Court File and Parties

CITATION: Calloway Reit (Westgate) Inc. v. Michaels of Canada, ULC, 2009 ONCA 713

DATE: 2009-10-13

DOCKET: C50619

COURT OF APPEAL FOR ONTARIO

Feldman, Lang and MacFarland JJ.A.

BETWEEN

Calloway Reit (Westgate) Inc.

Applicant/Respondent (Respondent)

and

Michaels of Canada, ULC

Respondent/Applicant (Appellant)

COUNSEL:

Matthew J. Latella and David Gadsden, for the appellant

Peter H. Griffin and Pinta J. Maguire, for the respondent

HEARD: October 5, 2009

On appeal from the judgment of Justice Alexandra H. Hoy of the Superior Court of Justice, dated May 19, 2009.

Reasons for Decision

By the Court:

[1] The application judge delineated internal inconsistencies in the lease, including, for example, those she explained at paragraphs 60, 67 and 68 of her Reasons. In our view, these inconsistencies give rise to a latent ambiguity in sections 2.1.1 and 2.1.2 of Exhibit C and Article 2 of Exhibit D with respect to the determination of the Completion Date and the Rental Commencement Date.

[2] In the circumstances of a latent ambiguity, an interpretation should be reached that accords with good business sense, and that avoids a commercial absurdity. See Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 2007 ONCA 205, 85 O.R. (3d) 254 (C.A.) para. 24.

[3] It is not commercially reasonable, as the landlord proposes, to read out the condition for the Completion Date in s. 2.1.1 of Exhibit C that the landlord construct all the buildings and other listed structures and appurtenances (Article 2 of Exhibit D) in the Shopping Centre. However, it is also not commercially reasonable to interpret the definitions of Completion Date and Rental Commencement Date to allow the tenant to take possession, carry on business in the premises, and avail itself of the common elements and other services provided by the landlord, but not pay rent (with the exception of any specific rent abatement provisions).

[4] In this case, the tenant knew that all the buildings on Exhibit B were not completed in accordance with the requirements of s. 2.1.1 of Exhibit C (Completion Date), but chose to accept the landlord’s delivery of possession under s. 2.1.1, open the store for business and accept the landlord`s provision of services. As the application judge discussed, the landlord is only obliged to provide services during the Lease Term. The Lease Term is defined in sections 2.1 and 2.3 of Exhibit C as commencing only following the Completion Date, and during the Lease Term rent is required to be paid.

[5] In those circumstances, in our view, the tenant has effectively waived strict compliance by the landlord with its obligation to complete all the buildings as a condition precedent to the triggering of the commencement of the tenant`s obligation to pay rent. We do not understand from the record or from counsel that there was an agreement that as part of a settlement discussion arrangement, the tenant take possession of the premises and operate rent-free.

[6] As a result of our conclusion, it is unnecessary to address the use by the application judge of the factual matrix to interpret the lease, including the tenant’s actions in other shopping centre locations, and we make no comment on that issue.

[7] The appeal is dismissed with costs to the respondent fixed in the amount of $16,000, inclusive of disbursements and Goods and Services Tax.

Signature: “K. Feldman J.A.”

“S. E. Lang J.A.”

“J. MacFarland J.A.”

RELEASED:”KF” October 13, 2009