Zellers Inc. et al. v. Orlando Corporation [Indexed as: Orlando Corp. v. Zellers Inc.]

66 O.R. (3d) 535

[2003] O.J. No. 3328

Docket No. C39225

Court of Appeal for Ontario

Abella, Rosenberg and Goudge JJ.A.

September 4, 2003

Landlord and tenant -- Interpretation of lease -- Tenant leasing space for department store in shopping plaza -- Under lease tenant obliged to reimburse landlord for share of municipal realty taxes -- Lease including formula for reimbursement based on leasable space if taxing authority producing "en bloc" assessment -- Amendments to Assessment Act discontinuing individual assessments of individually leased units and producing one assessment for shopping plaza -- Reimbursement to be in accordance with formula in lease -- Assessment Act, R.S.O. 1990, c. A.31.

Orlando Realty Corporation Limited leased premises in a shopping plaza to Zellers Inc. Under the lease, the tenant was obliged to reimburse the landlord for realty taxes referable to the tenant's premises. In 1997, amendments were made to the Assessment Act which took effect in the 1998 taxation year. The amendments had the effect of abolishing separate assessments for each business in the shopping plaza. In the absence of separate assessments, Orlando allocated the real property taxes payable by Zellers and other tenants in accordance with para. 4 of Article 17 of the lease. This paragraph provided a formula for the event that there were no separate and independent assessments. On a motion to interpret the lease, Pitt J. held that para. 4 of Article 17 applied. Zellers appealed. [page536]

Held, the appeal should be dismissed.

The parties clearly contemplated the possibility that separate assessments for each business might in future no longer take place, and this possibility is the eventuality that para. 4 of Article 17 of the lease anticipated. There was no ambiguity. The landlord was now receiving an "en bloc" assessment. Zellers took none of the steps available to it to apportion taxes or to receive a separate independent assessment. Based on the clear language of the lease, the applications judge was correct and, accordingly the appeal should be dismissed.

APPEAL from an order of Pitt J. (2002), 2002 ONSC 38184, 62 O.R. (3d) 220, [2002] O.J. No. 4284 (S.C.J.) on an application to interpret a lease.

Statutes referred to Assessment Act, R.S.O. 1990, c. A.31, ss. 7, c. 5], 17.3

Terrence O'Sullivan and Tracy Wynne, for appellants. Jeff G. Cowan, for respondent.

The judgment of the court was delivered by

[1] ABELLA J.A.: -- The issue in this appeal is whether amendments made in 1997 to the Assessment Act, R.S.O. 1990, c. A.31, affect the reimbursement of realty taxes payable by the tenant to the landlord under a lease signed in 1975.

[2] The lease was between the landlord, The Orlando Realty Corporation Limited, and S.S. Kresge Company, Limited, the predecessor tenant of Zellers Inc. The rental premises were in a shopping mall.

[3] The provisions of the lease dealing with the payment of realty taxes are found in Article 17. In particular, the following paragraphs of Article 17 are germane:

17[1] The Landlord shall pay when due all taxes, rates and assessments whatsoever, whether municipal or parliamentary, including school and local improvement rates, now or hereafter charged, assessed or levied against or in respect of the lands and premises of the Shopping Centre, including Tenant's building, subject however to Landlord's right to reimbursement by Tenant as hereinafter provided, and provided further that Landlord may delay such payment in the event such payment is the subject matter of a tax appeal in which event payment shall be made when such appeal is determined.

[2] Tenant shall reimburse Landlord for all taxes, rates and assessments whatsoever, whether municipal or parliamentary, including school and local improvement rates, charged, assessed or levied in respect of and referable solely to Tenant's building plus Tenant's proportionate share of such taxes, of the land under the Shopping Centre buildings, plus Tenant's proportionate share of such taxes, rates and assessments charged, assessed or levied in respect of the parking lot and common areas (including any enclosed mall areas which are not used or occupied by kiosks, boutiques or other merchandise displays subject to the terms of Article 18 hereof) of the Shopping Centre; provided that Tenant's covenant to reimburse as aforesaid shall apply solely to such taxes, rates and assessments payable and paid for the period commencing at the date of occupancy by Tenant and shall exclude the payment [page537] of taxes, rates and assessments which are incurred or levied as a result of Landlord's activity in the development of the Shopping Centre or developing Tenant's building for Tenant's occupancy.

[4] In the event that either the lands and premises comprising the said Shopping Centre are assessed "en bloc" for real property, school or local improvement purposes, or Tenant's building is not assessed and taxed as a separate and independent tax lot for real property, school or local improvement purposes, then Tenant shall either be entitled to apply for apportionment or make application to the Taxing Authority to have Tenant's building assessed as a separate and independent tax lot. In the event that application for apportionment fails or if the Taxing Authority refuses to assess Tenant's building as a separate and independent tax lot then the taxes allocable to Tenant's building shall be the amount which is the result obtained by multiplying the sum of all taxes levied against such tax lot or lots of which the entire Shopping Centre forms a part by a fraction having as its numerator the floor area space of Tenant's building (excluding mezzanine areas), and as its denominator the total leasable floor area of all buildings and premises situated within such tax lot or lots of which the entire Shopping Centre forms a part (excluding all mezzanine areas, and excluding an area designed for use as offices, said offices being designated in Purple on said Exhibit "B", provided such area designated in Purple is used as office space).

(Emphasis added)

[4] The dispute between Zellers and the landlord is whether, as a result of the 1997 amendments to the Assessment Act which took effect in the 1998 taxation year, para. 4 of Article 17 became operative.

[5] The landlord's position, which the applications judge accepted, was that the amendments to the Assessment Act abolishing separate assessments for each business, which results in no separate assessment for Zellers, triggered the application of para. 4 to determine the allocation and payment of realty taxes. This is an appeal by Zellers from that determination. Based on the clear language of the lease, I agree with the conclusion reached by the applications judge.

[6] Prior to the legislative amendments, the landlord received a list of each business in the shopping mall which was separately assessed for business taxes, and each tenant received a separate notice of assessment, with an amount for the premises and one for its share of the parking facilities. Under this scheme, the realty taxes of tenants in the shopping mall were allocated in accordance with para. 2 of Article 17 of the lease.

[7] The amendments to the Assessment Act included the repeal of s. 7, pursuant to which separate assessments for business taxes had taken place. As a result, separate bills for business taxes were abolished. The post-1998 annual notice of [page538] assessment which the landlord now receives does not list separately any of the tenants of the property. Instead, a block figure is provided for the whole shopping mall, with no separate notice of assessment for any of the tenants, and the municipality levies real property taxes based on a global assessment of the property.

[8] In the absence of separate assessments for each tenant as had been provided to it prior to the 1997 amendments, the landlord allocated the real property taxes payable by Zellers and the other tenants in accordance with para. 4 of Article 17 of the lease agreement which set out the applicable formula in the event that there were no separate and independent assessments.

[9] Zellers submitted that it has in fact been separately assessed and that para. 4 of Article 17, therefore, does not apply. It relies on a document from the assessment authority's Shopping Centre Valuation and Apportionment Record which was used to calculate the assessment for the entire shopping centre for 1998 to 2001. There is no doubt that the information on this form mentions an amount for Zellers' premises; however, this informal document is not, in my view, a separate assessment as contemplated by the lease. Since Zellers has not sought -- or received -- a separate assessment, as it is entitled under para. 4 of Article 17 to do, the formula set out in that paragraph for the calculation of its share of taxes applies.

[10] It is significant that prior to the 1997 repeal of the provisions requiring separate tax assessments for each tenant, the landlord received a list of each of the tenants in the shopping mall with a separate assessment for each tenant. Unlike the document Zellers now relies on, it was called a "notice of property assessment", listed each occupant of the shopping mall separately, and attributed an "assessed value" both for each tenant's business and its parking facilities. The document Zellers relies on, on the other hand, refers to the "current value", makes no reference to parking or common areas, and is not called an assessment.

[11] I see no basis for elevating the document Zellers relies on to the status of an "assessment" as contemplated by the lease. "Assessments" were what the landlord had received annually and separately for each tenant's premises and parking facilities. These separate assessments, which were used when the lease was signed, were what the parties based the provisions of Article 17 on. The separate assessments are addressed in para. 2.

[12] But the parties clearly also contemplated the possibility that separate assessments for each business might in future no longer take place, and this is the eventuality that para. 4 of Article 17 of [page539] the lease anticipates. With the repeal of legislation providing for separate tax assessments of each individual tenant's premises in 1998, that eventuality materializes.

[13] I see no ambiguity in Article 17 of the lease. Paragraph 2 of Article 17 provides that the "tenant shall reimburse Landlord for all taxes, rates and assessments . . . charged, assessed or levied in respect of an referable solely to Tenant's building . . .". Paragraph 4 provides a formula for calculating the tenant's tax liability if the shopping centre is assessed "en bloc" and "Tenant's building is not assessed and taxed as a separate and independent tax lot for real property . . . purposes . . .".

[14] There is no doubt that separate assessments no longer take place. Nor is there any doubt that what has been received by the landlord annually since the 1997 amendments is a single global figure for the whole shopping mall. It is difficult to see how this could be considered anything other than an "en bloc" assessment, particularly considering that the pre- amendment assessments separately listed each of the businesses and their assessed business value both for the premises and parking.

[15] Any doubt about whether there are now separate assessments was dispelled in a letter sent to the landlord on May 10, 2000 after a request by it for individual assessments for each tenant in the shopping centres it owned. The letter from the director of Appraisal Services of the Ontario Property Assessment Corporation stated that legislative changes to the Assessment Act eliminated the requirement for the assessor to produce separate assessments for each tenant, and that the assessors ". . . do not apportion an assessment on a tenant by tenant basis". The relevant portions of the letter are as follows:

I am writing to you in response to your request for an individual assessment or apportionment for each tenant area. Prior to 1998 the assessment roll contained an assessment for each tenant in a multiple unit commercial or industrial property. This assessment was commonly referred to as the tenant plate. The creation of this tenant plate was for the express purpose of creating a separate business assessment for the tenant.

With the enactment of the Fair Municipal Finance Act, 1997, [S.O. 1997, c. 5] Bill 106, section 7 of the Assessment Act was repealed abolishing business assessment. The elimination of the business assessment made the requirement to produce a separate assessment for each business tenant redundant. Hence, subsection 14 (1) of the Act was amended and several paragraphs were repealed. These changes eliminated the requirement for the assessor to produce a separate assessment for the tenant.

While I appreciate that this separate tenant assessment was often used as a convenient basis for allocating realty taxes under lease agreements, it was not established for that purpose. With its elimination there is no legislative requirement and therefore, we do not apportion an assessment on a tenant by tenant basis. [page540]

[16] It is worth noting that although para. 4 of Article 17 entitles the tenant to make an application to the Taxing Authority to have the tenant's building assessed as a separate and independent tax lot, Zellers took no steps to have such a separate assessment made. Moreover, s. 17.3 of the amended Assessment Act provides that the Minister may make regulations providing for the assessment, as a separate property, of the portion of a property occupied by a tenant. Zellers took no steps to apply to the Minister to seek a regulation providing for a separate assessment of the property it occupied. In fact, Zellers took none of the steps available to it to apportion taxes or receive a separate independent assessment.

[17] Accordingly, I would dismiss the appeal with costs fixed in the total amount of $10,000.

Appeal dismissed with costs.