Court File and Parties

Court File No.: CV-19-79133 Date: 2019/04/29 Ontario Superior Court of Justice

Between: 1230455 Ontario Ltd. o/a KOM Software – and – 150 Katimavik Inc.

Counsel: George Boyd Aitken and D. Kenneth Gibson for 1230455 Ontario Ltd. Fred E. Seller and Geoffrey Cullwick for 150 Katimavik Inc.

Heard: March 29, 2019 in Ottawa

Reasons for Decision

O’Bonsawin J.

Background

[1] On October 2, 2012, 1230455 Ontario Ltd. (“123”) entered into a commercial lease agreement with 1310053 Ontario Inc. for the premises (“Suite 1000”) comprising approximately 9,200 square feet for a term of five years commencing on January 15, 2013 and ending on January 14, 2018 (“initial lease”). As per this lease, 123 was to pay annual rent in the amount of $3.00 per square foot in addition to other costs.

[2] On November 16, 2016, 150 Katimavik Inc. (“Katimavik”) purchased the property from 1310053 Ontario Inc. Prior to the completion of the purchase, Katimavik entered into negotiations with 123 regarding its continued occupation of Suite 1000. At that time, Katimavik was planning to redevelop the property and convert portions into a commercial condominium. 123 wanted to remain as a tenant provided that its monthly rent was reduced since Suite 1000 was too large for its needs and too expensive.

[3] Katimavik agreed that 123 could move into smaller and less expensive premises (“Suites 201 and 302”) with a total of 3,664 square feet on the terms of the Offer to Lease dated November 11, 2016.

[4] Suites 201 and 302 required construction work to make them appropriate for 123’s business, and Katimavik agreed to undertake some of the required fit-up work and provide 123 with two years of reduced rent as an accommodation for 123 agreeing to relocate to Suites 201 and 302.

[5] This reduced rent was applicable for the combination of time spent in Suite 1000 and Suites 201 and 302.

[6] On November 17, 2016, Katimavik delivered notice to 123 that the Landlord’s Condition was satisfied and determined that the termination date of the lease was November 16, 2018.

[7] On November 26, 2016, Katimavik delivered to 123 execution copies of the lease for Suites 201 and 302.

[8] On August 22, 2017, Katimavik delivered notice to 123 that the Landlord’s Work regarding Suites 201 and 302 would be substantially performed by September 1, 2017 and the suites would be ready for possession on that date.

[9] A dispute arose between the parties regarding the Commencement Date of the lease resulting in 123 bringing an ex parte Motion for injunction to this court on September 26, 2017. On that same date, Hackland J. provided an Order to allow 123 re-entry to the premises and the continued right to possess and use the premises. In addition, Katimavik was prohibited from re-entry or re-possession of the premises until further court Order.

[10] On October 2, 2017, the parties entered into a Settlement Agreement whereby they agreed to proceed to arbitration on certain issues. Hackland J.’s order was vacated by Phillips J.’s Order dated October 13, 2017. Phillips J. ordered that 123 “deliver vacant possession of the premises known municipally as 150 Katimavik Road, suite 1000, Ottawa, Ontario, to the defendant, 150 Katimavik Inc., on or before 11:59pm on Monday, October 16, 2017”.

[11] On October 16, 2017, 123 moved into Suites 201 and 302. It has occupied the suites since that date and paid its rent.

[12] On November 2, 2018, Katimavik provided notice to 123 that the tenancy would expire on November 16, 2018 and should 123 continue to occupy the suites after that day, it would do so as an overholding tenant on a month-to-month basis with rent payable in advance of the first day of the month at twice the amount payable during the last month of the Term. 123 did not vacate the suites.

[13] There were discussions between the parties regarding 123’s possible purchase of a condominium unit, however, they were not fruitful.

[14] On December 10, 2018, Katimavik provided notice to 123 that it had failed to pay the rent in full owing for December 2018 and it was thereby in default.

[15] On January 10, 2019, Katimavik provided a Notice to Quit to 123 which required the latter to vacate the premises on or before February 16, 2019.

[16] 123 has filed an Application and seeks the following:

• relief from forfeiture of the Offer to Lease dated November 11, 2016 for Suites 201 and 302;
• leave to abridge the time period for service in accordance with subrule 3.02(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, given the urgency of this Application;
• an interim and final Order restoring possession of Suites 201 and 302 to 123 forthwith;
• enjoining Katimavik from changing the locks again or preventing 123 from re-entering Suites 201 and 302;
• an interim and final Order barring Katimavik from taking possession of 123’s property;
• an interim and permanent injunction preventing Katimavik from re-letting, re-leasing or dispossessing 123 from Suites 201 and 302;
• an interlocutory injunction preventing Katimavik from terminating the lease/Offer to Lease dated November 11, 2016 without further court order;
• an Order allowing 123 re-entry of Suites 201 and 302, the continued right to possess and use them and have quiet enjoyment of those premises;
• an Order for abatement of rent/return or refund of rent/adjustment of rent for the period paid by 123 when it was either not in full use of the space, unable to use the space according to the lease to conduct business or a determination of what rent is owing or to be set off in these circumstances;
• an Order that the arbitration agreed upon by the parties proceed; and
• the costs of this Application on a substantial indemnity basis.

Issues

[17] The issues in this matter are as follows:

1. Is 123 entitled to relief from forfeiture in relation to Katimavik’s Notice to Quit and an Order barring Katimavik from taking possession of Suites 201 and 302 or is Katimavik entitled to require 123 to completely vacate the suites?
2. Is 123 entitled to an Order mandating the parties to attend arbitration?
3. Is 123 entitled to an abatement of rent, return of rent or adjustment of rent?

Position of the Parties

[18] 123 takes the position that the Commencement Date within the Offer to Lease remains a live dispute between the parties in addition to the appropriate amount of rent, the terms and conditions for a proposed lease agreement between the parties and damages incurred by the parties.

[19] Furthermore, 123 argues that the parties agreed to have the issue referred to an arbitration which has yet to occur. Arbitration must move forward. Lastly, it is 123’s position that a forfeiture of the Tenancy would be disproportionate in the present circumstances to the harm allegedly caused to Katimavik by 123’s continued occupation of Suites 201 and 302.

[20] On the other hand, Katimavik argues that 123 is not entitled to relief from forfeiture since there is no legal basis supporting such relief. As for the arbitration, Katimavik takes the position that the proceedings in this regard are related to the Commencement Date under the Offer to Lease and not the Termination Date. Consequently, the arbitration is irrelevant to the issue in this Application.

[21] Lastly, Katimavik submits 123 is not entitled to any reduction in rent, return of rent or rent abatement in this proceeding.

Analysis and Findings

[22] In order to analyse this matter, it is important to begin by providing the important sections of the different documents in question. The Offer to Lease contains the following relevant terms and conditions:

Section 1: Term The term of the Lease (the “Term”) shall be for that period of time commencing on the date (the “Commencement Date”) on which the Landlord’s Work is substantially complete and the Tenant has received written notice stating that the Premises are ready for possession, and ending on the date (the “Termination Date”) which is two (2) years less one (1) day following the date of satisfaction or waiver of the Landlord’s Condition.

Section 2: Gross Rent – the gross rent shall be $6.00 per square foot per annum.

Section 5: Lease The lease shall be prepared using the Landlord’s standard form lease for the Building (the “Standard Lease”), as amended to incorporate the terms and conditions of this Offer and such additional non-financial amendments as may be requested by the parties, each acting reasonably (the “Lease”). Both parties shall use commercially reasonable efforts and good faith to negotiate and execute the Lease within twenty (20) days of receipt by the Tenant of a first draft thereof from the Landlord. If the lease has not been signed prior to the Commencement Date, all of the terms of the Standard Lease shall nevertheless apply. Words defined in the Standard Lease and used herein shall have the same meaning ascribed to them by the Standard Lease.

Section 20: Existing Lease The parties are entering into this Offer and the Lease in conjunction with the termination of the Existing Lease (as hereinafter defined) for premises located on the ground floor of the Building (the “Existing Premises”). Effective on the day immediately preceding the Commencement Date (the “Existing Lease Expiry Date”), the lease for the Existing Premises dated October 2, 2012 (as amended, the “Existing Lease”) shall be deemed amended so that: (i) the last day of the Existing Lease will be the Existing Lease Expiry Date; and (ii) during that portion of the term of the Existing Lease commencing on the date of the satisfaction or waiver of the Landlord’s Condition and ending on the day prior to the Commencement Date, the aggregate of the Annual Ren and Occupancy Costs payable by the Tenant thereunder shall be Six Dollars ($6.00) per square foot of the Rentable Area of the Existing Premises…

Section 22: Landlord’s Condition This Offer is conditioned on the Landlord obtaining title to the Building and the Lands by no later than November 30, 2016. This condition is for the benefit of the Landlord and may be waived by it, in its sole option, at any time. If this condition is not satisfied or waived by the Landlord by the date set out above, then this Offer shall be null and void and the parties will be relieved of all obligations under it and the Existing Lease shall remain in full force and effect, on the terms, covenants and conditions therein contained.

[23] The Standard Lease contains the following relevant section:

Section 11.03 Overholding If the Tenant remains in possession of the Premises after the end of the Term with the consent of the Landlord but without having executed and delivered a new lease or an agreement extending the Term, there shall be no tacit renewal of this Lease and the Tenant shall be deemed to be occupying the Premises as a Tenant from month to month at a monthly Net Rent payable in advance on the first day of each month equal to twice the monthly amount of Net Rent payable during the last month of the Term, and otherwise upon the same terms as are set forth in this Lease, so far as these are applicable to a monthly tenancy.

[24] Subsection 20(1) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7, 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.

[25] Subsection 7(1) of the Arbitration Act, S.O. 1991, c. 17, states:

If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

[26] The relevant paragraph of the settlement between the parties dated October 2, 2017 is as follows:

4. Before 11:59pm on Monday October 16, 2017, the parties shall jointly appoint an arbitrator pursuant to the Arbitration Act, 1991 S.O. 1991, c.17 to determine:

• The date by which the Landlord’s Work as contemplated by Schedule B of the Replacement Offer to Lease was substantially complete;
• Whether either of the parties have suffered any damages as a result of the other party’s breach of the Replacement Offer to Lease, and if so, the quantum of those damages;
• Whether either of the parties is entitled to any amounts for legal fees (including those associated with Court File No. 17-74036) and expenses as a result of a breach or breaches of the Replacement Offer to Lease, and if so, the quantum of those legal fees;
• The costs of the arbitrator shall be borne equally by the parties, unless ordered otherwise by the arbitrator;
• The decision of the arbitrator shall be final and binding, and not subject to appeal by either party; and
• The parties shall instruct the arbitrator to issue a decision within 30 days of the hearing of the arbitration.

[27] I must turn to a review of the case law. Maverick Professional Services Inc. v. 592423 Ontario Inc. (2001), 2001 ONCA 8540, 147 O.A.C. 209 (C.A.), at paras. 4-9, and Purenergy Wellness Lofts Corporation v. Home Trust Company, 2018 ONSC 4723, at paras. 53-54, have determined that relief from forfeiture is not available if a lease expires or is terminated as a result of a right of the landlord to do so.

[28] In addition, Maverick dealt with the issue of exercising the option to terminate a lease:

Unless the lease contains conditions restricting the circumstances in which the option may be exercised, the motive of the party exercising it is irrelevant. The fact that exercise of the option causes hardship is no reason for restraining its exercise…Because the act of the tenant was not a breach of, or a default under, the lease, there is no basis for the court to be able to grant relief to the subtenant under s. 21, which requires a re-entry or a forfeiture (para. 9).

[29] In Goodlife Fitness Centres Inc. v. Rock Developments Inc., 2019 ONCA 58, the Court of Appeal for Ontario stated:

This court has repeatedly cautioned against looking to negotiations to interpret a contract. The basic principles of commercial contract interpretation were summarized in Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279. At para. 16, Winkler C.J.O. stated:

When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract 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. In interpreting the contract, the court must have regard to the objective evidence of the “factual matrix” or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties (para. 15) [Emphasis in original].

Likewise, in The Canada Trust Company v. Browne, 2012 ONCA 862, 115 O.R. (3d) 287, Feldman J.A. said at para. 71:

While the scope of the factual matrix is broad, it excludes evidence of negotiations, except perhaps in the most general terms ... Ultimately, the words of the agreement are paramount [Emphasis added].

Brown J.A. cited this in his decision in Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007, 77 B.L.R. (5th) 175, at para. 112:

Canadian common law generally treats evidence of the parties’ specific negotiations as inadmissible for purposes of interpreting a contract ... evidence of the factual matrix cannot operate as a kind of alternate means by which an adjudicator constructs a narrative about what the parties must have discussed or intended in their negotiations. In other words, evidence of the factual matrix cannot be used to do indirectly that which the principles of contract interpretation do not permit doing directly. [Emphasis in original omitted; citations omitted.]

1) Is 123 entitled to relief from forfeiture in relation to Katimavik’s Notice to Quit and an Order barring Katimavik from taking possession of Suites 201 and 302 or is Katimavik entitled to require 123 to completely vacate the suites?

[30] The evidence supports that Katimavik and 123 agreed that the latter would pay two years of rent at a rate of $6.00 per square foot per year as set out in Sections 1 and 20 of the Offer to Lease for 123’s occupation of Suite 1000 and Suites 201 and 302.

[31] As in Maverick and Purenergy, 123’s conduct did not involve any breach of or default under the lease that would make some form of relief relevant. Both parties acted in accordance with the provisions of the lease. The lease provided Katimavik the right to take the action that it did. In this case, Katimavik delivered a Notice to Quit based on its right to do so contained in Section 11.03 of the Lease and required 123 to deliver vacant possession of the Suites 201 and 302.

[32] Based on the evidence, I find that Section 1 of the Offer to Lease provides that the initial term of the Offer was for the period of time commencing on the date on which Katimavik’s work was substantially completed and the termination date was the date of two years less one day following the satisfaction or waiver of the Landlord’s Condition. 123 submits that the premises was not suitable for occupancy prior to March 15, 2018. However, counsel for 123 sent a letter to counsel for Katimavik on October 31, 2017, in which 123 agreed that the commencement date was September 1, 2017.

[33] Pursuant to Section 22 of the Offer to Lease, Katimavik gave 123 notice of the satisfaction of the Landlord’s Condition on November 17, 2016. Consequently, the termination date was November 16, 2018 and the tenancy expired on that date.

[34] I also find that pursuant to Section 5 of the Offer to Lease, the provisions of the Standard Lease apply regarding 123’s occupancy of the suites irrespective of whether or not the Standard Lease was signed. Section 5 states: “If the lease has not been signed prior to the Commencement Date, all of the terms of the Standard Lease shall nevertheless apply”. Pursuant to Section 11.03 of the Standard Lease, if 123 remains in occupancy, which it did, it is a tenant paying month-to-month at a monthly net rent payable in advance on the first day of each month equal to twice the monthly amount of net rent payable during the last month of the term.

[35] Lastly, I find that Katimavik provided a proper Notice to Quit to 123 on January 10, 2019 providing it with notice to “deliver up vacant possession of the Premises at 11:59 p.m. on the 16th day of February, 2019”.

[36] In conclusion, I find that 123 is not entitled to relief from forfeiture in relation to Katimavik’s Notice to Quit. 123 must completely vacate Suites 201 and 302.

2) Is 123 entitled to an Order mandating the parties to attend arbitration?

[37] The wording of the settlement between the parties does not refer to the termination date as forming part of the arbitration. In fact, the settlement relates to the matter that was before Hackland J. Phillips J’s Order clearly stated that the issues related only to Suite 1000. The matter before me relates to the termination date. It is clear from the language of the settlement that the purpose of the arbitration was to determine the commencement date as per the Offer to Lease and if either party had suffered damages as a result of any related breaches.

[38] 123 argues that Katimavik is now attempting to avoid its obligations as per the negotiated settlement by ignoring its agreement to proceed to arbitration. This settlement involved two parties. It is easy to blame one party after the fact. However, it remains that 123 did not try to exercise its right to proceed to arbitration until a significant amount of time had passed since the expiration date of the timeline provision. Instead, the evidence supports that the parties did not jointly appoint an arbitrator before 11:59pm on Monday October 16, 2017 as was contemplated by the settlement. By their actions, the parties abandoned the possibility of arbitration.

[39] Consequently, an Order is not required mandating the parties to attend arbitration.

3) Is 123 entitled to an abatement of rent, return of rent or adjustment of rent?

[40] The settlement provided that the arbitration would deal with “Whether either of the parties have suffered any damages as a result of the other party’s breach of the Replacement Offer to Lease, and if so, the quantum of those damages”.

[41] Since I have found that the parties abandoned the possibility of proceeding to arbitration on this issue which was specifically provided for in the settlement, I decline to provide an Order that 123 is entitled to either an abatement of rent, return of rent or adjustment of rent.

Conclusion

[42] Based on the reasons above, I dismiss 123’s Application.

Costs

[43] Katimavik is the successful party in this matter. If the parties cannot agree on the issue of costs, they may provide my office with brief written submissions on costs not exceeding three pages, exclusive of the Bill of Costs. Katimavik will have ten days from the date of these Reasons for Decision to provide its submissions and 123 will have ten days thereafter to do the same. Katimavik will be allowed a brief reply if deemed necessary, of no more than one page, which shall be provided within the next five days.

Justice M. O’Bonsawin Released: April 29, 2019