On June 25, 2020, the taxpayer (“TP”) entered into a binding offer (the letter of understanding, or “LOU”) to lease real property from a person (the Landlord) with whom it dealt at arm’s length. The signed LOU was definitive on lease terms (i.e., length, costs, use, etc.) with no option for either party to terminate or opt out of the agreement prior to executing the formal lease and a non-refundable amount was paid on signing. TP occupied the space as of November 1, 2020, but the formal lease document was not fully executed until November 19, 2020 (the “Lease”).
CRA stated, regarding the requirement that there have been a written agreement entered into before October 9. 2020:
[W]hile there is no requirement that the documents be signed … the written documents must show a clear intention to create a binding and enforceable contractual relation, outline all the essential terms and conditions of the agreement, and demonstrate an acceptance in writing by both parties of the terms and conditions.
…[B]ased on the facts as presented, it appears that the LOU has the requisite characteristics to be a written agreement.
Turning to whether the rents were paid “under” the June 25, 2020 written agreement, CRA stated:
In the absence of any explicit language in the LOU and the Lease to the contrary, it is possible for the Lease to be a continuation or extension of the LOU, assuming that the Lease includes the same enforceable and binding rights and obligations, and terms and conditions, as the LOU.