stated that many details would need to be worked through, additional information was required, and the change in the holder of liability for the premises was significant and would require further consideration. The tenant acknowledged in this litigation that implementing this framework would require significant changes to the lease, and that is factually accurate. [ 52 ] Consequently, the negotiations that followed went beyond merely quantifying a number for rent based on anticipated costs of utilities and upkeep.

The necessary structural changes required negotiation of the terms on which the tenant would assume responsibility for maintenance and upkeep of the Demised Premises and liability for the premises, and attempted to clarify the access provisions under the lease both for landlord’s inspections and emergency access. The tenant willingly joined in these negotiations. [ 53 ] The lessee objectively intended to negotiate the financial and operational issues as a whole. The low rent framework was premised on the tenant compromising on other issues or agreeing to other terms.

Any reasonable, objective observer reading the proposals could see that structural changes to the lease were necessary to make the low rent commercially feasible.

The tenant participated in these negotiations, sometimes setting out its position on the landlord’s proposals for changes to the lease, sometimes remaining silent on issues, and sometimes making a fresh proposal that seemed to ignore many of the landlord’s previously expressed concerns. [ 54 ] During these negotiations, the landlord informed the tenant that if it were to assume the landlord’s contractual responsibility for maintenance and upkeep, the landlord would require that deficiencies, once identified, be repaired in a timely way and failure to do so would constitute an event of default permitting lease termination.

Significantly, the tenant did not respond to this request, and neither accepted or denied it until after the landlord tendered the formal draft lease addendum on July 3, 2019. In turn, the landlord did not appear to concede the issue. It was simply left unaddressed by the parties, until the tenant finally objected to the landlord’s proposed lease addendum. [ 55 ] The tenant asserts that the parties agreed on rent, in correspondence dated June 3 and June 11, 2020. [ 56 ] On June 3, 2019, the landlord (through counsel) proposed an arrangement it described as very close to a final offer.

This included: monthly rent of $1000 (representing profit), a pro rata share of the farm’s property taxes, and the landlord’s cost to insure the pick and pack building; tenant to pay the direct cost of utilities and upkeep; and, tenant to assume landlord’s cost of maintenance and repairs of the Demised Premises. The offer reiterated the landlord’s need for emergency access to the Demised Premises.

The landlord again required a default provision in the event of the tenant’s failure to repair the Demised Premises: … The Hotchkisses will continue monthly inspection for the purpose of ensuring ongoing maintenance is being carried out. Issues identified in such walkthroughs will be addressed/fixed/repaired by subsequent monthly inspection, and failure to do so will be a material default by Budding Gardens. [ 57 ] The letter did not define the consequence of a material default.

An objective observer, informed of the correspondence record which included the landlord’s previous requirement that this event of default would permit lease termination (para 54 above), would understand the significance of a material default or at least would ask for clarification. [ 58 ] The offer concluded : Please advise us of your position by no later than 12:00 noon on June 8, 2020, so that we can immediately begin drafting the addendum/restated lease as required, as that process will no doubt reveal further necessary clarifications. [ 59 ] This led to a further response from the tenant (reproduced in the landlord’s June 11 th letter described below).

Three matters of note appear from its response. First, it was not capable of standing as an unqualified acceptance of an offer, or an unqualified counter- offer. It commented on many of the landlord’s proposals, but did not purport to be complete. For example, it did not clearly accept or

reject the landlord’s proposal on maintenance costs, nor express a clear counter-offer for maintenance. Second, the tenant said nothing about the issue of material default for failure for maintain -- not that it accepted, rejected, or required clarification of the landlord’s position. Third, the tenant reiterated its position that it must have control over access to the Demised Premises. [ 60 ] On June 11, 2020 the landlord responded. The landlord’s response did not explicitly accept all the tenant’s positions, nor explicitly purport to be an acceptance of a counter-offer.

Rather, it commences: “I have responded to your statements below. There is an issue with electricity metering and some of your other conditions are difficult to understand. Please see below in red.” [ 61 ] That observation is followed by various comments. The landlord accepted the tenant’s position on some points, but not others.

For example, the landlord rejected the tenant’s requirement of absolute control over access to the Demised Premises, and proposed a possible solution which would allow the landlord emergency access to the Demised Premises to restore power and water outages if the tenant failed to respond within 4 hours. The landlord also made a proposal to fix in the contract the dates and times of the monthly maintenance inspections, explaining that scheduling inspections with the tenant had been difficult in the past. [ 62 ] The landlord tendered a draft amended and restated lease on July 3, 2020.

The tenant responded on July 23, 2020 and rejected a number of the landlord’s proposals: (

a) Refused the landlord’s proposal that the tenant be responsible for all “charges, expenses, payments, taxes, levies, assessments” which relate in any way to the Demised Premises (other than as otherwise set out in the lease). The landlord later offered to revise this obligation to such costs “connected to or arising out of” the premises. The tenant rejected both formulations, and required a specific list of additional costs. (

b) Refused the landlord’s proposal for emergency access in the event of an interruption of utility service to the rest of the farm. Rather than a promise that utilities to the farm be restored within any specified time, the tenant proposed the landlord “give immediate notice to the Lessee so that the Lessee or designated representative can investigate the issue. Emergency access can be arranged for qualified contractors or utility service personnel as needed.” (

c) Placed limitations on the landlord’s right of inspection by permitting the tenant to impose “restricted entry to any individual based on the security threat perceived by the Responsible Person In Charge”. This proposal potentially denied access by the landlord’s on site farm manager, or anyone else assessed on the basis of perceptions of the tenant’s representative. (

d) Refused the landlord’s proposal for a fixed monthly inspection date and time. (

e) Refused the landlord’s proposal that the tenant’s failure to repair constituted an event of default permitting the landlord to terminate the lease. [ 63 ] Discussions continued after July 23, 2020. On July 20 and August 1, 2020, the tenant acknowledged to the landlord that the parties continued to dialogue toward an agreement and negotiate on pieces of the agreement. Dialogue continued, but on August 6, 2020 the landlord terminated negotiations because it did not see the prospect of agreement on the additional rent clause or access. IV Whether

section 3 of the lease is uncertain [ 64 ] The law with respect to uncertainty of contract is laid out in Ko v Hillview Homes Ltd , 2012 ABCA 245 , leave denied [2012] SCCA No 445, and includes: (

a) The test for

interpretation and for certainty of terms is objective; one party’s subjective views about the agreement, or how it would later work, not agreed to by the other side, are irrelevant (para 27). (

b) The rule is far from a technicality (para 75, 80). (

c) A supposed contract with an uncertain material term is not a contract, and not even an agreement, and is usually impossible to perform or enforce (para 81). (

d) The essential terms must show with a reasonable degree of certainty what the parties meant (para 87, 101). Whether a term is essential depends on the type of the contract, for example, a contract to purchase a piece of machinery may require less specific details than a contract to build a house (para 91). If the parties considered they needed a term and included it in the agreement, but it is too vague, the contract will be void. This includes terms beyond identifying the parties, property or price (para 90).

(

e) It is irrelevant whether one party’s attitude to negotiating an uncertain term was unfair or unreasonable (para 92). (

f) Although a court may be reluctant to find a contract void for uncertainty which has been partly or fully performed at least by one side, there should be no general reluctance to find a contract void for uncertainty (para 118). (

g) Whether the parties thought they had a contract is irrelevant, particularly where the contract is not performed (para 119). (

h) Uncertainty of terms may be saved if: a. A specific manner of ascertaining the term has been given by reference to a published or to be published price or set of standards. b. A third party arbitrator or valuator, or even one of the parties acting unilaterally, has been authorized to fix the term. c. An established custom of the trade is implied as having been incorporated into the contract, e.g., when and where sales might close or that debts will be paid. d. A term is implied because it is

i) so obvious to the bystander; ii) implied by law, e.g., the use of Canadian currency or concurrent tenders of conveyance and price (para 120). (

i) A party alleging an uncertain term need not complain immediately, as it is not improper to later raise invalidity arising from uncertainty (para 121). (

j) If no valid contract initially existed, the later conduct of the parties (short of a new contract) is irrelevant (para 121). (

k) A duty to negotiate seems incompatible with the adversarial nature of negotiation between parties dealing at arm’s length (para 136). [6] [ 65 ] As apparent from the above, the essential terms must be reasonably ascertainable or show with a reasonable degree of certainty what the parties meant [7] . A mere difficulty in

interpretation, or ambiguity that can be properly resolved by applying contract

interpretation techniques, does not result in uncertainty. [ 66 ] In deciding the question, the Court is to interpret the written language of the lease to ascertain the parties’ objective intent through the application of legal principles of

interpretation ( Sattva Capital Corp v Creston Moly Corp , 2014 SCC 53 at paras 47-49 , 57). The exercise is to ascertain what a reasonable person would have understood from the words of the document read as a whole considering the properly admissible surrounding circumstances ( Sattva at para 57; Alberta Union of Provincial Employees v Alberta Health Services , 2020 ABCA 4 at paras 23-32 ; IFP Technologies (Canada) Inc v EnCana Midstream and Marketing , 2017 ABCA 157 at paras 79-82 ).

While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement ( Sattva at para 57). The surrounding circumstances are ascertained from “objective evidence of the background facts at the time of the execution of the contract ... that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting” ( Sattva at paras 58, 60; IFP at para 83).

This evidence includes negotiations to the extent it shows the factual matrix (for example, by showing the genesis and aim of the contract) ( IFP at para 85). If the meaning of the term is ambiguous (reasonably susceptible of more than one meaning), the scope of admissible evidence is wider and includes post-contract conduct ( IFP at paras 86-87). However, subjective evidence of the parties’ intentions is generally inadmissible ( IFP at paras 81, 87; Alberta Union of Provincial Employees at paras 27, 31-32 ).

Commercial contracts should be interpreted in accordance with sound commercial principles and good business sense ( IFP at para 88). [ 67 ] Turning to rent negotiation clauses, it is sometimes tempting in a business negotiation to avoid some details in order to achieve a business consensus between or among the parties.

The Court of Appeal in Angus Leitch & Associates Limited v Legrand Industries Limited , 1983 ABCA 231 at para 12 laid out this tension between business efficacy and legal requirements for contractual certainty, quoting with approval the following passage from J E Côté, An Introduction to the Law of Contract (Edmonton: Juriliber, 1974) at p 37: Some uncertainty may be so bad as to amount to no agreement whatever.

An agreement to agree later on some term is a device which seems to spring very naturally to the minds of businessman, but unfortunately it is void and will most probably render void the entire contract in which it is contained. This rule is undoubtedly one of the most dangerous traps which the law of contracts sets for laymen and one finds an example in a rental 'to be reviewed and adjusted' periodically . But one cannot regard this rule as a mere technicality which

should be dispensed with.

An agreement to agree is void because it is not really an agreement on anything at all, but merely a pious hope that an agreement may later be reached. [Underlining added] [ 68 ] Both sides cited authority applying the contractual certainty requirement to rent provisions in leases. [ 69 ] The tenant cites Mustard Seed (Calgary) Street Ministry Society v Century Services Inc , 2009 ABQB 171 , where the renewal term of the lease provided: The Tenant provide written notice to the Landlord, a minimum of one month prior to the expiry of the initial term of the Lease, requesting a five year extension of the Lease.

The Net Rent payable by the Tenant during the renewal term shall be agreed to by the Landlord and Tenant at the then prevailing market rates. [ 70 ] Wilson (

E) J held that the provision met the requirement of reasonable certainty: the prevailing market rate meant market value, and the Courts routinely hear evidence and determine market rates.

The renewal was enforceable. [ 71 ] The landlord relies on Calmed Professional Centre Inc v Barbara Chipeur Professional Corp , 2005 CarswellAlta 659 (QB) , where the lease contained an option to renew, and provided that the rent for the option period “shall be negotiated by the parties based upon the then current market rental rate for the demised premises, for its highest and best use taking into account the value of all leasehold improvements.” Gill J found that this clause set out the criteria on which the parties had to base their negotiations, but in essence the parties intended to reserve the power to establish rent to themselves.

It was an unenforceable agreement to agree. [ 72 ] The rent provision in the lease requires the parties to negotiate and agree to an adjusted monthly amount, based on a review of actual costs of utilities and upkeep. The landlord says this means the actual costs provides a framework for negotiation. The tenant contended in its brief that

section 3(

b) provides a formula or method to determine rent. Effectively, the tenant is saying that the rent will be an estimate of expected actual costs in years two and three having regard to actual costs in year one (as the tenant acknowledged at the oral hearing). Further, the word “actual” excludes potential costs, risks, contingencies and the like. [ 73 ] The provision must be interpreted in light of the surrounding circumstances when the parties made the lease: (

a) The purpose of the lease was to provide premises for operating a cannabis micro-cultivating operation. (

b) The industry of micro-cultivation of cannabis was a developing industry, without a long track record. (

c) None of the parties had experience in the business of micro-cultivation of cannabis, or in leasing a commercial greenhouse. There also wasn’t complete information on the costs of running the greenhouse and pick and pack building separately, because some of the utilities were not separately metered (or metered at all). (

d) The parties prepared and agreed to the letter of intent within seven days of first meeting each other on January 31, 2019. Neither party said they had discussions about the basis on which the rent for year one was established. The landlord chose the number for first year’s rent and the tenant agreed to it. (

e) The proposed tenant had not yet applied to the Government of Canada for the necessary license for its proposed operations. The parties provided both in the letter of intent and the lease that if the tenant did not obtain the license within two years of the start date of the lease it could terminate the lease, thereby demonstrating their recognition that some considerable time might be required to obtain the license.

Therefore, they contemplated that they would not necessarily have actual costs from the tenant’s intended operations at the time when they agreed to negotiate future rent. [ 74 ] I have concluded that the contract language does not permit one to ascertain the amount of rent or a methodology to determine the rent with reasonable certainty. [ 75 ] Objectively speaking, the parties did not intend to fix the rent for years two and three equal to the actual costs (or forecast actual costs) of maintenance and upkeep of the Demised Premises for that period. [ 76 ] If they had intended that, they would have said so.

To the contrary, the lease (section 25) contemplates the landlord will pay all the “utilities, upkeep, maintenance, taxes, insurance, holding costs including any mortgage payments and interest, fire insurance and property taxes”. It would be absurd to suggest that the parties intended to limit rent to the forecast “actual cost of utilities and upkeep” for the Demised Premises for years two and three in such circumstances, yet exclude allowances for reasonably anticipated ownership costs including emergency repairs, some component of capital replacements of building components, insurance and the like.

That exclusion would eliminate any chance for the landlord to make a profit and likely expose the landlord to an inevitable loss. [ 77 ] I do not agree with the tenant that the lease sets out a method or formula to fix the rent. It might be possible to speculate that the parties intended to isolate utility and upkeep costs from other components of the rent and adjust the rent. However, that does not resolve uncertainty. You cannot decide how to adjust the rent for utilities and upkeep until you know what costs or other components were included in the year one rent and how they were quantified.

[78] The parties did not express in their lease or letter of intent a mutual understanding of the basis on which the landlordquantified rent for the first year, what the components of rent were, or whether a “review” of some of the costs implies a dollar for dollaradjustment or some other basis for adjustment. Neither do the surrounding circumstances. To the contrary, the landlord said thequantification for year one was arbitrary and the tenant said it did not inquire into the amount of the rent.

They did not have a mutualunderstanding on this point. [79] It is also objectively unreasonable that the parties intended to predict or negotiate rent for years two and three based only on areview of the actual costs of utilities and upkeep incurred during the first 11 months of year one. [80] There was no assurance that the tenant would actually be operating its proposed business by the deadline to negotiate the rentfor years two and three (one month prior to the anniversary date of the lease).

To the contrary, the parties expressed, in the lease itself,that it could take some considerable time before the tenant had the necessary license to cultivate cannabis. They allowed for terminationby the tenant if it did not receive its license within two years of the lease commencement date. Therefore, depending on thecircumstances, the actual costs in the first 11 months of year one may not assist in an attempt to predict costs in years two or three.Further, the parties might disagree on what prediction of future costs should be derived from the records.

How then do the parties fix therent, absent an arbitration or expert determination clause? The only answer is, by returning to the negotiating table to see if an agreementcould be reached. [81] The notion that a review of actual costs requires a dollar for dollar adjustment to rent, or that rent was only adjustable forchanges in specific types of costs and to the exclusion of any other consideration, is also implausible. [82] Neither of these parties had experience in cannabis cultivation operations or commercial leasing of a greenhouse.

The partiessigned the letter of intent quickly after first meeting, and did not have discussions about the basis on which the first year’s rent wasquantified.

It would be normal in such circumstances to be concerned that some costs or risks might be unforeseen, and require furthernegotiation of rent as the parties after the parties had an opportunity to see how the relationship would progress. [83] In fact, the parties did undertake a wide ranging negotiation, partly to address the lack of commercially available insurance forthe greenhouse. [84] After the letter of intent was signed and the parties agreed to defer the lease start date from April to June, 2019 the landlordand tenant received information that property insurance, which the landlord was obliged to procure under the lease, could not beprocured because the premises would be occupied by an unlicensed cannabis operation.

Later, the landlord found that the greenhouseprobably would not be insurable, even after the tenant received a license. [85] The parties negotiated to resolve the lack of commercially available insurance for the greenhouse. There were many optionsfor such a negotiation.

Examples from the record include a reserve against structural losses in the rent that, if unused, could be appliedtoward the purchase price of the option to purchase; the tenant’s proposal of May 31, 2020 to pay ½ the cost of structural repairs orrebuilding until December 31, 2021; and the landlord’s low rent framework in its June 3, 2020 proposal, which included the tenantassuming responsibility for maintenance and repair and the landlord being relieved of its obligation to repair structural damage. [86] I conclude that the reference to a review of “actual costs for utilities and upkeep” does not exclude the parties fromconsidering other factors, whether costs or risks, in negotiating rent for years two and three.

That leads to further uncertainty: the amountof the rent or the method to adjust rent is not reasonably ascertainable because the factors are so variable. [87] This situation is similar to that in Calmed and distinguishable from that in Mustard Seed. The parties reserved thedetermination of rent for years two and three to themselves, with broad discretion. They had a so-called agreement to agree, a covenantthat is unenforceable. [88] Rent is essential to the lease. The lease fails for uncertainty for years two and three, unless the parties actually came to anenforceable agreement concerning rent for those years.

I turn to that issue. V Whether the parties came to an agreement concerningrent or access [89] As mentioned at the outset, the tenant advances two grounds for an agreement. First, the landlord agreed through its June 11thletter to the tenant’s terms, or at least rent and the limit on the landlord’s right of inspection. Second, the landlord agreed through itsconduct to these matters. [90] The landlord submits that any agreement was subject to agreeing to a formal lease addendum.

Further, the discussionsconcerning rent were not severable from the discussions of other issues, and the parties did not come to an agreement on all of theessential matters under discussion. [91] In Bawitko Investments Ltd v Kernels Popcorn Ltd, (ON CA), the Court described some of the reasonswhy an informal or letter agreement might be unenforceable (at pp 12-13): As a matter of normal business practice, parties planning to make a formal written document the expression of their agreement,necessarily discuss and negotiate the proposed terms of the agreement before they enter into it.

They frequently agree upon all of theterms to be incorporated into the intended written document before it is prepared. Their agreement may be expressed orally or by way ofmemorandum, by exchange of correspondence, or other informal writings. The parties may “contract to make a contract,” that is to say,they may bind themselves to execute at a future date a formal written agreement containing specific terms and conditions. When theyagree on all of the essential provisions to be incorporated in a formal document with the intention that their agreement shall thereupon

become binding, they will have fulfilled all the requisites for the formation of a contract. The fact that a formal written document to thesame effect is to be thereafter prepared and signed does not alter the binding validity of the original contract.

However, when the original contract is incomplete because essential provisions intended to govern the contractual relationship have notbeen settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formalcontract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that theirlegal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannotconstitute an enforceable contract.

In other words, in such circumstances the “contract to make a contract” is not a contract at all. Theexecution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and bindingcontract but is essential to the formation of the contract itself... [Underlining added] [92] The Supreme Court of Canada addressed the question whether negotiating parties intended to defer their legal obligationsuntil a formal contract is approved or executed in Calvan Consolidated Oil & Gas Co v Manning, (SCC), [1959] SCR253.

In that case, the parties set out the essential terms of their agreement in a letter, indicating that a formal agreement would be drawnup. One party alleged that this was only an agreement to agree and was uncertain. The Supreme Court of Canada set out the governingprinciple at p 261: Whether the parties intend to hold themselves bound until the execution of a formal agreement is a question of construction and I have nodoubt in this case. The principle is well stated by Parker J. in Hatzfeldt-Wildenburg v. Alexander [[1912] 1 Ch. 284 at 288-9, 81 L.J.

Ch.184], in these terms: It appears to be well settled by the authorities that if the documents or "letters relied on as constituting a contract contemplate theexecution of a further contract between the parties, it is a question of construction whether the execution of the further contract is acondition or term of the bargain, or whether it is a 'mere expression of the desire of the parties as to the manner in which the transactionalready agreed to will in fact go through.

In the former case there is no enforceable contract either because the condition is unfulfilled orbecause the law does not recognise a contract to enter into a contract. In the latter case there is a binding contract and the reference to themore formal document may be ignored. [93] The Court found the parties were bound by the letter, and observed that: ...

This is not a case of acceptance qualified by such expressed conditions as "subject to the preparation and approval of a formalcontract", "subject to contract" or "subject to the preparation of a formal contract, its execution by the parties and approval by theirsolicitors". Here we have an unqualified acceptance with a formal contract to follow. [94] The landlord presented the low rent framework at the outset as a “springboard” for finalizing the various issues between thelandlord and tenant. The parties exchanged several proposals and the discussions were wide ranging.

The parties expressed consensus onsome specific matters. They disagreed on others. Sometimes they were silent on points of agreement sought by the opposition. [95] By May 21, 2020 the landlord reproduced the parties’ comments on numerous issues into one document.

In its transmittal ofthis to the tenant, it observed: “Once we agree on these items in principle I can prepare an addendum to the Lease (which usuallyrequires further tweaking, but should not be too difficult if the attached points are agreed in principle)”. [96] The “tweaking” mentioned there probably did not indicate an intention to have the agreement subject to a formal contractbecause that communication required agreement to the many, detailed points that the landlord presented to the tenant on May 21. [97] The communications and negotiations continued.

The landlord’s letter of June 3, 2020, which characterized its contents as an“offer”, asked the tenant for its position by a deadline so that the landlord could “begin drafting the addendum/restated lease as required,as that process will no doubt reveal further necessary clarifications.” [98] It is useful to recall the context in which this letter was sent, described in

Part III above. The parties had spent monthsnegotiating. The discussions were wide ranging, and the tenant sometimes sent proposals that seemed to ignore the landlord’s concernsand requirements expressed in prior correspondence.

Given the context of the several moving pieces in the negotiation, this letter madeclear that the landlord was only willing to bind itself, when the necessary formal addendum or restated lease was completed. [99] The next substantive response from the landlord, dated June 11, 2020, was a reversion to the previous laborious discussions,with the landlord responding to the tenant’s proposals.

However, no-where did landlord purport to accept all the essential aspects of thetenant’s position, or concede the landlord’s previous requests. [100] Instead, that letter re-iterated the landlord’s contemplation that there be a formal addendum, yet to be negotiated and completed.Far from acknowledging the tenant’s terms were a final agreement, the letter concluded with this: If this addendum is executed it will represent a “huge compromise” by the landlord having agreed to derogate from its strict rights ofaccess, and its creativity to deal with the absence of insurance. [101] This is not the language of a concluded agreement. [102] The tenant has not established an agreement on rent for two reasons. [103] First, the fundamental elements of offer and acceptance were not met. [104] The landlord’s terms were presented as a package.

There was no offer or acknowledgment by the landlord to negotiate rentseparately, after the parties embarked on negotiation of the low rent framework[8]. It was abundantly clear, on an objective basis, to all

concerned that the low rent framework would require substantive changes to the lease and involved compromises by the parties to arrive at an agreement. [ 105 ] Further, some essential elements were not agreed on: As of June 11, 2020, important issues of landlord’s rights of inspection, emergency access for the landlord, and the terms on which the tenant would assume responsibility for maintenance and upkeep were left unresolved. [ 106 ] Paraphrasing the language from Bawitko quoted earlier, the original contract is incomplete because essential provisions intended to govern the contractual relationship had not been settled or agreed upon.

The tenant is simply attempting to extract the parties’ consensus on the amount of rent and convert it into a stand-alone agreement. It was not offered as a stand-alone agreement, and the landlord never changed that position. [ 107 ] Second, this is a case where, objectively speaking, each side operated on the basis that a formal amending document would be required. [ 108 ] The landlord made clear it required agreement on a formal lease addendum or restatement in order to assume legal obligations.

The exchange of correspondence was so frequent, and the discussion so wide-ranging, that, objectively speaking, the parties must have contemplated wrapping the matter up with the execution of a formal agreement. [ 109 ] I wish to observe that, in coming to these conclusions, I did not see evidence of unreasonable posturing on the part of the landlord or bad faith. [ 110 ] First, and as explained above, I do not agree that the landlord’s approach to a negotiation encompassing issues beyond the actual costs of utilities and upkeep was inappropriate. [ 111 ] Second, I do not consider the landlord’s position that the tenant agree to pay all costs connected with the Demised Premises, whether foreseen or unforeseen, to be unreasonable. [ 112 ] Essentially, the landlord sought to shift its wide obligation under

section 25 of the lease (para 31 above) to the tenant as part of the low rent framework. The wide and general expression of the costs obligation, when it was on the landlord, was agreed to by the parties without the necessity of a specific list of costs. But when the landlord sought to reverse that obligation onto the tenant, as part of the restructuring of the lease under the low rent framework, the tenant responded: 1 Additional Rent - as a business man, you can understand how this wording ... that provides basically a blank cheque for you and Tracy to bill any costs is unacceptable.

A reasonable business person would not sign a deal, any deal, without knowing exactly what the costs may be. .... A well drafted Lease would have specifically listed any potential charges, expenses, payments, taxes, levies – in addition to those agreed and paid as per paragraph 1 above – in a separate

SCHEDULE for consideration by the parties. Otherwise the 4(

a) wording provides for the possibility of ongoing conflict.... [Underlining and block capitals in original] [ 113 ] It was not commercially unreasonable for the landlord to ask that the tenant shoulder the same sort of obligation that the landlord had accepted under the lease, as part of the low rent framework. The landlord indicated it was willing to change the language somewhat to ensure the costs were properly connected to the Demised Premises, but the tenant was obviously unwilling to accept contractual responsibility for costs unless specifically defined.

And that led back to one of the original problems with negotiating rent – who would shoulder responsibility for possible unforeseen costs? The landlord still did not have much experience with the tenant’s cannabis operation, which had only recently been licensed. It was a legitimate point for negotiation. [ 114 ] Third, I do not consider the landlord’s concerns on access to have been wholly unreasonable. Rather, the landlord raised a serious issue. This is not to say the landlord did not over-reach. It did. The tenant also over-reached.

Simply put, there was a dispute to be negotiated and the parties did not achieve consensus on it. [ 115 ] The tenant was quite dismissive of the landlord’s position on access.

It thought the question was concluded by security requirements under the Cannabis Regulations and the quiet enjoyment clause (para 47 above). [ 116 ] Generally speaking, quiet enjoyment protects the ordinary and lawful enjoyment of premises against substantial interference by acts by or behalf of the lessor ( HPWC 9707 110 Street Limited Partnership v Funds Administrative Service Inc , 2019 ABQB 167 at paras 70-77 and authorities cited there).

However, the tenant was overlooking that the lease had to be interpreted as a whole, and other provisions in the lease (the landlord’s repair obligation) may have implied greater rights of access in favour of the landlord than the tenant was prepared to acknowledge. Further, Mr Vanden Berg knew when the tenant agreed to the lease that the pick and pack building contained some mechanical equipment that was essential to parts of the farm outside the Demised Premises (though he denied in his cross-examination knowing that the back-up generator serviced other parts of the farm).

He must have known that the landlord would require reasonable access to maintain the mechanical systems. [ 117 ] The landlord had serious concerns. It had a contractual right to enter during business hours to inspect, and it needed access to meet its obligation under the lease to repair and maintain the buildings and equipment. The surrounding circumstances disclose the vulnerability of the farm if the mechanical systems of the pick and pack building were not properly maintained. For example, all electrical panels and the back-up generator were in the pick and pack building.

A power outage, especially outside regular business hours, could be harmful or devastating to the farm and its other occupants, if the tenant were not available to supervise or authorize access. [ 118 ] However, the landlord initially did not appear to understand the significance of the quiet enjoyment clause. I agree with the tenant that the landlord must act reasonably in exercising its inspection right and minimize inconvenience to the tenant. At some points the landlord sought a more absolute right to enter, and that position was unfounded.

[119] Eventually though, the landlord proposed a more limited right of access: if the lease obligations were restructured, the partieswould fix a monthly inspection time and allow the landlord emergency access after hours to restore power and water if the tenant did notrespond to the outage within four hours. [120] In the unique circumstances of the location and functioning of the mechanical systems, making the farm vulnerable to loss, itwas arguable that the lease contained an implied term that the tenant would reasonably provide the landlord emergency access to carryout its contractual obligation to repair and maintain equipment.

It would not be difficult to imply such terms: they were necessary; theywere not inconsistent with express terms; and the lease did not contain an entire agreement clause purporting to exclude collateralagreements, implied terms and other modifications. [121] Also, the landlord asked the tenant to consider modifying the internal configuration of the Demised Premises so that thelandlord could access the mechanical systems without causing the tenant to breach the security requirements under the CannabisRegulations.

Section 8 of the lease permitted the tenant to make changes to the space for regulatory or efficiency reasons. However, thetenant did not respond to this request. [122] In these circumstances, it was legitimate to attempt to address the access issue through the low rent framework. It was anoperational issue affecting the parties’ relationship, but also related to the risk of loss to the Demised Premises and gave rise to financialconsiderations that might lead to a negotiated change in quantum or structure of rent. The tenant joined in those negotiations.

While itnow submits, after the fact, that the landlord was unreasonable or acting in bad faith in pursuing these matters in the negotiations, it didnot object at the time. [123] The tenant further submitted that the landlord, through its conduct, ratified or accepted an agreement only on rent. [124] By ratification, I think the tenant means an implied or inferred agreement.

In any case, it relies on the following principleapproved in Saint John Tug Boat Co Ltd v Irving Refinery, (SCC), [1964] SCR 614 at pp 621-622: The test of whether conduct, unaccompanied by any verbal or written undertaking, can constitute an acceptance of an offer so as to bindthe acceptor to the fulfilment of the contract, is made the subject of comment in Anson on Contracts, 21st ed., p. 28, where it is said: The test of such a contract is an objective and not a subjective one, that is to say, the intention which the law will attribute to a man isalways that which his conduct bears when reasonably construed, and not that which was present in his own mind.

So if A allows B towork for him under such circumstances that no reasonable man would suppose that B meant to do the work for nothing, A will be liableto pay for it. The doing of the work is the offer; the permission to do it, or the acquiescence in its being done, constitutes the acceptance.

In this connection reference is frequently made to the following statement contained in the judgment of Lord Blackburn in Smith v.Hughes [(1871), L.R. 6 Q.B. 597 at 607], which I adopt as a proper test under the present circumstances: If, whatever a man's real intention may be he so conducts himself that a reasonable man would believe that he was consenting to theterms proposed by the other party and that other party upon that belief enters into a contract with him, the man thus conducting himselfwould be equally bound as if he had intended to agree to the other party's terms. [9] [125] The tenant points out that the landlord decommissioned the water filtration system on May 28, 2020 as later contemplated in theJune 11, 2020 letter; invoiced and accepted rent for June and July 2020 in the amounts set out in the June 11 letter; supplied compost onJune 19, 2020 as contemplated in the June 11, 2020 letter; installed separate electrical metering for the Demised Premises on June 25,2020; invoiced gas and utilities on July 9 in accordance with the formula in the July 11 letter; and, obtained insurance on the pick andpack building on June 9, 2020. [126] These actions do not support an inference that the landlord accepted a separate arrangement on rent or similar agreement. [127] All these terms, apart from supplying the compost, had been under discussion for weeks before June 11.

The compost wasoffered in the June 3 letter “purely as a courtesy”. [128] The parties remained in a relationship of some sort as of June 1 but had not concluded an agreement. The landlord’s optionswere to try to work toward conclusion of an agreement or declare the negotiations over and attempt to evict the tenant. A concludedagreement would be more attractive to business people than evicting Budding Gardens and exposing the landlord to potentiallysubstantial claims of damages, or undertaking expensive and protracted litigation Both sides chose to continue negotiations past thedeadline in

section 3(

b) of the lease. [129] The landlord was explicit that the deal would not be finished until the drafting process was completed. That was understandablegiven the lengthy history and the fluid nature of the negotiations known to both parties. The June 3 and 11 letters, as discussed, were notan offer and acceptance and both contemplated further clarification and refinement through the drafting of the addendum or restatedlease. Further, as found in

Part III (para 59 above), the tenant’s response to the June 3, 2011 letter was incomplete as well. [130] The rent invoices, both sent to the tenant on June 29, 2020, referenced “Lease Addendum”. At that time, the landlord’s lawyerswere preparing a formal lease addendum.

In context, these invoices expressed an expectation or belief that the parties would arrive at aformalized addendum which included the rent numbers from the low rent framework, not that the landlord changed course and acceptedthat the numbers were agreed to separate from the other terms under negotiation or that the terms were only the ones suggested by thetenant in this litigation. [131] On an objective basis, it was abundantly clear from the circumstances, that the parties moved forward in the hope of workingtoward a binding agreement, not that they had made an agreement through their conduct. VI Remedy

[ 132 ] The landlord seeks a declaration that the lease “became void” as of June 1, 2020 and that Budding Gardens has been a tenant since June 1, 2020 on a month to month basis only. The landlord’s counsel submitted that Budding Gardens is a month to month tenant because it went into possession, the lease “became void” and therefore the tenant is overholding. [ 133 ] The landlord did not cite any authority that the lease could be severed, such that the first year of the term is valid and subsequent years are void. If the landlord is saying the lease is valid during year one, then it hasn’t addressed the

interpretation of

section 17 of the lease concerning overholding. That provision is internally inconsistent, and seems to say the tenant is a tenant for years in one sentence, and a tenant for months in the next sentence. [ 134 ] The tenant focussed on its case that the lease is valid and why the Court should refuse a declaration.

It did not make submissions about the remedy that should follow if I accepted the Hotchkisses’ position, whether the lease can be void for part of the term only, or the basis on which Budding Gardens was in the premises if the lease were void. [ 135 ] I raised at the hearing whether any declaration in favour of the landlord should be suspended to allow the tenant time to harvest and dispose of any current crop.

The tenant advised it would take about three months to harvest the current crop, but neither side made submissions on whether I should suspend any relief if I decided the case in favour of the landlord. [ 136 ] I do not agree with the tenant’s submissions that granting the landlord a remedy would be inequitable. Both sides periodically committed acts calculated to antagonize the other as their relationship soured. The landlord committed a greater number of such acts, though in some instances their position was not unreasonable (the access dispute over the south apron being an example).

Regardless of the parties’ respective behaviour,

section 3(

b) is uncertain and it cannot be enforced. Denying a remedy because the landlord behaved poorly effectively grants the tenant relief to which it is not entitled – enforcement of an uncertain obligation. [ 137 ] The landlord is entitled to a declaration that the lease is uncertain because the rent in years two and three is uncertain. [ 138 ] I will not deal, in these reasons, with the question whether the tenant is overholding and if so, on what basis. It appears to follow from Ko that the lease is void, but perhaps year one is severable from years two and three. The parties have not cited authority on the point.

They will need to make supplemental submissions if they are unable to agree whether the Court should issue a declaration that the lease is entirely void, or void only as to years two and three; or if they are unable to agree when the tenant is legally obliged to vacate. VII Conclusion [ 139 ] The lease is uncertain and therefore of no force and effect for years two and three of the term. I have not determined if

section 3(

b) can be severed, such that the lease was valid for year one; or if so, how the overholding provision in

section 17 of the lease may affect the timing of the tenant’s obligation to vacate the premises. See para 138 above. If the parties require a determination of these points, then they must do so by written submission, unless they persuade me that an oral hearing is necessary to deal with these subsidiary points. [ 140 ] As mentioned, the parties did not address the validity of the option to purchase and I have not determined that matter. [ 141 ] The parties may address costs, the terms of the formal judgment, or other matters reasonably arising from these reasons. Heard on the 16 th day of October, 2020.

Dated at the City of Calgary, Alberta this 17 th day of December, 2020. J.T. Eamon J.C.Q.B.A. Appearances: James M Delaney for the Applicants/Cross-Respondents Charles W Ang for the Respondent/Cross-Applicant