Court of Appeal for Ontario
Date: February 12, 2018 Docket: C63156
Judges: Feldman, MacPherson and Huscroft JJ.A.
Between
Lakehead Roofing & Metal Cladding Ltd. Applicant (Appellant)
and
1304808 Ontario Inc. Respondent (Respondent)
Counsel
Donald B. Shanks and Rosa Carlino, for the appellant
Roderick W. Johansen, for the respondent
Heard: November 8, 2017
On appeal from the order of Justice W. Danial Newton of the Superior Court of Justice, dated April 21, 2016.
Feldman J.A.:
A. Introduction
[1] The appellant was a commercial tenant in Thunder Bay, Ontario. The respondent was the landlord.
[2] The tenant sought a declaration under the Commercial Tenancies Act, R.S.O. 1990, c. L.7 (the "Act"), that: (i) the landlord had wrongfully and illegally distrained assets and equipment of the tenant after terminating the tenancy by changing the locks; or (ii) the distraint was excessive.
[3] The tenant's position was that its application could be granted based on the application record. The landlord's position was that a trial was required to resolve one or more of the factual issues.
[4] The application judge found that: (i) terminating the lease was neither the intent of the landlord nor the effect of changing the locks, and therefore the lease was not terminated before the distraint; and (ii) a trial was necessary to determine whether the distraint was excessive, including the amount of any rent that remained owing, and the value of the distrained equipment. He also found that proof of any tenant's damages also required a trial.
[5] The appellant submits that the application judge erred in concluding that: (i) the landlord's notices and actions did not have the effect in law of terminating the lease before the distraint; and (ii) a trial was needed to find excessive distraint, when the values attributed to the distrained equipment by both parties exceeded the rent that remained owing.
[6] In my view, the application judge was entitled to make the findings he did on the record before him. I would therefore dismiss the appeal.
B. Facts
[7] The application judge referred to the affidavit evidence filed on behalf of each party. Mr. Perrier is a director of the landlord corporation and a 20% shareholder of the tenant corporation. He is also a partner in Perhol Construction, another tenant occupying the same premises as the appellant tenant. He deposed that the relationship between the landlord and the tenant having deteriorated, the landlord delivered a notice to the tenant on January 29, 2016, terminating the tenancy effective February 29, 2016.
[8] Mr. Brescia, president of the tenant, deposed that there was no written lease agreement, that the landlord would invoice the tenant at the end of the month for rent and utilities, that invoices were not delivered on regular, specific dates, and that payment was not required until 30 or 60 days following receipt of an invoice.
[9] On February 10, the landlord sent the tenant a notice advising that it was proceeding to change the locks on the premises for the security of all tenants, as the property manager had been informed that the gate to all premises had been left open and another tenant had property missing. The notice provided that tenants would have full access from 7 a.m. to 5 p.m. during the week, and could gain access on evenings and weekends on 24 hours' notice.
[10] On February 12, Mr. Perrier delivered a statement that set out rent and utilities owing by the tenant up to the end of February in the amount of $66,291.70, together with a distraint notice that gave the tenant five days to pay before the landlord would appraise and sell its equipment. Mr. Brescia stated that there were no arrears of rent as of February 12, and that he had not received the invoices referred to in the statement. Nevertheless, the tenant paid the amount of $59,951.98, representing rent and utilities up to February 10.
[11] The February 12 distraint notice also informed the tenant that the landlord had changed the locks to protect the goods and chattels, but that the lease was not being terminated until February 29, and that the tenant could request access to occupy and use the premises and redeem the goods and chattels upon payment of the rent arrears. Mr. Perrier deposed that because Perhol Construction had complained that Lakehead personnel had left the gate to their shared premises unlocked, it was for security reasons that he changed the locks, but not to terminate the lease.
[12] Mr. Brescia stated in his affidavit that following the changing of the locks on February 10, he requested access to the leased premises to remove chattels but was refused. He again requested access on February 12, by email. It was then that he received the response advising that the chattels had been distrained for non-payment of rent. His affidavit also stated that Lakehead employees reported that they were harassed by the landlord's officials and were directed as to what they were permitted to remove from the premises.
[13] The application judge identified three issues to be addressed: (i) whether there were arrears of rent; (ii) whether the tenancy had been terminated at the time of the distraint, in which case, the distraint was unlawful; and (iii) if the tenancy had not been terminated at the time of the distraint, whether the distraint was nevertheless excessive.
[14] On issue (i), the application judge found that on the face of the record, it appeared there was some rent in arrears, but the amount could not be determined without further evidence.
[15] On issue (ii), after reciting the facts set out above, the application judge referred to the decision of Lederman J. in Falwyn Investors Group Ltd. v. GPM Real Property (6) Ltd. (1998), 22 R.P.R. (3d) 1 (Ont. Ct. Gen. Div.), aff'd [2000] O.J. No. 2877 (C.A.), where he quoted from the decision of Holland J. in Commercial Credit Corp. v. Harry D. Shields Ltd. (1980), 29 O.R. (2d) 106 (H.C.), aff'd (1981), 32 O.R. (2d) 703 (C.A.). Those cases stand for the following propositions:
- A landlord may effect re-entry by changing the locks on the tenant's premises.
- However, the mere act of changing the locks is not determinative of whether the lease has been forfeited.
- To effect a forfeiture, the landlord must deprive the tenant of possession.
[16] In Commercial Credit, as in this case, the distraint notice indicated that the locks were changed for security purposes, but that the tenant could arrange for access by contacting the landlord. Applying that case, the application judge concluded that the changing of the locks did not deprive the tenant of possession of the premises because, in accordance with the distraint notice, the tenant could have full access from 7 a.m. to 5 p.m. on weekdays and after hours on 24 hours' notice. Therefore the tenancy had not been terminated at the time of the distraint.
[17] On the third issue, the application judge found that the amount of arrears of rent, if there were any remaining, could not be determined on the record before him. Because neither side had provided particularized estimates of the value of the tenant's equipment being held, the application judge found that further evidence was needed to determine "the extent, if any, of excessive distraint." He therefore ordered a trial to determine whether there had been excessive distraint, and if so, the amount of damages, if any, suffered by the tenant as a result.
C. Issues
[18] This appeal raises two issues. First, did the application judge err in law and misapprehend the evidence in his statement and application of the test for determining whether, by changing the locks, the landlord had actually terminated the lease before distraining, thereby making the distraint illegal? Second, did the application judge make a palpable and overriding error of fact by concluding that there was insufficient evidence before the court to find that the distraint was excessive, when both parties estimated the value of the distrained assets to be in excess of the amount of rent owing?
D. Analysis
(1) Issue One – Did the landlord's actions effectively terminate the lease?
[19] The appellant tenant agrees that by changing the locks on commercial premises, the landlord does not automatically terminate a lease. It submits, relying on Rays Outfitters v. Lixo Investments, 2014 ONSC 3884, at para. 15, that the test is whether the intended and actual effect of changing the locks was to exclude the tenant from the premises, thereby terminating the lease.
[20] It argues that in his reasons, the application judge looked only at the written notice, which said that access would be given to the tenant on request, and did not consider or give effect to evidence that in fact the landlord denied access to the tenant on a number of occasions.
[21] I do not accept this submission. The record before the application judge consisted of an affidavit from each side, attaching emails and lawyers' letters. The complaints of access denial problems can be viewed as minimal, sporadic and ad hoc. It can be inferred from Mr. Brescia's affidavit, that while the matter did not go smoothly, the tenant was not excluded from the premises over the month-long notice period. While it is true that the application judge did not address the alleged access denial specifically, it can be inferred that he did not consider it significant enough to have the effect in law of terminating the lease, when the clear intent of the landlord from the notices it sent and the distraint was for the lease to remain in place until February 29, and the tenant was on the premises during that period.
[22] In my view, the application judge made a reasonable finding based on the record and with a full appreciation of the legal test. I would not interfere with his decision.
(2) Issue Two – Did the trial judge err by ordering a trial of the issues surrounding excessive distraint and damages?
[23] The appellant points to the fact that in his affidavit, Mr. Brescia estimates the value of the equipment and chattels being held for distress at over $250,000, while the list from the landlord of a portion of the chattels being held provides a value of $177,892. The appellant argues that both values significantly exceed the amount of rent the landlord claims remains outstanding, resulting in excessive distraint. In his affidavit, Mr. Perrier counters that the $177,892 value represents chattels that the landlord has agreed to release, and therefore Mr. Brescia is overstating the value of the goods in dispute.
[24] The application judge found the record unclear on the issue of the amount of rent in arrears, or even whether there was any rent in arrears. He also was well aware of the estimated values ascribed by the parties to the equipment and chattels but because they were merely estimates, he was not prepared to make findings without proper evidence of value. He concluded that proof of damages by the tenant also required a trial.
[25] This matter was brought before the court as an application for a declaration under the Act. Section 66(1) of the Act provides for a summary determination of such disputes. It provides:
- (1) Where goods or chattels are distrained by a landlord for arrears of rent and the tenant disputes the right of the landlord to distrain in respect of the whole or any part of the goods or chattels, or disputes the amount claimed by the landlord, or the tenant claims to set off against the rent a debt that the landlord disputes, the landlord or the tenant may apply to a judge to determine the matters so in dispute, and the judge may hear and determine them in a summary way, and may make such order in the premises as he or she considers just.
[26] In my view, the application judge cannot be faulted for his disposition. He was able to make a determination on the record before him "in a summary way" on the first issue, whether the landlord had terminated the lease by changing the locks. However, the parties did not present sufficient evidence for him to determine the amount of rent that remained outstanding, if any, the value of the goods and equipment that had been distrained, and any damages suffered by the tenant if the distraint was excessive.
E. Conclusion
[27] I would dismiss the appeal with costs fixed at $10,000 inclusive of disbursements and HST.
Released: February 12, 2018
"K. Feldman J.A."
"I agree. J.C. MacPherson J.A."
"I agree. Grant Huscroft J.A."