Court File and Parties

COURT FILE NO.: CV-21-77102-0000 DATE: 2023 07 18

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Sawgrass Holdings Inc. Applicant – and – Harvestone Inc. and Albert Masini Respondents

COUNSEL: M. Stanton, K. McGurk, for the Applicant J. I. Marini, for the Respondents

HEARD: April 14, 2023

THE HONOURABLE JUSTICE R. B. REID

REASONS FOR DECISION

Introduction:

[1] Sawgrass Holdings Inc. (“Sawgrass”) is the owner and landlord of commercial property (the “premises”) located at 4057 Fairview Street, Burlington, Ontario. Albert Masini (“Masini”) became a tenant of the premises pursuant to a commercial lease dated October 15, 2009, for a term beginning January 1, 2010, and ending December 31, 2014.

[2] Masini was a director and shareholder of a corporation known as Harvestone Inc. (“Harvestone”) which operated a business of granite and marble fabrication and sales at the premises.

[3] Conflicts occurred between Sawgrass and Masini arising from the tenancy relationship. A mediation occurred on November 25, 2015, resulting in Minutes of Settlement, the terms of which included a five-year lease extension, and an agreement that Harvestone would be named as a co-tenant. No lease extension agreement was signed.

[4] Masini and Harvestone made an application (“application #1”) dated January 20, 2017, seeking a determination of their rights arising from the Minutes of Settlement and claiming damages against Sawgrass.

[5] Sawgrass made an application (“application #2”) dated September 22, 2021, seeking an order for vacant possession of the premises, the payment of rental arrears, and damages relating to the costs of restoring and repairing the premises.

[6] By order of Goodman J., dated January 5, 2022, the two applications were consolidated.

[7] Harvestone was dissolved as a result of non-payment of taxes on June 17, 2018, pursuant to s. 212 of the Canada Business Corporations Act (the “CBCA”).

[8] Masini stopped doing business from the premises in July 2020 when the City of Burlington issued an order arising from the condition of the roof and mould in the premises. No rent has been paid since that time.

[9] The original lease agreement required the provision of commercial liability insurance by Masini. No insurance has been in place since 2018. Masini advises that insurance is not available in the absence of a signed lease agreement.

[10] Sawgrass locked Masini out of the premises on January 22, 2021 following notices to vacate and notices of default. By some means, but without the consent of Sawgrass, Masini was able to re-enter. Although not clearly articulated, it appears that he has continued to operate his business off-site, but has been accessing materials stored at the premises.

The claims by Sawgrass:

[11] The claim for vacant possession, if successful, would permit Sawgrass to make other commercial use of the premises. The remaining claims are entirely financial: damages for arrears of rent and for the costs of restoring the premises required following renovations which it alleges were made by Masini and Harvestone without its knowledge or consent.

The claims by Masini:

[12] The tenant’s claims are entirely financial. They include damages arising from the alleged failure of Sawgrass to enter a lease extension in accordance with the Minutes of Settlement. According to Masini, Sawgrass refused to provide a proper lease extension agreement as required by the Minutes of Settlement. Sawgrass responds that it did provide a lease extension agreement but that Masini and Harvestone did not sign because they were seeking additional terms not included in the Minutes of Settlement.

[13] Masini claims that great expense was incurred to renovate the premises (with the permission of Sawgrass), and for which he should be compensated. He also alleges that the failure by Sawgrass to properly maintain the premises created expense for him, both before and after the mediation, and ultimately made the premises unusable, with a resulting loss of his ability to carry on business from the premises.

Appropriate procedure:

[14] The outstanding landlord and tenant disputes between the parties are the subject of the two separate applications that now have been consolidated.

[15] Masini and Harvestone submit that no decision should be made on the applications at this point and that the applications should be converted into an action. They note the many disputed facts that exist. Resolution of the disputed facts require credibility findings. Procedurally, they requested dates for cross-examination of a representative of Sawgrass on several occasions, but arrangements could not be made and as a result the evidentiary record before the court on the applications is incomplete. Use of the trial management features of an action would provide a just means of bringing the matters to a resolution at or before trial.

[16] Sawgrass submits that it is appropriate to grant the declaratory relief requested without further delay, namely a declaration that the lease is terminated and for the issuance of a writ of possession. To the extent that damages cannot properly be assessed on the evidentiary record currently before the court, that assessment could be made the subject of a trial of an issue within the existing applications.

Analysis:

Should declaratory relief be granted?

[17] The basic facts relating to the parties’ relationship are not disputed:

a. The lease dated October 25, 2009 between Sawgrass and Masini has expired;

b. The Minutes of Settlement dated November 25, 2015, contemplated a five-year lease extension;

c. No lease extension agreement was executed;

d. The premises have not been insured by Masini or Harvestone since 2018;

e. Harvestone was dissolved on June 17, 2018;

f. No rent has been paid by Masini or Harvestone to Sawgrass since July 2020;

g. Sawgrass locked Masini out of the premises on January 22, 2021, following notices to vacate and notices of default; and

h. Masini re-entered the premises without the permission of Sawgrass.

[18] Sawgrass relies on three acts of default by the tenants under the lease that it characterizes as irrefutable: (1) the failure to secure property, business interruption and occupiers’ liability insurance since 2018, (2) the dissolution of Harvestone as a corporation on June 17, 2018, and (3) the failure of the tenants to pay rent since July 2020. Sawgrass asserts that each of those matters constitutes an “act of default” under section 10 of the lease, any one of which permits the landlord to terminate the lease and re-enter the unit.

[19] Although the basic facts are undisputed, the parties have opposing views about the surrounding circumstances.

Failure to insure:

[20] The expired lease dated October 15, 2009, contained a requirement at section 8 that the tenant maintain insurance coverage for a variety of perils. Although no lease extension agreement was signed, the Minutes of Settlement contemplated an extension of the original lease incorporating the same basic provisions including the requirement for insurance coverage.

[21] The evidence of Masini was that he could not secure insurance because the insurer required proof of a current lease and that the refusal by Sawgrass to sign the lease extension agreement meant that no lease could be provided to the insurer.

[22] The evidence of Sawgrass is that on several occasions in May and June 2016, it provided a draft extension agreement for signature on terms contemplated by the Minutes of Settlement. No objections were made by the tenants but no signature was provided.

[23] Masini responds that the draft was not satisfactory for reasons that were conveyed by counsel in an eight-page letter of August 19, 2016, particularly relating to the use of a shed and lands adjoining the shed and to an additional permitted use of the premises for food preparation.

[24] Until responsibility for the failure to execute the lease extension agreement can be assigned, it is not appropriate to consider the failure to provide insurance in as an act of default. If the failure to provide a written lease document to the insurer was the reason for no insurance coverage being put in place, and if the failure to execute the lease extension agreement was the fault of Sawgrass, it would be inappropriate to permit Sawgrass, by its own action, to trigger an act of default on the part of Masini.

Dissolution of Harvestone:

[25] The expired lease provided in section 10 that an act of default would occur if the tenant has taken action with a view to winding up, dissolution or liquidation where the tenant is a corporation.

[26] Harvestone was not a party to the expired lease. The Minutes of Settlement provided that Harvestone would become a co-tenant with Masini. However, since the lease extension agreement was not signed, it is not reasonable to deem the subsequent dissolution of Harvestone to be an act of default.

[27] In addition, based on the evidence of Masini that Harvestone was dissolved pursuant to section 212 of the CBCA, it is arguable that no “action” was taken by Harvestone “with a view to winding up, dissolution or liquidation”, as opposed to an action having been taken by the Director under the CBCA.

Failure to pay rent:

[28] The expired lease provided in section 10 that an act of default would occur if the tenant failed to pay rent for a period of seven consecutive days, regardless of whether a demand for payment had been made or not.

[29] The admitted failure to pay rent by Masini is said to have followed structural failures at the premises which Sawgrass failed to remedy. Masini relies on paragraph six of the expired lease which contains a covenant that the landlord is responsible for repairs or replacements of a capital nature and that the tenant shall not be liable to affect repairs attributable to reasonable wear and tear or to damage caused by fire, lightning or storm.

[30] The standards committee of the City Burlington issued an order in July 2020 prohibiting entry to the premises due to the condition of the roof and the discovery of mould as a result of which order Masini could no longer conduct business. A delay occurred before the repair was made by Sawgrass.

[31] Regardless of the parties’ disputed positions on the facts and their views about who should bear responsibility for the breakdown of the relationship, it is clear that the landlord and tenant relationship has irretrievably broken down. Payment of rent for the premises was a fundamental term of the lease. Whether that lease continued on a month-to-month basis after its expiry or under the terms of the Minutes of Settlement, the failure to pay rent was clearly an act of default which gave the landlord the right to terminate the lease and re-enter the unit. Parenthetically, given that Sawgrass locked out Masini on January 22, 2021, it was inappropriate for Masini to have exercised self-help, re-entering the unit rather than seeking relief from the alleged forfeiture.

[32] Pursuant to section 74 of the Commercial Tenancies Act (the “CTA”), a landlord may bring an application to this court to determine whether a tenant is over-holding and, if such a determination is made, the court may order a writ of possession to restore the land to the landlord.

[33] Based on the admitted failure to pay rent, this is the proper case for a declaration that (a) Masini is in breach of the lease, (b) the lease is terminated and (c) a writ of possession issue ordering the sheriff to place the premises into the possession of Sawgrass. If Masini is successful in establishing that Sawgrass was responsible for the closure of his business due to the failure to repair or maintain the premises, he may well be entitled to damages, but that neither negates the act of default arising from a breach of the obligation to pay rent nor the landlord’s entitlement to re-enter the unit on proper notice. The tenant is over-holding, and the landlord is entitled to relief.

[34] The execution of the writ of possession will be delayed by 30 days from the date of this decision or to such other date as the parties may agree in writing.

How should the claim for damages proceed?

[35] Application #1 sought a determination of rights that depend on the interpretation of a contract, namely the Minutes of Settlement dated November 25, 2015, and therefore properly fell within the provisions of rule 14.05(3) of the Rules of Civil Procedure which permit a proceeding to be brought by application.

[36] Application #2 sought a determination pursuant to section 74 of the CTA which specifically authorizes the matter to come to court by application and therefore complied with rule 14.05(2) even though other relief including damages is sought.

[37] As observed by Firestone J. in Przysuski v. City Optical Holdings Inc., 2013 ONSC 5709, at para. 7: “A good reason to convert an application into an action is when the judge who will hear the matter cannot make a proper determination of the issues on the application record.” He continued at para. 8: “When issues of credibility are involved the matter should proceed by way of action.” Supported by the decision in Collins v. Canada (Attorney General) (2005), 76 O.R. (3d) 228 (ONSC), Firestone J. endorsed additional factors in determining whether to convert an application to an action as follows: whether material facts are in dispute; the presence of complex issues that require expert evidence and/or a weighing of the evidence; whether there is a need for pleadings and discoveries; and the importance/impact of the application and of the relief sought in it.

[38] I agree with the criteria enumerated by Firestone J.

[39] In this case, there are serious disagreements as between Sawgrass and Masini about the facts that have led to the various disputes, some of which have been referred to above. A major source of disagreement is whether Sawgrass was responsible for the failure to repair the roof of the premises which Masini alleges caused the closing of his business in 2020. Whether verbal agreements were made permitting Masini and Harvestone to make renovations to the premises is an example of a material issue which directly engages the question of credibility as between the parties. The structural integrity of the premises from time to time may well be an issue that requires the provision of expert evidence as may the issue of cost of repair or restoration of the premises. As already noted, cross-examinations of Sawgrass have not yet occurred even though it is appropriate for that process to be undertaken in order to provide a complete record to the court.

[40] In summary, I am satisfied that the court cannot make a proper determination of the issues based solely on the application records.

[41] Given the nature and significant number of issues outstanding between the parties, there is no benefit to maintaining the existing form of proceedings coupled with an order for the trial of an issue. Conversion to an action is called for and therefore there will be an order to that effect as follows:

a. The two applications will proceed as one action;

b. Harvestone Inc. and Albert Masini will be the plaintiffs;

c. Sawgrass Holdings Inc. will be the defendant;

d. The parties will file fresh pleadings to include a statement of claim, statement of defence and counterclaim, reply and defence to counterclaim, and reply to counterclaim;

e. Each party will be entitled to examinations for discovery unless, on the part of Sawgrass, it chooses to rely on the transcript of the cross-examination of Mr. Masini.

f. Upon the completion of examinations for discovery, either party may request a case conference pursuant to rule 50.13.

Summary:

[42] There will be a declaration that (a) Masini and Harvestone are in breach of the lease dated October 25, 2009, and of any lease extension thereof; (b) the lease is terminated; and (c) there will be a writ of possession as to 4057 Fairview Street, Burlington, Ontario to be executed by the sheriff in favour of Sawgrass not less than 30 days following the date of this decision.

[43] All other claims contained in application #1 and application #2 are adjourned.

[44] Application #1 and application #2 will continue as a single action in which Harvestone and Masini will be the plaintiffs and Sawgrass will be the defendant, with pleadings and examinations for discovery as set out above, and with a case conference to be scheduled if requested by either party at the conclusion of discovery.

Costs:

[45] The parties are encouraged to resolve the issue of costs amongst themselves. If they are unable to do so, they may submit Bills of Costs and make written submissions, consisting of not more than three pages in length according to the following timetable:

[46] Sawgrass is to serve its Bill of Costs and submissions by July 28, 2023;

[47] Masini and Harvestone are to serve their Bill of Costs and submissions by August 11, 2023;

[48] Sawgrass is to serve its reply submissions, if any, by August 18, 2023;

[49] All submissions are to be filed with the court with a copy to St.Catharines.SCJJA@ontario.ca and uploaded to CaseLines by August 21, 2023.

[50] If no submissions are received by the court by August 21, 2023, or any agreed extension, the matter of costs will be deemed to have been settled.

Reid J.

Released: July 18, 2023