Court of Appeal for Ontario

Citation: 2018 ONCA 52 Date: 2018-01-23 Docket: C63842

Judges: Simmons, Roberts and Nordheimer JJ.A.

Between

Wittington Properties Limited Applicant (Respondent on the appeal)

and

Goodlife Fitness Centres Inc. Respondent (Appellant)

Counsel

For the Appellant: John K. Downing and Brian Whitwham

For the Respondent: Wolfgang Kaufmann and Daniel Waldman

Heard: January 16, 2018

On appeal from: The judgment of Justice Andra Pollak of the Superior Court of Justice sitting without a jury, dated May 2, 2017.

Reasons for Decision

[1] The appellant appeals from the judgment declaring that it does not have the right to extend its commercial lease with the respondent, and has lost its entitlement to exercise the option to extend the lease for an additional five years.

[2] At the hearing, we dismissed the appeal with reasons to follow. These are those reasons.

[3] For many years, the appellant has leased premises from the respondent for the operation of a fitness club called the St. Clair Club. Under the provisions of the lease as set out in a lease amending and extension agreement, the appellant was entitled to extend the lease for an additional five years, provided the appellant was not "in default of the Lease and has not regularly been in default during the Extended Term beyond any applicable cure periods".

[4] The application judge determined that the appellant had breached the lease as follows:

i. the appellant's operation of its club at Park Road breached the geographic restrictions of the non-compete clause of the lease; and

ii. the appellant had not calculated and reported its gross revenue to the respondent, which formed the basis for the calculation of its percentage rental payments under the lease, in accordance with the lease provisions.

[5] The application judge also found that the appellant had been given ample notice to cure its defaults under the lease, but had not done so. Specifically, the respondent had advised the appellant of the defaults in issue by letter dated December 29, 2014, but the appellant did not change its calculation or manner of reporting gross revenue to the respondent and maintained the Park Road Club within the prohibited radius.

[6] The appellant submits that the application judge made overriding and palpable errors in her interpretation of the meaning of the non-compete provisions of the lease. In particular, the appellant argues that the application judge erred in failing to find that the geographic restrictions did not apply to the Park Road Club because, first, it was a "regular" and not a "premier" club; and, second, it "fronted" onto Bloor Street and therefore met the exemption provided for in the non-compete clause.

[7] We reject these submissions. The application judge's conclusions about the breach caused by the operation of the Park Road Club were open to her based on her interpretation of the lease and the other evidence before her. The appellant's submissions that all of its clubs are "regular" clubs run contrary to the requirement under the lease that the St. Clair Club be operated as a "premier" club and to its concession that the Park Road Club is comparable to the St. Clair Club. Further, the application judge's determination that the Park Road Club did not front onto Bloor Street was reasonable and founded on the uncontested evidence that there was no signage or other evidence of the appellant's presence on Bloor Street and that the only sign for the Park Road Club is above the direct entrance to the club, on Park Road that is also the club's municipal address. There is no basis to interfere with these conclusions.

[8] The appellant submits that the application judge erred in determining that the admitted failure to accurately report gross revenue in accordance with the calculation required in the lease constituted a breach of the lease. Again, there is no basis to interfere with the application judge's determination that is firmly rooted in the evidence.

[9] This evidence included the report of the accountant retained by the respondent under the audit provisions of the lease and the admissions made by the appellant's Vice President of Accounting. Specifically, the appellant had used an internal accounting method of designating gross revenue to its members' home clubs, and in certain instances, the appellant had submitted net as opposed to gross figures as required under the lease. While this calculation of the appellant's gross revenue followed generally accepted accounting principles, its manner of reporting was not in accordance with the lease provisions, which required the reporting of all gross income originating from the St. Clair Club. These conclusions were open to the application judge and, absent palpable and overriding error, should not be interfered with. We see no error here.

[10] The appellant submits that the application judge erred in failing to find that the doctrine of promissory estoppel and waiver applied in this case. Specifically, the appellant argues that respondent's failure to make any objection during the appellant's long history of submitting its reports of gross revenue and payment of rent, and its open and notorious operation of the Park Road Club, precludes the respondent from relying on the breaches in issue.

[11] We do not accept these submissions.

[12] In this case, the applicability of the doctrines of promissory estoppel and waiver depended on proof by the appellant of a course of conduct over an extended period that showed an intention by the respondent not to rely on the strict terms of the lease with respect to the reporting requirements and geographic non-compete prohibition: Med-Chem Health Care Inc., Re, 2000 CarswellOnt 3820, at para. 10. As the application judge correctly concluded, there was no evidence to support the appellant's waiver argument. In particular, there is no evidence that the respondent knew about the problems with the appellant's manner of calculating and reporting its gross revenue before receipt of its accountant's report, nor that it was aware that the appellant was operating a club in contravention of the geographic non-compete provisions of the lease. The same considerations apply to the promissory estoppel argument.

[13] Finally, the appellant argues that the application judge erred in failing to grant it relief from forfeiture of its option to extend the lease because any breaches were "technical" in nature. We disagree.

[14] Relief from forfeiture is a highly discretionary, fact-specific remedy. We see no error in the application judge's application of the relevant legal test to the evidence before her. Specifically, the evidence did not satisfy a necessary condition for relief from forfeiture, namely, evidence that "the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own": see 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 67 O.R. (3d) 161 (C.A.), at para. 80.

[15] The appellant's continuing failure to cure its defaults in the more than two years following notice of them was intentional. Most notably, first, the appellant purported to cure its reporting default by proffering a cheque to the respondent at the hearing of the application; however, the amount proffered was not calculated in accordance with the lease. Further, there was no offer or undertaking to close the Park Road Club. As the application judge noted, the onus was on the appellant to prove that its ongoing breaches of fundamental terms of the lease were technical and immaterial. It failed to do so.

[16] There is no basis to interfere with the application judge's discretionary decision not to grant the appellant relief from forfeiture.

[17] Accordingly, the appeal is dismissed.

[18] As agreed, the respondent is entitled to its partial indemnity costs in the amount of $29,500, inclusive of disbursements and applicable taxes.

"Janet Simons J.A"

"L.B. Roberts J.A."

"I.V.B. Nordheimer J.A."