ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO: CV-12-462883
DATE: 20120927

B E T W E E N:

7984987 Canada Incorporated Applicant - and - Lixo Investments Ltd. Respondent

Jayson W. Thomas , for the Applicant
Susan Zakaryan, for the Respondent

HEARD : September 21, 2012

GOLDSTEIN J.:

[ 1 ] The Applicant tenant is in the auto parts and auto detailing business. The Applicant rented commercial premises at 28 Ashwarren Road, Toronto (“ the premises ”). In July 2012 the Applicant was locked out by the Respondent landlord. The Applicant seeks relief from forfeiture. For the following reasons, the application is dismissed.

FACTS

[ 2 ] The Applicant leased the premises pursuant to an Offer to Lease on October 27, 2011. There is no other lease document. The term commenced on January 1, 2012 for two years with an option to renew for a further two years. The Applicant provided $10,806.62 as first and last months rent and additional rent. The Respondent provided possession to the Applicant on a rent-free basis from October 27, 2011 to January 1, 2012. The Applicant then made several leasehold improvements.

[ 3 ] The lease required that the Applicant provide 12 post-dated cheques to the Respondent for rent, additional rent and HST. The Applicant did not do so as it had no bank account.

[ 4 ] The Applicant provided a bank draft in January 2012 for February’s rent. On March 6, 2012 the Applicant provided, late, a bank draft for the March rent. The Applicant did not pay the April rent and on April 3, 2012 received a letter from the Respondent. The letter indicated that the Applicant was in breach of the lease due to damage caused to the premises, chronically late rent payments, and failure to provide the post-dated cheques.

[ 5 ] Oleg Zilbergerts, the Applicant’s manager, provided a personal cheque for the April rent. It was returned NSF. On April 17, Mr. Zilbergerts provided a bank draft to the Respondent for the April rent. The Respondent accepted the draft. Zilbergerts also provided post-dated personal cheques.

[ 6 ] The July rent cheque drawn on Mr. Zilbergerts’ personal account was returned NSF. Mr. Zilbergerts says that he attempted to pay the rent on July 9, 2012 with another bank draft. The Respondent’s representative, Maria, advised him that he needed to pay another $500.00 and refused to accept the draft. Mr. Zilbergerts refused to do so and says that he left the draft in the Respondent’s office with Maria. Adel Kirloss, the beneficial owner of the Respondent, deposes that no bank draft was received. There is a clear conflict in the evidence on this point.

[ 7 ] On July 17, 2012 Mr. Zilbergerts arrived at the premises and found that the locks had been changed. A Notice of Termination was posted. Mr. Zilbergerts had a locksmith change the locks again. He then re-entered the premises. He believed that he had a right to re-enter as he had paid the July rent with a bank draft.

[ 8 ] On July 19, 2012 Mr. Zilbergerts arrived to find that the locks had been changed yet again. This time the police were called, although they did not stay as they advised all parties that they would not intervene in what was actually a civil matter. Mr. Zilbergerts admits that he became very angry with Maria, and used inappropriate language.

[ 9 ] On August 9, 2012, Mr. Wagman, the Respondent’s counsel, wrote to the Applicant’s counsel, Mr. Thomas, setting out the basis of the breach of the agreement to lease. Mr. Wagman made several allegations, which were repeated in Mr. Kirloss’s affidavit:

• The Applicant damaged the rear fence of the premises;
• The Applicant made unauthorized leasehold improvements;
• The Applicant interfered with another tenant’s property to such an extent that the tenant vacated the property;
• The Applicant used inappropriate language and made threats to the bailiff and to Maria; and,
• The Applicant used portions of the Landlord’s property that were not leased to it.

[ 10 ] There are conflicts in the evidence. As noted, Mr. Kirloss deposes that the Respondent never received the July bank draft. Mr. Kirloss also repeats, and expands on, the allegations in Mr. Wagman’s letter of August 9, 2012. Mr. Zilbergerts takes issue with several of the allegations in Mr. Wagman’s letter. Mr. Thomas, for the Applicant, argues that much of what is in Mr. Kirloss’s affidavit is hearsay setting out facts in contention. Rule 39.01(5) states that an affidavit in support of an application may be made on information and belief with respect to facts that are not contentious. I agree with Mr. Thomas’s argument, but rather than strike the affidavit in total, as he urges, I only accept those facts set out in Mr. Kirloss’s affidavit that are within his personal knowledge.

ANALYSIS

[ 11 ] A landlord’s right of re-entry to a premises for the non-payment of rent is set out in s. 18(1) of the Commercial Tenancies Act , R.S.O. 1990, c. L.7:

18. (1) Every demise, whether by parol or in writing and whenever made, unless it is otherwise agreed, shall be deemed to include an agreement that if the rent reserved, or any part thereof, remains unpaid for fifteen days after any of the days on which it ought to have been paid, although no formal demand thereof has been made, it is lawful for the landlord at any time thereafter to re-enter into and upon the demised premises or any part thereof in the name of the whole and to have again, repossess and enjoy the same as of the landlord’s former estate. R.S.O. 1990, c. L.7, s. 18 (1) .

[ 12 ] A tenant may apply to the Court for relief against forfeiture pursuant to s. 20(1) of the Act:

20. (1) Where a lessor is proceeding by action or otherwise to enforce a right of re-entry or forfeiture, whether for non-payment of rent or for other cause, the lessee may, in the lessor’s action, if any, or if there is no such action pending, then in an action or application in the Superior Court of Justice brought by the lessee, apply to the court for relief, and the court may grant such relief as, having regard to the proceeding and conduct of the parties under section 19 and to all the other circumstances, the court thinks fit, and on such terms as to payment of rent, costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future as the court considers just. R.S.O. 1990, c. L.7, s. 20 (1) ; 2006, c. 19 , Sched. C, s. 1 (1).

[ 13 ] In Greenwin Construction Co. v. Stone & Webster Canada Ltd. (2001), 55 O.R. (3d) 354 (Sup.Ct.) Cameron J. stated as follows:

[26] I have considered the three criteria which must be considered before the purely discretionary remedy of relief from forfeiture may be granted:

1. conduct of the applicant and gravity of the breaches;

2. whether the object of the right of forfeiture in the lease was essentially to secure the payment of money; and

3. the disparity or disproportion between the value of the property forfeited and the damage caused by the breach.

The conduct of the applicant and the gravity of the breach :

[ 14 ] Generally speaking, where the tenant’s default is for the mere non-payment of rent and the landlord can be made whole by compensation in money, relief from forfeiture will ordinarily be granted. The Court may do so even where the failure to pay rent is persistent: Klassen v. Pasqualino Brothers Investments Ltd., 2011 ONSC 4381 , 2011 CarswellOnt 7243 (Sup.Ct.) at paras. 17-19 .

[ 15 ] The Applicant has admitted that it persistently failed to pay rent on time, although in each case it did eventually pay. The Applicant has also admitted to other failures, including the failure to supply post-dated cheques and to obtain the Respondent’s written consent to the leasehold improvements, although Mr. Zilbergerts says that Mr. Kirloss never indicated any to him that he did not agree with the leasehold improvements. Mr. Zilbergerts also admitted to being very angry and using inappropriate language with Maria during the lockout incident on July 19, 2012.

[ 16 ] Importantly, the Applicant also admits to re-entering the premises even after being locked out. Indeed, the Applicant went so far as to change the locks even after being faced with a Notice of Termination posted by a bailiff. I accept that there is a dispute about whether the Respondent actually has the Applicant’s bank draft for July, but this conduct was unacceptable. The proper route for a tenant when faced with a Notice of Termination and a change of locks is an application for relief from forfeiture, or at the very least a phone call to the landlord, not a break-and-enter.

[ 17 ] I also have concerns about the diligence with which the Applicant acted. The Applicant waited until September 6, 2012 to issue the Notice of Application. Mr. Zilbergerts deposed that the Respondent’s sole director, Vasily Petrov, was travelling in Russia and had no access to email. Accordingly, Mr. Zilbergerts had to wait until Mr. Petrov returned and provided authorization to proceed.

[ 18 ] I find this explanation problematic. Given the ubiquity of email, I do not understand why Mr. Petrov had to wait until he returned to Canada to authorize the application. It is clear that Mr. Zilbergerts had ample authority to run the Respondent; for example he signed the Offer to Lease and under his signature are the words “I have authority to sign this Agreement.” Mr. Zilbergerts even provided personal cheques to cover the rent, as the Applicant did not have a bank account. I find it curious that a corporation renting space at approximately $5,000 per month, and employing a manager, a secretary, two automotive detailers, a mechanic, a parts manager, and casual part-time labour does not have a bank account. It is even more curious that the corporation pays the rent using the manager’s personal bank account – when that manager is not a corporate director. One might reasonably ask by what method these employees were paid, not to mention suppliers and others with whom the Applicant did business.

[ 19 ] I, therefore, find that the Applicant did not act with diligence when finally locked out of the premises and that this is conduct that can be considered by a court when determining whether relief from forfeiture should be granted.

[ 20 ] I further find that the breaches were substantial and the conduct of the Applicant went beyond the persistent non-payment of rent.

Whether the object of the right of forfeiture was essentially to secure the payment of money :

[ 21 ] It is clear that the Respondent had many concerns, as set out in Mr. Wagman’s letter of August 9, 2012.

[ 22 ] Although Mr. Kirloss has deposed that the Applicant damaged the rear fence of the property, causing at least $30,000.00 in damage, the Applicant denies it. It is not possible for me to make a definitive finding that the Applicant did so based on the limited evidence before me, but it is certainly open to me to find that the fence was a factor in the decision to terminate the lease.

[ 23 ] I also accept, based on Mr. Kirloss’s personal knowledge, that two other factors played a role in the decision to terminate the lease:

• The Applicant’s interference with another tenant’s use of the property caused that tenant to vacate the property; and,

• Other tenants complained to Mr. Kirloss that the Applicant’s vehicles frequently blocked access and interfered with their use of the property.

[ 24 ] I hasten to add that I am not making adverse findings of fact against the Applicant. If there is an action for damages, a trier of fact will have to determine whether the Respondent’s allegations are correct; a trier of fact will also have to determine whether the Respondent actually took and cashed the Applicant’s July bank draft. I merely find as a fact that these alleged breaches played a role in the decision to terminate the lease. I do not accept that the termination was only to secure the payment of money.

The disparity or disproportion between the value of the property forfeited and the damage caused by the breach:

[ 25 ] The Applicant argues that the lease has substantial value to it, and I accept that for the purposes of argument. The Respondent argues that the Applicant’s failure to pay rent, the damage caused to the rear fence, and the damage caused by reason of at least one tenant vacating the premises outweighs that the value of the lease. Considering that neither party has fully quantified the value of each interest, at least not in a form that I can properly consider, I find that this factor is neutral.

DISPOSITION

[ 26 ] I conclude that relief from forfeiture should not be granted. The Application is dismissed with costs to the Respondent. If the parties are unable to agree on costs, the Respondent may submit, within 14 days, a brief costs submission (not exceeding 2 pages). The Applicant may submit, within 10 days after that, a brief costs submission (also not exceeding 2 pages) in reply.

GOLDSTEIN, J.

DATE: September 27, 2012

COURT FILE NO: CV-12-462883
DATE: 20120927

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N:

7984987 Canada Incorporated Applicant - and - Lixo Investments Ltd. Respondent

JUDGMENT GOLDSTEIN J.

Released: September 27, 2012