COURT FILE NO.: CV-15-536038 DATE: 20160614 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

2405416 ONTARIO LTD. Applicant – and – 2405490 ONTARIO INC. Respondent AND BETWEEN: 2405490 ONTARIO INC. Applicant by Counterapplication - and – 2405426 ONTARIO LTD. AND ENZA BADALI Respondents to the Counterapplication

Claudio Aiello, for the Applicant/Counter-Respondent James Renihan, for the Respondent/Counter-Applicant

HEARD: April 22, 2016

r.f. goldstein j.

[1] Elliot Stone operates a body-rub establishment called Minx Spa at 3895 and 3895A Dufferin Street in Toronto. He has been operating there under a body-rub licence from the City of Toronto since June 19 2014. It had previously been a body-rub establishment called Blue Pearl. On January 6 2014 Mr. Stone purchased the assets of the Blue Pearl. He arranged for a new body-rub licence. He leased the premises. He renovated it and improved it. He began operating Minx Spa.

[2] The owner of the building at 3895 and 3895A Dufferin Street is Enza Badali. She is the mother of Salvatore Badali. Salvatore Badali operated Blue Pearl (although he claims otherwise in his affidavits). Mr. Stone’s numbered company, 2405490 Ontario Limited (the Counter-Applicant, Respondent by Application) leases the premises under a sub-lease from Ms. Badali’s numbered company, 2405416 Ontario Inc. (the Applicant, Respondent by Counter-Application). I will refer to Mr. Stone’s company as the Tenant, and Ms. Badali’s company as the Landlord.

[3] One of the terms of the sub-lease is that the Tenant has the option to buy 3895 Dufferin Street from the Landlord. In June 2015 the Tenant tried to exercise the option. The Landlord refused to sell, saying that the Tenant had uncured defaults under the lease. The Landlord also said that the Tenant was in breach of the terms of the sub-lease, including the payment of rent.

[4] The Landlord’s application seeks a declaration that the Tenant has defaulted on the terms of the sub-lease, that the sub-lease is terminated, and that the Tenant is obligated to sell the business operating as Minx Spa to the Landlord.

[5] For its part, the Tenant brings a counter-application seeking a declaration that the Landlord is required to sell 3895 Dufferin Street to it under the option to purchase. The Tenant also seeks damages in amount equal to every month that it has been required to pay rent when it could have owned the premises outright.

[6] Although facts are colourful, this is basically a commercial tenancy dispute. For the reasons that follow, I find that the Landlord is required to sell the premises to the Tenant but that the Tenant is not entitled to damages. The Tenant’s counter-application is granted in part. The Landlord’s application is dismissed.

FACTS

[7] For many years, the Blue Pearl Spa operated a licenced body rub at 3895 and 3895A Dufferin Street in Toronto (for convenience, I will refer only to 3895 Dufferin Street). In 2013 Mr. Stone commenced negotiations with Mr. Badali. The negotiations culminated with an Asset Purchase Agreement between Mr. Stone in trust for a corporation to be incorporated, and 1785535 Ontario Inc. o/a Blue Pearl Spa. The Asset Purchase Agreement was dated January 6 2014 and signed by Mr. Stone, and by Enzo Gabrielli for 1785535 Ontario Inc. (which I will refer to as 178). Mr. Stone purchased the business for $300,000.00, payable in instalments.

[8] There were two important conditions of the Asset Purchase Agreement:

• The first condition was that Mr. Stone enter into a new lease for 3895 Dufferin Street. The lease, according to the Asset Purchase Agreement, had to include a term of at least five years with an option to renew for another five years. The lease also had to include an option to purchase 3895 Dufferin Street for $800,000.00 within two years.
• The second condition was that Mr. Stone be able to obtain a new, unconditional municipal licence for an “Adult Entertainment Establishment/Body Rub Business”.

[9] The Asset Purchase Agreement was to close the day that the Toronto Licensing Tribunal approved the sale, or no later than March 31 2014 unless the parties agreed to extend the closing. The Lease itself was conditional on the closing of the Asset Purchase Agreement.

[10] The first condition was satisfied when Mr. Stone’s numbered company leased 3895 Dufferin Street from the Landlord. (In fact, it is a sublease. The head lease is between the Landlord and Ms. Badali, but nothing turns on that point.). The lease was dated February 1, 2014 and signed by Ms. Badali on behalf of the Landlord and Mr. Stone on behalf of the Tenant. (Mr. Stone had incorporated 245490 Ontario Limited by that time.).

[11] The second condition was satisfied when Mr. Stone obtained a body-rub licence from the City of Toronto on June 17 2014 and began operating the business on June 19 when the Asset Purchase Agreement closed. Mr. Stone immediately commenced making improvements to the property. He installed new showers. He put in other leasehold improvements. He sent text messages and photographs describing these improvements to Mr. Badali. Mr. Badali responded approvingly.

[12] When Mr. Stone took possession of the premises, he did not begin paying rent immediately. He was under the impression that he would have one free month of rent, based on an exchange of emails between his lawyer and Mr. Badali’s lawyer. The Asset Purchase Agreement closed on June 19 2014 and Mr. Stone assumed that he would begin paying rent on July 20 2014.

[13] On July 13 2014, however, the mortgagor of 3895 Dufferin Street gave notice to the Tenant that the Landlord had defaulted on the mortgage. As such, the Tenant was required to pay all rent directly to the mortgagor. The Tenant commenced doing so and paid the July and August rent cheques directly to the Mortgagor. Later the Landlord obtained a new mortgage. The Tenant commenced paying rent directly to the Landlord.

[14] In the meantime, however, the Landlord demanded back rent. The Landlord’s lawyer wrote to Mr. Stone on July 24 2014 demanding rent from April 1 2014. Mr. Stone’s lawyer wrote back to the Landlord’s lawyer the next day indicating that the Tenant did not take possession until June 20 2014 and noting that there had been an agreement for one free month of rent. The Landlord did not respond. In March 2015 Mr. Stone’s lawyer wrote again to the Landlord. He sought to confirm that there was no default that would prevent exercising the buy-out option.

[15] The Landlord’s counsel responded in August 2015 indicating that more than $50,000 in outstanding rent and utility bills (from the period between April 1 2014 and June 20 2014) was unpaid. That total included an “administration fee”. The Landlord also claimed that Mr. Stone had carried out renovations without the Landlord’s written consent as required by the lease. The Landlord also claimed that Minx Spa had failed to provide notice that it had accumulated several by-law charges (but not convictions).

[16] On June 22 2015 the Tenant served the Landlord with the Purchase Option Notice under the lease. The Landlord refused to sell, essentially for the reasons given in the March 2015 letter. In August 2015 the Landlord attempted to exercise its right to purchase Minx Spa. The Tenant refused.

ISSUES

[17] This application and counter-application really only boils down to three issues: (a) Is the Tenant precluded from exercising the option to purchase 3895 Dufferin Street? (b) If the Tenant is precluded from purchasing 3895 Dufferin Street, is it entitled to relief from forfeiture? (c) Is the Tenant entitled to damages for rent paid to the Landlord?

ANALYSIS

(a) Is The Tenant Precluded From Exercising The Option To Purchase 3895 Dufferin Street?

[18] The Landlord’s Notice of Application alleges a number of defaults by the Tenant that preclude it from exercising the option to purchase. The Notice of Application mirrors, to some extent, the March 2015 correspondence. In submissions the Landlord’s counsel, Mr. Aiello, emphasised that he was relying primarily on the Tenant’s alleged failure to pay rent April 1 2014. To a lesser extent he also relied on the Tenant’s alleged failure to seek written permission to renovate, and the failure to provide notice of the alleged bylaw infractions.

[19] I disagree with the Landlord. The Tenant does not have uncured defaults that preclude it from exercising the option to purchase. I will deal first with the alleged failure to pay rent.

The Rent

[20] This issue turns on whether the obligation to pay rent arose on April 1 2014 (the day the lease was signed) or on June 19 2014 (the day the City of Toronto issued the body-rub licence).

[21] Mr. Aiello, for the Landlord, argues that the simple language of the lease shows that the obligation to pay rent arose on April 1 2014. He argues that the courts should not “set aside a commercial bargain that was intended to have legal effect where a clause in an agreement – even if nor precisely expressed – has an ascertainable meaning”: Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc., 2016 ONCA 93, [2016] O.J. No. 584 at para. 29. The lease specifically notes that the term begins on April 1 2014 and continues for five years.

[22] Article 3.01 of the lease states as follows: Term of lease 3.01 To have and to hold the Premises for and during the Term of five (5) years to be computed from and inclusive of the 1st day of April, 2014 (hereinafter referred to as the “Commencement Date”) and expiring on March 31, 2019. The parties hereto agree that the demise under this lease and the duty to pay rent hereunder is conditional upon the successful completion of the Asset Purchase Agreement between the Tenant and 1785535 Ontario Inc. (the “ASA”) and that should the ASA fail to be completed the Tenant and the Landlord shall be relieved of their obligations hereunder.

[23] I disagree with Mr. Aiello’s interpretation. The obligation to pay rent was conditional upon the successful completion of the Asset Purchase Agreement. The Asset Purchase Agreement itself was conditional. Two clauses in particular of the Asset Purchase Agreement are notable: 5.01 Purchaser’s Closing Conditions The obligation of the purchase to complete the purchase… shall be subject to the satisfaction of, or compliance with… each of the following conditions precedent… (e) New Lease. The Purchaser shall have entered into a binding agreement to the Purchaser’s satisfaction… for the lease of the building comprising 3895 Dufferin St., Toronto… (k) License Transfer. The successful and unconditional issuance of a new municipal license for the operation by the by the Purchaser of the Business as a duly licensed Adult Entertainment Establishment/Body Rub Business (the “Licence”) (I point out that the different spellings of license and licence appear as I have reproduced them in the Asset Purchase Agreement. Nothing turns on the different spellings.)

[24] It will be recalled that the Asset Purchase Agreement closed on June 19 2014, after the Tenant obtained the body-rub establishment licence.

[25] Blair J.A. approved the following basic principles of contractual interpretation in Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 2007 ONCA 205, 85 O.R. (3d) 254 (C.A.) at para. 24: … a commercial contract is to be interpreted, (a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;1 (b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the "cardinal presumption" that they have intended what they have said;2 (c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract), (d) in a fashion that accords with sound commercial principles and good business sense, and that avoid a commercial absurdity.

[26] Mr. Renihan, for the Tenant, argues that adopting the Landlord’s interpretation would result in a commercial absurdity. He relies on the final principle recited by Blair J.A. I agree. It would not make any sense for the Tenant to be obliged to incur financial obligations to pay rent before he knew whether the Asset Purchase Agreement would close – and he did not know that the Asset Purchase Agreement would close until he had an unconditional body rub licence. In other words, I find that it was the intention of the parties that the obligation to pay rent arose when the Tenant was able to begin operating the new body rub establishment.

[27] Other clauses show that this interpretation reflects the intentions of the parties. The Landlord, for example, was protected by the power to refuse to extend the time for closing the Asset Purchase Agreement: 1.0 Definitions “Closing Date” means the day and date on which the Toronto Licensing Tribunal approves the sales of the Business to the Purchaser but in any event no later than March 31, 2014 or such other date as mutually agreed upon between the parties…

[28] A different interpretation would not make commercial sense.

[29] I agree with Mr. Aiello that the subjective intentions of the parties play no role in contractual interpretation: Wesbell Networks Inc. v. Bell Canada, 2015 ONCA 33 at para. 13. That said, the surrounding circumstances play a role in determining the intention of the parties: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 at para. 47. As Rothstein J. observed: While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence is to deepen a decision-maker's understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), , 101 B.C.A.C. 62). The nature of the evidence that can be relied upon under the rubric of "surrounding circumstances" will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract (King at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Subject to these requirements and the parol evidence rule discussed below, this includes, in the words of Lord Hoffmann, "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man"…

[30] The surrounding circumstances demonstrate that it was the mutual intention of the parties that the obligation to pay rent arose when the Tenant obtained a licence for a body rub establishment. I point in particular to an exchange of emails in relation to whether the tenant would receive one month rent-free.

[31] On June 18 2014 at 5:49 pm Mr. Kelman, the Tenant’s lawyer, emailed to Mr. Gerry, the Landlord’s lawyer: In any case my instructions are to request that no rent be payable for one month after the closing, and that on August 1 the first month’s rent plus rent for July 20-31 will be paid and post-dated cheques for the balance of 1 year delivered.

[32] On the same day at 5:59 Mr. Gerry responded: My client needs the rent earlier to ensure payment of the mortgage. We are proposing that the rent be paid on July 20, 2014 and thereafter on the 20th of the month. and the last month’s rent deposit be paid within 90 days of closing. As well additional rent items such as reality tax will start accruing tomorrow. One month of free rent is now being offered notwithstanding that no such provision exists in the lease.

[33] In an earlier email dated June 13 2014 Mr. Gerry had written to Mr. Kelman: The lease commences on completion of the Asset Purchase Agreement.

[34] It is difficult to see how these emails can be interpreted as anything other than a mutual agreement that rent is to be paid commencing on July 20 2014 with a month of free rent – meaning that the obligation to pay rent arose on June 19 2014 and not April 1 2014. It is also difficult to see how other financial obligations could possibly have arisen any earlier than June 19 2014.

[35] Mr. Badali is clearly aware that these emails provide very strong evidence of the intentions of the parties, and the evidence does not help his case. In a reply affidavit he disavowed these emails. He swore that Mr. Gerry acted without instructions. Mr. Renihan attempted to cross-examine Mr. Gerry on this point. Mr. Gerry refused to answer on the basis of solicitor-client privilege. Mr. Badali’s counsel at the examination (not Mr. Aiello) also instructed Mr. Gerry not to answer.

[36] Mr. Renihan argues that I can, and should, draw an adverse inference from the refusal to answer the question. I agree. I can, and do draw an adverse inference.

[37] Even if I were unable to draw an adverse inference, and even leaving aside the question of whether Mr. Badali or his mother waived privilege, I would still find that Mr. Badali is not credible when he says that Mr. Gerry acted without instruction. As I will detail below, Mr. Badali is not credible and his evidence is not worthy of belief. It is rather obvious that Mr. Badali will swear an affidavit to anything that he thinks will help his cause at that moment, with scant regard for the truth. His disavowal of his lawyer’s emails is far too convenient.

[38] In any event, other surrounding circumstances make it clear that it was mutually intended that the obligation to pay rent did not arise until the Asset Purchase Agreement arose. The Tenant did not commence renovations until he knew he would have a body rub establishment licence. Why would the Tenant commence paying rent, for the same reasons? Moreover, the Landlord did not raise the alleged failure to pay rent from April 1 2014 until the Tenant complied with the Mortgagee’s notice. Once that issue was settled the Landlord made no further efforts to pursue the supposed back rent until the dispute over the buy-out arose.

[39] Mr. Aiello argues that there are other surrounding circumstances showing that the obligation to pay rent arose earlier. He points to the fact, for example, that Mr. Stone obtained possession of the keys sometime in March 2014 and that City inspectors were on the premises. That is a valid point, but it does not show possession for the purpose of paying rent, especially in the face of the clear language of the lease and the Asset Purchase Agreement. Mr. Stone did not start to make leasehold improvements until after the closing. I agree with Mr. Renihan’s submission that it appears he only had the keys for the purposes of inspection.

[40] Accordingly, I find that the Tenant is not in default by reason of his failure to pay rent from April 1 2014 to July 20 2015. I also find that the Tenant is only responsible for property taxes, insurance, or other monetary charges after June 19 2014.

Mr. Badali Was Agent For The Landlord

[41] The Tenant made leasehold improvements to 3895 Dufferin. Mr. Aiello did not strongly press this issue in submissions, but it is worth pointing out that Mr. Stone did receive at least informal approval from Mr. Badali for most, if not all, of the leasehold improvements. There are numerous text messages between the two men that clearly show that Mr. Badali was aware, and approved, the changes. For example, Mr. Stone sent pictures of the new showers to Mr. Badali and received a positive response. There may not have been formal approvals, but it is clear that Mr. Badali approved of what Mr. Stone was doing. The leasehold improvements undoubtedly increased the value of the property and ensured that the new body-rub establishment would be profitable.

[42] Furthermore, as I have noted Mr. Stone had to have a new body-rub establishment licence from the City. In order for Mr. Stone to obtain that licence, he had to make the improvements mandated by the City’s inspectors. In March 2014 City inspectors entered the premises and provided a draft hand-written list of leasehold improvements that had to be made before city staff would recommend the issue of a new licence. Mr. Stone took photographs of the list and sent them to Mr. Badali. City inspectors then sent a proper typed list of required improvements to Mr. Stone. Mr. Stone forwarded that list to Mr. Gerry, the Landlord’s counsel.

[43] Mr. Badali was thus aware of the leasehold improvements to be made even before the Asset Purchase Agreement was closed. He did not protest or in any way comment, except favourably. I find that the Tenant received at least informal approval from Mr. Badali. I find that Mr. Badali was the agent for the Landlord (as he swears in his affidavit), he had authority to bind the Landlord, and that he gave the Tenant the go-ahead to proceed with the renovations. I have little difficulty in finding that Mr. Badali’s protestations that he is merely helping out his mother are not credible. She may be the paper landlord, but it is obvious that he was the true landlord and the driving force (not a legal term, but a practical one) behind the Blue Pearl Spa. In his affidavit Mr. Badali states that he is the “lawful attorney to Enza Badali”. I presume that means he had a power of attorney or some other document or right to conduct Ms. Badali’s affairs. His protests to the contrary are not credible.

[44] I agree with Mr. Renihan that Mr. Badali’s complaints are a mere pretext for refusing to comply with the Landlord’s lawful obligations.

[45] In his supplementary affidavit Mr. Badali states that his involvement with the Blue Pearl Spa was “limited to acting as agent for the Landlord [his mother, Ms. Badali] which required frequent attendances at the Blue Pearl Spa.” He makes the following claim in his supplementary affidavit: I deny I was interested in selling Blue Pearl Spa. The previous tenant, 178, was in arrears of rent and offered to sell the Blue Pearl Spa as a means to satisfy rent arrears. I brokered the deal by presenting it to the current Tenant [Mr. Stone].”

[46] Mr. Badali then went on to claim in his supplementary affidavit that the two previous owners of the Blue Pearl Spa were Fern Kajak and 178. Mr. Badali states in his supplementary affidavit that Mr. Gabrielli owned 178.

[47] As I have already noted, I think it is fairly obvious, even on a paper record, that Mr. Badali operated the Blue Pearl Spa and is the driving force behind it. I draw the inference that Ms. Kajak probably and Mr. Gabrielli certainly were bare nominees on behalf of Mr. Badali and Enza Badali.

[48] I say this because Mr. Badali was in the body rub establishment business and not a mere landlord’s representative. On May 7 2014 (after the Asset Purchase Agreement was signed but before it) the following conversation by text message occurred between Mr. Stone and Mr. Badali: BADALI: You have any girls that would be willing to work at the Spa this weekend & next week?? STONE: Was on the other line. Call me. BADALI: Just give me a minute the little guy is in the washroom. STONE: He must be constipated. BADALI: Lol sorry buddy he has been a hand full today. Very demanding. He is asleep, You have any girls willing to work this week & get license??

[49] In 2005, Mr. Badali and Ms. Kajak were tried before Justice Grossman of the Ontario Court of Justice on charges of keeping a common bawdy house: R. v. Badali, [2005] O.J. No. 5802 (C.J.). Justice Grossman found that the Crown had failed to prove beyond a reasonable doubt that the Blue Pearl Spa was a common bawdy house. Mr. Badali and Ms. Kajak were acquitted. In the course of the proceedings, however, Justice Grossman found Ms. Kajak to be the licence holder and Mr. Badali to be the manager of the Blue Pearl Spa at para. 23: Detective Delaney testified that Fern Kajak was licensee of the Blue Pearl Spa and registered as the owner and operator of the business. It was his opinion that Mr. Badali was the real person behind the business. The Affidavits of Ms. Kajak and Mr. Badali set out, Defence acknowledges and I find, Ms. Kajak to be the licence holder and Mr. Badali to be the manager of the Blue Pearl Spa located at 3895 Dufferin Street, Toronto.

[50] Mr. Badali and Ms. Kajak were, at some point, spouses. This is clear from the decision of Justice Chapnik in a different case, R. v. Badali, [2004] O.J. No. 5097 (Sup.Ct.). In that case, Justice Chapnik upheld a conviction for assault entered by Justice Cavion. She dismissed the appeals against both conviction and sentence. Justice Chapnik was, obviously, referring to evidence on the record before the Ontario Court of Justice.

[51] Mr. Badali, however, in his cross-examination in this proceeding, denied having a relationship with either Fern Kajak or Diane Kajak. When asked whether he knew Diane Kajak, he said that the last name was familiar to him. That was a rather odd statement to make, given that he swore in an affidavit that he was the manager of the Blue Pearl. Even if he was not the manager, he was a co-accused in a criminal trial with Fern Kajak, where they were jointly accused of operating a common bawdy house. It is highly improbable that he has only “heard” the name Kajak.

[52] Interestingly, in the course of her reasons for dismissing the appeal from sentence imposed on Mr. Badali, Justice Chapnik stated the following: The appellant has an extensive criminal record spanning over a period of ten years which includes serious offences involving firearms, fraud, extortion and threats. In the presentence report, it was noted that he "thumbed his nose at the system", and "performed only minimally on parole". The writer of the report concluded, Due to his extensive criminal record and the fact that he is still before the court for further criminal activities, it seems that past community supervisions were not a sufficient deterrent to curb his criminal lifestyle, therefore, he may not be a suitable candidate for further community supervision.

[53] Mr. Renihan, for Mr. Stone, cross-examined Mr. Badali on his affidavits. Mr. Badali’s counsel (who was not counsel before me) refused to let his client answer any questions about his association with Blue Pearl Spa or with Ms. Kajak.

[54] Mr. Stone’s application for a body-rub licence from the Toronto Licensing Tribunal provides further information. The Tribunal issued a ruling on May 30 2014 dismissing the application. The tribunal found that it would not be in the public interest to issue a new licence. It was not in the public interest because the Blue Pearl had accumulated a large number of bylaw infractions and Criminal Code charges. The Tribunal was concerned that the Mr. Stone was yet another bare nominee owner.

[55] Not coincidentally, the Tribunal noted the large number of bylaw convictions and at least one related Criminal Code conviction (procuring the sexual services of a person under 18 years old) by Ms. Kajak – all at the time that (so the Tribunal found) the Blue Pearl was under the care and control of Mr. Badali. Ultimately, one of the conditions on the body-rub establishment licence issued to Mr. Stone’s company was that that Mr. Badali was prohibited from entering the premises at 3895 Dufferin Street.

[56] It is often difficult for to make a credibility assessment without seeing and hearing witnesses. As appellate courts have often observed, a trial judge is usually in the best position to assess credibility because he or she has personally seen the witness. There are, however, exceptions. This is one of them. The paper record strongly indicates that Mr. Badali’s evidence is not worthy of belief.

Conclusions Regarding The Option To Purchase

[57] I agree with Mr. Renihan that the by-law charges do not constitute a default under the lease. I also agree that the Tenant was not required to inform the Landlord of outstanding charges. Thus, there are no uncured defaults preventing the Tenant from purchasing 3895 Dufferin Street from the Landlord pursuant to Clause 4.03 of the Lease. The Tenant is entitled to a declaration to that effect.

[58] The Landlord is only entitled to exercise its option to purchase under Clause 12.10 of the Lease in the event of certain defaults by the Tenant. The only significant default that the Landlord relies on is the failure to pay base rent for a continuous period of 45 days. Since the Tenant did not fail to pay rent, the Landlord is not entitled to exercise the option to purchase.

(b) If the Tenant is precluded from purchasing 3895 Dufferin Street, is it entitled to relief from forfeiture?

[59] I do not need to answer this question, but if I did I would answer “yes”.

[60] The Superior Court of Justice has the authority to grant relief from forfeiture on an equitable basis: s. 98 of the Courts of Justice Act. In Beaver Fuels Management Ltd. v. Baker’s Dozen Holdings Corp., [2006] O.J. No. 5743 at para. 43 my colleague Perell J. analyzed the trend toward a liberal interpretation of the Court’s equitable jurisdiction to relieve against forfeiture. He outlined the factors that a court should consider: I appreciate that the Court in exercising its discretion can and should consider all the circumstances including: the history of the relationship; breaches of other covenants of the lease by the tenant; the gravity of the breaches; the tenant's conduct or misconduct; its good faith or bad faith or want of clean hands; whether the object of the right of forfeiture in the lease was essentially to secure the payment of money; and the disparity or disproportion between the value of the property forfeited and the damage caused by the breach. What should not be lost sight of is that a landlord undoubtedly is always going to be able to point to misconduct by the tenant, else there would be no grounds for forfeiture in the first place, but the ultimate question is whether the Court should exercise its equitable jurisdiction to relieve against the forfeiture imposed by the common law because it is an excessive remedy in all the circumstances.

[61] In ClubLink Corporation v. Pro-Hedge Funds Inc., [2009] O.J. No. 2660, 84 R.P.R. (4th) 274, 2009 CarswellOnt 3719 (Sup.Ct.) Strathy J. (as he then was) considered whether equitable relief should be granted where a tenant sub-leased part of its premises without prior consent. In considering whether to grant relief from forfeiture, Strathy J. noted, among other things, that the breaches were not grave, the forfeiture of the lease would have been out of all proportion to the remaining term of the lease, and, perhaps most importantly, the landlord could not have reasonable withheld consent.

[62] Those factors apply here. The relationship between the parties was good until the mortgagor served notice on the Tenant. The relationship turned amicable again until the Tenant decided to exercise the option to purchase. The alleged failure to seek formal written consent to the leasehold improvements was clearly mitigated by the fact that Mr. Badali was aware of and approved of them. Finally, even if formal consent had been sought, it would have been unreasonable for the Landlord to without consent.

[63] For those reasons I would exercise the Court’s equitable jurisdiction and relieve against forfeiture if it were necessary.

(c) Is the Tenant entitled to damages for rent paid to the Landlord?

[64] Mr. Renihan argues that the Tenant has been paying rent since August 2015, when it should have been able to purchase the property outright. He argues that the rent payable since August 2015 are damages that have been incurred by the Plaintiff.

[65] I disagree. The Tenant has had use of 3895 Dufferin since June 2014, and, by Mr. Stone’s own evidence, has been operating a very profitable business. If I were to give effect to that submission, it would amount to granting the Tenant a very long period of rent-free occupation. That would be unfair to the Landlord.

DISPOSITION:

[66] The Tenant is entitled to a declaration that 2405426 Ontario Inc. and Enza Badali are required to sell the properties municipally known as 3895 and 3895A to 2405490 Ontario Limited.

COSTS:

[67] Counsel may each submit a costs outline and costs submissions of no more than two pages within 30 days of the release of this judgment.

R.F. Goldstein J. Released: June 14, 2016