ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 09-1137
DATE: 2012-03-02
BETWEEN:
C.C. TATHAM & ASSOCIATES LTD. Applicant
– and –
2057870 ONTARIO INC. Respondent
M.A. Cummings, for the Applicant
S.R. Fairley, for the Respondent
HEARD: January 27, 2012 and February 22, 2012
M.P. EBERHARD
[ 1 ] On June 27, 2011 I released partial judgment after a trial heard May 31 and June 2, 2011.
[ 2 ] I concluded at paragraph 23 that there is no direct provision for management or administrative fees as there must be in the lease for a Landlord to claim them. I concluded an overriding intention to allow a claim for management or administrative fees cannot be inferred from the “completely carefree net” clauses. Indeed, I found the particular must override the general in contract interpretation. It is both necessary and quite possible to include terms for management or administrative fees. The parties did not.
[ 3 ] In that trial the Landlord argued that the fees he has charged for management and administrative fees bring the Additional Rent to approximately $5 per square foot which was the expectation which compared favourably to the alternative rental opportunities the Tenant was considering when he agreed to enter the lease from the Landlord.
[ 4 ] I found this is a difficult argument for several reasons. Firstly, I cannot be sure that it compares apples to apples – the premises changed; the tax component is not clearly specified. Secondly, while the Tenant’s internal correspondence supports that the Tenant would expect Additional Rent in that range, this expectation never became elevated to a shared intention. Thirdly, a hindsight view of what the Tenant might have been thinking to motivate entering the lease does not prohibit insistence on paying only the categories of obligations as agreed in the lease. Such insistence, despite an expectation to pay in that range, hardly suggests a circumstance which “causes obvious injustice by providing a tool for one party to dupe another” as set out in Corey Developments (supra) as reason to permit parol evidence.
[ 5 ] I recognized that many of the services listed as making up the management fee, if identified as having been provided and paid would be included in Additional Rent.
[ 6 ] I found the Landlord (O’Donnell) provides some of the services himself and through employees of his company Atlantis Marine Construction. Those efforts are not differentiated from other employment duties. I accept that this is an efficient way to operate. However, this method does not relieve the Landlord of the obligation to account.
[ 7 ] I noted the complication of demonstrating the cost of providing the services is enormous after the fact. The Landlord is entitled to Additional Rent for reasonable and proper expenses, costs, fees, rentals, disbursements and outlays of every kind paid, payable or incurred. In his supporting documentation he had provided proof of payments to third parties. Mr. O’Donnell has, however, by enmeshing these services in the general work done by Atlantis Marine Construction, rendered himself unable to demonstrate the entitlement to services for the Tenant provided by his Atlantis Marine Construction employees and himself.
[ 8 ] I determined that the Landlord does not have justification in the lease for including the standardized management or administrative fees, described as an “arbitrary surcharge to subsidize the respondent's cost of internal management” [1]; nor for charging the taxes at 100% against the demised premises. However, I found that some of the work done by Atlantis Marine Construction to maintain the property would be properly chargeable if identified and, if not actually paid, at least find support in the books and records of Atlantis Marine Construction. Necessarily, reconstructing these services rendered will be inexact.
[ 9 ] Noting that in the future the Landlord will have opportunity, and must, differentiate the work done by Atlantis Marine Construction to maintain the subject property, I found that for the past, it will be necessary to prepare an accounting based on best effort estimates. I indicated that if the hours and quantum of work were left to me for adjudication, that would be my process, but I had neither the evidence not the inclination to embark on such a detailed finding.
[ 10 ] I therefore gave the Landlord 60 days, from the date of release of that ruling, to put forward a detailed claim based on work actually done from 2006-2010. For the 2011 year and thereafter, the books and records of Atlantis Marine Construction must contain entries specific to the maintenance of the building for a claim to be supported for work done by that company’s staff.
[ 11 ] I noted again that obviously, the 2006-2010 claims will contain estimates and stale reconstruction of events. If parties were able to agree on reasonable compromises then all the better, but failing that, the matter may be brought back before me for adjudication on an item by item basis (or on a reference if the parties prefer). This is a painstaking but manageable determination which can be undertaken rather than the rather all or nothing approach I was left with from argument on the current material. This was a similar response as ordered in Denninger paragraph 40/41 supra.
[ 12 ] In my final paragraph I directed that in that judgment I had ruled on criteria but left the application of same to the parties for compromise or further material and argument upon the passage of 60 days. The costs issue, if not resolved, was permitted to be brought back, on proper supporting material, when the matter is returnable, or, if costs remained the only outstanding issue, then parties were permitted to file a 2 page cost memorandum along with supporting material through the judicial secretaries no later than September 1, 2011.
[ 13 ] As a result of this indulgence to the Respondent Landlord who was not then in a position to demonstrate actual work and expense, I heard argument some 7 months (far longer than the 60 days) later. My inclination to embark on this painstaking adjudication had not grown but the evidence put before me on January 27, 2012 requires me to rule on numerous disputes on individual items, few with a value that could possibly justify the legal cost and effort, nor the attention of a Superior Court.
[ 14 ] At the outset of the resumed hearing I noted that with so much time having passed in between it might by now be possible to inform the past with careful documenting of services provided in the months that have passed since my ruling. Not only did I not receive that helpful set of clues, I was told on January 27 that the parties have not even sat down to discuss the different views on the accounting evidence put forward. It is astonishing that I am asked to rule on arithmetical disagreements, whether grass was there to cut in 2007, whether the windows were ever cleaned. These fact and accounting issues are capable of independent proof and certainly ripe for compromise.
[ 15 ] As argument did not finish on January 27 a further afternoon for argument was scheduled with the file endorsed “Subsequent accounting hearing commenced. Not completed. Adj to February 22, 2012 at 2:15pm. The parties may NOT appear before me again without first conducting a conscientious 4 way meeting.”
[ 16 ] This hiatus yielded a summary of the concessions made during argument on the 27 th saving me the task of plucking those individual items from my notes.
[ 17 ] This hiatus also yielded a new affidavit from the Respondent containing mainly some time sheets which I allowed into evidence notwithstanding that we were at a stage in the proceeding after the Applicant had finished reply and Applicant’s counsel was only served the day prior. This hiatus also yielded the fact of a meeting only the afternoon before, which did not impress me as conscientious.
[ 18 ] Before addressing the accounting issues permitted by my June 2011 judgment, I note there was a further issue at trial relating to overloading. I found at paragraph 53 that the only real answer must be one informed by whether the municipal building department accepts that the actual use is the use expected when the design was approved. I directed that within 60 days the parties submit the anecdotal and expert evidence to the municipal building department. If the building department confirms that what they see is what they expected in giving their approval in 2006 then the Tenant need do no more. If the building department disagrees that the Tenant has met it own commitments, then a trial of an issue will be required for the court to order what must be done and costs.
[ 19 ] The evidence before me from the Tenant is that the building department has confirmed that the current use conforms with the approvals given in 2006. The Landlord is disputing this. The Applicant argues that the Tenant has met my criteria and need do no more. At the very end of the day on February 22, 2012 I asked the Respondent about this as no argument had been addressed on this point. The Respondent then stated he is seeking trial of an issue.
[ 20 ] I inquired whether that request was in material filed before me. It was not. I therefore decline to hear that issue. If it is being pursued, formal process should be filed. Whether it must or should be before me is too complicated to address on the fly at the end of a hearing convened for a different purpose.
[ 21 ] Briefly, that purpose is to allow the Landlord to demonstrate reasonable and proper expenses, costs, fees, rentals, disbursements and outlays of every kind paid, payable or incurred.
[ 22 ] Although much paper is before me, the useful documents, once understood, are the Tenant’s charts (at tab a 1-5 of the Nov 4, 2011 affidavit of Reginald Meadley) of the Landlord’s claimed expenses with the Tenant’s position and affidavit references; the summary of settled items; and the Landlord’s Reconciliation Brief and the new affidavit with time sheets which will provide the documentary support for Graham O’Donnell’s assertions that the amounts claimed are reasonable and proper expenses, costs, fees, rentals, disbursements and outlays of every kind paid, payable or incurred.
[ 23 ] My pique, inferred in paragraph 13 above, arose not only from disinclination to do a line by line analysis of expenses but also from the growing concern that I was embarking on a process in which the court should have no part: I cannot purport to write a contract for these parties.
[ 24 ] This problem became apparent in the Landlord’s claim for mark up on hourly rate for work done by Atlantis Marine Construction employees, or on an appropriate rate for Mr. O’Donnell to charge his time. I challenged the Tenant that it was commercially reasonable to impose a rate to charge the work not just the hourly wage paid to an employee since any 3 rd party service provider would do so. The Tenant countered that they are in agreement with work done by O’Donnell’s (Landlord) own forces at the same rate and for the same service as comparable 3 rd party service providers would or have historically charged for the service. For instance, the Tenant points to agreement to pay what 3 rd party “Nature’s Edge” charged for landscaping, snow clearing and grass cutting but that in 2010 the Landlord had arbitrarily raised the cost of grass cutting and the Tenant was unwilling to pay the amount over and above what the 3 rd party used to charge. The Tenant’s submission is that there is no means to hold the Landlord to claims that are commercially reasonable. The Tenant prefers to pay a higher cost to a 3 rd party service provider than permit the Landlord to impose his own rate of mark up reasoning that since the Landlord would also be paying half the costs of 3 rd party maintenance the Landlord would not hire service providers whose costs are unreasonable. Moreover, being invoiced for work done by a 3 rd party would provide more certainty that maintenance work was actually being done which the Tenant disputes is actually being done now.
[ 25 ] Indeed, on what basis could this court possibly impose such terms as a reasonable mark up? The Landlord presented some evidence of the costs of such services by 3 rd party providers but has not persuaded me that the services provided are comparable.
[ 26 ] Further, the Landlord demonstrates a marked resistance to meaningful compliance with my June 2011 judgment. This impression is fuelled by the entirety of the circumstances presented before me but, by way of example, the continued insistence on an unsupported monthly amount that matches the management fee I have ruled cannot be charged under this lease suggests a stubborn, if not cynical response. Further, the apparent failure to set up a system for responsible accounting of services and expenses to account for the period after my June 2011 judgement that such accounts are required in order to claim the expenses as Additional Rent, suggests that compliance is not intended.
[ 27 ] I am therefore not in a position to allow claims on an expectation of a commercially reasonable response on a go forward basis. I am limited to approving claims that have been demonstrated, though with some leniency based on the difficulty of reconstructing accounts after the fact.
[ 28 ] The Landlord was markedly unsuccessful in meeting the onus of demonstrating reasonable and proper expenses, costs, fees, rentals, disbursements and outlays of every kind paid, payable or incurred. In my June 2011 judgment I identified that reconstruction of records would be difficult but it is hard to imagine less informative record keeping. I find that the evidence presented falls short:
(a) The records do not purport to be complete but those presented are frequently undated and incapable of supporting any pattern from which trends can be discerned;
(b) There are no records of systematic maintenance being performed;
(c) Time sheets are so general that they cannot demonstrate that work purportedly done at the address was of a type that could qualify as maintenance;
(d) Time sheets do not match reconciliations;
(e) The times claimed are duplicated by double entry, and are not distinguished from specific services separately claimed;
(f) Inaccuracies such as entry for work claimed while employees were on sick leave expose a retrospective creation of documents consistent with the assertion by a former bookkeeper that she had been instructed to create records to support a predetermined percentage to claim rather than record work that was actually done;
[ 29 ] Because of the failure of the Landlord to meet the onus of demonstrating what work he and his Atlantis Marine Construction forces have done, how much time was expended on such maintenance work and at what commercial reasonable cost, I am left with little to support the maintenance that the Landlord continues to claim annually in a lump sum of $38,400 over and above the other claims making up total claims of reported annual expense for identifiable maintenance work and building expense, much of which the Tenant has accepted as valid. The Landlord reports annual expense as follows:
$128,806.38 for 2006/7,
$129,439.48 for 2007/8,
$166,859.82 for 2008/9, and
$145,670.31 for 2009/10
[ 30 ] Hereafter I will adjudicate on disputes still remaining in the chart of expenses but fundamentally the question is whether, on the poor demonstration by the Landlord of maintenance work done by O’Donnell himself and his Atlantis Marine Construction forces, I can award any amount for the property “management” still claimed at $34,800 based on assertions contrary to my June 2011 judgment.
[ 31 ] Using the Common Area Expense chart submitted on February 22 which listed the areas settled I will hereafter record my findings on the items still in dispute:
Item Dec 2006-Nov 2007: Property management Insurance Atlantis –Accounting Atlantis –Cleaning Lobby Atlantis – Recycling Maintenance Payroll Grass Cutting Spring/Fall clean-up HVAC 2 nd floor Total not already included Dec 2007-Nov 2008: Property management Landscaping-curb repair Common-Burnside Common-Rigney Electric Common-Centimark Atlantis –Accounting Atlantis –Cleaning Lobby Atlantis – Recycling Maintenance Payroll Owner –Snow Clearing Taxes Elevator –Otis Elevator-TSSA HVAC 2 nd floor Total not already included Dec 2008-Nov 2009: Property management Atlantis –Accounting Atlantis –Cleaning Lobby Atlantis – Recycling Maintenance Payroll Maintenance -Jago E. McMahon Spring/Fall clean-up Total not already included Dec 2009-Nov 2010: Property management Atlantis –Accounting Atlantis –Cleaning Lobby Atlantis – Recycling Maintenance Payroll Spring/Fall clean-up Window cleaning Maintenance –Jago Elevator –Otis Elevator-TSSA Total not already included
Cost allowed $0 $5,486.81 $0 $2,340 $600 $0 $3,000 $1,040 $384.90 $0 $800 $80.59 $0 $240 $0 $2,535 $600 $0 $1,900 $32,022.87 $2,383.29 $250 $7,404.09 $0 $0 $2,535 $650 $0 $0 $0 $2,335 $0 $0 $2,535 $650 $0 $1,040 $1,800 $0 $2,520 $100
C.C. Tatham & Associates Ltd. share $0 $2,743.41 as included $0 $1,170 $300 $0 $1,500 $520 $192.45 $3,682.45 $0 $400 $40.30 $0 $120 $0 $1,267.50 $300 $0 $950 $1,6011.44 included $1,191.65 included $125 $7,404.09 included ($5095.34) $5,511.55 $0 $0 $1,267.50 $325 $0 $0 $0 $1,167.50 included ($647.50) $2,112.50 $0 $0 $1,267.50 $325 $0 $520 $900 $0 $1,260 included $50 included $3,012.50
[ 32 ] The agreed or resolved quantum for 2006/7 = $27,036.86
[ 33 ] The adjudicated quantum for 2006/7 = $$3682.45 Total $30,719.31
[ 34 ] The agreed or resolved quantum for 2007/8 = $36,785.58
[ 35 ] The adjudicated quantum for 2007/8 = $5,511.55 Total $42,297.13
[ 36 ] The agreed or resolved quantum for 2008/9 = $48,134.41
[ 37 ] The adjudicated quantum for 2008/9/ = $2,112.50 Total $50,246.91
[ 38 ] The agreed or resolved quantum for 2009/10 = $45,011.84
[ 39 ] The adjudicated quantum for 2009/10= $3,012.50 Total $48,024.34
Reported Annual Expense
Annual Expense per C.C. Tatham & Associates Ltd.
C.C. Tatham & Associates Ltd. share of annual expense agreed and adjudicated
C.C. Tatham & Associates Ltd. paid
Amount owed/Refund
2006/7
$128,806.38
$54,073.69
$30,719.31
$75,000
2007/8
$128,439.48
$68,475.79
$42,297.13
$75,000
2008/9
$166,859.82
$94,861.79
$50,246.91
$75,000
2009/10
$145,670.99
$88,157.63
$48,024.34
$75,000
Total
$570,775.99
$305,568.90
$171,287.69
$300,000
$128,712.31
[ 40 ] Presumably the Landlord will see the value in maintaining records and demonstrating fair market value for comparable services of “ reasonable and proper expenses, costs, fees, rentals, disbursements and outlays of every kind paid, payable or incurred”. He has left himself unable to prove either that maintenance was done nor the associated expenses.
[ 41 ] The Tenant has accordingly overpaid “Additional Rent” for four years in the amount of $128,712.31.
[ 42 ] The process for addressing costs was set out in my June 2011 judgment providing that the costs issue, if not resolved, may be brought back, on proper supporting material, when the matter is returnable, or, if costs remains the only outstanding issue, then parties may file a two page cost memorandum along with supporting material through the judicial secretaries no later than September 1, 2011.
[ 43 ] Like all else, the costs decision was not dealt with in the time frame set out. The Tenant’s submissions may be delivered to the judicial secretaries by March 16. The Landlord’s submissions may be delivered by March 23. The Tenant’s reply may be delivered by March 28. All this is 2012.
EBERHARD J.
Released: March 2, 2012
[1] Faema supra at p 4