COURT OF APPEAL FOR ONTARIO

CITATION: Urmila Holding, Inc. v. Anand Holdings Inc., 2021 ONCA 886

DATE: 20211214

DOCKET: C69458

Gillese, Trotter and Nordheimer JJ.A.

BETWEEN

Urmila Holding, Inc.

Applicant (Respondent)

and

Anand Holdings Inc., Harpaul J. Anand Dentistry Professional Corporation and Harpaul Jimmy Anand

Respondents (Appellants)

Mark H. Arnold, for the appellants

Allan Sternberg and Emily Hives, for the respondent

Heard: November 17, 2021

On appeal from the judgment of Justice Edward P. Belobaba of the Superior Court of Justice, dated April 19, 2021, with reasons reported at 2021 ONSC 2707.

Trotter J.A.:

A. Introduction

[1] Urmila Holding, Inc. (“Urmila”) purchased a unit in a commercial condominium plaza. It paid a premium for a unit that was designated for its exclusive use as a dental clinic; no other unit in the plaza could be used for this purpose.

[2] When the plaza was marketed by the developer, Dr. Anand,[^1] a dentist, attempted to purchase a unit designated for exclusive use as a dental clinic. But he was too late – Dr. Anand was advised that Urmila had already secured such a unit. Dr. Anand then approached Urmila and arranged to lease its unit for a period of ten years, with an option to renew for five years. As the term neared its end, Dr. Anand sought a ten-year extension of the lease. Urmila was only prepared to extend the lease for five years.

[3] Unbeknownst to Urmila, Dr. Anand purchased the unit next door. He moved his dental practice into that unit and purported to assign the exclusive use benefit purchased by Urmila to himself.

[4] Urmila applied under s. 134 of the Condominium Act, 1998, S.O. 1998, c. 19 (the “Act”) for a determination of its rights under the exclusive use provisions of the condominium’s Declaration. The application judge held that Dr. Anand, as tenant, could convey the exclusive use benefit to himself, but only for the duration of the unexpired term of the extended lease. Dr. Anand appeals this ruling.

[5] The following reasons explain why I would uphold the application judge’s conclusion.

B. the facts

(1) The Purchase and the Lease

[6] It is difficult to improve on the application judge’s rendition of the factual context of this case. I borrow heavily from his reasons.

[7] The plaza is located in the City of Brampton. When the plaza was being marketed, a representative on behalf of Urmila reserved an exclusive use unit for a dental clinic, by Reservation Form dated December 28, 2005. It entered into an Agreement of Purchase and Sale (“APS”) on October 23, 2006 and paid a premium for this type of unit. It did so with the expectation that the unit would appreciate in value and would attract higher rent. The APS provided that, if the unit was not used in accordance with its exclusive use within 12 months of the occupancy date, Urmila would “forfeit such exclusivity of Use”.

[8] Urmila leased its unit, Unit 20, to Dr. Anand on August 8, 2007 for a period of ten years, ending on July 31, 2017. During the negotiation of the lease, Dr. Anand wanted confirmation that his would be the only dental clinic in the plaza. Urmila showed him the Reservation Form. Moreover, the lease incorporated the Declaration (even though it was not registered on title until April 11, 2008) and contained a covenant whereby Urmila warranted that, should its sole principal (or her husband) purchase another unit in the plaza, it “shall not be leased to any person to operate therein a dental practice.”

[9] Near the end of the initial lease term, Dr. Anand offered to buy Unit 20 for approximately $1 million, which was well above market value. Urmila was not interested in selling. Dr. Anand tried to negotiate a ten-year extension of the lease. Urmila was only prepared to extend the lease for five years. A Lease Amending and Extending Agreement was entered into on March 14, 2017, extending the lease until July 31, 2022. Unbeknownst to Urmila, Dr. Anand had other ideas for his dental practice. As the application judge explained:

Realizing that his lease would end sooner than he would have preferred, Dr. Anand took the following steps to maintain his Plaza location. He discreetly purchased the adjacent Unit 21 while still a tenant in Unit 20. Sometime in 2020 (about 13 years into his 15-year lease) and unbeknownst to Urmila, Dr. Anand moved his dental clinic into Unit 21 and purported to transfer Unit 20’s exclusive dental clinic use to Unit 21. Although Unit 20 sat empty, Dr. Anand continued to pay the monthly rent.

Urmila first noticed that that the respondent had vacated Unit 20 and was using Unit 21 as a dental clinic in July 2020. Upon further investigation and a title search, Urmila discovered that Anand Holdings had purchased Unit 21 three years earlier on May 8, 2017 — about two months before the end of the 10-year lease — for a purchase price of $715,000.

In a letter to the Plaza’s property manager dated July 3, 2020, Dr. Anand outlined what he had done — as the tenant operating a dental clinic in Unit 20, he consented in writing to allow himself (the owner of Unit 21) to operate a dental clinic in Unit 21. He then asserted a usage exclusivity in Unit 21 that would forever bar Urmila or any other unit-owner in the Plaza from leasing their unit to another dentist. [Emphasis added.]

[10] Upon discovering this state of affairs, and after the exchange of lawyers’ letters, Urmila made its application under s. 134 of the Act.

(2) The Declaration

[11] The Declaration lists ten prohibited uses (i.e. tattoo parlour, pawn shop, etc.), as well as 32 exclusive uses, one of which is a dental clinic. The following sections are relevant to the dispute between the parties:

4.5 Restrictions of Use

Owners and the tenants, occupants, licensees or any other person utilizing such Owner’s Unit(s) shall not engage, within or from such Unit(s) in any of the following business operations (unless two contiguous Units are owned by the same Owner and are operated together as one of the following business operations), if such business operations are already being carried on in another Unit as at the date that such Owner, tenant, occupants, licensees or any other person utilizing such Owner’s Unit intends to engage in such existing business operations (the “Existing Business”):

(iv) dental clinic (includes: general dentistry, dental hygiene, endodontics, periodontics, orthodontics, oral surgery, denture therapy, paedodontics);

unless any Owner, tenant, occupant or licensee already carrying on an Existing Business within or from their Unit, consents in writing to allow any other Owner, tenant, occupant or licensee to carry on such Existing Business, which consent may be arbitrarily withheld by any such existing Owner, tenant, occupant or licensee conducting, operating or carrying on such Existing Business. [Emphasis added.]

4.6 Leasing of Units

(d) No Owner shall be entitled to lease a Unit to a third party for a proposed use that is then enjoyed by or operated in another Unit in the Corporation.

C. the application judge’s reasons

[12] The application judge was called upon to interpret the relevant sections of the Declaration, particularly the underscored words in section 4.5, reproduced above. He observed that, in general, the exclusive use provisions focus on exclusive use for designated units. He said, “And yet, if one reads section 4.5 literally, such exclusive usage can be transferred by a tenant without the knowledge or consent of the initial unit-owner even where, as here, the initial unit-owner paid a premium for the exclusive usage designation.” Thus, the question was whether section 4.5 was to be read literally, or whether a more purposive approach was required.

[13] On the application, the parties were in agreement that the principles in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 applied to the interpretation of the Declaration. As discussed below, the appellants have changed their position on appeal and now insist on a literal interpretation, devoid of any context.

[14] The application judge relied on the following passages from Sattva, in which Rothstein J. said, at paras. 47 and 58:

Regarding the first development, the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine "the intent of the parties and the scope of their understanding" (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27 per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.

The nature of the evidence that can be relied upon under the rubric of "surrounding circumstances" will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. [Citation omitted.]

[15] The application judge also relied on the principle that a commercial contract should be interpreted, “in a fashion that accords with sound commercial principles and good business sense and that avoids a commercial absurdity”: All-Terrain Track Sales and Services Limited v. 798839 Ontario Limited, 2020 ONCA 129, at para. 27, applying Richcraft Homes Ltd. v. Urbandale Corporation, 2016 ONCA 622, 406 D.L.R. (4th) 507, at para. 58.

[16] Applying these principles, the application judge considered the Declaration as a whole, and ascribed meaning to its words consistent with the surrounding circumstances known to the parties when they entered into the lease. He searched for factors that were known, or ought reasonably to have been known, to the parties at or before the date on which they entered the initial ten-year lease and subsequent renewal.

[17] He found that: (a) Dr. Anand knew that Unit 20 had been assigned the exclusivity for use as a dental clinic; and (b) Dr. Anand knew or should have known that an exclusive usage designation carried a premium over non-exclusive usages. As noted above, the application judge considered the fact that Dr. Anand attempted to buy a unit in the plaza with exclusive use as a dental clinic, but that Urmila had already secured that right. He also took note of the fact that, in 2017, before negotiating the extension of the lease with Urmila, Dr. Anand offered to purchase Unit 20 at a price above market value.

[18] Bringing these principles to bear on the facts as he found them, the application judge reached the following conclusions:

In my view, Mr. Sternberg, counsel for Urmila, provided the court with the most reasonable interpretation of the provisions in question. Dr. Anand, as tenant, can only consent to what he has and what he has is the time remaining on his lease. In other words, tracking the well-known nemo dat principle, Dr. Anand can consent to Unit 21 carrying on a dental clinic but this consent expires on July 31, 2022 when his five-year renewal on Unit 20 comes to an end.

In the present case, the operator carrying on the exclusive business in the existing unit is a tenant. As such the tenant has the contractual right to carry on the exclusive business within the existing unit for the term of the lease. If such tenant gives its consent to another operator to carry on the exclusive business in a new unit, such consent cannot be for a period of time longer than the balance of the lease term — because one cannot convey what one does not have.

In my view, this is a reasonable interpretation of the provisions in question because it protects Urmila’s capital investment (its tenant will continue to pay the elevated rent on Unit 20 to lease-end) and gives a commercially reasonable meaning to the concluding paragraph in section 4.5 of the Declaration.

[19] The application judge held that, if his approach to interpreting the Declaration was wrong, and a literal interpretation of section 4.5 were required, he would still find in Urmila’s favour. He concluded that section 4.5 did not permit Dr. Anand to consent/transfer the exclusive usage right to himself; the section only permits transfer to “any other owner [or] tenant” (emphasis in original).

D. the positions of the parties

[20] Dr. Anand submits that the application judge was correct to find that, as a tenant, he was permitted to assign the exclusive usage to himself. However, he erred in holding that the assignment was time-limited and would expire at the end of the extended lease. He submits that the error arose from the application judge’s erroneous interpretation of the Declaration. Being akin to a constitutional document, Sattva principles had no application; a literal interpretation of the Declaration authorized what Dr. Anand purported to do in this case.

[21] Urmila’s position on appeal is more complicated. It submits that the application judge was correct in applying Sattva and the nemo dat principle. However, he erred in finding that Dr. Anand could assign the exclusive usage benefit at all – whether to himself or another, time-limited or otherwise. Only Urmila, as owner, could do that. The complication arises because Urmila has not cross-appealed on these issues. At the hearing of the appeal, we were advised that Urmila is content to “live with” the outcome of the application for two reasons: (1) Dr. Anand continues to pay rent on Unit 20; and (2) it would not be sensible for Dr. Anand to move his dental practice back to Unit 20, only to move out again by July 31, 2022.

E. analysis

[22] The equities of this case unequivocally favour Urmila. Dr. Anand tried to appropriate a valuable benefit acquired by Urmila when it purchased Unit 20. This was done behind Urmila’s back. Dr. Anand knew Urmila paid a premium for the unit because he attempted to purchase what Urmila had already bought – a unit with an exclusive usage designation as a dental clinic. Dr. Anand was also aware of the increased rent associated with exclusive use units given that he paid a premium rent to Urmila during the course of his tenancy.

[23] It is nothing short of remarkable that, after buying Unit 21 and purporting to transfer the exclusive use benefit to himself (through Anand Holdings Inc.), Dr. Anand wrote to the property manager to declare that, “the Tenant does not consent to any other unit, including any owner, tenant, occupier, or licensee of the Existing Unit [i.e., Urmila’s unit], conducting, operating or owning a dental clinic”.

[24] And just like that, Dr. Anand, a tenant, believed he had divested Urmila of its exclusive usage right in Unit 20 in perpetuity. In my view, an interpretation of the Declaration, insofar as it impacts on the contractual arrangements between these parties, that allowed this result to stand would amount to a commercial absurdity.

[25] I am troubled by Dr. Anand’s change of position on appeal, repudiating the acknowledgment of his counsel on the application (not Mr. Arnold) that Sattva principles governed the interpretation of the Declaration in the context of this case. Nonetheless, I agree with the submission made by counsel for Urmila that the application judge did not err in allowing the contractual interpretation principles in Sattva to guide his approach to interpreting the Declaration; after all, the Declaration was incorporated into and formed part of a contract – the lease.

[26] Dr. Anand relies on Metropolitan Toronto Condominium Corporation No. 590 v. The Registered Owners and Mortgagees of Metropolitan Condominium Corp. No. 590, 2020 ONCA 471, 21 R.P.R. (6th) 189, as authority for the proposition that the principles of contractual interpretation mandated in Sattva do not apply to condominium declarations. He relies on a passage in which Nordheimer J.A. acknowledged the caution in Sattva against courts too readily finding extricable questions of law when engaged in contractual interpretation. As he said, at para. 15:

Here, though, while a declaration under the Condominium Act could be characterized as a contract, [it] is not the type of contract negotiated between two parties, to which the comments in Sattva were directed. A declaration is a special form of contract, the structure of which is prescribed by statute. It must adhere to certain statutory requirements. Indeed, the Condominium Act provides, in s. 7(5), that, if there is any conflict between the statute and the declaration, the statute prevails.

[27] I agree with counsel for Urmila that this decision did not purport to oust the application of Sattva principles in this context; the passage reproduced is concerned with the standard of review on appeal. See Seto v. Peel Condominium Corporation No. 492, 2016 ONCA 548, at para. 10, in which this court applied Sattva to the interpretation of a Declaration. Here, in contrast, we are dealing with the proper interpretation of the contractual arrangements between these two parties.

[28] The application judge properly identified the background factors that were known or ought to have been known by the parties when they entered into the lease agreement and the subsequent extension. Importantly, the Declaration was incorporated into the lease between Dr. Anand and Urmila.

[29] Another factor to consider is that Urmila, as owner of the exclusive use unit, was not obliged to carry on the exclusive use business itself. It only covenanted to ensure that the unit would be used for the designated purpose; otherwise, it would lose its exclusive use designation. In order to preserve this exclusive use benefit, Urmila leased the unit to Dr. Anand. It would make no commercial sense if, in fulfilling this contractual obligation in the way that it did, Urmila risked losing a valuable property right to its tenant.

[30] Consequently, the parties could not have reasonably intended that Dr. Anand, as tenant, could arrogate to himself the exclusivity benefit in Unit 20, forever divesting Urmila of something it had purchased.

[31] Moreover, as the application judge observed, the bulk of the language in the exclusive use provisions of the Declaration signal that the use attaches to the unit itself. This is also reflected in the language of the Reservation Form (which Dr. Anand inspected) and in the APS. Moreover, Urmila covenanted in the lease that, if its sole principal (or her husband) acquired another unit in the plaza, they would not permit the operation of a dental clinic therein, further supporting the interpretation that the exclusive usage right attached to the unit. It belonged to the owner/landlord, Urmila, not Dr. Anand.

[32] The application judge bolstered his conclusion through his reliance on the nemo dat principle. In Green v. Green, 2015 ONCA 541, 387 D.L.R. (4th) 512, in the family law context, this court said, at para. 53: “at common law, an assignor may not assign more than it has, or put differently, nemo dat quod non habet, no one gives who does not possess.” Applying this principle, the application judge held that, although the exclusive usage right belonged to Urmila as the owner of Unit 20, as a tenant, Dr. Anand had a limited right to assign the exclusive usage for as long as he was entitled to the benefit of the exclusive use under the lease.

[33] As noted above, because Urmila is content with the current arrangements, it did not seek to improve its position by cross-appealing this aspect of the application judge’s order. Similarly, Urmila did not attempt to achieve the same result by urging upon us the application judge’s alternative mode of analysis (i.e., that Dr. Anand could not assign or convey exclusive usage to himself). In the circumstances, it is neither appropriate nor necessary to resolve these issues. However, nothing in these reasons should be taken as endorsing these aspects of the application judge’s decision. The resolution of both issues is best left for another day when they are squarely before us.

F. conclusion

[34] I would dismiss the appeal. I award costs to Urmila in the amount of $30,000, inclusive of HST and disbursements.

Released: December 14, 2021 “E.E.G.”

“Gary Trotter J.A.”

“I agree. E.E. Gillese J.A.”

“I agree. I.V.B. Nordheimer J.A.”

[^1]: Dr. Anand operated his dental practice through Harpul J. Anand Dentistry Professional Corporation. His holding company, Anand Holdings Inc., later became involved in what happened. For simplicity’s sake, it is convenient to keep Dr. Anand at the forefront of the narrative, unless otherwise specified.