ONTARIO

SUPERIOR COURT OF JUSTICE

ST. CATHARINES COURT FILE NO.: 50763/08
DATE: 2012-09-14

B E T W E E N:

Elizabeth Heger and Heinrich Heger

Harvey A. Swartz, for the Plaintiffs

Plaintiffs

• and -

Michael Varajao, Albert Varajao, Frank Fiorilli, 2141894 Ontario Inc., and 1655608 Ontario Limited

Scott Rosen, for the Defendants Michael Varajao, Albert Varajao and 2141894 Ontario Inc.
Michael Fiorilli, for 1655608 Ontario Limited

Defendants

HEARD: at St. Catharines July 16, 17, 18, 19 and August 9, 2012

AMENDED REASONS FOR JUDGMENT

LOFCHIK J.

[1] This litigation concerns 7997 Netherby Road, RR. 4, Welland, Ontario, the issue being what if any leasehold interest the plaintiffs have or had in the property and whether any of the defendants were required under a tenancy agreement with the plaintiffs to make improvements to the premises, which improvements have yet to be made.

[2] The plaintiffs have occupied the subject property (hereinafter referred to as the “Leased Premises”), since July 21, 2007.

[3] Title to the property is held by 2141894 Ontario Inc. and 1655608 Ontario Limited. The defendant Michael Varajao is the principal of 2141894 Ontario Inc. and Michael Fiorilli is the principal of 1655608 Ontario Limited.

[4] The plaintiffs allege that they leased the leased premises from the defendants for a term of four years commencing July 21, 2007. In the course of their evidence they originally alleged a verbal lease but during this trial three separate lease documents have emerged. Exhibit 2 purports to be a residential lease for the residence at 7997 Netherby Road, RR. # 4, Welland, together with five acres of property. Exhibit 3 purports to be a commercial lease with respect to 45 acres of property located at 7997 Netherby Road, RR. # 4, Town of Welland. Exhibit 12 purports to be a farm lease for the property at 7997 Netherby Road, RR. # 4, Welland, Ontario consisting of a single family dwelling and horse barn with 38 horse stalls together with 50 acres of property. The plaintiffs appear to have executed all three lease agreements. Both defendants together have not executed any of them.

[5] The plaintiffs allege that they leased the property for four years with the expressed intention to reside on the property and operate a horse boarding stable business. While the leased premises contained 35 horse stalls, a tack room and an office in the barn, these premises were incomplete and in a state of disrepair and were not able to be used by the plaintiffs for their intended purpose at the time they took possession as tenants of the property. The plaintiffs allege that a lease agreement provided that the defendant landlords were required to bring the leased premises into a state of good repair and in good working condition. The plaintiffs further allege that they were not obliged to commence paying rent in the amount of $4,000 per month until the landlords fulfilled their obligation to bring the leased premises into a state of good repair and working condition. Therefore, although the plaintiffs have occupied the leased premises since July of 2007, they have not paid any rent.

[6] There were two payments made by the plaintiffs at the time they went into possession, one being in the amount of $4,600 on June 27, 2007, the other being $2,600 on June 26, 2007. These payments are noted as having been made for “property closing fee” and “insurance fee” and based on the evidence of the plaintiff Elizabeth Heger, were made to facilitate closing of the property when it was purchased by the defendants, the defendants being short of funds to complete the closing. It was Ms. Heger’s evidence that these amounts were to be credited against the rent due.

[7] I should add at this point that the written leases which have been produced contained no provisions with respect to the landlord’s carrying out any repairs or completion work on the property. The agreements in fact provide that it was the tenants’ obligation to keep the property in a good state of repair.

[8] The defendant landlords have not taken any measures to complete any repairs and improvements to the stable premises nor have the tenants done so. The plaintiffs have remained as tenants on the property without paying rent, their reason for not paying rent being that the landlords have not completed the property so as to render it operational for the horse boarding and breeding operation contemplated by the plaintiffs.

[9] It was the evidence of the plaintiffs that they could have filled all 35 stalls on the property had they been in proper condition to do so (the stalls were lacking doors and the paddock outside the barn was lacking proper fencing) and that they would have received $27 per day with respect to each horse boarded.

[10] The plaintiffs are seeking damages for lost profits as a result of their inability to carry on their horse boarding and breeding operation.

[11] The defendants deny entering into a four year lease with the plaintiff and deny that they ever undertook the obligation of making repairs and improvements to the barn as alleged by the plaintiffs. They have counterclaimed for payment of arrears of rent and vacant possession of the property.

[12] The defendants argue that Michael Varajao and Frank Fiorilli have no interest in the property and have had no dealings with the plaintiffs. It is the position of the defendant, Albert Varajao that he personally has no liability to the plaintiffs as the registered owners of the property are the two numbered companies named as defendants. The defendants argue that the draft leases were prepared by a lawyer, Geffrey Goldman, the lawyer for 1655608 Ontario Limited and Michael Fiorilli and these leases, although signed by the plaintiffs were never signed by both defendants. The defendants allege that the draft leases set out the terms of the tenancy of the plaintiffs of the leased premises and do not require the defendants to make any repairs or carry out any work on the property before the plaintiffs were obliged to start paying rent.

[13] There is currently litigation with respect to the property underway between Albert Varajao and his company 2141849 Ontario Inc. and Michael Fiorilli and his company 1655608 Ontario Limited.

[14] Exhibit 1 at the trial was an estimate by Minor Bros. Services with respect to the cost of doing work to complete the barn and paddock fencing in order to allow these premises to be used as a horse boarding and breeding operation. The total estimate for the work is $52,000. The estimates were addressed to “Capital Contracting c/o Elizabeth and Heinrich” with the address being “Farm at 7997 Netherby Road, Stevensville”.

[15] It was the evidence of Michael Fiorilli, who was present at lawyer Goldman’s office when the lease documents were signed by the plaintiffs, that he and Michael Varajao had agreed to buy the leased premises in order to go into the house business with the Hegers. He confirmed that when they were at Goldman’s office he told the Hegers that they had to sign the lease documents in order to get possession of the property, which they did. He produced a copy of the “house lease” that was signed by the Hegers as lessees and by him on behalf of his company, 1655608 Ontario Limited as lessor, which he said was signed at Goldman’s office. This provided for rent of $2,500 per month for the house and five acres of property.

[16] It was Fiorilli’s evidence that Exhibit 7, being the lease for the barn and 45 acres of land, and Exhibit 8, being the “house lease” for the house and five acres, were the only leases intended between the parties. The only lease signed on behalf of the lessors was the house lease (Exhibit 8), even though the plaintiffs signed both leases. He testified that he did not know the farm lease on behalf of the lessors as the stalls in the barn were not completed.

[17] Both leases (Exhibit 7 and Exhibit 8) provided for a two year term and a carefree lease to the lessors, which Fiorilli testified was the intent of the parties. On reviewing all of the evidence I find that it does not support the plaintiffs’ contention that there was an agreement for a four year lease under which the defendants were obliged to carry out repairs on or completion of the barn, the stalls and the paddock area. The terms of the draft lease which the plaintiff signed were especially contrary to the plaintiff’s evidence in that they provided for a two year term that obliged the plaintiffs to keep the property in good repair. I find that the draft leases are the best evidence as to what the agreement between the parties was.

[18] The plaintiffs’ evidence ultimately was that they were presented with the lease document, which they signed at the lawyer’s office and told by Michael Fiorilli that they had to sign the lease documents if they wanted possession of the property. The plaintiffs were people experienced in the horse stabling business, and I find that it strains credulity to accept that they would sign such lease documents without reading them and understanding them. In any event, no matter what the plaintiffs thought they were getting under the lease agreement, I am satisfied that the defendants did not agree to a four year lease under which they were obliged to make repairs to the property. The parties were not ad idem so far as these terms of a lease are concerned.

[19] Even if there were an oral agreement for a four year lease, as alleged by the plaintiffs, requiring the defendants to make repairs to the barn and paddock area, such lease, not being in writing, would be invalid and unenforceable by virtue of Sections 1 and 2 of the Statute of Frauds , R.S.O. 1990, c. S. 19.

[20] The plaintiffs’ claim is therefore dismissed with costs payable to the defendant companies.

[21] At the close of the case on August 9, 2012 , as no matter whose evidence is accepted, any lease is now at end, I made an order that the defendant corporations were entitled to possession of the subject premises within 60 days of that date.

[22] The defendant corporations have counterclaimed for arrears of rent. I accept the evidence of Michael Fiorilli that the only lease that was executed and became operative was the house lease (Exhibit 8). The plaintiffs went into the possession of the house and used the premises for five years. They are therefore obliged to pay rent for these premises at $2,000 per month as provided by the lease.

[23] I find that as the barn and the premises described in the farm lease were of no use to the plaintiffs because of their condition, the plaintiffs did not go into possession of these premises and therefore the lease did not become operative and the plaintiffs are not obliged to pay rent in respect of the farm lease.

[24] In the result, 2141894 Ontario Inc. and 1655608 Ontario Limited are entitled to judgment against Elizabeth Heger and Heinrich Heger in the amount of $120,000 together with prejudgment interest from the date of issue of the earliest counterclaim. The companies are also entitled to any costs in pursuing the counterclaim.

LOFCHIK J.

Released: September 14, 2012

ST. CATHARINES COURT FILE NO.: 50763/08

DATE: 2012-09-14

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: Elizabeth Heger and Heinrich Heger Plaintiffs - and – Michael Varajao, Albert Varajao, Frank Fiorilli, 2141894 Ontario Inc., and 1655608 Ontario Limited Defendants AMENDED REASONS FOR JUDGMENT LOFCHIK J. TRL:mg

Released: September 14, 2012