Wrong Addressee, Right Outcome: Why Your Lease Notice Might Not Count

When it comes to commercial leases, the details matter — especially when sending default or termination notices. The case of Mr. Zagros Management Inc. v. Yulee Developments Inc. highlights the risks when landlords fail to follow a lease’s notice requirements.

Background

In 2021, Mr. Zagros Management Inc., a restaurant franchisor, leased a premises from Yulee Developments Inc. In turn, Mr. Zagros sublet the premises to its franchisee, 11254316 Canada Inc. Under the lease, notices from the landlord to Mr. Zagros were required to be delivered to the premises.

Throughout the operation of the franchise, as a matter of course, the franchisee paid rent directly to the landlord. In March 2024, however, the franchisee failed to pay rent, which resulted in a demand issued by the landlord to the franchisee. Neither party informed Mr. Zagros of the situation.

The arrears remained uncured into April. In response, on April 3, the landlord delivered a notice of default to the premises addressed solely to the attention of the franchisee’s principal. The landlord also emailed a copy of the notice to the principal, but not to Mr. Zagros. The notice provided for a five-day window to pay the arrears. Despite being informed the next day by the franchisee’s lawyer that his client had not forwarded the notice to Mr. Zagros, the landlord waited until the cure period expired on April 9 before taking steps to actually bring the notice to Mr. Zagros’ attention.

After Mr. Zagros learned of the arrears on April 9, its principal contacted the franchisee’s principal and, believing that the latter would rectify the arrears, left the matter with her. In the meantime, the franchisee’s principal began negotiating with the landlord. The negotiation included a proposal that the franchisee’s principal pay the arrears, albeit once the lease was terminated and a new lease was entered into directly with her. The parties did not disclose these negotiations to Mr. Zagros.

Shortly thereafter, with the arrears still outstanding, the landlord purported to terminate the lease by issuing a notice of termination addressed solely to the franchisee. The landlord and a newly incorporated company controlled by the franchisee’s principal then signed a new lease for the premises. The franchisee’s principal proceeded to open a restaurant competitive with her former franchise from that location.

The Application

Mr. Zagros commenced an application against the landlord, the franchisee, its principal and her newly incorporated company seeking, among other things, a declaration that the default and termination notices were not delivered in accordance with the lease and were therefore void. According to Mr. Zagros, the notices were non-compliant because, as a matter of contractual interpretation, the notice provision required that notices delivered thereunder, at a minimum, not be addressed to the wrong party.

The landlord defended the application on the principal basis that, irrespective of who the default and termination notices were addressed to or the practical consequences of this error, it complied with the strict wording of the notice provision by simply delivering the notices to the premises.

In two endorsements, the application judge accepted Mr. Zagros’ submission:

[T]he notice of termination is deficient. It was not addressed to Mr. Zagros but rather to 112. 112 was not the tenant. I am of the view that the notice of termination had a fatal defect as it was not addressed to Mr. Zagros Management Inc. and did not accord with the provisions of the lease…

…

In my January 2025 Endorsement, I held that the notice of termination was deficient. I did not explicitly address the notice of default dated April 3, 2024. However, that notice is also deficient as I find it was not properly served upon the Applicant.

The Appeal

The landlord unsuccessfully appealed from that judgment to the Ontario Court of Appeal. In its brief reasons, the Court agreed with and elaborated on the application judge’s analysis:

We see no error in the application judge’s findings that the Default Notice and the Termination Notice were deficient because they had not been properly served on Mr. Zagros. The application judge accepted Yulee’s submission that notices were to be delivered to the Leased Premises. However, they did not comply with the requirements of s. 17.11 of the Lease because they were improperly addressed. The Notice of Termination was addressed to 112, rather than to Mr. Zagros, and the Default Notice was addressed to the attention of Ms. Zamani, again as opposed to Mr. Zagros. Accordingly, as the court advised the parties at the oral hearing of the appeal, Yulee’s appeal was dismissed.

Key Takeaways for Landlords and Franchisor Sublandlords

This case provides a clear lesson: Notices under a lease are more than formalities. Properly addressed and delivered notices are essential to protect both landlords (and franchisors acting as sublandlords). Missteps in this process can leave a landlord or sublandlord unable to rely on the notice — a costly mistake that can be avoided with careful attention to the lease.

Remember:

Follow the lease to the letter. Default and termination notices must be addressed to the legal tenant. Even a technically minor misaddressing may invalidate the notice.
Monitor communications. Franchisors acting as head tenants must ensure that they receive all communications from the landlord. Notice provisions will often provide for the opportunity to amend the address for service. As a best practice, franchisors should consider adding the franchisor’s head office as an additional required address for service under the lease.
Establish a disciplined lease administration framework. Beyond staffing or systems, franchisors acting as head tenants or sublandlords should proactively structure their leasing arrangements to ensure visibility and control over defaults and enforcement steps. This may include evaluating whether a tripartite agreement or rent-flow arrangement are appropriate for the system. Thoughtful lease architecture at the outset can materially reduce the risk that critical notices are misdirected, delayed, or leveraged to the franchisor’s detriment.

Daniel Hamson and his team at Sotos LLP acted as counsel to Mr. Zagros on the application and appeal in Mr. Zagros Management Inc. v. Yulee Developments Inc.

Sotos LLP regularly advises franchisors on leasing strategy and structure, including with respect to head leases, subleases, and tripartite arrangements, to ensure franchisors maintain control over premises and minimize enforcement risks across their franchise systems.

About the Author

Daniel Hamson, Sotos LLP

Daniel is a partner in the Litigation Department at Sotos LLP. His practice focuses on complex commercial, corporate, and franchise disputes.

Daniel has been recognised for his litigation work and industry expertise. He is listed as “Ones to Watch” in Best Lawyers in Canada and has been named a “Lawyer to Watch” in the Canadian Legal LEXPERT Directory, as well as in the LEXPERT Canada’s Leading Litigation Lawyers. He is also recognised as “Recommended” in Lexology Index: Canada (formerly Who’s Who Legal).

Daniel can be reached directly at 416.572.7303 or dhamson@sotos.ca