COURT FILE NO.: CV-16-549176 DATE: 20170321 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

7MARLI LIMITED Plaintiff – and – PET VALU CANADA INC. Defendant

COUNSEL: A Irvin Schein for the Plaintiff Robert B. Cohen and Christopher Selby for the Defendant

HEARD: March 14, 2017

PERELL, J.

REASONS FOR DECISION

1. Introduction and Overview

[1] In this case, a commercial tenant, Pet Valu Canada Inc., has stopped paying rent and has vacated its premises in a plaza. The odd facts of the case are that: (a) the landlord, 7Marli Limited, has not re-entered to terminate the lease for over a year (b) it has not mitigated by re-leasing the premises; (c) it proposes, instead, to sue progressively for unpaid rent during the more than four years remaining on the lease; (d) it moves for a partial summary judgment for some of that unpaid rent; (e) the tenant, Pet Valu, which has no defence to the motion, nevertheless, resists the motion on the jurisdictional grounds that a partial summary judgment is a waste of scarce judicial resources; and, in what is perhaps the oddest fact, (f), Pet Valu is not judgment-proof and will likely be able to pay the over five years of unmitigated losses.

[2] For the reasons that follow, I grant 7Marli a partial summary judgment for $101,209.16.

2. Factual and Procedural Background

[3] Effective May 25, 2011, 7Marli and Pet Valu entered into a Commercial Agreement to Lease and an Interim Lease Agreement for premises at a shopping centre located at 5731 Highway No. 7, in Vaughan, Ontario.

[4] The Lease provided for a ten-year term with minimum rent for the first five years based on $20.00 per square foot of ground area of the premises, and $22.00 per square foot for the balance of the term of the Lease. The Lease also provided for payment of additional rent on the basis of the Pet Valu's proportionate share of the costs of operating and maintaining the non-leasable portions of the shopping centre, together with realty taxes and other similar charges. Thus, under the Lease, Pet Valu was liable to pay $9,554.17 per month for base and additional rent.

[5] On October 1, 2013, Pet Valu failed to pay rent, but the parties agreed that it could pay rent at a reduced rate of $15.00 per square foot. 7Marli’s position is that the balance of the rent owing was temporarily deferred. Pet Valu’s position is that the rent reduction was permanent and that there was no deferral. It contends that in July 2013, Jared Grenville, Pet Valu's Real Estate Manager, negotiated a rent reduction for the balance of the term with Franco and Paolo Rovazzi, the principals of 7Marli.

[6] The deferred rent versus permanent rent reduction is the only factual dispute between the parties. In any event, the reduced rent became $7,785.32, which Pet Valu paid until January 2, 2016. On February 1, 2016, Pet Valu failed to pay the rent owing and it abandoned the premises.

[7] Without terminating the Lease, 7Marli demanded payment for the unpaid rent including the deferred rent. When Pet Valu did not pay, 7Marli sued for the rent arrears.

[8] Pet Valu’s representative, Franco Rovazzi, was examined for discovery on August 4, 2016, and when asked why Pet Valu had not paid at least the reduced rent, he said Pet Valu had hoped that this would encourage 7Marli to agree to a compromise.

[9] 7Marli moves for a partial summary judgment for payment of the arrears of reduced rent in the amount $101,209.16, as of February 1, 2017.

3. The Parties’ Arguments

[10] 7Marli argues that in accordance with Highway Properties Ltd. v. Kelly, Douglas and Co., [1971] S.C.R. 562, it has a right to claim the arrears of rent on an ongoing basis and that it is entitled to sue for a partial summary judgment for which no defence has been delivered.

[11] Pet Valu submits that the partial summary judgment motion should be dismissed on procedural and policy grounds because the motion for partial summary judgment is, in effect, an advance payment of a judgment that does not resolve any outstanding issues in this litigation but rather promotes ongoing summary judgment motions and is an inefficient use of the court’s resources inconsistent with the Supreme Court of Canada’s admonitions in Hryniak v. Mauldin, 2014 SCC 7, at paragraphs 49 and 60, that summary judgment should only be granted where the motion is proportionate, more expeditious and less expensive means to achieve a just result and that partial summary judgments may not be in the interest of justice where some claims will proceed to trial and there is the risk of duplicative or inconsistent findings of fact. See also: Filion v. Religious Hospitailers of St. Joseph of Cornwall, Ontario, 2016 ONSC 1008 at para. 139; Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450 at para. 36; McCready v. Jaswall, 2016 ONSC 5276 at para. 27.

[12] Pet Valu relies on Ford Motor Co. of Canada v. Ontario Municipal Employees Retirement Board, [1997] O.J. No. 4298 (C.A.), where the Court refused to grant a partial summary judgment that allegedly amounted to an advance payment of accrued damages when the amount of the damages had not been determined.

4. Discussion and Analysis

(a) Introduction

[13] In this part of my Reasons for Decision, I shall discuss the law about a landlord’s choice of remedies. This discussion will reveal that 7Marli is correct that it is entitled to keep the Lease alive and to sue for rent from time to time, which, practically speaking, is what 7Marli is doing, leaving the ultimate quantum dispute about the balance of the rent owing, if any, to be resolved at trial in the fullness of time.

[14] In the next section, I shall discuss Pet Valu’s argument that the case is not appropriate for a summary judgment.

(b) Landlord’s Remedies

[15] Leases are an amalgam of property law and contract law. Historically, leases began as a type of personal property. Leasehold interests developed outside the tenure system of estates, and for many purposes were treated as personalty. Eventually, however, the law permitted the holder of leased land to bring an action to regain possession of the property, and from this, the recognition of an estate in land developed. The contemporary conception of a lease is that a landowner, called the landlord, grants an estate, or real property law interest in land, to a tenant, who has the exclusive right of possession of the property, known as the leased premises, for the term of the lease. The landlord has what is known as a reversionary interest, and the landlord's right to possession is suspended during the term of the tenancy. A leasehold estate, however, differs from a freehold estate because the duration of a leasehold is finite, in contrast to a freehold estate, which has an uncertain duration. And a leaseholder technically does not have seisin in the land, which remains in the landlord. The relationship, however, is tenurial because the tenant holds of the landlord’s estate.

[16] Leasehold estates were originally known as chattels real, the name connoting the mixed personal property and real property law nature of a lease. Once the real property aspects of a lease were accepted, they came to be dominant, until Justice Laskin's judgment in Highway Properties Ltd. v. Kelly, Douglas and Co., supra, when the contractual aspects made a major resurgence. In Highway Properties Ltd., Justice Laskin stated that it did not make sense to deny contract remedies merely because the contract was associated with an interest in land and he added a new contract law remedy for a landlord to respond to a tenant’s breach of the lease.

[17] In Highway Properties, Justice Laskin described at p. 716 the landlord's four remedial alternatives as follows:

The developed case law has recognized three mutually exclusive courses that a landlord may take where a tenant is in fundamental breach of the lease or has repudiated it entirely, as was the case here. He may do nothing to alter the relationship of landlord and tenant, but simply insist on performance of the terms and sue for rent or damages on the footing that the lease remains in force. Second, he may elect to terminate the lease, retaining of course the right to sue for rent accrued due, or for damages to the date of termination for previous breaches of covenant. Third, he may advise the tenant that he proposes to re-let the property on the tenant's account and enter into possession on that basis. Counsel for the appellant, in effect, suggests a fourth alternative, namely that the landlord may elect to terminate the lease but with notice to the defaulting tenant that damages will be claimed on the footing of a present recovery of damages for losing the benefit of the lease over its unexpired term. One element of such damages would be, of course, the present value of the unpaid future rent for the unexpired period of the lease less the actual rental value of the premises for that period.

[18] The landlord’s first choice of remedy is to sue or to distrain for arrears of rent. This choice treats the lease and the tenant’s property interest as continuing and the landlord as having an ongoing claim for rent. Under this choice, since the lease is still alive, there is no claim for damages for loss of the benefit of the bargain and no duty to mitigate: B.G. Preeco 3 Ltd. v. Universal Explor. Ltd., [1987] 6 W.W.R. 127 (Alta. Q.B.).

[19] The landlord’s second choice is to retake possession of the premises and terminate the lease. The termination of the lease can be by way of a surrender or by way of a forfeiture of the tenant’s property interest in the land. Surrender ends a lease because the parties agree, or are taken to have agreed by operation of law, to end the relationship of landlord and tenant. A surrender by operation of law occurs when the parties’ conduct is inconsistent with the continued existence of the lease: 250669 B.C. Ltd. v. Poplar Properties Ltd. (1987), 48 R.P.R. 283 (B.C.S.C.); New Regina Trading Co. Ltd. v. Canadian Credit Men’s Trust Association, [1934] S.C.R. 47; Mickleborough v. Strathy (1911), 23 O.L.R. 33 (Div. Ct.); Fountainbleu Apt. Ltd. v. Hamilton, [1962] O.W.N. 223 (Co. Ct.). Forfeiture ends a lease because the landlord exercises a unilateral right to reclaim the land; i.e., to re-enter, and by this way of ending a lease the tenant loses or forfeits its property interest in the land.

[20] The third remedial choice is a variation of the first. The landlord does not accept the tenant’s repudiation as grounds for ending the lease, but instead of seeking rent from the defaulting tenant, the landlord would re-rent the premises on behalf of the defaulting tenant. To invoke this choice, the landlord has to give the tenant notice that the re-renting is on the tenant’s account: Crozier v. Trevarton (1914), 32 O.L.R. 79; Green v. Tress (1927), 60 O.L.R. 151 (C.A.).

[21] The landlord’s fourth choice is the mechanism of a notice advising the tenant of the claim for prospective damages. In Highway Properties, Justice Laskin did not do away with the concepts of forfeiture, surrender, or surrender by operation of law; rather, he stopped the “dogmatic application of surrender irrespective of intention,” and the Court provided the means for making normal contract remedies available for lease defaults.

[22] If a lease is terminated, the measure of damages is the present value of the unpaid future rent for the unexpired period of the lease, less the actual rental value of the premises for that period plus reasonably foreseeable consequential losses: Highway Properties Ltd. v. Kelly, Douglas & Co., supra; Windmill Place v. Apeco of Canada Ltd. (1976), 72 D.L.R. (3d) 539 (N.S.C.A.); Cormier v. Federal Business Development Bank (1982), 40 N.B.R. (2d) 155 (N.B.C.A.); Ossory Canada Inc. v. Wendy's Restaurants of Canada Inc. (1997), 36 O.R. (3d) 483 (C.A.). Thus, where the landlord terminates the lease and delivers what has come to be known as a "Kelly Douglas Notice," the measure of damages for the tenant's breach is not the total of the rental payments for the balance of the lease term: A.B. Investments Ltd. v. Khan, 2011 ONSC 4491 at para. 29. Such a measure would fail to account for the costs saved by the breach and fail to take into account that the landlord is free to benefit from its property by leasing to a new tenant.

[23] Where the landlord terminates the lease, the landlord is obliged to mitigate its damages in accordance with the normal contract law principles. For example, in L.A. Furniture v. 330061 Alta. Ltd., [1989] 1 W.W.R. 171 (Alta. Q.B.), the landlord did not make a reasonable effort to re-rent the premises, and it was awarded only nominal damages. See also Adanac Realty Ltd. v. Humpty’s Egg Place Ltd. (1991), 15 R.P.R. (2d) 77 (Alta. Q.B.).

[24] In Windmill Place v. Apeco of Canada Ltd., supra, the tenant agreed to lease a portion of a building. The tenant repudiated and the landlord re-rented the space. The landlord argued that the new lease was not in mitigation of the lost lease and was an independent transaction. In other words, the landlord argued that but for the tenant’s repudiation, the landlord would have had two leases and not just one. The Supreme Court of Canada agreed with this argument. A transaction to be mitigatory must be one arising out of the consequences of the breach and in the ordinary course of business: Karas v. Rowlett, [1944] S.C.R. 1; British Westinghouse Electric and Manufacturing Co. v. Underground Electric Railways, [1912] A.C. 673.

[25] In Toronto Housing Co. Ltd. v. Postal Promotions Ltd. (1982), 39 O.R. (2d) 627 (C.A.), affg. Toronto Housing Co. Ltd. v. Postal Promotions Ltd. (1981), 34 O.R. (2d) 218 (H.C.), the landlord did not immediately accept the tenant’s repudiation of a lease. The landlord waited nine months before re-renting and then signed a very favourable lease that would yield a rent beyond that achievable under the original lease. The landlord sued only for the rent lost during the nine months pending the new lease. The landlord’s argument was that the lease was alive during the nine months, and, therefore, the principles of mitigation that deny recovery for losses actually avoided did not apply for this period of lost rent. This argument did not succeed. Whether or not the landlord had a duty to mitigate, it had in fact mitigated. Thus, the case is authority for the principle that a landlord must give credit for the success of its mitigation.

[26] The Toronto Housing Co. case raised, but did not answer, the question of whether a landlord may avoid the duty to mitigate by keeping the lease alive by declining to accept a repudiation of the lease. This question is similar to the question in other areas of property and contract law of whether an innocent party may avoid the duty to mitigate by an action for specific performance that keeps the contract alive. In Asamera Oil Corp. v. Sea Oil & General Corp. (1979), 89 D.L.R. (3d) 1 (S.C.C.), varied Asamera Oil Corp. v. Sea Oil & General Corp. (1979), 97 D.L.R. (3d) 300 (S.C.C.), a case involving the conversion of corporate shares, the Supreme Court of Canada held that to avoid the duty to mitigate, the innocent party must have a legitimate reason for keeping the contract alive. Because of the Supreme Court of Canada’s decision in Semelhago v. Paramadevan, [1996] 2 S.C.R. 415, the principle from the Asamera case has been applied in sale of land context.

[27] In the context of landlord and tenant law, the point of when, if at all, a landlord must accept a termination and mitigate, rarely arises because unlike the case at bar, most defaulting tenants have no financial means to pay accruing rent and so there is no advantage to the landlord in keeping the lease alive. The point, however, has arisen in some cases and the courts have consistently held that the landlord’s choices are mutually exclusive and there is no duty to mitigate if the landlord chooses to keep the lease alive: 607190 Ontario Inc. v. First Consolidated Holdings Corp., [1992] O.J. No. 2074 (Gen. Div.); Glenview Management Ltd. v. Axyn Corp, [2003] O.J. No. 124 (Master); 3709303 Manitoba Ltd. v. Maxer Ltd., 2008 MBQB 219; 4266715 Manitoba Ltd. v. Major Management Corp., 2009 MBQB 105, affd. 4266715 Manitoba Ltd. v. Major Management Corp., 2009 MBCA 118.

(c) Is the Case Appropriate for a Partial Summary Judgment?

[28] I agree that it may be inefficient to have sequential partial summary judgment motions, but it is an inefficiency that the law permits under the exclusive choices provided by the Highway Properties case under which the landlord may keep the lease alive and sue for rent and damages without any obligation to mitigate its loss.

[29] Moreover, in the case at bar, the inefficiency is somewhat speculative because, the landlord may change its mind and terminate the Lease or, the Lease being alive, Pet Valu might sublease (even at a higher rent) and this would end the accrual of arrears of rent.

[30] In the case at bar, the potential inefficiency of a multiplicity of potential motions exists regardless of whether there is an unresolved dispute about whether the reduction of rent is permanent or was just a deferral of rent. Pet Valu is too clever by a half in suggesting that the partial summary judgment motion does not resolve a contested issue. Pet Valu is not paying rent. The summary judgment motion is a partial judgment of the indefensible portion of 7Marli’s claim for unpaid rent. It is not an advance payment of an undetermined quantum of damages.

[31] In the case at bar, a partial summary judgment has no potential of duplicative or inconsistent findings of fact. Eventually, after the partial summary judgment motion, there will be determination of the deferral versus permanent rent reduction issue, and win or lose on this issue, there is no re-litigation or inconsistent finding of facts.

[32] The case at bar is distinguishable from Ford Motor Co. of Canada v. Ontario Municipal Employees Retirement Board, supra. In the Ford Motor Co. case, Ford Canada was required to make an offer to dissenting shareholders to purchase their shares at a share value considered by its board of directors to be fair value for the dissenting shareholders' shares. The dissenting shareholders rejected the offer, but they moved for a summary judgment for part of their fair value claim. Reversing the motions judge, who had concluded that Ford Canada had admitted that the fair value was not less than $185 per share, the Court of Appeal held that the case was not suitable for a partial summary judgment. There was no admission and the fair market value of the shares remained to be determined with the result that there was no utility to the partial summary judgment motion.

[33] Justice Osborne, as he then was, wrote the judgment for the Court, and he said that the case law revealed three types of cases in which partial summary judgment had been granted of which two types were appropriate and one was not. The two types of case that were appropriate for a partial summary judgment were: (1) actions where evidence establishes that there is no genuine issue for trial in respect of a discrete claim with the result that the discrete claim could be removed to shorten the trial; and (2) actions in which there is an admission upon which a partial judgment could be based.

[34] The inappropriate type of case were actions in which there is no admission but the plaintiff seeks a partial summary judgment in some amount equal to or less than his or her anticipated recovery at trial. For the third type of case, granting a partial summary judgment would not eliminate or shorten the trial in any meaningful way.

[35] I would regard the case at bar as an example of the type of case where a discrete issue has been withdrawn or where a judgment can be based on Pet Valu’s admission that it is liable for at least the reduced rent. Visualize, if there was no partial summary judgment for the reduced rent, 7Marli would have the onus of proving this sum was owing to it. The trial is notionally shortened by removing this issue by a partial summary judgment. Whether Pet Valu is liable for a higher monthly rent is a discrete issue that will depend upon the court making a finding about the outcome of the negotiations between Mr. Grenville and Messrs. Rovazzi.

5. Conclusion

[36] For the above reasons, I grant 7Marli a partial summary judgment for $101,209.16.

[37] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with 7Marli’s submissions within 20 days of the release of these Reasons for Decision followed by Pet Valu’s submissions within a further 20 days.

[38] During the course of the argument of the summary judgment motion, I indicated that I might remain seized of this matter, but I no longer see any purpose in this action being case managed or for resort to the summary judgment rule’s provisions for viva voce evidence, etc. to decide any issues.

[39] This action should proceed to trial in the normal course, particularly because Pet Valu might sublease or 7Marli might change its course and terminate the Lease, in which case there will be genuine issues for trial about the calculation of damages and the adequacy of its mitigation efforts.

Perell, J. Released: March 21, 2017

COURT FILE NO.: CV-16-549176 DATE: 20170321 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: 7MARLI LIMITED Plaintiff – and – PET VALU CANADA INC. Defendant REASONS FOR DECISION PERELL J. Released: March 21, 2017