Court of Appeal for Ontario

Date: 20220228 Docket: C69561

Simmons, Harvison Young and Zarnett JJ.A.

BETWEEN

2501306 Ontario Inc. Applicant (Respondent)

and

Country Garden Academy Inc., (o/a) Country Garden Montessori Academy Respondent (Appellant)

Counsel: Gwendolyn L. Adrian, for the appellant Sara Erskine, for the respondent

Heard: February 22, 2022 by video conference

On appeal from the judgment of Justice C.F. de Sa of the Superior Court of Justice, dated May 19, 2021.

Reasons for Decision

[1] Following the oral hearing we dismissed this appeal for reasons to follow and denied the respondent’s request for leave to cross-appeal costs. These are our reasons.

[2] The appellant operates a Montessori school in premises it rents from the respondent. On March 31, 2020, the appellant exercised its option to renew its lease for what would be a third three-year term running from December 1, 2020 to November 30, 2023.

[3] Under the terms of the lease, the Minimum Rent during any renewal was to be negotiated 90 days prior to the commencement of the renewal term and "be based on the prevailing market rates at the time of renewal for comparable premises."

[4] As the parties were unable to agree on the Minimum Rent during the renewal term, the respondent applied under rule 14.05 for a declaration that the Minimum Rent payable would be $23 per square foot per year.

[5] The Minimum Rent payable during the original three-year term from November 27, 2014 to November 30, 2017 was $12.36 per square foot; during the second three-year term from December 1, 2017 to November 30, 2020 it was $13.28 per square foot.

[6] The respondent was not the landlord when the lease was first negotiated. It acquired the property in early 2018, after the Minimum Rent for the second three‑year term had been negotiated.

[7] Both parties filed expert evidence on the application as to the market rate that should be apply during the third renewal term. The appellant's expert filed two reports. The first report as of June 2020 estimated the market rate at $14 to $16 per square foot. The second report dated November 27, 2020 estimated the market rate at $12 to 14 per square foot.

[8] The respondent's expert concluded that the market rate as of August 5, 2020 ranged from $20 to $25 per square foot and provided a best estimate of $23 per square foot.

[9] In his reasons, the application judge reviewed the evidence adduced concerning the nature of the property, its history, the leasing history and the expert evidence. He began his analysis by observing that it was evident from the experts’ reports that “the determination of the appropriate rate for the Minimum Rent for a ‘comparable premise’ is hardly a science.” Location, surrounding neighbourhood, size, condition, amenities, demand, zoning and available uses were all relevant factors to be considered.

[10] The application judge noted that the lease specified that the premises should be used as an educational facility. He accepted the respondent's position that use was an important factor in determining the prevailing market rate for comparable premises at the time of renewal.

[11] Concerning the expert’s reports, the application judge observed that the appellant's expert referenced a number of comparables that lacked the amenities and improvements of the subject property.

[12] However, the application judge also recognized that the property's zoning permitted limited uses, namely Parks & Open Space, with exceptions for only five uses: commercial recreational centre; banquet hall; place of assembly; day nursery; and elementary/secondary school. This was a factor that would require a downward adjustment from the rental rates on some of the comparables. He said:

A property remotely located which is limited in uses cannot be fairly compared to properties located on busy traffic arteries that allow dozens of general uses without a “downward adjustment” which takes into account the superior attributes and leasing potential of the comparable property.

[13] Based on the comparables put forward by both experts and the other evidence adduced on the application, the application judge concluded that the Minimum Rent for the renewal period should be $18 per square foot.

[14] The appellant raises three issues on appeal.

[15] First, the appellant submits that the application judge erred in law by failing to interpret the term “comparable premises” in a manner consistent with how the appellant and the original landlord previously interpreted that term. The appellant asserts that the application judge disregarded unchallenged evidence that when previously determining market rent for comparable premises, the original owner/former landlord did not focus on properties that could be used as an educational facility but rather focused on properties located in industrial parks and that were subject to zoning restrictions that had limited uses.

[16] We did not accept this submission. Even assuming the parties’ conduct in determining previous Minimum Rent would be relevant to the determination of the “prevailing market rates at the time of renewal for comparable premises”, there was no evidence capable of supporting the appellant’s submission. The only evidence directed to the issue consisted of two paragraphs in the affidavit filed on the appellant’s behalf by Dan Hilsenteger. Mr. Hilsenteger asserted that he and the principal of the original landlord came to an agreement on the original rental rate “based on similar properties in the area which were also located in industrial parks.” Concerning the 2017 renewal, Mr. Hilsenteger deposed that he and the former landlord agreed on a rate “based on similar properties” or “similar properties in the area.” None of the similar properties used as comparables in the past were identified. There was no evidence of the rental rates for those properties at the time of the renewal in issue. The limited evidence adduced by the appellant concerning prior comparables that were used is simply not capable of supporting the position it advances.

[17] The appellant’s second submission is that the application judge erred in law by failing to consider the very limited uses allowed by the property’s zoning. We rejected this submission. As we have said, the application judge described the permitted uses in his reasons and noted specifically that a downward adjustment from certain comparables would be required for a remotely located property with limited uses.

[18] The appellant’s third submission is that the application judge made a palpable and overriding error by failing to consider evidence of bad faith/wrongful conduct on the part of the respondent demonstrating the respondent was motivated to force the appellant from the property by way of extortive pricing so he could have it for his own use. We rejected this submission.

[19] The application judge’s decision concerning the Minimum Rent for the renewal period was based on evidence concerning the terms of the lease, the nature of the property and expert evidence concerning prevailing market rates for comparable premises. There was no evidence the respondent’s expert’s evidence was in any way influenced or tainted by alleged wrongful conduct or improper motivations on the part of the respondent.

[20] As for the cross-appeal, in our view, this was not a case for granting leave to appeal costs.

[21] Based on the foregoing reasons, we dismissed the appeal and denied the respondent’s request for leave to appeal costs. Costs of the appeal are to the respondent on a partial indemnity scale fixed in the agreed upon amount of $7,000 inclusive of disbursements and applicable taxes.

“Janet Simmons J.A.”

“Harvison Young J.A.”

“B. Zarnett J.A.”