COURT OF APPEAL FOR ONTARIO

CITATION: Galt Machining & Plating Inc. v. MLS Group Ltd., 2022 ONCA 546

DATE: 20220721

DOCKET: C70140

Benotto, Zarnett and Thorburn JJ.A.

BETWEEN

Galt Machining & Plating Inc.

Applicant (Respondent)

and

MLS Group Ltd.

Respondent (Appellant)

Jeremy Sacks, for the appellant

Dylan Baker, for the respondent

Heard: July 15, 2022

On appeal from the order of Justice Mohan Sharma of the Superior Court of Justice, dated December 9, 2021, with reasons at 2021 ONSC 8156.

REASONS FOR DECISION

[1] The decision under appeal relates to commercial premises in Cambridge, Ontario that are owned by the appellant MLS Group Ltd. (“MLS Group”) and leased to the respondent Galt Machining & Plating Inc. (“Galt Machining”).

[2] The application judge declared that the attempt by MLS Group, in August 2021, to terminate the tenancy of Galt Machining was unlawful. He declared the lease made in January 2021 between MLS Group and Galt Machining for the premises to be in full force and effect, and he ordered possession of the premises to be returned to Galt Machining.

[3] MLS Group challenges the application judge’s finding that its attempted termination was unlawful. It asks this court to set aside the decision below and replace it with a declaration that the lease was validly terminated. For the reasons that follow, we dismiss MLS Group’s appeal.

[4] Galt Machining has operated its business from the premises since 1993. MLS Group acquired ownership of the premises in 2014, becoming Galt Machining’s landlord. In January 2021, the parties entered into a written lease with a term that extended to December 2022.

[5] The lease provided that Galt Machining would pay a security deposit of $11,582.50 by June 30, 2021. Galt Machining did not make the payment by that date. The application judge found that the parties then agreed that Galt Machining would pay the security deposit in three equal instalments on August 15, September 15, and October 15, 2021.

[6] Galt Machining failed to pay the first instalment of the security deposit by August 15, 2021. MLS Group then sent a notice of default. The application judge found the notice of default was, by virtue of the provisions of the lease, deemed delivered on August 20, 2021.

[7] In relevant part, the notice of default provided that Galt Machining had to pay the entire security deposit by August 25, 2021, failing which MLS Group would have the right to avail itself of remedies under the lease, which included terminating the lease.

[8] The payment of the entire security deposit, demanded in the notice of default, was not made by August 25, 2021. On August 26, 2021, MLS Group purported to terminate the tenancy by having Galt Machining locked out and posting a notice of termination on the premises. When Galt Machining tried to pay the entire security deposit on September 2, 2021, MLS Group refused to accept it.

[9] The application judge found the termination unlawful because MLS Group was not in a position to terminate on August 26, 2021. The security deposit was “Additional Rent” as defined in the lease. Under s. 2.06 of the lease, “Except as otherwise provided in this Lease, all Additional Rent shall be payable by the Tenant to the Landlord within five (5) business days after demand.” The application judge concluded that August 27, 2021 was the fifth business day after the deemed delivery of the notice of default in which the demand for payment of the entire security deposit was made. In other words, MLS Group had purported to terminate the lease on August 26, 2021, the day before the five-day period set out in s. 2.06 had elapsed and the entire amount demanded had even become payable.

[10] Moreover, the application judge noted that:

[Section] 9.01 [of the lease] states that Landlord may only terminate by notice to the Tenant if there is an Event of Default. Section 8(a) of Sch. C defines an Event of Default. It includes whenever “any Rent [including Additional Rent] is in arrears and is not paid within three (3) days after written demand by the Landlord.” Accordingly, after sending the August Default Notice, the earliest possible date that [MLS Group] could have terminated the Lease for failure to pay the security deposit was Tuesday, August 31, 2021. By this date, the Lease had already been terminated for five days.

[11] MLS Group contests the finding of unlawful termination, making two arguments.

[12] First, MLS Group argues that the application judge was wrong to consider the five-day period in s. 2.06 of the lease to be applicable. Section 2.06 applies “[e]xcept as otherwise provided in this Lease”. MLS Group submits that the agreement to pay the security deposit in instalments provided a date when the first instalment was payable; therefore, MLS Group could proceed on the default in the payment of that instalment by giving only three days’ notice under s. 9.01 of the lease.

[13] We do not accept this submission. MLS Group did not send a notice of default demanding payment of only the first instalment, with termination to follow if the first instalment was not paid. It demanded payment of the entire security deposit by August 25, 2021, including the second and third instalments, which had payment dates of September 15, 2021 and October 15, 2021, respectively. The application judge found that Galt Machining did not agree that if an instalment was missed or late, the entire security deposit was immediately payable. We see no error in the application judge’s conclusion that to proceed on the basis that the entire security deposit was due, MLS Group had to give five business days’ notice under s. 2.06.

[14] MLS Group’s second argument is that by failing to make the first instalment on its due date, Galt Machining had repudiated the agreement to pay in instalments and could no longer rely on it. It does not appear that this argument was made to the application judge, and it would not be appropriate to allow it to be raised for the first time on appeal. In any event, we do not agree that, in the circumstances, the failure to make one instalment – representing one third of the security deposit – meets the test for repudiation, which requires a breach that deprives the innocent party of substantially the whole benefit that it was to obtain under the agreement: Place Concorde East Ltd. Partnership v. Shelter Corp. of Canada (2006), 2006 CanLII 16346 (ON CA), 270 D.L.R. (4th) 181 (Ont. C.A.), at para. 51. It is therefore unnecessary to consider how a repudiation would have affected the notice periods in the lease.

[15] The appeal is dismissed. In accordance with the agreement of the parties, Galt Machining is entitled to its costs of the appeal in the amount of $6,500, inclusive of disbursements and applicable taxes.

“M.L. Benotto J.A.”

“B. Zarnett J.A.”

“J.A. Thorburn J.A.”