Notice and cure period

In a business sale, look for the term in the commercial lease, the purchase agreement and any vendor financing. It sets a sequence: the complaint is put in writing, the other party gets time to correct it, and only if it is not corrected can termination follow. A breach that cannot be fixed may be treated differently, so read how each document defines a curable breach. What happens when a buyer simply refuses to close is covered in what happens if the buyer walks away.

A statutory example for leases

Ontario’s Commercial Tenancies Act, section 19(2), makes a landlord’s right of re-entry or forfeiture for breach of a lease covenant other than rent unenforceable unless the landlord serves a notice specifying the breach, requiring it to be remedied if it is capable of remedy, and in any case requiring compensation in money, and the tenant fails within a reasonable time to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money to the landlord’s satisfaction. Section 20 lets the tenant apply to court for relief, subject to the exceptions in section 20(7). Check the rules in the province where the premises are.

Using the right honestly

In C.M. Callow Inc. v. Zollinger, the Supreme Court of Canada held that a party that exercised a termination clause dishonestly breached the duty of honesty on a matter directly linked to the performance of the contract, even though the clause’s notice period was satisfied. This is a common-law rule; the Court noted that, as in Quebec civil law, no contractual right may be exercised dishonestly. Ask whether the notice must say how to cure, and who decides whether the cure is sufficient.