The factual matrix in lease and sublease agreements: Pinnacle International (One Yonge) v Torstar Corporation
Imdad Junejo & Michael Tavernese
Canada
by Imdad Junejo & Michael Tavernese
In the 2024 Ontario Court of Appeal case Pinnacle International (One Yonge) Ltd. v. Torstar Corporation (2024 ONCA 755), the Court reiterated that when interpreting leases or other commercial contracts, it is critical to examine the factual matrix known to the parties when the contract was formed.
A brief overview of the case
The lease agreement with Pinnacle International (One Yonge) Ltd. required Torstar to pay Pinnacle the net profit earned from any sublease. The key issue in this case was determining what constituted profit.
In July 2011, Torstar entered a sublease with College Boreal, which terminated in August 2020. The sublease specified a rentable area for the third-floor office space, excluding the open-air portion of the warehouse. However, Torstar continued paying rent on the entire third floor, including the open-air space, which neither Torstar nor Boreal could use. Despite Torstar incurring a CAD 2.6 million loss on the sublet premises, Pinnacle alleged that Torstar had profited from the sublease and sought to recover CAD 1.1 million in profit.
This claim was made because Torstar charged Boreal more per square foot for the usable portion of the space than what was stipulated in the lease. However, Torstar provided materials demonstrating that the total rent Torstar paid to Pinnacle for the entire third floor was always greater than the total rent Torstar received from Boreal.
The motion judge held that article 8.1 of the lease did not allow Torstar to deduct the full rent it paid for the third floor as a “reasonable cost” in determining whether it had profited from the sublease. However, the Ontario Court of Appeal accepted that the third-floor open-air space was part of the sublease rented to College Boreal and should be included as a reasonable cost deductible from profit under article 8.1 of the lease, ruling in favour of the tenant.
The factual matrix
When interpreting a lease, courts must look beyond the text and consider the factual background. When Torstar and Boreal entered the sublease, it was clear that the third-floor open-air space was inaccessible, and neither Torstar nor Boreal could use it. It would not have made commercial sense for Torstar to sublet only the usable portion of the third floor. Viewed considering the factual matrix, the sublease applied to the entire third floor, and the rent should have been calculated based on the usable portion.
This case serves as a cautionary tale for landlords, tenants, and parties to a sublease to carefully anticipate potential conflicts, ensuring that commercial agreements reflect the actual intentions of the parties involved.
This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice on their specific situations.
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XLNC member firm KMB LawMississauga, ONCanadaT: +1 905 276 0431
Imdad Junejo is an Associate at KMB Law, focusing on real estate, land development, and banking. He advises on commercial transactions and corporate matters. Imdad is a member of the South Asian Bar Association of Toronto (SABA) and teaches M&A closings at 4L Academy. Contact Imdad.
Michael Tavernese is a student at KMB Law and recently completed his J.D. at Queen’s University. He holds a Bachelor of Commerce from Toronto Metropolitan University and previously worked at a real estate management company, where he developed a strong interest in real estate and commercial law. Contact Michael.
