DATE: 20030414

DOCKET: C38017

COURT OF APPEAL FOR ONTARIO

RE: 1397633 ONTARIO INC. (Applicant/Respondent in Appeal) and OXFORD PROPERTIES GROUP INC. and PATRIA PROPERTIES INC. (Respondents/Appellants)

BEFORE: SIMMONS, GILLESE and ARMSTRONG JJ.A.

COUNSEL: Sharon M. Addison For the appellants

Maurice J. Neirinck For the respondent

HEARD: December 20, 2002

On appeal from the Judgment of Justice N.L. Backhouse of the Superior Court of Justice dated March 8, 2002.

E N D O R S E M E N T

[1] The appellant appeals against a judgment dated March 8, 2002 in which the court declares “that the [appellants] had no right to terminate the lease dated August 7, 1998 on the basis of paragraph 5 of Schedule E to the Lease.”

[2] The March 8, 2002 judgment was granted on an application for relief from forfeiture. In her endorsement, the application judge did not make a specific statement to the effect that Oxford Properties Group Inc. and Patria Properties Inc. (the “landlord”) were not entitled to terminate the lease dated August 7, 1998. Rather, she made the following findings that are relevant to the declaration:

i) the landlord had “failed to prove the facts necessary to invoke paragraph 5 of Schedule E”;

ii) the landlord was not acting in good faith because it was obvious that the landlord had searched for a reason to rid itself of 1397633 Ontario Inc. (the “subtenant”); and

iii) the landlord should have raised any issue relating to paragraph 5 of Schedule E of the lease on a previous relief from forfeiture application that was dealt with on September 11, 2001.

[1] In our view, it was not open to the application judge to make the declaration contained in the March 8, 2002 judgment on an application for relief from forfeiture.

[2] As noted by the application judge, in terminating the lease by notice dated January 23, 2002, the landlord relied on section 5 of schedule E of the lease. That section provides as follows:

5. Termination

In the event the Tenant’s annual Gross Revenue does not exceed $200,000 by the end of the third full year of the Term or any year thereafter, the Landlord shall have the right to terminate this Lease upon sixty (60) days written notice to Tenant.

[3] We accept the landlord's submission that, because that provision is not based on default or breach of the lease by the tenant, it is not a right of re-entry or forfeiture and that relief from forfeiture is not therefore available: see Maverick Professional Services Inc. v. 592423 Ontario Inc. (2001), 42 R.P.R (3d) 59 (Ont. CA.).

[4] In our view, the only basis on which the application judge could have granted the March 8, 2002 judgment was by treating the subtenant’s application as a request for a declaration that the landlord was not entitled to exercise the right of termination contained in section 5 of schedule E of the lease. However, if the application proceeded in that way, it was the subtenant who had the burden of demonstrating that the landlord was not entitled to exercise the right on which it relied. In that regard, the subtenant failed to adduce any evidence that the Gross Revenue for the premises had reached $200,000 by the end of the third full year of the term.

[5] Moreover, we accept the landlord’s submission that it was not required, as a matter of contract, to insist on audited or even certified statements of monthly income in order to exercise its right of termination. Accordingly, the affidavit from a representative of the landlord attaching copies of the monthly sales statements from the subtenant and Ziam Enterprises Ltd. (the “tenant”) was sufficient to demonstrate that the landlord was entitled, as a matter of contract, to exercise its right of termination based on the information it had received.

[6] While we agree that the application judge’s finding that the landlord was not acting in good faith was relevant and important to the subtenant’s request for relief from forfeiture, it does not justify the judgment that was issued. Leaving aside the issue of the effect of an explicit finding of bad faith, we are not aware of any basis for holding that absence of good faith precludes a commercial landlord from exercising its contractual rights.

[7] Finally, we see no basis for any conclusion that the landlord was precluded from exercising its right of termination because it failed to raise any issue concerning Gross Revenue on the September 11, 2001 relief from forfeiture application. As of the date of that application, the landlord had not exercised its right of termination and it did not have the information necessary to permit it to do so. More importantly, as has already been noted, a contractual right of termination is distinct from a right of forfeiture. The latter is subject to the court’s discretionary power to grant relief from forfeiture. The former is not. Given that the court had no power to grant discretionary relief relating to the right of termination, we see no basis for holding that failing to rely on it as a means of resisting the application for relief from forfeiture precludes its exercise.

[8] In light of our conclusions, the declaration that was issued in this matter cannot stand. Accordingly, the appeal is allowed and the judgment dated March 8, 2002 is set aside. The appellant may deliver brief written submissions on costs within seven days. The respondent may reply within seven days thereafter.

“Simmons J.A.”

“E.E. Gillese J.A.”

_ “Robert P. Armstrong J.A.”