Court File and Parties

Citation: Hashem v. 2069513 Ontario Ltd, 2010 ONSC 2021 Divisional Court File No.: 09-DV-1511 Date: 2010-04-09 Superior Court of Justice - Ontario Divisional Court

Re: Dr. Khaled Hashem, Applicant (Appellant in Appeal) And 2069513 Ontario Limited (BLVD III), Respondent (Respondent in Appeal)

Before: Kent, Heeney and Wilton-Siegel JJ.

Counsel: Joseph Y. Obagi, Counsel for the Applicant/Appellant in Appeal Krista R. Chaytor, Counsel for the Respondent/Respondent in Appeal

Heard: April 6, 2010

Endorsement

[1] The Appellant, in the Notice of Application, pleaded that the parties were unable to reach an agreement on the terms and conditions of the Lease. He therefore submitted that the original Agreement to Lease was no longer of any force or effect, and as a result, he should receive a refund of the deposit he paid to the Respondent.

[2] The Application judge, Lalonde J., held that the Agreement to Lease was a valid and binding contract. He was correct in that conclusion, since the Agreement met all of the criteria in Canada Square Corp. v. VS Services Ltd. (1982), 34 O.R. (2d) 250 (C.A.). The Application judge also found that the Appellant was in breach of the Agreement to Lease in that he failed to commence building tenant’s improvements by September 1, 2008. This entitled the Respondent, following service of a Notice of Default, to terminate the Agreement to Lease and retain the deposit as liquidated damages pursuant to para. 5 of the Agreement to Lease. The Application judge was correct in arriving at this conclusion.

[3] Mr. Obagi, for the Appellant, argues that the Agreement to Lease had ceased to be enforceable. He relies heavily on A.L Sott Financial (FIR) Inc. v PDF Training Inc., 2004 BCSC 1360, [2004] B.C.J. No. 2615 (B.C.S.C.) and 365 Bay New Holdings Ltd. v. McQuillan Life Insurance Agencies Ltd., 2008 ONCA 100, [2008] O.J. No. 472 (C.A.) to support the proposition that a landlord cannot insist that the tenant sign a lease that is significantly different than the Agreement to Lease. While we agree with that proposition, that is not the case that was before the Application judge. We agree with the Respondent that, in order to succeed in this Application, the Appellant must demonstrate that the Respondent’s actions constituted a repudiation of the Agreement to Lease entitling the Appellant to accept the repudiation and terminate the Agreement to Lease. The Appellant cannot establish such repudiation of the Agreement to Lease. Moreover, at no time after receiving the draft Lease did the Appellant assert that repudiation had occurred entitling him to terminate the Agreement to Lease.

[4] The Agreement to Lease included a term that the tenant would sign the landlord’s Standard Form of Lease, subject to the comments of counsel acting reasonably. The Lease did not have to be signed until November 30, 2008, fully three months after the Respondent was to have commenced the tenant’s improvements. The Respondent provided its Standard Form of Lease, in compliance with this term, in early August, 2008. Counsel for the Applicant made several objections to some of the terms of the Respondent’s Standard Form of Lease, and correspondence was exchanged between counsel over the three months that followed. Ultimately, four provisions in the Standard Form of Lease remained with respect to which the Appellant objected (the “disputed terms”). Counsel for the Respondent took the position that the disputed terms were fully in accord with the Agreement to Lease. Counsel for the Appellant disagreed and wanted them removed. At this point in time, rather than continue negotiations, the Respondent decided to terminate the Agreement to Lease on the basis of the continuing default of the Appellant in failing to commence tenant improvements.

[5] The terms to which the Appellant objected were part of the Respondent’s Standard Form of Lease. Therefore, it cannot be said that mere delivery of the draft of the lease constituted a repudiation of the Agreement to Lease, since the Appellant, in that Agreement, expressly agreed to sign the Standard Form of Lease. To succeed, the Appellant would have had to establish that the terms to which he objected were so unreasonable, in the sense of inconsistent with the financial terms of the Agreement to Lease, that they evidenced an intention of the Respondent to repudiate the Agreement to Lease. However, the Appellant did not plead in his Notice of Application that the proposed terms were so unreasonable as to evidence an intention on the part of the Respondent to repudiate the Agreement to Lease nor did he make that argument at the hearing before Lalonde J. Had he done so, the Respondent would have had an opportunity to call evidence to demonstrate that they were entirely reasonable, and in accord with the relevant terms of the Agreement to Lease. In our view, it is too late to raise that issue now, in view of the lack of an evidentiary foundation and the absence of such a pleading in the Notice of Application. In any event, on the evidence before the Court, Lalonde J. could not have reached the conclusion that the alleged discrepancies between the draft Lease and the Agreement to Lease were so great that the Respondent evidenced an intention to repudiate the Agreement to Lease.

[6] The Application judge made the following findings of fact:

1. That the Respondent never asked the Appellant to accept terms that were incompatible with the Agreement to Lease;

2. Rather, it was the Appellant who asked for terms incompatible with the Agreement to Lease, including,

• the payment of $60,000 toward tenant’s improvements and the tenant’s sign;
• additional work by the Respondent; and
• an extra month of basic rent free.

[7] There was evidence before the Application judge upon which he was entitled to make these findings, and we see no basis to interfere. In this respect, it is relevant that the Appellant had the onus to demonstrate that the terms to which he objected were incompatible with the Agreement to Lease. The first finding reflects the failure of the Appellant to satisfy that onus for the reasons described above.

[8] With respect to the disputed terms in particular, three of them relate to whether certain items could be included as common area maintenance expenses, with respect to which the Appellant was to pay his proportionate share. The Appellant objected to the inclusion of the following items, in para. 1.01(q) of the Lease:

• the capital cost of replacing maintenance and cleaning equipment;
• Interest on the undepreciated or unamortized portion of such equipment at prime plus 2%;
• Interest on the undepreciated or unamortized portion of HVAC equipment at prime plus 2%.

[9] The Appellant has failed to establish that the expanded wording on these items in the draft lease constitutes a material departure from the terms of the Agreement to Lease. Indeed, in the absence of evidence as to the practical effect of the alleged differences, it is hard to see how he could do so. In any event, the wording differences do not evidence a departure from the financial principles agreed to in the Agreement to Lease.

[10] In para. 4 of the Agreement to Lease, the tenant acknowledges and agrees that it is intended that the rent payable is to be “completely carefree and net to the Landlord and the Landlord is not to be responsible for any costs, charges, expenses and outlays of any nature whatsoever arising from or relating to the use and occupancy of the Leased Premises”, save only for the Landlord’s mortgage payments. Subparagraph 4(b) provides specifically for the payment of the tenant’s proportionate share of maintenance costs and expenses, while 4(c) does the same with respect to HVAC costs and expenses.

[11] In our view, a capital expenditure to replace maintenance equipment is a cost, charge, expense or outlay which was expressly agreed, in the Agreement to Lease, to be the responsibility of the tenant, irrespective of whether it is expensed entirely in one year or amortized over the anticipated useful life of the equipment. As to the addition of interest on the unamortized portion of such costs, it is clear that the landlord would either have to borrow money to finance the cost of replacing equipment, or (as is more likely the case) tie up its own money in doing so, until the cost is fully recovered through amortization. That financial cost can reasonably be considered to be a cost, expense or outlay for which the tenant is responsible, so as to leave the lease truly carefree and net to the landlord. Any variance between the terms of the Lease and the Agreement to Lease in this respect we consider to be de minimus.

[12] The fourth disputed item concerned the right to relocate.

[13] Paragraph 1 of the Agreement to Lease provided that “the Landlord shall be entitled to relocate or rearrange the Leased Premises in the Shopping Centre upon the terms and conditions set out in the Lease.” Schedule “B” to the Agreement provided that “the Landlord reserves the right at any time to relocate, rearrange, alter or expand any part of the Leased Premises from that shown on this plan”.

[14] Paragraph 8.09 of the Lease stated that the landlord reserves the right to relocate the Leased Premises if, in its opinion, such relocation would be for the betterment of the Shopping Centre. The clause went on to provide that the landlord would reimburse the tenant for its fixtures and improvements at book value.

[15] The only difference between the Agreement to Lease and the Lease itself is that the Lease provides for the payment of compensation to the tenant, whereas the Agreement to Lease does not. To the extent that this amounts to a difference, it operates in favour of the Appellant.

[16] Mr. Obagi conceded that if we were of the view that there was no significant variance between the four disputed terms of the Lease and the relevant terms of the Agreement to Lease, this appeal must fail. He conceded that, in such circumstances, the Agreement to Lease would have remained an enforceable obligation at the time that the Respondent terminated it. We are of that view, for the reasons set out above.

[17] The Appellant’s argument, as reflected in his Notice of Application and as argued before the Applications judge and this Court, was summarized by Mr. Obagi in the following manner. The terms of the Lease were open to negotiation, and since negotiations did not produce a concluded agreement, the Agreement to Lease became unenforceable. For the reasons stated above, we do not agree with that submission.

[18] The appeal is, accordingly, dismissed.

[19] If the parties cannot agree on costs, we will accept brief written submissions from counsel for the Respondent within 20 days, with the response of the Appellant within 15 days thereafter, and any reply within 10 days thereafter.

Kent J.

Heeney J.

Wilton-Siegel J.

Released: April 9, 2010