ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 09-45593
DATE: 2012May29

BETWEEN:

RINALDO HAIR STYLIST LIMITED Plaintiff – and – bcIMC REALTY CORPORATION and BENTALL RETAIL SERVICES LP Defendants

Kenneth Radnoff, Q.C., for the Plaintiffs

Raymond M. Slattery, for the Defendant, bcIMC Realty Corporation
Jeff G. Saikaley, for the Defendant, Bentall Retail Services LP

HEARD: April 27, 2012 at Ottawa

TAUSENDFREUND j.

ENDORSEMENT

OVERVIEW

[ 1 ] The Landlord and its agent as the Defendants each seek summary judgment dismissing this action brought against them by the Plaintiff Tenant.

[ 2 ] Although the Plaintiff concedes that it failed to give notice of its intent to renew on terms as detailed in the lease, it states that the Landlord waived that requirement by continuing to negotiate terms of a lease renewal after the intended notice date. The Plaintiff states that this raises a credibility issue which should be left for trial. The Defendants take issue with that position. They state that this is a document driven case which can and should be resolved at the summary judgment stage.

FACTS

[ 3 ] The Plaintiff Rinaldo Hair Stylist Limited (“Rinaldo” or “the Tenant”) as Tenant and the Defendant bcIMC Realty Corporation (“bcIMC” or “the Landlord”) as Landlord entered into a lease dated November 14, 1997. Under the terms of that lease, Rinaldo was a Tenant in what is known as the World Exchange Plaza in Ottawa for a period of 10 years effective June 1, 1998. Rinaldo carried on a hair salon business in the retail concourse level of that building.

[ 4 ] The lease provided that Rinaldo had the option to renew for two additional five-year terms on written notice to the Landlord of its intention to exercise the option to be given in writing and delivered by May 31, 2007. The relevant part of the renewal option contained at para.11 of the lease provides:

11. Extension of Term

Provided the Tenant is not in default of the Lease ... and the Tenant has provided the Landlord with written notice not more than eighteen (18) months and not less than twelve (12) months prior to the expiry of the initial Term of the Lease, then the Landlord will grant...a non-transferable right to extend the Term of the Lease for two further periods of five (5) years each ... on the same terms and conditions as set out in the Lease except that ... (ii) the Rent will either be (a) the same Rent structure as set out in the Lease during the initial Term in the event that the Tenant’s average Gross Revenue during the last three twelve month periods of the initial Term ... is $4 million or more, or (b) as mutually agreed upon by the parties (each acting reasonably and in good faith and which Rent may include a component of minimum rent) based upon the then current fair market rent for comparable improved retail premises in comparable developments located in the same market area of Ottawa ...

If Rent is to be determined in accordance with paragraph (b) of the preceding paragraph, the parties will act reasonably and in good faith in reaching an agreement on the quantum of Rent no later than 4 months prior to the commencement of the Extension of Term failing which the terms of the Lease...will prevail and the Landlord may, at its option, terminate the Lease upon not less than 4 months prior written notice. ...

[ 5 ] It is common ground that the Tenant was in good standing under the terms of the Lease and that “(b)” applied in the sense that the Rent was to be based on the then current fair market rent for comparable improved retail premises in comparable developments located in the same market area of Ottawa.

[ 6 ] It is further common ground that:

a. The Term of the existing Lease expired May 30, 2008.

b. The notice to exercise its renewal option must have been delivered by the Tenant to the Landlord in writing on or before May 31, 2007.

c. No such written notice was delivered by the Tenant.

[ 7 ] In July 2005, the Tenant approached the Landlord, through its leasing agent, the co-Defendant, Bentall Retail Services LP, (“Bentall”) for an expansion of the premises to open a men’s spa facility and to add an additional ten (10) years to the existing term of the Lease. The Tenant requested an inducement allowance of $200,000 to assist it with the proposed renovation of its expansion. In negotiating with Rinaldo, I find that Bentall at all times acted as agent for the Landlord and on October 28, 2005, declined a request for a $200,000 allowance. Bentall reminded the Tenant of the renewal option in the existing Lease and outlined a position it would recommend to the Landlord. Rinaldo did not respond.

[ 8 ] On February 8, 2006, Bentall wrote to the Tenant:

After careful consideration and consultation ... we are not prepared to recommend a proposal for an early renewal based on the same terms and conditions of your current Lease ...

Be advised that you do have a renewal right which affords you the opportunity to continue the current rental structure you now enjoy. Please refer to Section 11 of the Lease Extension and Amending Agreement dated November 14, 1997.

[ 9 ] In March 2007, the parties continued to negotiate and exchanged their respective positions on a proposed Lease Renewal. They remained considerably apart.

[ 10 ] On May 15, 2007, the Tenant’s solicitor advised Bentall that the Tenant would contact the Landlord with the view of settling their positions. Silence followed and May 31, 2007 came and went.

[ 11 ] Bentall wrote on July 25, 2007:

We have not heard from you in connection with our discussions for a new lease for the Premises and assume you are considering other options.

Given that negotiations have been ongoing for close to one (1) year and, notwithstanding the passage of time, the parties have failed to reach an agreement on the essential terms for a new lease, the Landlord has decided to terminate negotiations and pursue other options in connection with the Premises.

[ 12 ] On August 9, 2007, Bentall wrote to the Tenant:

... As discussed we are currently looking at the market for other “national” and significant “regional” prospects for the Premises and are currently considering interest from some. The intent of this Tenant’s Letter of Interest is to determine your interest in renewing and the basic business terms that you would be willing to accept.

Neither the preparation of this Tenant’s Letter of Interest by Bentall ... nor any negotiations entered into by Bentall ... on behalf of the Landlord in connection with its submission of this Tenant’s Letter of Interest constitutes a commitment of any nature by the Landlord to accept same. The above is a guideline of the terms and is subject to the Landlord’s approval. ...

[ 13 ] On August 20, 2009, Bentall wrote again a similarly worded letter as August 9 th with the additional term the Tenant proposed that the Landlord would undertake a store renovation in the amount of $80,000. Bentall indicated that it would recommend these terms to the Landlord and that this was subject to the Landlord’s approval.

[ 14 ] On September 4, 2007, the Landlord obtained an appraisal which it had commissioned for the market rent in Ottawa for the area then occupied by the Tenant. The result of the appraisal indicated that the market rent was $5.00/sq ft higher than the amount proposed by the Tenant for the 7,200 sq ft space.

[ 15 ] On October 22, 2007, Bentall contacted the Tenant again:

We are writing further to the Letter of Interest executed by the parties dated August 20, 2007.

The Letter of Interest was conditional upon the approval of the Landlord being obtained to the transaction contemplated thereby.

We regret to advise that the Landlord is not prepared to provide its approval to the Letter of Interest and to the transaction contemplated thereby. Accordingly, the Landlord requires that vacant possession of the Premises be delivered to the Landlord, in accordance with the provisions of the Lease, on or before May 31, 2008, being the expiry date of the Lease.

[ 16 ] The Tenant’s Solicitors responded to Bentall by letter of November 7, 2007:

You and Rinaldo have been negotiating in good faith for many, many months with respect to a new lease for the premises at 111 Albert Street. In addition, Rinaldo has advised you verbally, on several occasions, that he wanted to extend the lease beyond May 31, 2008. These actions constitute, in our view, clear notice of our client’s intention to exercise its first five (5) year extension commencing June 1, 2008. Our client’s actions and intentions with respect to a renewal of the lease have been consistent and transparent throughout the negotiation process, and your sudden termination of the process are in breach of the November 14, 1997 letter of agreement between the parties.

[ 17 ] The Landlord’s solicitor answered on November 12, 2007:

Pursuant to Section 11 of the letter agreement between the parties dated November 14, 1997 ..., the Tenant had the option to extend the Term of the Lease for an additional term of five (5) years, commencing June 1, 2008, provided that notice of the Tenant’s exercise of its option to extend the Term of the Lease was delivered to the Landlord, in accordance with the provisions of the Lease governing the delivery of notice, on or before May 31, 2007. The Tenant failed to deliver notice to the Landlord of the Tenant’s exercise of its option to extend the Term of the Lease on or before May 31, 2007, in accordance with the provisions of Section 11 of the 1997 Letter Agreement.

As a result of the Tenant’s failure to deliver the required notice within the time period and in the manner prescribed in the 1997 Letter Agreement, the Tenant no longer has the benefit of an option to extend the Term of the Lease beyond May 31, 2008.

Accordingly, the Landlord requires that vacant possession of the Premises be delivered to it, in accordance with the provisions of the Lease, by no later than May 31, 2008. …

[ 18 ] The Landlord’s solicitors wrote again on March 20, 2008:

The Landlord has successfully completed negotiations to lease the Premises to a third party. Accordingly, the Landlord requires that vacant possession of the Premises be delivered to it by the Tenant, in accordance with the provisions of the Lease, by no later than May 31, 2008, ...

ANALYSIS

[ 19 ] It is common ground that the term of the Lease expired May 31, 2008 unless it was extended at the request of the Tenant. It is further common ground that:

a. The Tenant was at all times in good standing under the terms of its Lease;

b. Section 11 of the Lease details these terms of a renewal:

i. Provided the Tenant is not in default; and

ii. The Tenant has provided the Landlord with written notice and in this instance, no later than May 31, 2007; then

iii. The Landlord will grant the Tenant an extension of the Lease on the same terms and conditions as the existing Lease except as to rent.

c. As the gross revenue of the Tenant was less than the amount contemplated under “(a)” as detailed in Section 11 of the Lease, “(b)” applied which provides:

i. ... or (b) as mutually agreed upon by the parties (each acting reasonably and in good faith and which Rent may include a component of minimum rent) based upon the then current fair market rent for comparable improved retail premises in comparable developments located in the same market area of Ottawa ...

If Rent is to be determined in accordance with paragraph (b)...the parties will act reasonably and in good faith in reaching an agreement on the quantum of Rent no later than 4 months prior to the commencement of the Extension of Term failing which the terms of the Lease ... will prevail and the Landlord may, at its option, terminate the Lease upon not less than 4 months prior written notice. ...

[ 20 ] The Tenant concedes that it failed to provide written notice by May 31, 2007 of its intent to renew the Lease, as contemplated by Section 11 of the Lease. However, the Tenant states that the conduct of both the Landlord and the Tenant during the period before and after May 31, 2007 was such as to lead the Tenant to reasonably believe that the Landlord wanted to renew or extend the existing term and that the Landlord was not inclined to insist on strict compliance with the written notice provision and its May 31, 2007 deadline.

[ 21 ] The Tenant further states that the Landlord’s conduct in the negotiating with the Tenant, both before and after the May 31, 2007 deadline, precludes the Landlord from relying on the strict wording of the Lease. In support of its position that the Landlord may waive the strict requirement of written notice by the Tenant of its intent to extend the Lease, the Plaintiff relies on Doral Holdings Ltd. v. Bargain Books Ltd., [1994] O.J. No. 3103 (S.C.J.) , Petridis v. Shabinsky, [1982] O.J. No. 3119 (S.C.J.) and Firkin Pubs Metro Inc. v. Flatiron Equities Ltd., [2011] O.J. No. 4039 (S.C.J.) .

[ 22 ] The issue is whether the Landlord, by its conduct, led the Tenant to believe to its detriment that the Landlord had waived the strict written notice requirement under Section 11 of the Lease. The Landlord states that it has not.

[ 23 ] The Landlord points to its agents’ letters of October 28, 2005 and February 8, 2006 in which the Tenant’s option to renew is addressed. The Landlord further points to letters between the parties of March 2007 which indicate that the Landlord and Tenant were negotiating terms of a possible extension of the Lease, but that significant differences then remained between these parties. On May 15, 2007, in the last correspondence before the due date of May 31, 2007, Bentall asked if there was an update on the Tenant’s position regarding terms for a proposed Lease Extension. The Tenant failed to provide a substantive response. The May 31, 2007 deadline came and went without a written request from the Tenant for a lease extension.

[ 24 ] Based on the above noted written communication between the parties dating from October 28, 2005 to May 15, 2007, I find that:

a. The Landlord reminded the Tenant on several occasions of the Tenant’s renewal right.

b. The parties negotiated proposed terms for a renewed lease, but failed to reach a meeting of the minds.

c. Prior to May 31, 2007, the Tenant failed to provide a written notice of its intent to renew the Lease and/or its intent to rely on s.11(b) of the Lease to negotiate the rent based upon “the then current fair market rent for comparable improved retail premises in comparable developments located in the same market area of Ottawa.”

d. There is no conduct on the part of the Landlord that could reasonably have led the Tenant to the inference that the Landlord was content to waive compliance with the s.11 renewal notice. There was neither an express nor implied waiver by the Landlord. As such, I distinguish the above noted cases upon which the Tenant relies.

[ 25 ] Referring to Petridis v. Shabinsky, supra, Low J. in Doria v. 66 Degrees Inc., 2000 CarswellOnt 86 stated at para.8:

8 ... To the extent that the case stands for the proposition that either a conditional exercise of an option or an equivocal exercise of an option is a sufficient exercise thereof, it would appear that it has been superseded by the Court of Appeal decision in 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd. , 1993 CarswellOnt 5327 .

[ 26 ] I also note these further comments by Low J. in Doria v. 66 Degrees Inc., ibid, at para.8:

8 The case law is now settled that the exercise of an option must be done in a manner which is clear, explicit, unambiguous and unequivocal. (see 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd. ...) ... It is not sufficient that the parties engage in a dance with each other; it is necessary that the optionee declare his intentions. And it is not, in my view, a sufficient exercise of an option to express a will to exercise it on conditions. Such an expression is no commitment at all and leaves the optionor without the degree of certainty that option clauses with time limitations are designed to provide. In a lease where there is a requirement for written exercise of an option on or before a stipulated date prior to the end of the lease term, there is little if any doubt that the business rationale for those requirements is to provide both landlord and tenant with certainty as to their future rights and obligations vis a vis each other. It gives the landlord certainty that if the option is not exercised in time, he is free to re-market the premises to another prospective tenant or indeed to the existing one. It gives the tenant the certainty that if he exercises the option in conformity with the lease, the landlord is bound to have him, and if he does not so exercise, that he is at liberty to negotiate a new lease with the landlord without obligation if those negotiations do not lead to a concluded agreement. To hold that a course of negotiation in the absence of a clear and unambiguous exercise of the option may constitute a waiver of compliance with the requirements of the option clause would effectively destroy the certainty that the parties bargained for. ...

[ 27 ] Based on my finding that the Tenant failed to provide written notice of its intent to exercise its option, I conclude that the written exchange between the parties post May 31, 2007 were negotiations between the parties outside of the Tenant’s renewal option. I return to Doria v. 66 Degrees Inc., supra, at para.7:

7 Once the time for giving notice of renewal has passed without being exercised, it is a new ball game. No longer are the landlord and tenant yoked together in privity of estate for a new term of the lease. The mere expression of interest on the part of either or both parties to continue in a landlord tenant relationship and the negotiation of terms of same do not in themselves revive the right of renewal if it has lapsed. ...

[ 28 ] The Landlord advised the Tenant on July 25, 2007 it had decided to terminate negotiations and pursue other options. Although there were further negotiations, these did not rise above the level of expressions of interest by the Landlord. As noted by Bentall in its letters of August 9 th and August 20 th , 2007:

... the following represents the business terms we would be prepared to recommend to the Landlord ... for the extension of your term. As discussed we are currently looking at the market for other “national” and significant “regional” prospects for the Premises and are currently considering interest from some. The intent of this Tenant’s Letter of Interest is to determine your interest in renewing and the basic business terms that you would be willing to accept.

Neither the preparation of this Tenant’s Letter of Interest by Bentall Retail Services LP nor any negotiations entered into by Bentall Retail Services LP on behalf of the Landlord in connection with its submission of this Tenant’s Letter of Interest constitutes a commitment of any nature by the Landlord to accept same. The above is a guideline of the terms and is subject to the Landlord’s approval. ...

[ 29 ] On October 22, 2007, Bentall advised the Tenant that the Landlord was not prepared to provide its approval to the Letter of Interest and that it requested vacant possession by the end of the Lease on May 31, 2008. As the Tenant had not provided written notice, as contemplated in the Lease, I find that the negotiations between the parties after May 31, 2007 were negotiations outside of any restrictions that the Lease may have imposed. The parties failed to reach an agreement and after May 31, 2007, the Landlord was free to terminate any further discussions and to request vacant possession at the end of the lease. The Tenant also claims that the Landlord failed to negotiate, in good faith, a duty which the Tenant states the Landlord owed. I disagree. As noted in Walford v. Miles, [1992] 2 A.C. 128 and as quoted by Whitten J. in 914904 Ontario Ltd. v. 1374377 Ontario Inc. 2008 CarswellOnt 9013 at para.45:

45 ... the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiation. Each party to the negotiations is entitled to pursue his (or her) own interest as long as he avoids making misrepresentation.

CLAIM AGAINST BENTALL

[ 30 ] The claim advanced against Bentall is detailed in paras. 32 and 33 of the Amended , Amended , Amended Statement of Claim:

32. The Plaintiffs says that, as regards Bentall, the latter as leasing agent for the landlord was under an obligation to deal with the Plaintiff according to the same standard - to act reasonably and in good faith – as that specifically spelled out in par.11 of the lease agreement with its principal. Such obligation was implied by law to give efficacy to par.11. The Plaintiff says such standard was breached by Bentall, and that such breach was tortious as against the Plaintiff and has caused damages to the Plaintiff.

33. The Plaintiff says that even absent the specific contractual provisions referred to above, there was an obligation implied by law requiring the landlord and tenant and Bentall as the former’s agent for such purposes, to negotiate the terms of the renewal acting reasonably and in good faith. The Defendants breached this obligation and such breach was tortious and has caused damages to the Plaintiff.

[ 31 ] As there is no privity of contract between the Tenant and Bentall, what the Statement of Claim advances essentially is a free standing obligation by Bentall to represent the interests of the Landlord to the Tenant reasonably and in good faith.

[ 32 ] Bentall states that there is no independent stand-alone duty to act reasonably and in good faith. I agree. I note these comments by the Ontario Court of Appeal:

a. Transamerica Life Canada Inc. v. ING Canada Inc. 2003 9923 (ON CA) , 2003 CarswellOnt 4834:

53 ... Canadian courts have not recognized a stand-alone duty of good faith that is independent from the terms expressed in a contract or from the objectives that emerge from those provisions. The implication of a duty of good faith has not gone so far as to create new, unbargained-for, rights and obligations. Nor has it been used to alter the express terms of the contract reached by the parties. Rather, courts have implied a duty of good faith with a view to securing the performance and enforcement of the contract made by the parties ... to ensure that parties do not act in a way that eviscerates or defeats the objectives of the agreement that they have entered into ...

b. Oz Optics Limited v. Timbercon, Inc. 2011 ONCA 714 at para.62 and 63:

62 The common law has not recognized a free-standing duty of good faith based in tort.

63 Likewise, the law has not recognized a general duty to bargain in good faith in contract. However, in specific circumstances, a duty to enforce or perform a contract in good faith has been recognized. ...

TEST FOR SUMMARY JUDGMENT

[ 33 ] The Court shall grant summary judgment if satisfied that there is no genuine issue requiring a trial: Rule 20.04(1).

[ 34 ] The test for summary judgment is satisfied when first, the moving party has proven that there is “no genuine issue of material fact requiring trial” and second, the responding party fails to establish that its case has a “real chance of success”: see Bader v. Rennie, 2007 37674 (ON SCDC) , [2007] O.J. No. 3441 (S.C.J.) at para.14. I accept the position of Bentall as advanced in its factum:

46. In Combined Air Mechanical Services Inc. v. Flesch, the Court of Appeal for Ontario noted that the amended Rule 20 expands the power of a motions judge to weigh the evidence, evaluate credibility, and draw reasonable inferences from the evidence where “there is no factual or legal issue raised by the parties that requires a trial for its fair and just resolution.” The Court of Appeal identified three types of cases amendable to summary judgment: 1) where the parties consent or agree that summary judgment is appropriate; 2) where the claim or defence has no chance of success; and 3) where the motion judge is satisfied that the issues can be fairly and justly resolved by exercising the powers if rule 20.04(2.1).

Combined Air Mechanical Services Inc. v. Flesch , 2011 ONCA 764 (Ont. C.A.)

47. The Court of Appeal held that the motions judge must apply a “full appreciation” of the evidence to determine whether the case can be disposed of by way of summary judgment motion. The “full appreciation” test may be met in document-driven cases with limited testimonial evidence, where there are limited contentious factual issues or where the record can be supplemented at the judge’s discretion by hearing live testimony on discreet issues.

Combined Air Mechanical Services Inc. v. Flesch , ibid.

[ 35 ] Applying the above noted test, I find that:

a. There are no issues of credibility or material fact requiring trial;

b. This is entirely a document driven case;

c. The issues raised can be fairly and justly resolved at this stage of the proceedings.

[ 36 ] Applying the “full appreciation test”, I am satisfied that the Plaintiff’s case against both defendants has no chance of success. The action is dismissed against both defendants.

[ 37 ] In the normal course, costs would follow the event. If the parties are unable to resolve costs, they may provide written submissions within 30 days.

Justice W. Tausendfreund

Released: May 29, 2012

COURT FILE NO.: 09-45593
DATE: 2012May29

ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: RINALDO HAIR STYLIST LIMITED Plaintiff – and – bcIMC REALTY CORPORATION and BENTALL RETAIL SERVICES LP Defendants ENDORSEMENT ON MOTION FOR SUMMARY JUDGMENT Tausendfreund J.

Released: May 29, 2012