COURT OF APPEAL FOR ONTARIO

CITATION: Martin v. Mailhot, 2020 ONCA 480

DATE: 20200724

DOCKET: C67228

Tulloch, Huscroft and Harvison Young JJ.A.

BETWEEN

Caroline Martin and Joey Moskwa

Applicants (Respondents)

and

Danielle Mailhot

Respondent (Appellant)

Benoit Richer, for the appellant

Patrick R. Simon, for the respondents

Heard: in writing

On appeal from judgment of Justice Robert Pelletier of the Superior Court of Justice, dated June 20, 2019.

Tulloch J.A.:

I. BACKGROUND

[1] On August 2, 2017, the respondents (tenants) entered into a commercial lease agreement with the appellant (landlord) for the purpose of operating a barber shop and tattoo parlour. The lease stipulated that the monthly rent was comprised of a minimum rent of $2,600 and an additional rent based on the respondents’ share of taxes, insurance, and operating costs. The lease also contained a clause requiring the respondents to maintain comprehensive general liability insurance and direct-damage insurance, and to provide “copies of all policies or certificates of insurance and renewals” to the appellant.

[2] On September 4, 2017, the appellant sent an email to the respondents, outlining the rent to be paid for September. The amount due was $3,275, plus an unconfirmed amount for water (later determined to be $68.43), for a total of $3,343.43. The appellant also noted in the email that she intended to reimburse the respondents $50 for parking for September.

[3] On September 19, 2017, legal counsel for the appellant served notice on the respondents that they were in breach of the lease for, among other things, failing to pay the required rent for the month of September, and failing “to provide the landlord copies of all policies or certificates of insurance required by s. 4(n) of the Lease.” The notice advised that the lease would be terminated in the event that the various breaches were not remedied. The notice did not include a demand for monetary compensation.

[4] On September 27, 2017, the respondents paid $3,300 to the appellant.

[5] On October 3, 2017, the appellant served the respondents with a notice of termination as a result of their failure to provide copies of all policies and certificates of insurance. The appellant subsequently re-entered the premises.

[6] On October 23, 2017, the respondents brought an application for a declaration that the appellant had breached the lease through wrongful termination and illegal re-entry.

[7] The application judge granted the application, finding that the notice of breach was deficient as it was not in compliance with s. 19(2) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7, which requires that a notice of re-entry include a demand for monetary compensation. He found that the failure of the appellant to “stipulate a precise monetary remedy to any alleged breach [was] fatal to the notice.” He also found that “[r]ent was paid”. The appellant’s re-entry had thus been unlawful.

II. Issues on appeal

[8] The appellant raises two issues on appeal:

(1) Whether the application judge erred by requiring the appellant to provide a demand for monetary compensation in her notice to the respondents; and

(2) Whether the application judge erred by failing to find that the respondents had not paid rent and, consequently, that the appellant was justified in terminating the lease.

III. ANALYSIS

(1) Did the application judge err by requiring the appellant to provide a demand for monetary compensation?

[9] Section 19(2) of the Commercial Tenancies Act provides that:

A right of re-entry or forfeiture under any proviso or stipulation in a lease for a breach of any covenant or condition in the lease, other than a proviso in respect of the payment of rent, is not enforceable by action, entry, or otherwise, unless the lessor serves on the lessee a notice specifying the particular breach complained of, and, if the breach is capable of remedy, requiring the lessee to remedy the breach, and, in any case, requiring the lessee to make compensation in money for the breach, and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money to the satisfaction of the lessor for the breach. [Emphasis added.]

[10] The purpose of the notice requirement in s. 19(2) is “to warn the tenant that its leasehold interest is at risk and to give the tenant an opportunity to preserve that interest by remedying the breaches complained of and, where necessary, by compensating the landlord”: 780046 Ontario Inc. v. Columbus Medical Arts Building Inc. (1994), 1994 CanLII 1188 (ON CA), 20 O.R. (3d) 457 (C.A.), at p. 464. Courts have insisted on strict compliance with this requirement: Columbus, at p. 464; Jay-Pee Drycleaners Inc. v. 2321324 Ontario Inc., 2017 ONCA 798, at para. 19.

[11] The issue in this appeal is the precise nature of the requirement for “compensation in money” as outlined in s. 19(2).

[12] This issue was addressed by this court in Chick ‘N Treats Inc. v. Woodside Square Ltd. (1990), 38 O.A.C. 138 (C.A.). In that case, the tenant breached the lease by failing to maintain accurate monthly statements of gross revenue and make them available to the landlord. On appeal, the tenant argued that the landlord’s notice of breach was invalid as it had not included a demand for monetary compensation. The court rejected this argument at paras. 6 to 8 of its reasons:

In our opinion, the additional requirement that the lessee make compensation for the breach cannot be mandatory, because the resulting obligation on the lessee to make reasonable compensation to the satisfaction of the lessor would be nonsense in situations, such as this in the case on appeal, where the breach is not quantifiable. We believe that it is a requirement of the notice if the landlord requires compensation in addition to remedying the breach, but it is one that can be waived.

It appears to us that in a situation where the breach is capable of remedy and the landlord has suffered damage which is compensable [in] money, then the landlord must assert both remedies in his notice if he intends to insist on satisfaction with respect to both, failing which, he will exercise his right of re-entry or forfeiture. [Emphasis added.]

[13] A demand for monetary compensation is never required for valid notice under s. 19(2). Rather, the requirement may be waived at the discretion of the landlord. A demand for monetary compensation is only necessary where, as a result of the breach, the landlord has suffered damages compensable in money and intends to insist on recovery, failing which, they will exercise their right of re-entry or forfeiture. In other words, where a landlord has suffered damages compensable in money and they fail to include a demand for monetary compensation in their notice of breach, they will be barred from relying on a tenant’s failure to compensate them for those damages as a justification for re-entry or forfeiture. In this way, a tenant will only be required to provide monetary compensation to preserve their leasehold interest where it is deemed necessary by the landlord in the notice of breach.

[14] In this case, the appellant argues that, pursuant to the decision in Chick ‘N Treats, and contrary to the findings of the application judge, the September 19, 2017 notice was valid, as she was entitled to waive the requirement in s. 19(2) for a demand for monetary compensation.

[15] I agree. The September 19, 2017 notice warned the respondents that their leasehold interest was at risk. It specified the breaches complained of and requested that they be remedied. It was within the purview of the appellant to decide to waive the requirement for a demand for monetary compensation. Her decision to refrain from including such a demand did not invalidate the notice. It merely foreclosed the option of insisting on recovery for any damages that flowed from the breach as a necessary condition for the preservation of the respondents’ leasehold interest. The notice was valid and the application judge erred in finding otherwise.

(2) Did the application judge err by failing to find that the respondents had not paid rent and, if so, was the appellant justified in terminating the lease?

[16] As I would allow the appeal on the first ground, there is no need to address this issue.

IV. disposition

[17] In all the circumstances, I would allow the appeal and order that the notice was compliant with s. 19(2) of the Commercial Tenancies Act.

[18] With respect to the issue of costs, if the parties are unable to agree, the parties are to submit brief written submissions, not to exceed three pages in length, within 15 days of the release of these reasons.

Released: “M.T.” July 24, 2020

“M. Tulloch J.A.”

“I agree. Grant Huscroft J.A.”

“I agree. A. Harvison Young J.A.”