Court File and Parties

COURT FILE NO.: CV-19-632538 DATE: 2020/03/18 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

6791971 CANADA INC. Applicant

• and - ELI MESSICA Respondent

Counsel: Obaidul Hoque and Zaheed Moral for the Plaintiff Lawrie Jacques for the Respondent

HEARD: March 13, 2020

PERELL, J.

REASONS FOR DECISION

A. Introduction

[1] This is an Application pursuant to s. 23 of the Commercial Tenancies Act [1]. The Application is brought by 6971971 Canada Inc., hereinafter referred to as the Tenant, for a determination as to whether the Respondent landlord, Eli Messica unreasonably withheld his consent to an assignment of a lease to a new tenant, Moksha Enterprise Ltd.

[2] For the reasons set out below, the Application is granted.

B. Law

[3] Section 23 of the Commercial Tenancies Act states:

Licence to assign not to be unreasonably withheld

23. (1) In every lease made after the 1st day of September, 1911, containing a covenant, condition or agreement against assigning, underletting, or parting with the possession, or disposing of the land or property leased without licence or consent, such covenant, condition or agreement shall, unless the lease contains an express provision to the contrary, be deemed to be subject to a proviso to the effect that such licence or consent is not to be unreasonably withheld.

Application to court where consent to assignment or subletting withheld

(2) Where the landlord refuses or neglects to give a licence or consent to an assignment or sub-lease, a judge of the Superior Court of Justice, upon the application of the tenant or of the assignee or sub-tenant, made according to the rules of court, may make an order determining whether or not the licence or consent is unreasonably withheld and, where the judge is of opinion that the licence or consent is unreasonably withheld, permitting the assignment or sub-lease to be made, and such order is the equivalent of the licence or consent of the landlord within the meaning of any covenant or condition requiring the same and such assignment or sub-lease is not a breach thereof.

[4] Under s. 23 of the Commercial Tenancies Act, unless the lease contains an express stipulation to the contrary, where a lease contains a provision requiring the landlord’s consent to any assignment or sublease, then the lease is deemed to provide that the consent is not to be unreasonably withheld.

[5] Usually the crucial issue in cases involving the right of a tenant to assign or sublease is the issue of determining whether the landlord has been reasonable or unreasonable in refusing to consent. Old case-law favoured tenants on this issue, and the older case-law limited the landlord to considering only the character of the proposed tenant or the subject-matter of the lease.

[6] The contemporary case-law, however, applies a more liberal test that is more favourable to the landlord’s point of view by allowing the landlord to consider a variety of factors in determining whether or not to consent. The modern law does not limit the landlord to any particular criteria and allows the landlord to consider the surrounding circumstances, the commercial realities of the marketplace, and the economic impact of an assignment or sublease. The financial position of the assignee may be a relevant consideration [2]. In determining whether to grant or refuse consent, it is appropriate for the landlord to consider its own position and also the position and interests of other tenants in a shopping centre enterprises [3].

[7] Each case is a question of fact and the onus is on the tenant to show that the consent has been unreasonably withheld [4]. In deciding whether the burden has been discharged, the question is not whether the court would have reached the same conclusion as the landlord; the question is whether a reasonable person could have withheld consent [5]. In Zellers Inc. v. Brad-Jay Investments Ltd. [6], Justice Mesbur stated at para. 26:

26. In considering whether the landlord's refusal to consent is unreasonable, the court must first look at the covenant in the context of the lease and ascertain the purpose of the covenant in that context. The court should look at all the circumstances of the case. No rigid rules govern the types of reasons that the court may take into account when deciding the question of reasonableness. The test must always have regard to the contractual matrix, and the test should encompass consideration of the surrounding circumstances, the commercial realities and the economic impact of the change of use on the landlord within the context of a "reasonable person" standard.

[8] In determining the reasonableness of a refusal to consent, it is the information available to - and the reasons given by - the Landlord at the time of the refusal - and not any additional, or different, facts or reasons provided subsequently to the court - that are material [7].

[9] However, A landlord will not be acting reasonably if its refusal to consent is merely capricious or is arbitrary in the sense of being without any reasonable ground [8]. A landlord will not be acting reasonably if its grounds for refusal are seen to be simply opportunism. Thus, a landlord may not use its refusal as a means to secure a new advantage such as higher rents or a more favourable lease [9].

C. Facts

[10] Mr. Messica is the owner of a property improved by a gas station, car wash, and convenience store. The property is located at 2460 St. Clair Avenue West in Toronto, Ontario. The gas station has operated in accordance with operating rules and standards set by the fuel supplier, Suncor Energy Products Partnership o/a “Petro Canada.”

[11] By lease agreement dated May 1, 2014, Mr. Messica leased the gas station property to 2417178 Ontario Inc. The Lease had a five-year term and contained a right to renew for a further five-year term. The lease contained the following assignment provision:

4. ASSIGNMENT

4.1 The Tenant shall not assign this Lease or sublet the whole or any part of the Premises unless he first obtains the consent of the Landlord in writing, which consent shall not unreasonably be withheld.

4.2 The consent of the Landlord to any assignment or subletting shall not operate as a waiver of the necessity for consent to any subsequent assignment or subletting.

4.3 Any consent granted by the Landlord shall be conditional upon the assignee, sub-lessee or occupant executing a written agreement directly with the Landlord agreeing to be bound by the terms of the Lease as if the assignee, sublessee or occupant had originally executed this Lease as Tenant.

4.4 Once the landlord approve the assignment, then the guarantors will be released immediately and assignee will allow the landlord to put a security of One Hundred Thousand dollars ($100,000) on the assignee’s property. This property must have enough equity in it.

[12] In October 2015, with Mr. Messica’s consent, 2417178 Ontario Inc. assigned the Lease to the Tenant.

[13] Md. Majibur Rahman is the Director and President of the Tenant.

[14] Following an arbitration in January 2019 to determine the market rent for a renewal term, the Tenant exercised its right to renew and the term of the lease was extended to December 31, 2023. The Arbitrator fixed the market rent for the five-year renewal term at monthly net rent at $16,000.00 plus HST and TMI (Taxes, Maintenance, and Insurance).

[15] On May 12, 2019, Mr. Messica presented the Tenant with the Lease Renewal Agreement in accordance with the Arbitration award. The Tenant signed. The Lease Renewal Agreement required the Tenant to undertake improvements to the Leased Property including the installation of a new diesel dispenser. Under the Lease Renewal Agreement, the Tenant was also obliged to arrange a Commission Agreement with Suncor.

[16] I pause to note that in its Application, the Tenant submits that the Lease Renewal Agreement is unenforceable because there was no consideration for it. In my opinion, however, there is no merit to this submission. The Lease Renewal Agreement involved an exchange of promises and the parties have acted since May 12, 2019 recognizing the existence of the Lease Renewal Agreement.

[17] For present purposes the following provisions of the Lease Renewal Agreement are pertinent:

4. In addition to the net rental, the Tenant shall pay TMI [taxes, maintenance, insurance], payable as follows:

(a) Realty taxes shall be payable by the Tenant to the Landlord in the sum of $3,040.00 per month plus HST, subject to a year end adjustment.

(b) Insurance shall be payable by the Tenant to the Landlord on an annual basis, due and payable upon presentation of the invoice by the Landlord to the Tenant.

Any default in payment of realty taxes or insurance shall be deemed a default in payment of the rent.

5. The parties herein acknowledge that the Landlord’s security in the form of a collateral mortgage in the sum of $100,000 remain in place. Further provided that if the Guarantors shall sell the property which secures their guarantee/indemnity, the Landlord agrees to have the collateral mortgage registered against another property, provided that the security is equal to the security of the original property as determined by the Landlord in its sole discretion.

6. The Tenant agrees to commence within two weeks of execution of tis Agreement and complete prior to October 30, 2019, the following repairs and replacements to the Demised Premises:

• paint the interior of the existing convenience store to Petro-Canada standards
• upgrade the washrooms including painting and new hand dryers
• renovate the current coffee area
• purchase and replace the diesel dispenser
• repair and resurface the retail lot and repair the cracked concrete
• install LED lighting on the canopy
• replace the downspout adjacent to the diesel dispenser

Replacement of d/dispenser by end of November 2019 and LL [Landlord] will give his 50% share of money and by March 2020 the Tenant will provide LL [Landlord] portion. It is under clause 8 (improvement).

8. Paragraph 7.3 of the Lease shall be amended to include the following (provided that this provision shall not apply to the items set out in the preceding paragraph):

“The Landlord shall reimburse the Tenant for the cost of any alterations, additions, installations or improvements to the Demised Premises, during the Renewal Term, on the following terms and conditions: […]

I am Md. Majibur Rahman on behalf of 6971971 Canada Inc. agreed to run this gas station on commission basis as discussed and agreed with Suncor. I am going to run it on a commission basis by July 1st 2019 or before as discussed & agreed with Petro Canada for the duration of the lease with Eli Messica.

[18] As noted above, Suncor’s was the supplier for the fuel products for the gas station, and in the months before the signing of the Lease Renewal Agreement, at Mr. Messica’s urgings, Mr. Rahman met with Suncor’s representatives to discuss a Commission Agreement with respect to the sale of fuel etc. at the gas station. Mr. Messica also met with Suncor’s representatives. There were some advantages to him if the Tenant entered into the Commission Agreement but the major benefits would have been for the Tenant.

[19] The discussions between Mr. Rahman and the Suncor’s representatives about a Commission Agreement did not go well, but Mr. Messica urged Mr. Rahman to continue those discussions, which he agreed to do. The discussions continued after the signing of the Lease Renewal Agreement.

[20] Suncor sent Mr. Rahman a proposed Commission Agreement. The agreement, however, was unacceptable to the Tenant, and Mr. Rahman believed that the draft agreement was not consistent with the discussions he had had with Suncor. The Tenant decided not to alter its existing contractual arrangement with Suncor. Mr. Rahman believes that this decision soured its relationship with Mr. Messica, and because of the souring relationship, Mr. Rahman says that he decided to have the Tenant assign its lease. He understood that Mr. Messica did not oppose an assignment.

[21] On September 3, 2019, the Tenant entered into an agreement to assign the lease to Mehulkumar Thakkar, in trust for a corporation to be incorporated, which became Moksha Enterprise Ltd. The transaction between the Tenant and Moksha Enterprise was scheduled to close on October 31, 2019, but because Suncor’s consent was also required for the transaction, the parties agreed to extend the closing to November 25, 2019.

[22] On October 6, 2019, there was a meeting between Mr. Rahman, Mr. Messica, Mr. Thakkar, and two of Mr. Thakkar’s partners. The meeting went well, and after the meeting Mr. Messica told Mr. Rahman that he was satisfied with the experience, qualifications, and financial ability of the principals Moksha Enterprise, who were experienced gas station operators. Mr. Thakkar and his partners already operated another gas station in Toronto.

[23] After the meeting, Mr. Messica sent an email to Suncor highly recommending the Assignee, Moksha Enterprise.

[24] In October 2019, the Tenant agreed to pay Mr. Messica’s legal fees for preparing the consent to the assignment and for the registration of the security instrument required under the Lease upon an assignment of the Lease. By way of elucidation, under the Lease, the guarantors were to provide a collateral security. With an assignment of the Lease to an Assignee, the Assignee was to provide a replacement collateral security with an equity value of $100,000.

[25] On October 10, 2019, Mr. Messica met with Mr. Thakkar again. Mr. Messica deposed that he learned that Moksha Enterprise was not aware of the provision in the Lease Renewal Agreement indicating that the gas station would be operated on a commission basis. Mr. Messica also deposed that he was told that Moksha Enterprise intended to ask to renegotiate the rent after taking over the operation of the gas station.

[26] Later that day, Mr. Messica met with Mr. Rahman and complained that the Tenant had not completed the work required under paragraph 7 of the Lease Renewal Agreement, and, in particular, he complained that the gas station lot was in very poor condition.

[27] On November 3, 2019, Mr. Messica paid the Tenant $12,712.25 being one half of the cost to replace the diesel dispenser as required under the Lease Renewal Agreement.

[28] The assignment transaction appeared to be on course, but Mr. Messica asked that the closing of the assignment be extended to December 5, 2019 when he would return from a trip outside the country. The Tenant and Moksha Enterprise agreed to this extension. However, Moksha Enterprise agreed to extend the closing only if the Tenant agreed to reduce the purchase price proportional to the delay in closing. Pursuant to the arrangement between the Tenant and Moksha Enterprise, the sale price was to be reduced $10,000 per month if the closing was delayed. The result of the postponement of the closing to December 5, 2019 was a $2,000 reduction in the purchase price.

[29] Matters appeared to be proceeding toward the completion of the transaction. However, on November 13, 2019, Mr. Messica’s lawyer, Joel R. Hirsch, advised the Tenant’s lawyer, Katharine Wong of Omar Zahid Law Professional Corporation by letter that Mr. Messica would not consent to the assignment. The letter stated:

Further to your recent correspondence, I am writing to advise that the landlord does not consent to the assignment of the lease to your client’s purchaser.

The purchaser has approached the landlord to advise that the fuel sales were misrepresented by the vendor, and the monthly profits are significantly less than represented. As a result, the purchaser has indicated that he will request a reduction of rent from the landlord after closing.

My client does not want to re-negotiate the lease with the assignee or deal with a defaulting tenant after closing.

Consequently, the landlord does not consent to the assignment.

Please remind your client that some of the repairs to the premises have still not been completed.

[30] Pausing here, it shall be important to note that the reference to repairs of the premises is actually a reference to the completion of the improvements listed in paragraph 7 of the Lease Renewal Agreement.

[31] It is important to note that during the argument of the motion, Mr. Messica through his counsel conceded or acknowledged that the reasons behind Mr. Messica’s refusal to consent to the assignment was that the Tenant was in default of the repair or improvement provisions of the Lease and most particularly in default of the provisions of the Lease Renewal Agreement.

[32] In other words, I find as a fact that Moksha Enterprise was not the reason for Mr. Messica’s change of mind about the consent; the reason was that he believed that the Tenant was not performing its obligations under the Lease and under the Lease Renewal Agreement. Mr. Messica was also concerned about the absence of a Commission Agreement as required by the Lease Renewal Agreement but that was a lesser concern.

[33] Returning to the narrative, Moksha Enterprise was advised about the correspondence from Mr. Hirsch, and Moksha Enterprise was asked to respond. On November 18, 2019, Moksha Enterprise wrote the Tenant by email to advise that it intended to abide by the terms of the Lease. The email message stated:

Hi Mirza/Mohammed

As per our conversation we have no concern with Financial of this gas station. We have no discussion with landlord regarding to reduce rent of this gas station.

When we takeover the current lease its our liability to follow the lease and pay rent which is mention for next four years. Landlord has enough security deposit to recover rent for any default. In our credit history we never default any payment.

As per our offer condition current seller is suppose to fix all repair for card (sic) wash, electric work and Gas Station. Before we takeover lease Gas station and car wash will all 3 category car wash and Machinery must be in working condition. Before 10 days of closing our Technician will verify all repairs.

If any delay in closing of this business from 05 Dec will reduce our purchase price in proportion of $10,000 per month.

[34] The email message from Moksha Enterprise was provided to Mr. Messica’s lawyer. This may have assuaged Mr. Messica’s concerns about Moksha Enterprise, but it did not allay his concerns about the Tenant’s performance of its obligations under the Lease and the Lease Renewal Agreement.

[35] In all events, Mr. Messica refused to grant his consent to the assignment, and the transaction did not close on December 5, 2019.

[36] Shortly thereafter, the Tenant brought this Application for a court ordered consent to the assignment of the Lease.

[37] In the Application, Mr. Rahman delivered an affidavit dated December 9, 2019. Mr. Messica delivered a responding affidavit dated February 7, 2019. Mr. Rahman delivered a reply affidavit dated February 25, 2020.

[38] The dueling affidavits of Mr. Rahman and Mr. Messica focus on whether or not the Tenant was or was not in compliance with the terms of the Lease Renewal Agreement.

[39] Mr. Messica deposed that the Tenant was in default with respect to a variety of matters including: (a) the payment of realty taxes; (b) the payment of insurance premiums; (c) the completion of the work required by paragraph 7 of the Lease Renewal Agreement; (d) in particular, whether the diesel dispenser acquisition and installation had been completed; and (e) repairs to the gas station lot.

[40] Mr. Rahman response was a combination of denials, excuses, explanations of misunderstandings, and accusations that Mr. Messica was the source of some of the problems. Mr. Rahman said that Mr. Messica’s his complaints were late arriving and after-the-fact of his having orally consented to the assignment of the Lease.

[41] Mr. Rahman also argued that Mr. Messica never employed the provisions in the Lease available to him for situations of default by a tenant including giving the Tenant formal notice and an opportunity to remedy its default.

[42] Mr. Messica was cross-examined on March 3, 2020. Mr. Rahman was cross-examined on March 3 and 4, 2020. The dueling allegations about whether or not the Tenant had complied with the Lease Renewal Agreement continued.

[43] The Application was argued on March 13, 2020 with a further reprise of the arguments about compliance with the Lease Renewal Agreement. As noted above, Mr. Messica was less concerned about the Commission Agreement or about the appropriateness of Moksha Enterprise as a tenant and most concerned about whether the Tenant was in breach of the Lease.

[44] Pending a determination of this Application under section 23 of the Commercial Tenancies Act, the Tenant has negotiated a further extension of the closing date of the assignment of Lease to April 6, 2020.

D. Discussion and Analysis

[45] The focus of the analysis in the immediate case is on: (a) what was the legal and factual situation in November 2019, when Mr. Messica rescinded his consent to an assignment of the lease to Moksha Enterprise? and (b) what were the material reasons or factors that led to that refusal?

[46] In October, when Mr. Messica first met with Mr. Thakkar and his partners who had entered into an agreement to purchase the Tenant’s lease, Mr. Messica had two concerns; namely: (1) that the Tenant complete its obligations under the Lease Renewal Agreement; and (2) that Moksha Enterprise, Mr. Thakkar’s corporation, be a financially and commercial competent successor to the Tenant.

[47] After the initial meeting, Mr. Messica’s concerns about the compliance with the Lease Renewal Agreement were not resolved, but he was satisfied with Moksha Enterprise as a successor tenant. Indeed, Mr. Messica enthusiastically supported Moksha Enterprise becoming his new tenant. Mr. Messica gave an oral consent to the assignment, but the consent was subject to the terms of the lease about completing an assignment.

[48] Then, there was a second meeting with Moksha Enterprise, and I believe Mr. Messica’s evidence that the topic of a lease re-negotiation was discussed. It is possible, however, that Mr. Messica misunderstood Moksha Enterprise’s intentions, but I have no reason to doubt that he genuinely believed that Moksha Enterprise might wish to re-negotiate the lease.

[49] It was as a result of that second conversation, Mr. Messica gave his lawyer instructions: (a) to advise the Tenant that Mr. Messica did not consent to the assignment; and, (b) to remind the Tenant to comply with the terms of the Lease and the Lease Renewal Agreement.

[50] I find as a fact that the expressed reason for Mr. Messica’s refusal to consent to the assignment was his concerns about a rent re-negotiation. Significantly, I find as a fact that the refusal to consent to the assignment on November 2019 was not the Tenant’s alleged defaults in complying with the Lease Renewal Agreement.

[51] Mr. Messica’s concern about the Lease Renewal Agreement was a pre-existing concern, an independent matter, that existed before and continued after the Tenant had entered into the agreement to assign the Lease. Mr. Messica’s concerns continued to be an independent concern after he orally consented to an assignment in accordance with the assignment provisions of the Lease. Mr. Messica’s concerns continued to be an independent concern after he had his lawyer rescind his consent.

[52] In other words, Mr. Messica’s submissions that his refusal or withdrawal of his consent to the assignment was based on the his concerns that the Tenant was in default were a before-the fact and an after-the-fact explanation about why he refused to consent to the assignment of the lease. It is to be noted that some of Mr. Messica’s concerns about the Lease or the Lease Renewal Agreement were not raised or pointed out until Mr. Messica’s responding affidavit in February 2020. It is to be noted that some of these concerns could be quickly remediated and others could be attended to in relatively short order.

[53] These before-and-after-the-fact reasons provided by Mr. Messica in his affidavit delivered in this Application were not the genuine reasons for the refusal, and, further, in the circumstances of the immediate case, those reasons would not be sufficient in themselves to justify Mr. Messica’s refusal to consent to the assignment to Moksha Enterprise.

[54] As noted above, in determining the reasonableness of a refusal to consent, it is the information available to - and the reasons given by - the Landlord at the time of the refusal - and not any additional, or different, facts or reasons provided subsequently to the court - that are material. Thus, Mr. Messica cannot rely on his concerns about the Lease Renewal Agreement as a justification for his refusal to consent to an assignment.

[55] I, however, do not agree with the Tenant’s argument that Mr. Messica’s purpose in refusing his consent was to induce the Tenant or perhaps Moksha Enterprise to commit to a Commission Agreement for the operation of the gas station. He had no collateral purpose. I believe Mr. Messica’s evidence that he thought the Commission Agreement was more for the betterment of the operator of the gas station than it was for him as the landlord of the gas station property. Further and in any event, I find as a fact that the absence of a Commission Agreement would be another after-the fact rationalization as to why Mr. Messica did not consent to an assignment of the Lease.

[56] Mr. Messica’s genuine expressed reason for refusing his consent was his concerns about Moksha Enterprise’s indication of an intent to seek a renegotiation of the Lease. That concern, however, was no longer a reasonable one after Moksha Enterprise confirmed that it would abide by the terms of the Lease. Moreover, Mr. Messica’s concern about a lease re-negotiation with Moksha Enterprise was never a reasonable concern after Mr. Messica had satisfied himself of the financial stability and business acumen of the principals of Moksha Enterprise, who were experienced operators of a gas station. Mr. Messica could simply say no to any request to renegotiate and Moksha Enterprise had indicated that they were not going to ask.

[57] Where these conclusions take the analysis is that the Tenant has met the onus of demonstrating that Mr. Messica’s refusal to consent to the assignment was an unreasonable refusal. Mr. Messica’s expressed reason for refusing the assignment quickly dissipated and it was not a sound ground to refuse the consent in the circumstances of the immediate case.

E. Conclusion

[58] For the above reasons the Application is granted.

[59] If the parties cannot agree about the matter of costs, they may make submissions in writing, beginning with the Tenant’s submissions within twenty days of the release of these Reasons for Decision followed by the Mr. Messica’s submissions within a further twenty days.

[60] In the circumstances of the Covid-19 emergency, these Reasons for Decision are deemed to be an Order of the court that is operative and enforceable without any need for a signed or entered, formal, typed order.

[61] The parties may submit formal orders for signing and entry once the court re-opens; however, these Reasons for Decision are an effective and binding Order from the time of release.

Perell, J.

Released: March 18, 2020