Court File and Parties

COURT FILE NO.: CV-20-645161-0000 DATE: 2021-02-23 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

C.I.D. Applicant – and – GARNIER HOLDINGS INC. and CORREL HOLDINGS INC. Respondent

Counsel: Scott Rosen, for the Applicant Julian Binavince, for Garnier Holdings Corp. Anthony Colangelo, for Correl Holdings Inc.

HEARD: November 18 and 20, 2020

A. RAMSAY J.

[1] The applicant, C.I.D. (“C.I.D.”), brings this application pursuant to Rule 14.05(3)(d),(g),(h) of the Rules of Civil Procedure, RRO 1990, O. Reg 194, for a declaration that a sublease was terminated when a commercial landlord changed the locks, thereby automatically terminating a sublease.

[2] C.I.D. also sought a determination of damages in its favour, or a reference to a Master to determine damages.

[3] C.I.D. also moved to amend the pleadings by substituting “Canadian International Designers Inc. also known as CID Inc.” for “C.I.D.” in the title of proceedings.

The Parties

[4] Correl Holdings Inc. (“Correl”) is the head landlord with respect to premises known municipally as 88 Wingold Avenue, Toronto (the “premises”).

[5] Garnier Holdings Corp. (“Garnier”) is the tenant of Correl with respect to the premises pursuant to a lease agreement dated October 25, 2019 (the “head lease”). The premises were comprised of a building of approximately 6633 square feet in size.

[6] Garnier has commenced a separate application against Correl, Court File No. CV-20-645161, which will proceed if the relief sought by C.I.D. is granted in this application.

[7] C.I.D. is the sub-tenant of Garnier pursuant to a sublease agreement dated January 15, 2020 (“the sub-lease”), with respect to the premises.

[8] CID was Garnier’s subtenant pursuant to an agreement with Garnier dated January 5, 2020 (the “sublease”).

Background

[9] Correl and Garnier had entered into the head lease on October 25, 2019 for a ten-year commencing March 15, 2020. Under the head lease, Garnier agreed to pay Correl rent in the amount of $6,666.66 plus HST per month for the first three years.

[10] On January 15, 2020 CID Inc. C.I.D. entered into a sub-lease with Garnier with respect to the premises. Pursuant to the terms of the sub-lease, C.I.D. was the sub-tenant and Garnier was sub-landlord. The head landlord of the leased premises was Correl. C.I.D. agreed to pay Garnier $11,250 plus HST per month for the first three years of the term.

[11] Correl was aware of the existence of the sub-lease.

[12] Aside from deposits paid by C.I.D. under the sub-lease, C.I.D. made no payments on account of rent prior to the commencement of the application. C.I.D. apparently cited the impact of the Covid-19 pandemic for its failure to pay rent in April and May.

[13] As a result of the global pandemic and the spread of the COVID-19 virus, a state of emergency was declared throughout the Province of Ontario, effective March 16, 2020. All commercial activity, except activities deemed essential, ceased as a result of the declaration, with the first “re-opening” of non-essential businesses in mid-June 2020.

[14] Garnier relies on an oral agreement it says was entered into on April 17, 2020 between Peter Majerovic, the principal of Garnier and Frank Iantorno (“Mr. Iantorno Sr.”), a principal of Correl, and his son Mauro Iantorno, as a result of a meeting which Garnier says occurred at a café at Dufferin and Glengrove. Garnier maintains that the oral agreement contemplated that Garnier would pay a 50% reduction in rent for April and May, with the remaining 50% to be deferred and amortized over the remainder of the calendar year.

[15] The existence of the oral agreement was disputed by Correl. After receiving a letter from Mr. Majerovic stating that an oral agreement existed, Mauro Iantorno immediately responded to Mr. Majerovic to advise him that no such agreement existed. Correl’s legal representative wrote to Garnier’s legal representative on April 18, 2020, a day after Garnier initially asserted it existed, and on subsequently on April 21, 2020 and May 5, 2020, at all times denying that any oral agreement was ever made. Mauro Iantorno deposes that the head lease was entered into with Mr. Iantorno senior, 85 years old at the time, without the benefit of legal counsel, and after he had had surgery.

[16] On May 5, 2020, Mr. Majerovic (Garnier) presented a letter to Mauro Iantorno on Correl’s letterhead, stating that the lease was in good standing and requesting that the letter be signed. The letter had not been authorized by Correl.

[17] In response, to the letter drafted by Mr. Majerovic, Correl’s legal representative wrote to Garnier the same day (May 5,2020) and advised the that the letter was fabricated and reiterated that there was no agreement. Correl’s lawyers demanded that the outstanding rent be paid by May 15, 2020.

[18] On May 25, 2020, Correl terminated its head lease with Garnier by changing the locks on the premises and posting a notice of termination on account of Garnier’s non-payment of rent. Garnier as well as the subtenant, C.I.D., were denied access to the premises.

[19] On June 8, 2020, Garnier and Correl settled their dispute. The head lease was reinstated on the same terms and conditions with a key and possession of the premises being returned to Garnier.

[20] On June 29, 2020, C.I.D and Garnier consented to an interim order made by Madam Justice Vella, without prejudice to rights of any party, requiring C.I.D to pay outstanding rent arrears under the sublease from April 15, 2020 to July 15, 2020 in the amount of $38,137.50, and monthly rent, subject to adjustment on final resolution, with a key to the premises to be provided to C.I.D., all without prejudice to C.I.D’s position the sub-lease was terminated.

Position of the Parties

i. Position of C.I.D.

[21] C.I.D. argues that the head lease was terminated, by operation of law, when Correl, the head landlord, changed the locks, thereby automatically terminating the sublease.

[22] C.I.D. submits that as a result of the termination of the head lease, and consequently the sublease, CID was discharged from the sublease and entitled to access the leased premises for the purpose of removing all of its property, including its inventory, equipment and chattels.

[23] During oral submissions, counsel for C.I.D. pointed to the unfairness with respect to the amount of rent it was paying to Garnier as a sub-tenant ($11,250 plus HST) versus the amount of rent Garnier was paying under the head lease (of $6,666.66 plus HST) for the same period of time. C.I.D. candidly admitted it wanted to be discharged from the lease.

ii. Position of Garnier

[24] Garnier submits that it had a valid oral agreement for the reduction of rent and deferral of rent with Correl due to the pandemic. Garnier argues that at the time Correl changed the locks in May, Correl’s right to terminate the head lease related only to the claim for 50% of April’s rent.

[25] Garnier submits that given its oral agreement with Correl to defer rent, the head lease was not validly terminated.

[26] Garnier also submits that Correl repudiated the contract, and, as the innocent party, it is entitled to treat the head lease as remaining in full force and effect.

[27] In the alternative, Garnier argues that if Correl’s termination of the lease on May 25 was valid, it is entitled to relief from forfeiture of the sublease.

iii. Correl’s Position

[28] Correl takes no position with respect to the declarations being sought by C.I.D.

[29] Correl submits that that there was no oral rent deferral agreement between it and Garnier.

[30] Correl’s position is that it changed the locks to the premises due to Garnier’s nonpayment of rent, and in doing so, exercised a right of re-entry on May 25, 2020) in accordance with the Commercial Tenancies Act.

[31] Correl has raised arguments in response to the claims made against in by Garnier in the related application, which are not part of the application before this court.

ANALYSIS

Was the Sub-Lease Terminated by operation of law?

[32] If rent remains unpaid for over 15 days, unless otherwise agreed, a commercial landlord may lawfully re-enter and take possession without any formal demand for payment. Section 18(1) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7, governs a landlord’s right of re-entry on non-payment of rent and states that:

18 (1) Every demise, whether by parol or in writing and whenever made, unless it is otherwise agreed, shall be deemed to include an agreement that if the rent reserved, or any part thereof, remains unpaid for fifteen days after any of the days on which it ought to have been paid, although no formal demand thereof has been made, it is lawful for the landlord at any time thereafter to re-enter into and upon the demised premises or any part thereof in the name of the whole and to have again, repossess and enjoy the same as of the landlord’s former estate.

[33] Pursuant to Section 19(2) of the Commercial Tenancies Act, a landlord’s right of re-entry or forfeiture for any breach of any condition in a lease, other than the payment of rent, is not enforceable unless the landlord provides written notice to the tenant specifying the breach and giving the tenant an opportunity to remedy the breach (See also: Mason Homes Limited v. Woodford, 2014 ONCA 816, at para. 9).

[34] The effect of changing the locks by the landlord and excluding the tenant has been held to constitute a termination of the lease: Novacrete Construction Ltd. v. Profile Building Supplies Inc. et al., at para. 64; Clarkson Co. v. Consortium Group Ltd. (1983).

[35] A termination of a head lease results in a termination of the sublease (per Nordheimer J. in Toronto Harbour Commissioners v. T.H.C. Parking Inc., at paras 30-33, citing, Re Goodyear Canada Inc. and Burnhamthorpe Square Inc. (1998), 41 O.R. (3d) 321, 166 D.L.R. (4th) 625 (C.A.), and Re Roanne Holdings Ltd. v. Victoria Wood Development Corp. Ltd. (1975), 8 O.R. (2d) 321, 58 D.L.R. (3d) 17 (C.A.).

[36] The intention of the landlord in changing the locks is key in determining whether the lease is terminated. As explained by Lederman J. stated in Falwyn Investors Group Ltd. v. GPM Real Property (6) Ltd., at para. 25:

Clearly, the changing of the locks is significant. However, more significant still is the effect of the change of the locks. Where the intended or actual effect is to exclude the tenant, then the lease is terminated and any subsequent distress is illegal.

[37] Where a landlord exercises distress in a manner to exclude the tenant from possession of the premises from carrying on its ordinary business on the premises or gaining access to the premises in the ordinary course, it may have the effect of terminating the lease: (Per Kristjanson J. in 1694879 Ontario Inc. v Krilavicius, 2017 ONSC 2396, citing S. Graff and B. Kenworthy, in H. Haber, ed., Tenant’s Rights and Remedies in a Commercial Lease, A Practical Guide, 2nd ed. (Toronto: Canada Law Book, 2014) at p. 299.

[38] A termination of the lease may be found to exist based on the landlord's conduct in padlocking the leased premises and excluding the tenant from the premises, despite the commercial landlord arguing to the contrary (See: 1694879 Ontario Inc. v Krilavicius, 2017 ONSC 2396).

[39] By its conduct and its words, Correl intended to exclude Garnier from the premises. The head lease was therefore terminated by operation of law: (Falwyn Investors Group Ltd. v. G.P.M. Real Property (6) Ltd. and Project 360 Investments v. 1301584 Ontario Ltd. (2008), 71 R.P.R. (4th) 210 (Ont. Sup. Ct.)).

[40] Garnier admits in his factum that Correl intended to terminate the head Lease, but maintains that the termination was not lawful.

[41] The court finds that Correl terminated the head lease on May 25, 2020, when it changed the locks and posted a notice of termination. By changing the locks on the premises (Correl effected a forfeiture of the lease Tosomba v Base General Contracting Ltd, 2012 ONSC 1839, at para. 20; Novacrete Construction Ltd v Profile Building Supplies Inc., at para. 65; Globe Convestra Ltd v Vucetic, and which, in turn, terminated the sublease.

[42] What then are the remedies available when a commercial landlord terminates the tenancy? As noted by Himel J. in Novacrete, supra Himel J.:

“The case of Highway Properties outlines the remedies and courses of action available to a landlord in a commercial tenancy where the tenant is in fundamental breach of the lease. However, where the landlord elected to terminate the lease by his conduct, the remedies include the right to sue for rent accrued due and damages. The changing of the locks terminated the tenancy and the landlord cannot distrain for accelerated rent nor claim the rent after the changing of the locks: Country Kitchen Ltd., supra, p. 362; Beaver Steel Inc. v. Skylark Ventures Ltd., (1983), 47 B.C.L.R. 99 (B.C. S.C.) at 110; Mundell v. 796586 Ontario Ltd. (1996), 3 R.P.R. (3d) 277 (Ont.Gen.Giv.).”

[43] The act of terminating the head lease has the effect of terminating any sublease, which is dependent upon the continued existence of the head lease; Ahmed v DePaulis, 2020 ONSC 2550.

[44] Counsel for C.I.D. submits that C.I.D. wishes to be discharged from the sublease. C.I.D. in fact did not pursue the statutory remedy available to it under s. 21 of the Act to seek relief from forfeiture.

What is the effect of the Re-instatement of the Head Lease on the Sub-Lease?

[45] Garnier has also raised the amendments to the Commercial Tenancies Act, as a result of the pandemic.

[46] Even if the head lease is reinstated, the sublease is still terminated (See: Randhawa v Frontier Dental Services Ltd., at para. 16).

The Protecting Small Business Act, 2020

[47] Amid the pandemic, the Ontario government made amendments to the Commercial Tenancies Act by enacting “The Protecting Small Business Act, 2020”. Pursuant to s. 83(1) of this Act, commercial landlords were precluded from exercising a right of re-entry during between May 1, 2020 and June 18, 2020, and were required to restore possession of any premises to the tenant, unless the tenant declined to accept possession, or, if unable to restore possession of the premises, pay damages flowing from its inability to restore possession. If a landlord restores possession of a premises to a tenant in accordance with the foregoing, the tenancy is deemed to be reinstated on the same terms and conditions unless the landlord and the tenant agree otherwise.

[48] Implicit in the reinstatement of a tenancy, it the understanding that the tenancy is terminated, where re-entry occurred, but may be re-instated as a result of the amendments. There is no reason why the amendments should not apply to a sublease. And, based on the language of the amendments, a tenant may decline to accept possession, which C.I.D. is effectively doing in insisting that the sublease was terminated by operation of law when the head lease was terminated. C.I.D. is effectively declining a re-instatement of its tenancy or lease.

Would the oral agreement comply with the requirements of the Statute of Frauds?

[49] In any event, the oral agreement being relied upon by Garnier would not satisfy the requirements of the Statute of Frauds. The lease between Correl and Garnier does not fall within exception for short-term leases set out in the statute as it was a lease for a term of 10 years.

[50] Subsection 1(1) of the Statute of Frauds provides, in part, that:

“Every estate or interest of freehold and every uncertain interest of, in, to or out of any messuages, lands, tenements, or hereditaments shall be made or created by a writing signed by the parties making or creating same, ... and, if not so made or created, has the force and effect of an estate at will only, and shall not be deemed or taken to have any other or greater force and effect.”

[51] Section 4 of the Statute of Frauds provides, in part:

“No action shall be brought...to charge any person upon any contract or sale of lands...or any interest in or concerning them, unless the agreement upon which the action is brought, or some memorandum or note thereof is in writing and signed by the party to be charged therewith or some person thereunto lawfully authorized by the party.”

[52] An amendment or variation to an agreement pertaining to leases over three years must be evidenced in writing to be enforceable: Hoj Industries Ltd. v. Dundas Shepard Square Ltd.; Seng v. Seng, 2019 ONSC 3803, para. 66.

[53] Since any oral agreement between Correl and Garnier to defer rent, regardless of the dispute between these two parties as to its very existence, would not satisfy the formal requirements of the Statute of Frauds, it would be unenforceable, and at the time that Correl changed the locks on May 26, 2020, it had a right of re-entry for non-payment of rent under the Commercial Tenancies Act. To the extent that an oral agreement existed, which this court does not accept on the available evidence, nothing prevents Garnier from using it as a defence.

Was the lease repudiated?

[54] Garnier also relies on the seminal decision of Highway Properties Ltd. v. Kelly, Douglas and Co. Ltd. in support of its position that Correl repudiated the lease, and as the innocent party, it was entitled to treat the head lease as remaining in full force and effect.

[55] At p. 570 of Highway Properties, Laskin J., speaking for the court, set out three “mutually exclusive” remedies that a landlord may take when a tenant is in fundamental breach of the lease or has repudiated it entirely. He stated:

“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.”

[56] However, in Highway Properties, the court draws a distinction between termination and repudiation. On the facts of this case, Garnier was not an innocent party. It was in breach of its lease agreement for nonpayment of rent. Correl exercised the statutory remedies available to it at the time in accordance with s. 18(1) of the Commercial Tenancies Act in effecting a re-entry. The sublease was terminated on May 25, 2020 by operation when the tenant (Garnier) and sub-tenant (C.I.D.) were locked out. Termination and repudiation are mutually exclusive. If the sublease was terminated by operation of law, Garnier would not be able to insist on C.I.D. carrying out any obligations under the sublease as the sub-lease would, itself, have been terminated.

Is Relief Against Forfeiture Available to Garnier?

[57] Garnier does not rely on the relief from forfeiture provision in s. 20 of the Commercial Tenancies Act but rather s. 98 of the Courts of Justice Act.

[58] Relief from forfeiture is an equitable, discretionary remedy. The Court will also consider whether the Applicant comes to Court with clean hands and whether the Applicant made diligent efforts to comply with the terms of the lease (Armenian Community Centre v. Morland Marketing Inc. at para. 76).

[59] Counsel for Garnier submits that there is no evidence that Garnier acted unreasonably in the response to the pandemic and the gravity of the alleged breach is de minimis, given the circumstances, and the value of the property that would be forfeited by Garnier is equal to present value of the monthly net revenue that the premises provides to Garnier.

[60] On the evidence, Garnier does not come to the court with clean hands. Their alleged meeting at a café in the midst of the shutdown is not supported by the evidence. And, in the face of repeated insistence by Correl’s legal representative that no such agreement existed, Garnier’s principal prepared a letter on Correl’s letterhead, without Correl’s authority, indicating that the lease was in good standing. Correl has pointed to the questionable circumstances under which the original head lease was entered into, with an 85-year-old man, without the benefit of his own lawyer, shortly after his surgery.

[61] Garnier does not come to the court with clean hands, and in the circumstances, relief from forfeiture is not available to Garnier.

CONCLUSION

[62] The crux of Garnier’s position vis-à-vis C.I.D. is that the head lease was not validly terminated. The jurisprudence establishes otherwise. At the time Correl changed the locks and excluded Garnier from the premises, s. 18(1) of the Act permitted a commercial landlord to terminate the lease without written notice following 15 days of non-payment.

[63] Based on Garnier’s own evidence, Garnier was in default of their rent obligations. However, Garnier insists there was an “oral” rent deferral agreement. On the evidence before the court, I cannot find that such an oral agreement existed. Garnier evidence of a meeting at a café on April 17, 2020 with Correl’s principal, who is 85 years old, at Dufferin and Glengrove, in the midst of the province’s state of emergency declaration, is contradicted by the evidence. I accept Correl’s evidence, which I take judicial notice of, with respect to the phased reopening on June 24, 2020 of restaurants in Toronto. Mauro Iantorno (Correl) and Correl, through its legal representative, have consistently denied the existence of such an oral agreement on several occasions, and notwithstanding that sustained denial, Garnier’s representative drafted a letter, on Correl’s letterhead, stating the lease was in good standing.

DISPOSITION

[64] For the reasons above, the court finds that the sublease dated January 15, 2020 between C.I.D. and Garnier was terminated, by operation of law, on May 25, 2020 when Correl changed the locks to the premises and excluded C.I.D. from the premises.

[65] The determination of any damages sustained by C.I.D. is referred to Master.

[66] Any relief sought with respect to the related application commenced by Garnier may be pursued in that proceeding.

[67] The order sought amending the title of proceedings by correcting the name of the applicant to “Canadian International Designers Inc. also known as CID Inc.”, which is unopposed, is granted.

[68] Counsel agreed that costs should follow the effect, and also agreed on a schedule for costs submissions, namely fifteen days from the date of the decision for the successful party, followed by responding submissions seven days thereafter, and reply submissions to be delivered within a further five days.

Ramsay J. Released: February 23, 2021