Lundy's Regency Arms Corp. v. Niagara Hospitality Hotels Inc., 2017 ONCA 507

COURT OF APPEAL FOR ONTARIO

CITATION: Lundy's Regency Arms Corp. v. Niagara Hospitality Hotels Inc., 2017 ONCA 507
DATE: 20170619
DOCKET: C62091

MacPherson, Blair and MacFarland JJ.A.

BETWEEN

Lundy's Regency Arms Corp., 1498611 Ontario Inc. and 1519481 Ontario Inc.

Plaintiffs (Respondents)

and

Niagara Hospitality Hotels Inc. and Kerrio Corporation

Defendants (Appellants)

J. Ross Macfarlane and Clark Peddle, for the appellants

Peter A. Mahoney, for the respondents

Heard: June 14, 2017

On appeal from the judgment of Justice Richard Lococo of the Superior Court of Justice, dated April 4, 2016.

REASONS FOR DECISION

1The appellants, Niagara Hospitality Inc., as tenant, and Kerrio Corporation, as guarantor, appeal from the judgment of Lococo J. of the Superior Court of Justice ordering them to pay $4,247,467.43 in damages and pre- and post-judgment interest to the respondents Lundy’s Regency Arms Corp., as landlord, and two related numbered companies.

2The basis of the trial judge’s award was his conclusion that the appellant tenant had breached the repair and maintenance provisions of the governing lease. The damages that flowed from this breach were assessed at $1,734,107.

3The appellants advance two grounds of appeal.

4First, the appellants contend that the trial judge erred by saying that the lease imposed an obligation on them to maintain the premises to an “enhanced standard” of repair.

5We see no error in this formulation. The trial judge referred to several sets of words and phrases in the lease – “careful owner”, “good and substantial repair”, responsibility for repair of “inherent structural defect” – and to the underlying use of the leased premises – commercial hotel and restaurant businesses – to support this conclusion. On this issue, we think that the trial judge’s reasoning was sound.

6Second, the appellants submit that the respondents presented no evidence of the premises’ state of repair at the commencement of the lease term. Hence there was no baseline against which to assess whether the appellants breached the repair and maintenance provisions of the lease.

7We do not accept this submission. The trial judge explicitly addressed the ‘absence of a baseline’ argument advanced by the appellants. He candidly stated:

I acknowledge that from an evidentiary standpoint, a detailed assessment of the condition of the leased property at the time of the sale and leaseback would have provided a more definitive basis for establishing the extent to which the defendants complied with the repair and maintenance provisions of the lease.

8However, the trial judge held that there was sufficient evidence to establish a basis for comparing the state of the leased premises at the beginning and end of the lease. The evidence included: (1) the tenants’/sellers’ representations and warranties in the purchasing agreement; (2) the 2004 report entitled Days Inn Lundy’s Lane-Simple Assessment prepared by employees of the respondents following an inspection of the hotel premises approximately 18 months after the commencement of the lease; (3) the testimony of William Stark, the respondents’ vice-president and his communication with the appellants concerning the 2004 report; (4) Vererino Panici’s report and testimony about the moisture leakage and failure to maintain the dehumidification equipment that resulted in significant damage over time; and (5) the appellants’ unwillingness to undertake the significant repairs that would have been required to maintain their franchises with Days Inn hotel and Denny’s restaurant.

9In our view, the trial judge was entitled to rely on this evidence and invoke it to support his factual conclusion that “there was significant deterioration to the state of the leased property, including the premises and equipment beyond that indicated in the 2004 assessment report”.

10The appeal is dismissed. The respondents are entitled to their costs of the appeal fixed at $17,000, inclusive of disbursements and HST.