Most commercial leases carry an overholding clause that nobody reads twice. The District Municipality of Muskoka v. 1087802 Ontario Inc., 2026 ONSC 4726, released August 17, 2026, is a reminder that the clause can define what a tenant holds six years after the term ends. Mathai J. held that the clause displaced the deemed year-to-year tenancy that would otherwise arise when a landlord keeps accepting rent. He noted that the point was not strictly necessary to decide (paras. 43–44, 51). The court then declared the lease forfeited for breach and refused relief from forfeiture. The reasons show a landlord taking a harder route to possession than it needed to.

The hangar lease

In 1996 the tenant took a 20-year lease at the Muskoka Airport from the federal Crown. The lease was later assigned to the Municipality (paras. 9, 14). Article 2 required the land and hangar to be “used for aviation purposes and for no other purpose or purposes whatsoever” (para. 10). Article 3.02 dealt with holding over in these terms.

It is hereby agreed by and between the parties hereto that if the Lessee shall hold over after the expiration of the term hereby granted and the Lessor shall accept rent, the new tenancy thereby created shall be a tenancy at will and not a tenancy from year to year … (para. 11)

The term expired on July 31, 2016. The tenant’s principal, Alan Clark, rejected the Municipality’s draft renewal lease as “completely unacceptable”, and the tenant stayed on, paying rent (paras. 16, 48). Complaints began in the spring of 2021. Before a July 2021 inspection, Mr. Clark acknowledged in correspondence that the premises were being used for several non-aviation purposes (paras. 19–20). These were boat restoration, lumber recycling, dock reconstruction, a woodworking operation, and storage of cars, boats and trailers (paras. 19–20).

Following written notices in 2021 and a final 30-day notice in June 2022, the Municipality treated the lease as terminated effective July 8, 2022 (paras. 23, 26, 33).

A tenancy at will, despite six years of rent

The tenant relied on AIM Health Group Inc. v. 40 Finchgate Limited Partnership, 2012 ONCA 795, for the rule that a landlord’s acceptance of rent after expiry creates a deemed periodic tenancy. Where the original term exceeded a year, that tenancy runs year to year. The court held that this position rested on a misunderstanding of AIM Health. That decision itself recognizes that overholding clauses are inserted to avoid exactly that result (paras. 47, 49–50). The court put its conclusion plainly.

The clear and unambiguous language of article 3.02 demonstrates that the parties intended to displace the common law and create a tenancy at will. (para. 50)

The landlord chose the harder route

Whatever the answer on that point, the Municipality had not terminated on that basis. It terminated for breach under the default clause, article 9.01. It asserted a tenancy at will in July 2022, but it never purported to end the tenancy on that basis (paras. 39–40). The court called that choice “noteworthy” (para. 41).

The Municipality could have ended the tenancy at will at any time, subject to the issue of reasonable notice (para. 41). Had it done so, the tenant would have had no recourse to relief from forfeiture under s. 20 of the Commercial Tenancies Act. The equitable estoppel doctrines would also have had little application (paras. 42, 58–59). Terminating for breach put both in play (paras. 42, 60).

The landlord still won. Storing boats, cars and docks unrelated to aviation is non-aviation use, even if the restoration work happened elsewhere (paras. 68–69). The breach was not minor, given the years the tenant had to correct it (para. 74). The disparity between what the tenant stood to lose and the landlord’s unproven damage favoured relief. That factor was outweighed by the tenant’s refusal to comply, and the court observed that “Mr. Clark has chosen to ignore article 2 rather than comply” (para. 75).

The estoppel arguments also failed. The former airport manager’s statement about the overholding provision was accurate, and there was no evidence Mr. Clark ever communicated his misunderstanding of it (paras. 89–91). The court declared the lease forfeited and granted leave to issue a writ of possession after 90 days (para. 101).

Two notice arguments that failed

The tenant made two notice arguments (paras. 76–77). First, it said that the December 13, 2022 Notice to Quit purported to terminate retroactively. Second, it said the lease called for registered mail, fax or priority post, not email. The court rejected both (para. 78).

Neither party had updated the lease’s contact information after the airport changed hands or the tenant’s ownership changed (para. 77). The Notice to Quit was not strictly necessary (para. 79), and the court held that email was no less advantageous than the prescribed methods, and that Mr. Clark had actually received and responded to every notice (paras. 82–83).

That Notice to Quit existed only because the Municipality’s finance department kept processing the tenant’s rent for four months after termination (paras. 31–33). The court accepted that this was inadvertent and held that it did not establish consent to a continuing tenancy (paras. 48, 79). It still produced a precautionary notice and an argument that need not have arisen.

Key takeaways for transactional counsel

1. Name the overholding tenancy expressly. Article 3.02 was held effective because it said “a tenancy at will and not a tenancy from year to year” and tied that result to the acceptance of rent (paras. 11, 50). Check that your precedent does both.
2. Fix a notice period for ending the overholding tenancy. The court flagged divided authority on whether a tenancy at will can be ended without reasonable notice (para. 41, fn. 1). A stated period removes the question.
3. Tell the landlord which route it is taking. Ending a tenancy at will avoids s. 20 relief. Terminating for breach invites it (paras. 42, 58–60). The termination letter should say which route the landlord is using.
4. Refresh notice particulars on every assignment or change of control, and add email as a permitted method. Actual receipt rescued this landlord (paras. 82–83). The next landlord may not be so lucky.
5. Stop rent at termination. Tell the client’s accounts staff in writing when a tenancy ends. Here the tenant’s rent arrived in batched EFT receipts, and the staff member processing them did not know a single payment could be refused (para. 32). The resulting receipts raised a consent argument the court had to resolve (paras. 31–32, 79).