Maverick Professional Services Inc. v. 592423 Ontario Inc., 2001 CanLII 8540 (ON CA)

COURT OF APPEAL FOR ONTARIO

DATE: 20010518 DOCKET: C36123

MORDEN, CATZMAN and FELDMAN JJ.A.

B E T W E E N :

MAVERICK PROFESSIONAL SERVICES INC.

Michael R. Kestenberg, for the appellant

Applicant (Appellant)

• and -

592423 ONTARIO INC. and 1105242 ONTARIO LIMITED

Howard M. Wise and David E. Lederman, for the respondent

Respondents (Respondent in appeal)

Heard: May 15, 2001

On appeal from the judgment of Madam Justice Joan Lax dated April 6, 2001.

BY THE COURT:

Overview

1The appellant, a sub-lessee of space in an office building in Toronto, appeals from an order of Lax J. dismissing its application for relief from forfeiture under s. 21 of the Commercial Tenancies Act, R.S.O. 1990, c. L. 7¹ and s. 98 of the Courts of Justice Act, R.S.O. 1990 c. C. 43². Lax J. held that, among other matters, relief was not available because the landlord, the respondent, was not seeking to enforce forfeiture or re-entry against its tenant, the appellant’s sub-lessor. We agree with this conclusion and shall state our reasons briefly.

Background

2Article 11.2 in the main lease conferred on the landlord, in the event that its tenant had received a bona fide written offer to take an assignment of the lease and requested the consent of the landlord to the assignment, the right to terminate the lease, on notice to the tenant. In the consent to the sublease to the appellant, which is dated August 13, 1998, the appellant had acknowledged that it had received a copy of the main lease, that it was familiar with its terms, and that it agreed to abide by all of the terms contained in the main lease.

3On March 9, 2001, the landlord received from its tenant a request for approval of an assignment agreement which the tenant had entered into with Canada Life Assurance Company together with a copy of the assignment agreement itself. On March 13, 2001, the landlord exercised its right under Article 11.2 of the lease to terminate the lease effective May 31, 2001.

Analysis

4The appellant’s application to Lax J. was made on April 4, 2001 and decided on April 6, 2001. We agree with Lax J. that the landlord was not proceeding to enforce “a right of re-entry or forfeiture under any covenant, proviso or stipulation in a lease” within the meaning of these words in s. 21 in the Commercial Tenancies Act. We accept the respondent’s submission that this wording is intended to cover a case where the tenant is in breach of, or in default under, some provision of the lease which gives the landlord the right to terminate the lease during the term and that the jurisdiction under the statute is to grant relief, in appropriate cases, from the harshness of this result. In determining whether or not to grant relief to the tenant, the court engages in a consideration of the competing interests and takes into account all of the circumstances, including the nature and gravity of the tenant’s breach or default and its relation to the value of the property (27(1) Halsbury 4th ed. Re-issue, para. 516).

5One of the recognized methods by which a lease for a term certain may be terminated before the end of the term is by the exercise of the option of either of the parties where this is clearly provided for in the lease (27(1) Halsbury 4th ed. Re-issue, paras. 116-118 and 498; Woodfall’s Law of Landlord and Tenant, 28th ed. (1978 - ), vol. 1, paras. 17.285 to 17.301; Williams & Rhodes, Canadian Law of Landlord and Tenant, 6th ed. (1988 - ), para. 12.1; and 51C Corpus Juris Secundum, §§ 89-129). We think that the present case falls into this category. The tenant’s conduct did not involve any breach of, or default under, the lease that would make some form of relief relevant. In fact, in doing what it did, the tenant was acting in accordance with a provision in the lease. The same provision gave the landlord the right to take the action that it in fact took.

6No authority has been brought to our attention in which relief was sought or granted in favour of a tenant or subtenant against a landlord exercising an option to terminate a lease that was not based on the tenant’s breach or default. In this regard, we do not accept the appellant’s submission that in Re Toronto-Dominion Bank and Dufferin-Lawrence Developments Ltd. et al. (1981), 1981 CanLII 1857 (ON CA), 32 O.R. (2d) 597 this court applied s. 21 to circumstances where the “triggering event” was not a breach or default under the lease. In Toronto-Dominion Bank the landlord exercised its right to forfeit the lease under a paragraph in the lease that provided that “in case… the Lessee … shall …become … insolvent …, at the option of the Lessor, this lease shall cease and determine and the said term shall immediately become forfeited and void….” Lax J., in our view, correctly regarded this as a default case. Not only did the terms of the lease expressly refer to the tenant’s insolvency as giving rise to a potential forfeiture, the condition of insolvency, regardless of the form of the lease, was an implicit breach of its terms. See Halliard Property Co. Ltd. v. Jack Segal Ltd., [1978] 1 All E.R. 1219 (Ch.) where the bankruptcy of a surety of the tenant was treated as “a breach of … condition” in the lease within the meaning of s. 146(1) of the Law of Property Act, 1925, which is substantially the same as s. 19(2) of the Commercial Tenancies Act.

7The matter is generally covered in the following passage in vol. 51C of Corpus Juris Secundum at p. 330:

A forfeiture is in the nature of a penalty for doing or failing to do a particular thing, and results from failure to keep an obligation. A provision giving either party the right to terminate the lease under certain conditions is not a provision for a forfeiture.

8In Woodfall’s Law of Landlord and Tenant, op. cit., at para. 17.289, the following is said in the course of dealing with the subject of exercising an option to terminate a lease:

Unless the lease contains conditions restricting the circumstances in which the option may be exercised, the motive of the party exercising it is irrelevant. The fact that exercise of the option causes hardship is no reason for restraining its exercise.

9In this case, the hardship is caused not to the tenant, who is content with the termination of the lease, but to the subtenant who is being put out of its space in an untimely way as a result of the act of the tenant. Had this act amounted to a breach of, or default under, the lease, the court would be able to intervene and grant relief to the subtenant. Because the act of the tenant was not a breach of, or a default under, the lease, there is no basis for the court to be able to grant relief to the subtenant under s. 21, which requires a re-entry or a forfeiture.

10The appellant made an additional submission that it did not make before Lax J. which was that the offer to take the assignment was not a bona fide one because the assignment agreement was conditional on approval by an executive or others representing senior management of the proposed assignee. Clearly the tenant and the landlord acted on the basis that this was a bona fide offer and this position was not in dispute before Lax J. If the issue had been raised it may well be that, if there were any substance in it, it could have been dealt with by evidence. The issue cannot fairly and properly be raised for the first time in this court.

11It follows from what we have said above that we also agree with Lax J. that the appellant is not able to obtain relief under s. 98 of the Courts of Justice Act.

Disposition

12For these reasons the appeal is dismissed with costs.

Footnotes

1. 121. Where a lessor is proceeding by action or otherwise to enforce a right of re-entry or forfeiture under any covenant, proviso or stipulation in a lease, the court, on motion by any person claiming as under-lessee any estate or interest in the property comprised in the lease or any part thereof, in the lessor's action, if any, or in any action or application in the Ontario Court (General Division) brought by such person for that purpose, may make an order vesting for the whole term of the lease or any less term the property comprised in the lease, or any part thereof, in any person entitled as under-lessee to any estate or interest in such property upon such conditions as to execution of any deed or other document, payment of rents, costs, expenses, damages, compensation, giving security or otherwise as the court in the circumstances of each case thinks fit; but in no case is any such under-lessee entitled to require a lease to be granted to him, her or it for any longer term than the under-lessee had under the original sub-lease.
2. 298. A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.