BiNovo Group Inc owns a shopping mall in the business area of a large city. In 2010,

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BiNovo Group Inc owns a shopping mall in the business area of a large city. In 2010, it signed a lease to allow Horseshoe Corp to operate a restaurant, known as The Georgia Peach, in the mall. The parties' contract contained the terms usually found in a commercial lease. The agreement was to run for 10 years, but the lessee held an option to renew the lease for two more 10-year periods. Rent was set at $100 per square metre. The lease allowed the rent to be increased each year, but only in accordance with increases in the market price. Within weeks of opening the restaurant, Horseshoe ran into serious financial difficulties. To BiNovo's relief, Horseshoe was able to find a replacement. By agreement of all the parties, Tyrus Cobb Ltd stepped into Horseshoe's place and assumed control of the premises and the restaurant business.

The next five years were uneventful. Two issues then combined to create a problem. First, as a result of difficulties associated with its other business ventures, Tyrus Cobb found it necessary to sell The Georgia Peach to raise cash. It was confident that things would go well after it persuaded Carnival Properties Inc to buy its business and its lease for $500 000. That plan was complicated, however, when BiNovo announced that it was unwilling to substitute Carnival Properties for Tyrus Cobb. According to BiNovo, Carnival Properties was an "undesirable tenant" because it was unlikely to pay its rent on time. That allegation is absurd. Carnival Properties is one of Canada's biggest companies. Amongst other business ventures, it owns a large number of restaurants and it has never failed to pay rent on time. Tyrus Cobb and Carnival Properties therefore believe that there must be another reason for BiNovo's position. They claim that BiNovo simply was not willing to honour the terms of the lease that it signed in 2010. That allegation now seems to be true. Because BiNovo would not allow Carnival Properties to substitute for Tyrus Cobb, the original lease was terminated. The next day, BiNovo agreed to lease the same premises to Carnival Properties. The terms of the new lease are the same as the terms of the old lease, with one exception. Although the market rate for rent is still $100, Carnival Properties is required to pay a lump sum of $100 000, plus rent of $120 per square metre. Rent may be increased each year, in accordance with market rates plus 10 percent. Tyrus Cobb has successfully sued BiNovo for breach of contract. What is the most likely explanation for that action? Explain your answer.

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Managing the Law The Legal Aspects of Doing Business

ISBN: 978-0133847154

5th edition

Authors: Mitchell McInnes, Ian R. Kerr, J. Anthony VanDuzer

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