Court File and Parties

COURT FILE NO.: CV-16-550676 DATE: 20160729 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: MICHELE’S ITALIAN RISTORANTE INC. Plaintiff – and – 1272259 ONTARIO LTD. and BINDER BRAR Defendants

AND BETWEEN: 1272259 ONTARIO LTD. Plaintiff by Counterclaim – and – MICHELE’S ITALIAN RISTORANTE INC., MICKEY VESIA, also known as MICHAEL VESIA, also known as MICHELE VESIA, also known as MIKE VESIA, MICKELE’S BISTRO INC., JOEY JAMES TESKEY and ARLENE VESIA Defendants by Counterclaim

Counsel: Joseph W. Irving for the Plaintiff John Gray and Eric Nadler for the Defendants and Plaintiff by Counterclaim

HEARD: July 21, 2016

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

[1] The Defendant, Plaintiff by Counterclaim, 1272259 Ontario Ltd., (the “Landlord”), whose principal is the Defendant Binder Brar, is the owner and operator of a Best Western Hotel in Toronto, in which it leases premises to the Plaintiff, Defendant by Counterclaim, Michele’s Italian Ristorante Inc. (“Ristorante”), whose principal is the Defendant by Counterclaim Mickey Vesia and whose general manager is the Defendant by Counterclaim Joey Teskey.

[2] The Landlord brings a summary judgment motion to, among other things, terminate Ristorante’s lease. Ristorante brings a cross-motion for relief from forfeiture and for an order requiring the Landlord to renew the lease. More precisely, Ristorante seeks an Order that upon payment into court of an amount deemed fair by the court, Ristorante be granted relief from forfeiture and that the Landlord be enjoined from dealing with, exercising distress over, profiting from, disposing of or selling the business and undertaking of Ristorante.

[3] For the reasons that follow, I grant the Landlord’s summary judgment motion, I dismiss Ristorante’s action, and I dismiss its cross-motion.

B. FACTUAL AND PROCEDURAL BACKGROUND

[4] The Landlord operates a Best Western Hotel located at 5503 Eglinton Avenue West in the City of Toronto. Pursuant to a written lease agreement dated September 15, 2009, the Landlord leased a portion of the main floor of the hotel to Ristorante, where it operated a restaurant.

[5] The terms of the lease included the following provisions:

• The initial term of the lease was seven years commencing on September 15, 2009 and ending on September 30, 2016.
• Provided that Ristorante is in occupation of the whole of the leased premises and not in default under the lease, it has the right to request one additional five-year term.
• Ristorante shall pay Basic Rent without any deduction, abatement or set-off whatsoever, on the first day of each and every month during the term of the lease.
• Ristorante shall pay Additional Rent (which is a defined term in the lease) to the Landlord, without any deduction, abatement or set-off whatsoever.
• Ristorante shall comply with all laws, by-laws, ordinances, regulations and directives of the public authority having jurisdiction over the leased premises including …… fire.
• Ristorante shall adhere to the Best Western Guidelines ensuring that the minimum standards are met at all times for serving breakfast at the restaurant.
• Ristorante is required to occupy and carry on business from the leased premises and cannot transfer the lease to another tenant other than in compliance with the provisions of the lease.
• Ristorante shall pay the Landlord all damages, costs and expenses (including all legal fees on a substantial indemnity basis) incurred by the Landlord in enforcing the terms of the lease.
• Any of the following constitute an event of default under the lease:
  • a failure to pay any Rent due within five (5) days after notice in writing from the Landlord to the Tenant;
  • a breach of any obligations in the lease and failure to remedy the breach;
  • a failure to comply with the Best Western Breakfast Guidelines;
  • Ristorante becoming insolvent;
  • a failure to occupy the leased premises and transferring the tenancy other than in compliance with the provisions of the lease;
  • a failure to pay the Landlord damages, costs and expenses (including all legal fees on a substantial indemnity basis) incurred in enforcing the terms of the lease.
• If an event of default occurs, the Landlord shall have the right to terminate the lease by notice to the Tenant.

[6] As may be noted, it was a term of the lease that Ristorante comply with the Best Western Breakfast Guidelines. In this regard, it is important to note that the Landlord was obliged to pay for the breakfast service provided by Ristorante and was compensated by way of a voucher system. On the 25th of each month, the vouchers would be tabulated and Ristorante would present an invoice to the Landlord, together with the vouchers, which had been given to the hotel’s guests. Upon receipt of the invoice, the Landlord had five days to review the invoice and then pay the invoice. As I shall describe below, there have been ongoing problems with respect to this breakfast service arrangement between the Landlord and Ristorante.

[7] Before entering the lease, Ristorante purchased the business and assets of the previous tenant. It paid $180,000 for the purchase of the restaurant. Mr. Vesia deposed that following the purchase, Ristorante spent approximately $300,000 to renovate the premises, including the installation of new equipment in the kitchen.

[8] Mr. Vesia estimates that the current fair market value of the restaurant business is $400,000. That is his personal opinion. There is, however, no reliable evidence upon which I can make any conclusion as to the market value of the business.

[9] To say the least, the relationship between the Landlord and Ristorante has been troublesome.

[10] Between December 2012 and January 2013, the Landlord locked Ristorante out for failure to pay rent. Although Mr. Vesia deposed that Ristorante lost $80,000 because of the interruption of business during the holiday season, no claim was made at that time. The rent arrears were paid, the dispute was resolved, and Ristorante re-entered the premises.

[11] What followed was a pattern of erratic and frequently late payments of rent. Ristorante explains or blames the Landlord for the problems. It says that the Landlord has deliberately been tardy in remitting its payments for the breakfast service causing Ristorante to experience cash flow problems. Mr. Vesia believes that the Landlord’s plan was to forfeit Ristorante’s lease and re-lease the premises at a profit.

[12] Between January 2014 and April 2016, 11 cheques for Basic Rent were returned NSF and had to be replaced. The current situation is that the monthly basic rent of $11,303.67 has not been paid for March, April, May, June, July, and, I can assume, August 2016. The arrears of Basic Rent are $67,822.02. Interest is payable on these unpaid amounts at the rate of 18% per annum/1.5% per month in accordance with section 3.6 of the lease.

[13] Under the lease, Ristorante is obligated to pay Additional Rent, including a payment for property taxes. The payment for property taxes is $1,691.42 per month, but the property taxes have not been paid for the last 12 months, amounting to arrears of $20,297.04. Interest is payable on these unpaid amounts at the rate of 18% per annum/1.5% per month in accordance with section 3.6 of the lease.

[14] The obligation to pay Additional Rent, includes an obligation to pay for electricity charges for the premises. Payments have not been made for September to December 2015 and throughout 2016. As of the end of May 2016, the arrears for electricity charges is $19,746.44. Interest is payable on these unpaid amounts at the rate of 18% per annum/1.5% per month in accordance with section 3.6 of the lease.

[15] Ristorante offered no excuse for its failure to pay for property taxes, but excused its failure to pay the hydro charges because it submitted that the Landlord has never complied with section 6.5 of the lease which, Ristorante submitted, required the Landlord to account for how the Additional Rent was calculated. Ristorante says that it may have been charged for more electricity than it used for the premises.

[16] In August 2015, the Landlord was advised that Ristorante had engaged a company, Mickele’s Bistro Inc., (“Bistro”) to manage the restaurant. Around this time, the branding and signage of the restaurant was changed from Michele’s Italian Ristorante to Mickele’s Bistro. The banking and financial arrangements for Ristorante were managed using Bistro’s bank account.

[17] Once Bistro became involved, Ristorante did not have a bank account of its own. Ristorante’s payments for Basic Rent and Additional Rent and to suppliers and employees were made using Bistro’s bank account. Ristorante, however, continued to send invoices for the breakfast service charges and directed the Landlord to pay Bistro.

[18] Bistro was incorporated by the Defendant by Counterclaim Joey Teskey, who was Ristorante’s general manager. Mr. Teskey was cross-examined for the summary judgment motion, and he did not seem to understand what his relationship was with Bistro. His evidence was confusing, inconsistent, contradictory, and unreliable. I am satisfied from the evidentiary record that Mr. Teskey has no ownership interest in Bistro, which rather was owned and controlled by the Vesia family including Mr. Vesia and his wife, the Defendant by Counterclaim, Arlene Vesia.

[19] On September 2, 2015, the Landlord’s lawyer sent a letter of complaints about the breakfast service being provided by Ristorante. There is a dispute between the parties about whether there was any merit to these complaints. I need not resolve this dispute because far more significant is the fact that on December 22, 2015, the Landlord’s lawyer wrote to Ristorante’s lawyer to put Ristorante on notice that Best Western was placing the Landlord on probation because the breakfast service was unsatisfactory.

[20] Being placed on probation status exposed the Landlord to the cancellation of its franchise with Best Western.

[21] On December 3, 2015, the City of Toronto conducted a fire safety inspection at the hotel, and on December 10, 2015, the City issued a Notice of Violation to the Landlord disclosing ten violations of which seven were defects for which Ristorante was responsible.

[22] Ristorante was advised about the violations and subsequently rectified six of the seven deficiencies. One deficiency remains outstanding, but I regard this as a minor problem and not significant. What is significant is that it took Ristorante months to deal with the problems, which persisted until sometime in April 2016.

[23] In January 2016, a representative of Best Western inspected the hotel and reported that the breakfast service was the worst he had ever experienced. He gave the Landlord a list of 29 action items that the Landlord sent to Ristorante in February 2016. Ristorante did not take steps to comply with the action items.

[24] In January of 2016, Ristorante, through its lawyer, requested a renewal of the lease. It made the request because it was negotiating the sale of the restaurant and any offer to purchase was to be conditional on a renewal of the lease. The offer had a purchase price of $350,000 payable by a down payment of $50,000 and a vendor take back mortgage of $300,000.

[25] The Landlord, however, refused to grant a renewal of the lease, claiming that Ristorante was in default under the lease and, therefore, not entitled to a renewal of the lease.

[26] On March 23, 2016, the Landlord notified Ristorante of its default in paying Basic Rent, and Additional Rent, of its failure to remedy the Fire Code deficiencies, and its failure to implement the 29 action items. The Landlord also alleged a default for failure to pay legal fees of $3,955. The Landlord indicated its intention to terminate the lease.

[27] On March 25, 2016, Ristorante delivered to the Landlord an invoice for breakfast service in the amount of $16,720. The Landlord has not paid the invoice and rather began paying the amount of the breakfast service invoices into its lawyer’s trust account.

[28] In addition to the above breaches of the lease, the Landlord submits that Ristorante is insolvent, which is another ground of default under the lease. In support of this submission, the Landlord led evidence that: (a) a supplier, Reality Foods Inc., has obtained a judgment against Ristorante for $27,337.82, plus interest and costs and that on June 16, 2015, it had issued a Writ of Seizure and Sale against Ristorante; and (b) Ristorante is being audited by Canada Revenue Agency for arrears of HST and for payroll remittances.

[29] On April, 11, 2016, Ristorante brought an action against the Landlord and Mr. Brar. It claims damages of $600,000 for intentional interference with economic interests, breach of contract, trespass, waiver of tort, unjust enrichment, and exemplary, punitive, aggravated and/or consequential damages in the amount of $100,000.

[30] The Landlord has responded with this summary judgment motion for a forfeiture of Ristorante’s lease and it responds with a request, if necessary, for relief from forfeiture.

C. DISCUSSION AND ANALYSIS

[31] Section 74 of the Commercial Tenancies Act, R.S.O. 1990, c. L.7, provides that where a landlord has terminated a tenancy by notice of termination and the tenant refuses to vacate the property, the landlord can apply to the court to seek formal termination of the lease and for possession of the property. However, under s. 20 of the Act, the court may grant relief from forfeiture. The court's authority to grant relief from forfeiture is found in subsection 20(1) of the Commercial Tenancies Act, which states:

Relief against re-entry or forfeiture

20 (1) Where a lessor is proceeding by action or otherwise to enforce a right of re-entry or forfeiture, whether for non-payment of rent or for other cause, the lessee may, in the lessor's action, if any, or if there is no such action pending, then in an action or application in the Superior Court of Justice brought by the lessee, apply to the court for relief, and the court may grant such relief as, having regard to the proceeding and conduct of the parties under section 19 and to all the other circumstances, the court thinks fit, and on such terms as to payment of rent, costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future as the court considers just.

[32] The court also has jurisdiction to grant relief from forfeiture pursuant to s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43, which provides: “A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.”

[33] Forfeiture is a very serious remedy that the court seeks to avoid if appropriate: 116531 Canada Inc. v. 569562 Ontario Inc. (1988), 28 O.A.C. 144 (Ont. Div. Ct.); 1113010 Ontario Inc. v. 1252412 Ontario Ltd., [1999] O.J. No. 3984 (Ont. S.C.J.).

[34] In 1497777 Ontario Inc. v. Leon's Furniture Ltd. (2003), 67 O.R. (3d) 206 (C.A.), Justice Morden referred to the leading case of Shiloh Spinners Ltd. v. Harding, [1973] A.C. 691 (U.K. H.L.) and discussed the court's equitable jurisdiction to grant relief from forfeiture, which is quite liberal. At paragraphs 68 to 70, he stated:

68. In Shiloh Spinners Ltd., Lord Wilberforce put a modern stamp on the scope of the equitable jurisdiction to grant relief from forfeiture that was wider than that previously believed to exist: see Meagher, Gummow and Lehane's Equity, Doctrines and Remedies, 4th ed. (Sydney: Butterworths, 2000), at pp. 581-87.

69. The core of Lord Wilberforce's opinion is set forth in the following passage on pp. 723-24 A.C.:

    I would fully endorse this: it remains true today that equity expects men to carry out their bargains and will not let them buy their way out by uncovenanted payment. But it is consistent with these principles that we should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The word "appropriate" involves consideration of the conduct of the applicant for relief, in particular whether his default was willful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach.

70. The reasons as a whole appear to indicate that the strict view that there could not be relief from forfeiture except under the two "classical" headings of (1) where the object of the transaction and the insertion of the right to forfeit is to secure the payment of money, and (2) the heads of fraud, accident, mistake or surprise, was not endorsed. See, particularly, pp. 722 c-e and 724 e-g A.C.

[35] 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.

[36] In a situation where the default is based upon non-payment of rent, the court should consider the following criteria: (a) whether the tenant comes to court with clean hands; (b) whether there has been an outright refusal to pay rent; (c) whether the rent has been in arrears for a short or long time; and (d) whether the landlord has suffered a serious loss by reason of the moving party's delay in paying rent: National Squash Academy Inc. v. Parc Downsview Park Inc., 2015 ONSC 6967 at para. 9.

[37] In the immediate case, there are few if any reasons for the court to exercise its discretion to grant relief from forfeiture. Ristorante has been and is now seriously in breach of its obligations to pay Basic Rent, to pay Additional Rent, to remedy the deficiencies to the state of repair of the premises, and to perform its breakfast service obligations. Ristorante is likely insolvent and the circumstances of its interposition of Mickele’s Bistro are suspicious.

[38] Where a tenant is in default under the lease as result of its own deliberate acts, as was the case here, it has no right to equitable relief: 2074144 Ontario Inc. v. 6167918 Canada Ltd., 2015 ONSC 1833 at para. 16.

[39] The history of Ristorante’s performance of its obligations under the lease has been abysmal with chronically late payments and baseless objections to the allocation of Additional Rent. Its effort to pass the blame onto the Landlord is without merit.

[40] Ristorante’s cash flow problems are of its own making and from its poor management of its business. Its failure to comply with the franchisor’s breakfast service standards has imperiled the Landlord’s franchise. Even if there was some breach of the lease by the Landlord, which I find there was not, Ristorante was obliged to pay Basic and Additional Rent without deduction, abatement or set-off. When it was revealed at the hearing of the summary judgment motion that Ristorante’s premises have a separate meter in an adjoining utility room, the suggestion that Ristorante was being overcharged for hydro was exposed as a pretentious excuse for not paying Additional Rent.

[41] There is little disparity between the value of the tenancy, which has about two months left to end of its term, and the financial misery that Ristorante has inflicted on the Landlord, who is at risk of losing its franchise. In any event, Ristorante has no right to renew because it is seriously in breach of the lease with only itself to blame.

[42] The Landlord is entitled to a summary judgment declaring the lease terminated. There is no merit to Ristorante’s claims for breach of the lease etc. and its action should be dismissed. The Landlord is entitled to a writ of possession. The Landlord may set off its indebtedness for the breakfast service charges against its claim for damages. The Landlord may set the action down for the determination of the balance of its claims and for an assessment of its damages. It is entitled to a partial summary judgment of $111,820.50 plus interest in accordance with the interest provisions of the lease.

D. CONCLUSION

[43] For the above reasons, the Landlord’s summary judgment motion is granted as aforesaid and Ristorante’s motion and its action are dismissed in their entirety.

[44] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with the Landlord’s submissions within 20 days of the release of these Reasons for Decision followed by Ristorante’s submissions within a further 20 days.

Perell, J. Released: July 29, 2016