Court File and Parties

Court: COURT OF APPEAL FOR ONTARIO Date: 2022-04-04 Docket: C69604

Before: Feldman, MacPherson and Lauwers JJ.A.

Between: Tabriz Persian Cuisine Inc., Plaintiff (Appellant) And: Highrise Property Group Inc., Defendant (Respondent)

Counsel: Esmaeil Mehrabi, for the appellant Angela Assuras, for the respondent

Heard: February 25, 2022 by video conference

On appeal from the judgment of Justice Jasmine T. Akbarali of the Superior Court of Justice, dated June 16, 2021, with reasons at 2021 ONSC 4065.

MacPherson J.A.:

Introduction

[1] This appeal centers on the reasonableness of a landlord’s refusal to consent to a tenant’s lease assignment. On three occasions, the appellant tried to assign its lease. On three occasions, the respondent refused. It offered differing reasons for doing so, but each refusal insisted that the respondent would not consider the assignment unless the appellant removed a patio it had built on the condominium’s property.

[2] The appellant brought an action for damages after the third refusal. After a trial, Akbarali J. found that the appellant had not shown that the respondent acted unreasonably. For these reasons, I find that she did not err in doing so. The appellant attempts to extricate questions of law from a finding of fact. The fundamental question is whether a reasonable person could have withheld consent. The appellant’s refusal to rectify its breach of the lease meets the reasonable person standard and is not overwhelmed by the respondent’s request that the appellant abandon a parallel lawsuit.

Facts

The Parties and Events

[3] The appellant, Tabriz Persian Cuisine Inc., owned a Persian restaurant in premises leased from the respondent Highrise Property Group Inc. In 2018, the appellant decided to sell its business. Doing so required the respondent to consent to the assignment of its lease with the appellant. Section 10.01 of the lease prohibited the respondent from unreasonably withholding or delaying its consent. The section went on to specify that it would not be unreasonable for the respondent to consider the proposed transfer’s conformity with the lease, the assignee’s business fundamentals, and the availability of other premises.

[4] Three times, the appellant found a buyer and sought the respondent’s consent. Three times, the respondent refused to consider the assignment unless the appellant met a series of conditions. Though the conditions changed through the offers, the respondent consistently asked that the appellant remove a patio it had built as an addition to its restaurant.

[5] The patio was a source of significant friction between the parties. Prior tenants had used the area in front of the premises for outdoor dining. The appellant added a wooden structure to correct what it saw as a grading problem. The respondent subsequently asked the appellant to remove the patio as it did not comply with the lease. The appellant resisted on the basis that it had obtained the consent of the respondent’s agent before installing the patio. The patio and the alleged representation are at the heart of a separate action brought by the appellant.

[6] In its third refusal to consent to the assignment, the respondent requested that the appellant remove the patio and that it discontinue the parallel litigation.

The Trial Judge’s Decision

[7] The trial judge concluded that the appellant had failed to show that the respondent’s refusal to consent to the lease was unreasonable. Despite the respondent’s various other grounds for refusing to consent to the assignment, the trial judge found that the patio was its primary reason for refusal.

[8] The trial judge noted that the appellant had built the patio outside the leased premises without the respondent’s consent. The appellant understood that the patio did not conform with the lease, as shown through its various unfulfilled promises to remove the deck/patio. The trial judge reasoned “[i]t is not reasonable to expect the [respondent] to consent to an assignment of lease in circumstances that are going to perpetuate the patio problem that has plagued the parties for years”. The respondent was merely insisting that the appellant restore the leased premises before it left.

[9] However, the respondent’s insistence that the appellant discontinue its parallel lawsuit was not reasonable. The trial judge found that this condition was the respondent’s attempt to “use its greater bargaining power to secure a dismissal of the action in which the plaintiff may be asserting legitimate rights [and] is not connected to the request to assign the lease”. Nevertheless, this collateral purpose did not render the respondent’s refusal unreasonable, viewed holistically: “Put another way, a reasonable basis to refuse consent saves a co-existing tainted purpose”.

[10] Finally, the trial judge found in obiter that the appellant had not sufficiently proved its damages.

Issues

[11] The appellant raises three issues on the appeal:

1. Did the trial judge err by finding that the respondent did not impose a pre-condition to considering the appellant’s assignment request?
2. Did the trial judge err by finding that the respondent’s refusal to consent to the assignment was reasonable?
3. Did the trial judge err by finding that the reasonable purpose saved the collateral purpose?

Analysis

Preliminary Issue - Standard of Review

[12] I disagree with the appellant’s argument that the lease is a standard form contract that should be reviewed for correctness. Whether a landlord’s refusal to consent to a lease assignment is reasonable is essentially “a question of fact that must be determined on the circumstances of the particular case, including the commercial realities of the market place and the economic impact of the assignment on the landlord”: 1455202 Ontario Inc. v. Welbow Holdings Ltd. (2003), 33 B.L.R. (3d) 163 (Ont. S.C.), at para. 9 (6). The trial judge’s decision is, accordingly, entitled to deference absent palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33.

The Pre-Condition Issue

[13] The appellant contends that the respondent acted unreasonably by refusing to even consider the lease assignment before its conditions were met. In its email concerning the third offer, the respondent’s agent wrote “you have to remove your patio complete to the ground and make good all damages to the wall and floor before he considers your Assignment of Lease”(emphasis in original). The appellant relies on para. 50 of Royal Bank of Canada v. Oxford Medical Inc., 2019 ONSC 1020, for the principle that a landlord has an obligation “to consider requests for a proposed assignment.”

[14] This reliance is misplaced. McEwen J.’s assertion in Royal Bank cites St. Jane Plaza Ltd. v. Sunoco Inc. (1992), 24 R.P.R. (2d) 161 (Ont. C.J. (Gen. Div.)). There, the plaintiff attempted to terminate the lease on the basis that Sunoco had assigned its lease without consent. In fact, Sunoco had requested the plaintiff’s consent on three occasions and the plaintiff had simply ignored them: at p. 5. For the next 14 years, the plaintiff accepted Sunoco’s rent cheques until it sought to terminate the lease in search of higher rent: at p. 7.

[15] Borins J. concluded that the plaintiff had unreasonably withheld its consent because it failed to offer any grounds for its refusal: at p. 10. Therefore, a landlord’s refusal to consider an offer is not unreasonable in itself. Rather, it is unreasonable because the court is unable to appreciate the reasons motivating the refusal: Welbow, at para. 9(2). A landlord’s silence is tantamount to an unreasonable refusal. As Morden J.A. said at para. 36 of 1497777 Ontario Inc. v. Leon’s Furniture Ltd. (2003), 176 O.A.C. 380 (C.A.), “the essential reasoning underlying Borins J.’s conclusion” in St. Jane “is founded on the fact that the tenant had sought the landlord’s consent to the assignment of the lease and that the landlord had unreasonably refused to give it.”

[16] Consequently, I do not agree that the landlord was unreasonable in placing ‘preconditions’ before considering the assignment. The correspondence between the parties highlights the basis of the landlord’s refusal in palpable detail and allowed the trial judge to find that the patio was the only default “that really mattered”. The question is, and remains, whether the landlord’s refusal was reasonable. It makes no difference at which stage of its consideration the landlord makes its decision.

The Refusal Issue

[17] The appellant submits that the respondent’s reasons for withholding consent were unreasonable because they were not contemplated by the lease. The lease required the appellant to obtain the respondent’s consent before assignment “which consent may not be unreasonably withheld or delayed.” The lease further provided that it will not be unreasonable for the respondent to consider:

a. Whether the transfer is contrary to any covenants or restrictions granted by the landlord to other existing or prospective tenants or occupants of the building; b. Whether in the landlord’s opinion the financial background, business history and capability of the transferee are satisfactory; and c. Whether the landlord will have in the next ensuing three-month period other premises elsewhere in the building which might be suitable for the needs of the transferee.

[18] The appellant claims that the trial judge erred by considering reasons extraneous to the three outlined above. Indeed, it argues that its default under the lease was irrelevant since there was no term stating that the respondent could refuse consent because the appellant was in breach of the lease. It did not raise this argument at trial: see trial judge’s reasons, at para. 61.

[19] I disagree with the appellant’s submission for two reasons. First, the exclusivity of the above grounds is not supported by the language of the lease. The landlord’s obligation to withhold consent on reasonable grounds is unqualified: “which consent may not be unreasonably withheld or delayed.” The three provisions are included in a distinct sentence that states “it will not be considered unreasonable for the Landlord to take into account the following factors”. In my view, this language is expansive, not exclusive. It clarifies conditions that may be unreasonable without limiting the generality of the first clause: see Lehndorff Canadian Pension Properties Ltd. v. Davis Management Ltd. (1989), 59 D.L.R. (4th) 1 (B.C. C.A.), at p. 10.

[20] Second, the appellant’s argument goes against the tenor of the governing case law. In Welbow, Cullity J. described the relevant principles, at para. 9:

1. The burden is on the tenant to satisfy the court that the refusal to consent was unreasonable. In deciding whether the burden has been discharged, the question is not whether the court would have reached the same conclusion as the landlord or even whether a reasonable person might have given consent; it is whether a reasonable person could have withheld consent.
2. In determining the reasonableness of a refusal to consent, it is the information available to - and the reasons given by - the landlord at the time of the refusal - and not any additional, or different, facts or reasons provided subsequently to the court - that is material. Further, it is not necessary for the landlord to prove that the conclusions which led it to refuse consent were justified, if they were conclusions that might have been reached by a reasonable person in the circumstances.
3. The question must be considered in the light of the existing provisions of the lease that define and delimit the subject matter of the assignment as well as the right of the tenant to assign and that of the landlord to withhold consent. The landlord is not entitled to require amendments to the terms of lease that will provide it with more advantageous terms, but, as a general rule, it may reasonably withhold consent if the assignment will diminish the value of its rights under it, or of its reversion. A refusal will, however, be unreasonable if it was designed to achieve a collateral purpose, or benefit to the landlord, that was wholly unconnected with the bargain between the landlord and the tenant reflected in the terms of the lease.
4. The question of reasonableness is essentially one of fact that must be determined on the circumstances of the particular case, including the commercial realities of the marketplace and the economic impact of an assignment on the Landlord. Decisions in other cases that consent was reasonably, or unreasonably, withheld are not precedents that will dictate the result in the case before the court. [Citations omitted.]

This court confirmed this as the “applicable test” in Tradedge Inc. (Shoeless Joe’s) v. Tri-Novo Group Inc., 2007 ONCA 562, at para. 2.

[21] Cullity J.’s decision relies on the Ontario High Court’s decision in Federal Business Development Bank v. Starr (1986), 28 D.L.R. (4th) 582, where Donnelly J. said, at p. 590, that the assignment test is moving towards a “more liberal approach, close to the ‘reasonable man’ standard, [which] is to consider the surrounding circumstances, the commercial realities of the market place and the economic impact of an assignment on the landlord.” This court endorsed Donnelly J.’s approach: see 1988 56 (SCC), 52 D.L.R. (4th) 767.

[22] The appellant attempts to distinguish this case from Starr on the basis that the tenant in Starr was required to be in compliance with the terms of the lease as a precondition to assignment. However, Donnelly J. considered the covenant to repair as one factor, not as the foundation of his analysis. He concluded, at p. 591, “the landlord suffers substantial economic loss if the property is not repaired. This detriment is legitimately recognized as a reasonable objection to the assignment”.

[23] In my view, the analysis in Starr is apposite. The appellant’s refusal to remove the patio has imposed economic loss on the respondent. The appellant acknowledged that the patio was contrary to the lease through its many unfulfilled promises to remove it. However, the appellant’s assurances that the third purchaser could use the patio shows that it never intended to rectify its breach. As the trial judge found, the respondent’s refusal was motivated by a desire to avoid “perpetuat[ing] the patio problem.”

[24] I agree. The respondent’s insistence that the appellant rectify its breach falls squarely within the wider field of reasonableness identified in Welbow and Starr. The respondent’s desire to compel the appellant to restore the integrity of the leased premises is entirely consistent with the parties’ bargain as expressed by the lease. In any event, reasonableness is a question of fact, dependent on the surrounding circumstances, the commercial realities of the marketplace, and the economic impact of the assignment on the respondent. I see no basis to disturb the trial judge’s analysis and conclusion on this issue.

The Reasonable Purpose Versus the Collateral Purpose Issue

[25] The trial judge found that the respondent’s second basis for refusing to consent to the assignment was not reasonable. She held that, in requiring that the appellant discontinue its other lawsuit, the respondent was “trying to use its greater bargaining power to secure a dismissal of the action in which the plaintiff may be asserting legitimate rights.” Consequently, this condition was an unreasonable collateral purpose because it was “not connected to the request to assign the lease.” Nevertheless, the trial judge found that the respondent’s first basis to refuse assignment was sufficient to meet the reasonableness test: “Put another way, a reasonable basis to refuse consent saves a co-existing tainted purpose.”

[26] The appellant argues that the trial judge erred in her analysis because the collateral purpose was grounded in and synonymous with the reasonable condition. It relies on No. 1 West India Quay (Residential) Ltd. v. East Tower Apartments Ltd., [2018] EWCA Civ 250, to submit that the collateral purpose infects the reasonable condition because the overarching reason for refusal was a collateral benefit: the discontinuation of the parallel lawsuit. The respondent disagrees with this submission on the basis that the collateral purpose and the reasonable condition are independent of each other.

[27] I do not agree entirely with either party’s submission.

[28] I agree with the appellant that there is a linkage between the respondent’s reasonable condition (remove the patio) and the improper collateral purpose (discontinue the parallel lawsuit). However, I do not think that the collateral purpose “infects” the reasonable condition. The respondent’s principal focus throughout its dispute with the appellant was the removal of the improper patio. It said this every time the appellant found a proposed buyer and sought the respondent’s consent to assign its lease. The respondent had every right to seek the removal of the patio as a condition of agreeing to the assignment of the lease to a potential buyer. As the trial judge said:

In this case, there is sufficient basis on which a reasonable person could have withheld consent – the failure to remove the patio. Moreover, this is not a case where the defendant refused consent based only on an improper consideration. The failure to remove the patio was, in fact, one of the reasons the defendant withheld consent.

[29] However, in a passage relied on by the respondent, the trial judge went on to say, seemingly in a conclusory way: “Put another way, a reasonable basis to refuse consent saves a co-existing tainted purpose.”

[30] In my view, this is too broad a proposition. I think that when two or more refusal factors are in play, it is necessary to consider the origins and weights of the competing factors. In effect, the trial judge did this in her reasons, comprehensively and well. Accordingly, I would uphold her decision. Viewed in its entirety, a reasonable person could have withheld consent on the basis that the appellant had not properly restored the property to the condition required by the lease, as it had promised to do.

Disposition

[31] I would dismiss the appeal. The respondent is entitled to its costs of the appeal fixed at $7,500 inclusive of disbursements and HST.

Released: April 4, 2022 “K.F.” “J.C. MacPherson J.A.” “I agree. K. Feldman J.A.” “I agree. P. Lauwers J.A.”