COURT OF APPEAL FOR ONTARIO

CITATION: Mason Homes Limited v. Woodford, 2014 ONCA 816

DATE: 20141120

DOCKET: C57053

Hoy A.C.J.O., Epstein and Hourigan JJ.A.

BETWEEN

Mason Homes Limited

Plaintiff (Appellant)

and

Bonni Elizabeth Woodford and William David Woodford

Defendant (Respondents)

Paul Gemmink, for the appellant

Brent S. J. Cumming, for the respondents

Heard: November 5, 2014

On appeal from the order of Justice Mark L. Edwards of the Superior Court of Justice, dated April 3, 2013, reported at 2013 ONSC 1962.

ENDORSEMENT

[1] The respondents, Bonni and William Woodford, operated a deli in a unit of a strip mall pursuant to a lease with the appellant, dated July 24, 2002.

[2] In November 2004, the respondents entered into an agreement to sell the deli business and assign their lease to a third party. The agreement was conditional on the respondents’ obtaining the appellant’s consent to transfer the lease. The respondents did not obtain consent and so purported to waive that condition. The third party went into possession of the deli for approximately 20 days starting in early December 2004 and paid rent for the month of December. The third party then vacated the premises.

[3] On January 5, 2005, the appellant wrote to the respondents advising that they were in default because of an “unapproved transfer” of the lease. The appellant requested that the respondents take steps within 24 hours to remedy the default and pay the current month’s rent plus three additional months’ rent by the close of business on January 7, 2005.

[4] Ms. Woodford responded in a letter dated January 7, 2005, asking for time to deal with the situation that had arisen with the third party.

[5] Without prior notice, the appellant changed the locks of the unit on January 12 or 13, 2005. At trial, the appellant took the position that it did so to protect the equipment inside the unit.

[6] On January 20, 2005, the appellant wrote to the respondents purporting to terminate the lease, effective immediately.

[7] The appellant commenced legal proceedings against the respondents to recover the balance of the rent due and owing under the lease. In that action, the respondents admitted in their statement of defence that re-entry to the unit by the appellant occurred on January 20, 2005.

[8] The trial concluded on January 10, 2012, with the trial judge’s taking the matter under reserve. On October 24, 2012, the trial judge wrote to the parties stating:

I have now had an opportunity to consider my reasons in this matter. In reviewing the evidence, and the law in this area, I have taken note that the issue or potential issue of the application of the Commercial Tenancies Act, R.S.O. 1990 and specifically, the potential application of Sections 18 and 19 thereof. Since this issue was not raised nor argued, you may wish to give consideration to either submitting written argument or oral argument on this issue.

If you request an opportunity for oral argument, I would appreciate it if you would contact the trial coordinator within the next two weeks. If I do not hear from you in that regard I will assume that there will be no request for oral argument. If your intention is to simply file written argument, then I would request that you have your written argument to me within three weeks of the date of receipt of this letter.

[9] Under s. 18(1) of the Commercial Tenancies Act., R.S.O. 1990, c. L.7 (the “Act”), a landlord may re-enter the premises if rent remains unpaid for 15 days or more. Under s. 19(2) of the Act, a right of re-entry for a breach of any condition in a lease, other than the payment of rent, is only enforceable if the lessor provides the lessee a notice specifying the particular breach and requiring the lessee to remedy or compensate for the breach, and the lessee fails to do so within a reasonable amount of time.

[10] Both parties filed written submissions regarding the application of the Act. The appellant submitted that because the last payment of rent was in December and the respondents admitted that re-entry occurred on January 20, 2005, rent had been unpaid for more than 15 days and it was therefore entitled to re-enter the premises pursuant to s.18. The appellant further submitted that if it was required to provide the respondents with notice of their obligation to remedy the “unapproved transfer” under s. 19, sufficient notice had been provided. The appellant added that there was no evidence that the respondents wished to return to the unit to operate their business or attempt to sublet the premises.

[11] The trial judge released written reasons for judgment on April 3, 2012, dismissing the action. The trial judge held that the respondents’ failure to plead the application of the Act did not preclude the court from considering the statute. He also held that, given his finding that re-entry occurred when the locks were changed on January 12 or 13, 2005, he was not bound by the admission in the statement of defence that re-entry occurred on January 20, 2005. The trial judge therefore concluded that the 15-day period provided for in s. 18 had not expired at the time of re-entry, and that by terminating the lease early, the appellant had forfeited its right to sue for the balance of the rent due.

[12] The trial judge went on to state that if he were wrong with respect to the application of s. 18, then the January 15, 2005 letter did not provide the respondents with adequate notice under s.19 to rectify the deficiency resulting from the unapproved transfer.

[13] Finally, the trial judge concluded that if he were incorrect in his analysis of the Act, the respondents had not met their onus in proving that the appellant had failed to properly mitigate its damages. Specifically, the respondents had not proven that there had been an improvident sale of the equipment located in the unit or that the appellant had not exercised appropriate due diligence efforts to re-let the premises.

[14] The appellant appeals, submitting that the trial judge erred in considering ss. 18 and 19 of the Act because the respondents did not plead the statute and admitted in their statement of defence that re-entry of the premises occurred on January 20, 2005. Alternatively, the appellant submits that the trial judge erred because a landlord who re-enters premises after a tenant has abandoned them does not forfeit its right to claim for unpaid rent under the Act.

[15] We are of the view that the respondents’ failure to plead the Act was not a bar to its consideration by the trial judge, who is permitted to have regard to applicable statutes. However, the trial judge erred in his analysis and application of the Act.

[16] A proper analysis of ss. 18 and 19 of the Act would necessitate consideration not only of the timing of the re-entry, but also of whether the premises were abandoned when the re-entry occurred. When premises have been abandoned, immediate re-entry by a landlord does not prejudice its ability to claim for the rent outstanding: Commercial Credit Corp. v. Harry D. Shields Ltd. (1980), 1980 CanLII 1617 (ON SC), 29 O.R. (2d) 106, at paras. 16-20 (H. Ct. J.); 615314 Ontario Ltd. v. 396380 Ontario Inc., [1995] O.J. No. 1518 (Ont. Ct. J. Gen. Div.).

[17] There was no evidence on the issue of abandonment adduced at trial because the Act was not pleaded and the respondents had, in any event, admitted that re-entry occurred on January 20, 2005. The trial judge did not, therefore, have a proper evidentiary foundation to conduct his analysis of the application of the Act. Instead, he equated a changing of the locks with a re-entry resulting in forfeiture of right to sue for the balance of the rent due and failed to conduct a meaningful analysis of the issue of abandonment.

[18] The correct course of action for the trial judge, and the one that would have insured trial fairness, would have been to permit the parties to call further evidence on the issue of abandonment. He did not do so, and consequently, his analysis of the application of the Act was flawed.

[19] The appeal is allowed to the extent that we order a trial of an issue; namely, the application of the Act, including, but not limited to, a consideration of whether the premises had been abandoned. If counsel are unable to agree on a process for the expeditious conduct of the trial, they shall bring a motion for directions before a judge of the Superior Court.

[20] The appellant, as the successful party, is entitled to its costs of the appeal. Given that the appellant was not entirely successful, as it sought an order setting aside the judgment and granting it judgment in the amount of $150,136, we are of the view that there should be a reduction to the $10,000 in costs claimed by the appellant. Accordingly, we order that the respondents are jointly and severally liable for the appellant’s costs of the appeal, which we fix at $8,000, inclusive of fees, disbursements and applicable taxes. Payment of the costs by the respondents to the appellant shall be made within 60 days.

[21] On the consent of the parties, the costs of the proceeding to date, other than the costs of the appeal, shall be in the discretion of the judge hearing the trial of an issue.

“Alexandra Hoy A.C.J.O.”

“Gloria Epstein J.A.”

“C. William Hourigan J.A.”