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When Good Isn’t Good Enough: The Onus of “Best Efforts"

By: Daniel Wiener

Minden Gross LLP, a member of MERITAS Law Firms Worldwide.

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When negotiating a lease, tenants and landlords often argue over the standard that must be met by the parties when fulfilling various obligations.  Typically, tenants bargain for the inclusion of reasonableness requirements or a blanket reasonability clause.  If the tenant has adequate bargaining power they may insist on even more onerous undertakings by the landlord such as “best efforts”, “reasonable best efforts” or other variants of the kind.  Before a landlord agrees to such an undertaking, they must take into consideration what obligations and requirements these words engender.

The “best efforts” provision was outlined in the case of Atmospheric Diving Systems Inc. v. International Hard Suits Inc., (“Atomospheric”).  Madam Justice Godan summarized the legal meaning and the principles of “best efforts” as, but not limited to;

1)   …a higher obligation than a "reasonable effort".

2)  …taking, in good faith, all reasonable steps to achieve the objective, carrying the
             process to its logical conclusion and leaving no stone unturned.

3)  …doing everything known to be usual, necessary and proper for ensuring the
             success of the endeavour.

4)  …must be approached in the light of the particular contract, the parties to it and the
             contract's overall purpose as reflected in its language.

In the recent case of Diamond Robinson Building Ltd. v. Conn, the Court examined the issue of a landlord’s obligation to use its “best efforts” to fulfill a fundamental term of a lease within the context of an anticipatory breach claim.

In April 2006, Ronald Conn (“Conn”) entered into negotiations for a commercial space with Diamond Robinson Building Ltd. (“Diamond”). Conn advised Diamond that twenty-two reserved parking stalls were required by its business. Diamond provided a verbal assurance that it would “not be a problem”.  However, the parking area was designed in a way that precluded the availability of twenty-two reserved stalls. In order to satisfy Conn’s parking requirements Diamond had to obtain strata council approval.  On May 9, 2006 both parties signed the Offer to Lease and the Lease Agreement (the “Lease”) was finalized on May 31, 2006.

The Lease stated that Diamond would provide Conn with “up to twenty-two reserved parking stalls”.  In addition, the Lease contained a rider which stated:

“to the extent the Landlord is providing covenants regarding the Common Area… the Landlord is relying on the obligations of the strata corporation to perform same provided that the Landlord shall use its best efforts to cause the strata corporation to perform same.”

Diamond failed to obtain the necessary strata council approval despite several months of effort. Conn informed Diamond on September 11, 2006 that it no longer intended to move forward with the Lease.  Formal written notice of this intention was provided on November 3, 2006.  Diamond accepted Conn’s termination of the lease and claimed damages for the loss of the remainder of the Lease term.

The Court determined that the parking provisions were a fundamental term of the Lease but concluded that Conn’s pre-emptive disclaiming of the Lease constituted anticipatory breach because Diamond had yet to do anything which would lead Conn to believe that the parking obligations would not be fulfilled.  Despite this conclusion the Court did not award damages to Diamond.

The Court upheld the principles outlined in Atmospheric and concluded that where a contract includes the term “best efforts” the court will impute intent to the parties that is something more than “reasonable efforts”, which is an obligation to take every step through to its logical conclusion, “leaving no stone unturned”.

Diamond’s obligation was to make “best efforts” to obtain strata council approval by the November 1, 2006 commencement date.  Diamond’s efforts from the time the Lease was signed to the date of Conn’s repudiation was considered by the Court to be those of “best efforts”.  However Diamond treated the Lease as if it were still in force until December 15, 2006.  Diamond could not recover damages since they did not continue to make “best efforts” to obtain strata council approval following Conn’s repudiation.  This conclusion was based on a principle of contract law which states that where an innocent party treats a repudiated contract as if there was no repudiation and then fails to meet its obligations under the contract, it cannot bring an action for damages against the repudiating party.

 Both landlords and tenants should pay attention to this British Columbia decision.  In particular, the use of “best efforts” terminology will result in a much more onerous standard than one of reasonableness.  Landlords must be aware and take into consideration what will be required of them when providing this type of assurance to a tenant and tenants should seek to impose “best efforts” obligations upon a landlord for performance of any fundamental terms of the lease.