COURT FILE NO.: C-652-12
DATE: 2012-11-19
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Casual Restaurant Systems Inc. and Philthy McNasty's (Ontario) Inc.
Applicants
– and –
Sun Life Assurance Company of Canada
Respondent
Gregory Govedaris, for the Applicants
Ivan Lavrence, for the Respondent
HEARD: October 29 and 31, 2012
The Honourable Mr. justice G. E. Taylor
Introduction
[1] Casual Restaurant Systems Inc. operates a restaurant and bar in Westmount Place Shopping Centre in the City of Waterloo under the name Philthy McNasty's. Sun Life Assurance Company of Canada owns Westmount Place. Casual Restaurant wants to change its operating name from Philthy McNasty's to "The Republic House". To do so it requires Sun Life's consent as landlord. Sun Life refuses to consent to the proposed name change.
[2] Issue to be decided in this Application is whether Sun Life is unreasonably refusing to consent to the proposed name change.
Facts
[3] Pursuant to a written lease dated January 8, 1999, a predecessor of Sun Life leased a portion of Westmount Place to Philthy McNasty's (Waterloo) Inc. Philthy McNasty's (Waterloo) Inc. subsequently assigned its interest in the lease it to the co-applicant Philthy McNasty's (Ontario) Inc. Pursuant to a sublease dated November 3, 2003, the premises in Westmount Place leased to Philthy McNasty's were sub-leased to the co-applicant, Casual Restaurant.
[4] The relevant clauses of the lease are as follows:
12.01 The Premises shall not be used for any purpose other than as set forth in Section 1.01 (k).
12.03 The Tenant shall carry on business under the operating name set forth in Section 1.01(b) and under no other name or style whatsoever unless such other name or style is first approved by the Landlord, which approval shall not be unreasonably withheld.
1.01(b) Operating Name: Philthy McNasty's and/or Rock Bottom Billiards & Beverage Company
1.01(k) Use of Premises: The Tenant shall use and occupy the Premises only for the business of a full service, licensed family sit-down restaurant and bar with billiard tables and electronic games, offering for sale, at retail, those items set out in the menu attached hereto as Schedule "F", and the sale, at retail, of individually dispensed servings of alcoholic beverages, so long as the Tenant obtains the prior written approval of all governmental authorities having jurisdiction, including without limitation, the City of Waterloo and Liquor License Board of Ontario and for no other purpose.
15.01 (a) The Tenant shall not make or cause to be made any Alterations, additions or improvements or erect or cause to be erected any partitions or install or cause to be installed any Trade Fixtures, exterior signs, floor covering, interior or exterior lighting, plumbing fixtures, shades, awnings, exterior decorations or make any changes to the storefront or otherwise in respect of the Premises without first obtaining the Landlord's written approval there to, such approval not to be unreasonably withheld. (Emphasis in original)
19.01 If and whenever the Rent hereby reserved or any part thereof shall not be paid on the day appointed for payment thereof, and the Tenant fails to remedy the default within five (5) days after written notice, whether lawfully demanded or not, or in the case of breach or non-observance or non-performance of any of the covenants, agreements, provisos, conditions or rules and regulations on the part of the Tenant to be kept, observed or performed, and the Tenant fails to remedy the breach within ten (10) after written notice, ..., then in every such case, it shall be lawful for the Landlord without limiting any of the Landlord's rights under this Lease or at law or in equity at any time thereafter to enter into and upon the Premises or any part thereof in the name of the whole and the same to have again, we possess and enjoy as of its former state, anything in this Lease contained to the contrary notwithstanding. (Emphasis in original)
19.07 No condoning, excusing, or overlooking by the Landlord or Tenant of any default, breach or non-observance by the Tenant or the Landlord at any time or times in respect of any covenant, proviso or condition herein contained shall operate as a waiver of the Landlord's or the Tenant’s rights hereunder in respect of any continuing or subsequent default, breach or non-observance, or so as to defeat or affect in any way the rights of the Landlord or the Tenant herein in respect of any such continuing or subsequent default or breach and no waiver shall be inferred from or implied by anything done or omitted by the Landlord or the Tenant save only express waiver in writing executed by the Landlord and the Tenant.
[5] In August 2011, Casual Restaurant submitted a proposal to Sun Life to divide the restaurant into two parts. It was proposed that one part be called "Libertine Restaurant" which would offer upper casual dining and that the other part be a pub operating under the name "Canteen". Sun Life did not provide its approval to either proposal including the name changes.
[6] From approximately August 2011 until February 2012, Casual Restaurant performed extensive renovations to the restaurant at a cost of more than $500,000. According to Casual Restaurant the renovations have resulted in the leased premises being more elegant and sophisticated than before the renovations were commenced. Casual Restaurant did not obtain the written approval Sun Life to undertake the renovations as required by clause 15.01 (a) of the lease.
[7] In January 2012, Casual Restaurant submitted another proposal to Sun Life which also proposed to divide the restaurant into two parts but under the names "The Westmount" and "Study Hall". On February 9, 2012, Sun Life's property manager, Bentall Kennedy (Canada) LP, advised Casual Restaurant and Philthy McNasty's that it had not approved any name change and that pursuant to the terms of the lease the restaurant was to continue to be operated as Philthy McNasty's or Rock Bottom Billiards & Beverage Company. It should be noted that a restaurant has never operated from the leased premises under the name Rock Bottom Billiards & Beverage Company. In the same e-mail, Bentall advised Casual Restaurant that it was required to continue to operate the restaurant from the full square footage of the leased premises.
[8] There is a factual dispute as to whether Casual Restaurant proceeded unilaterally to perform extensive leasehold improvements to the restaurant without the approval of Sun Life. The position of Casual Restaurant is that Sun Life, through Bentall, was fully aware of the renovations that were proposed and carried out. No objection was made while the renovations were underway. The position of Sun Life is that Casual Restaurant proceeded to complete the renovations, in contravention of the terms of the lease, knowing that the renovations had not been approved. Further, Sun Life suggests that the renovations were carried out surreptitiously. Sun Life alleges that Casual Restaurant and Philthy McNasty's have committed numerous breaches of the lease. It is undisputed that Casual Restaurant did not obtain the written approval of Sun Life to renovate the leased premises. It is also not disputed that Sun Life has not served Casual Restaurant or Philthy McNasty’s with any Notice of Default with respect to the alleged breaches of the lease as contemplated by clause 19.01 of the lease.
[9] The present Notice of Application was issued on July 25, 2012 and served shortly thereafter. The Notice of Application seeks: "a mandatory order requiring the respondent to provide its consent to permit the Applicant(s) to change the operating name of the business to "The Republic House" ". At no time prior to the issuance of the Notice of Application had Casual Restaurant requested permission to change the name of the restaurant to "The Republic House". The present Notice of Application does not seek an order requiring Sun Life to consent to either of the proposals to divide the restaurant into two parts with each part to carry on business under a different name.
[10] After service of the present Notice of Application, Sun Life commenced its own application based on the alleged breaches of lease by Casual Restaurant seeking a declaration that Casual Restaurant and/or Philthy McNasty's have forfeited the right to exercise the second renewal option in the lease. The current term of the lease expires on April 30, 2014. By way of an Endorsement dated October 9, 2012, Hambly J. converted the Sun Life Application into an action. Therefore, the issues with respect to the alleged breaches of the lease by Casual Restaurant and Philthy McNasty's and whether the right to exercise the second renewal option has been forfeited are not being decided in the present Application.
Discussion
[11] The majority of the cases to which I was referred deal with the consent of landlords to proposed assignments of lease by tenants. However, I find those cases to be of assistance in addressing the issue of Sun Life's refusal to consent to Casual Restaurant operating the restaurant from the leased premises under the name "The Republic House" instead of Philthy McNasty's.
[12] There is no dispute that the onus is on Casual Restaurant to demonstrate that Sun Life's refusal to consent to the proposed name change of the restaurant to "The Republic House" was unreasonable. (Welch Foods Inc. v. Cadbury Beverages Canada Inc., [2001] O.J. No. 275 (Ont. C.A.))
[13] In Dominion Stores Ltd. v. Bramalea Ltd., [1985] O.J. No. 1874, Rapson D.C.J. stated at paragraph 24 that in considering whether the landlord's refusal to consent to an assignment of the lease is unreasonable, the court should first look at the covenant in the context of the lease and ascertain the purpose of the covenant in that context. In determining reasonableness, the court must look at all the circumstances of the case and no rigid rule governs the types of reasons which may be taken into account when deciding the question of reasonableness.
[14] In 1455202 Ontario Inc. v. Welbow Holdings Ltd., 2003 CanLII 10572 (ON SC), [2003] O.J. No. 1785, Cullity J. listed six propositions for the purpose of determining whether a landlord has unreasonably withheld consent to a proposed assignment of lease. Those propositions are as follows:
The burden is on the tenant to satisfy the court that the refusal to consent was unreasonable. In deciding whether the burden has been discharged, the question is not whether the court would have reached the same conclusion as the landlord or even whether a reasonable person might have given consent; it is whether a reasonable person could have withheld consent.
In determining the reasonableness of a refusal to consent, it is the information available to, and the reasons given by, the landlord at the time of the refusal, not any additional, or different, facts or reasons provided subsequently to the court, that is material. Further, it is not necessary for the landlord to prove that the conclusions which led it to refuse consent were justified, if they were conclusions that might have been reached by a reasonable person in the circumstances.
The question must be considered in the light of the existing provisions of the lease that define and delimit the subject matter of the assignment as well as the right of the tenant to assign and that of the landlord to withhold consent. The landlord is not entitled to require amendments to the terms of lease that will provide it with more advantageous terms, but as a general rule, it may reasonably withhold consent if the assignment will diminish the value of its rights under it, or of its reversion. A refusal will, however, be unreasonable if it was designed to achieve a collateral purpose, or benefit to the landlord, that was wholly unconnected with the bargain between the landlord and the tenant reflected in the terms of the lease.
A probability that the proposed assignee will default in its obligations under the lease may, depending upon the circumstances, be a reasonable ground for withholding consent. A refusal to consent will not necessarily be unreasonable simply because the landlord will have the same legal rights in the event of default by the assignee as it has against the assignor.
The financial position of the assignee may be a relevant consideration.
The question of reasonableness is essentially one of fact that must be determined on the circumstances of the particular case, including the commercial realities of the market place and the economic impact of an assignment on the landlord. Decisions in other cases that consent was reasonably, or unreasonably, withheld are not precedents that will dictate the result in the case before the court.
These propositions, for the most part, I find to be of assistance for the purpose of dealing with the question of whether Sun Life has unreasonably withheld its consent to the proposed name change of the restaurant in the present Application.
[15] Significant emphasis was placed in both written and oral argument about the proposals by Casual Restaurant to create two separate restaurants under different names within the leased premises. In this context, significant emphasis was placed on the allegations with respect to whether the leasehold improvements undertaken by Casual Restaurant between August 2011 and July 2012 were with or without the approval of Sun Life. Finally, counsel for both parties spent much time dealing with the negotiations which took place in the spring and early summer of 2012 regarding the proposals by Casual Restaurant and with respect to the possibility of entering into a new lease on new terms including an increase in rent.
[16] In this Application, the issue is whether Sun Life has unreasonably withheld its consent to the proposal to change the name of the restaurant from Philthy McNasty's to "The Republic House".
[17] As I understand the submission, counsel for Sun Life says it was not aware until mid-September 2012 that Casual Restaurant had abandoned its plans to partition the leased premises into two separate licensed establishments under two separate names. He says there was never a written request, prior to the issuance of the Notice of Application, seeking approval of a name change to "The Republic House". I accept that submission as factually correct.
[18] However, I do not agree that I should approach the matter as one in which Casual Restaurant is seeking approval for its proposal to create two separate and distinct licensed restaurants operating from the leased premises under the guise of seeking approval for a name change from Philthy McNasty's to "The Republic House".
[19] In my view, the proper approach is to consider Sun Life's response to the proposed name change to "The Republic House" on the basis that the landlord's approval of the name change was sought in the Notice of Application and that Sun Life has been asked to give its consent to the name change and nothing more.
[20] As I have indicated previously, there is a factual dispute between the parties as to whether Casual Restaurant is in breach of the terms of the lease as result of its alleged unauthorized renovations subsequent to August 2011. It is significant, in my view, that Sun Life has chosen to address that issue by way of a separate proceeding which has as its goal a declaration that Philthy McNasty's and Casual Restaurant have forfeited their right to renew the lease at the end of the current term. For what I must assume to be valid reasons, Sun Life has chosen not to take immediate action with respect to the alleged breaches of the lease by Casual Restaurant. I therefore conclude that Sun Life is content to have Casual Restaurant continue as a tenant for the remainder of the term of the lease regardless of any breaches that might have occurred to date but that Sun Life does not wish to have Casual Restaurant continue as a tenant following April 30, 2014, when the current lease term ends.
[21] The issue as I perceive it is whether Sun Life is justified in insisting that the restaurant continue to operate under the name Philthy McNasty's for the remainder of the term of the lease as opposed to operating a restaurant under the name "The Republic House" for that period of time.
[22] The second proposition in Welbow is to consider the information available to and the reasons given by the landlord at the time it refused to provide its consent. I do not accept the submission that Sun Life was not aware until mid-September 2012 that the only relief sought in the present Application is a name change. At paragraph 10 of his affidavit sworn September 11, 2012, John Minas, the Vice President of Operations for Bentall indicates that he is aware that the only relief sought in the present Application is a change in operating name but he goes on to suggest that in reality what is being sought is "de facto retroactive approval for changes to the realty and Lease which are far more extensive". Regardless of what Mr. Minas may suspect, the only relief sought in the Notice of Application is a change of name to "The Republic House".
[23] The third proposition in Welbow is to consider the issue in light of the existing provisions of the lease dealing with the subject about which the landlord's consent is sought. Clause 12.03 of the lease is for the purpose of protecting a legitimate interest of Sun Life. Sun Life has an interest in assuring that any proposed name change from that of Philthy McNasty's does not interfere with or conflict with a name of another tenant or tenants. Also, Sun Life has a legitimate interest in making sure that any proposed name is in good taste, nonoffensive and consistent with the image which it is attempting to promote for Westmount Place. I also find it to be significant that the lease permits the tenant to operate a restaurant under the name Rock Bottom Billiards & Beverage Company. I take from this that operating a restaurant in Westmount Place under the name Philthy McNasty's only is not considered by the landlord to be of overriding importance.
[24] Clause 12.03 of the lease does not contain any wording giving Sun Life the right to refuse to provide its consent to a proposed name change on the basis that the tenant has not performed all of its covenants pursuant to the lease to the full and complete satisfaction of Sun Life.
[25] John Minas was cross examined on his affidavits sworn in this proceeding on behalf of Sun Life. At page 38, question 106 of his cross examination held on October 11, 2012 he said that Sun Life has no issue with a name change provided there is assurance that the lease terms will be followed. At page 39, question 110, he said that Sun Life does not have a problem with any name including "The Republic House" provided that there will be compliance with the lease. And finally at page 48, question 138 he said that if all the tenant wanted to do was change the name and continue to operate a licensed family sit-down restaurant and bar there should not be an issue from Sun Life's perspective. In my view these are significant concessions on behalf of Sun Life. There also appropriate concessions.
[26] The fourth proposition in Welbow is that it is an appropriate concern on the part of the landlord as to whether a proposed assignee of the lease will default on its obligations under the terms of the lease. I have considered this proposition in the context of the allegations by Sun Life that Casual Restaurant proceeded to complete extensive renovations without first obtaining the written approval of Sun Life as required by the lease, went ahead and divided the leased premises into two separate restaurant operations under separate names without the approval of Sun Life and that there were periods of time when some or all of the leased premises were not being operated as a full service, licensed family sit-down restaurant and bar.
[27] That said, I am mindful that the proposition is set forth in the context of dealing with approval to an assignment of a lease. In that context it is understandable for a landlord to be concerned about whether a proposed assignee is both able and willing to fully comply with the terms of the lease. Such a concern is not present when the current tenant only wishes to change the name under which it operates. Sun Life is quite familiar with the current tenant. It has issues with that tenant but nothing in the proposed name change will alter the nature of the tenant or whether it will in the future strictly comply with all of the provisions in the lease or commit breaches of the lease. As I have previously stated, Sun Life appears content to continue with Casual Restaurant as a tenant, even though, according to Sun Life, it has committed numerous breaches of the lease, until the end of the current term of the lease. I therefore do not find much assistance in the circumstances of the present case from the fourth proposition from Welbow. I also note that in paragraph 10 of Welbow, it was found that the suggestion that the tenant was in default of an obligation to perform certain renovations to the premises would not be sufficient, in itself, to justify a refusal to consent to an assignment of the lease.
[28] The fifth and six propositions from Welbow are of limited application to the present case because they are primarily issues relating to the assignment of the lease as opposed to a name change under which the tenant will operate.
[29] I was referred two cases dealing with the specific issue of a landlord's refusal to consent to a change of operating name proposed by a tenant. Those cases are 1098784 Ontario Ltd. v. Loblaws Inc., [2002] O.J No. 4316 (Ont. C.A.), [2002] O.J. No. 1205 (Ont. S.C.) and Oshawa Group Ltd. v. 1113443 Ontario Inc., [1999] O.J. No. 3464 (Ont. C.A.), [1998] O.J No. 5286 (Ont. Gen. Div.). In the Loblaws case it was proposed that the operating name be changed from "Loblaws" to "No Frills" and in the Oshawa case it was proposed that the operating name be changed from "IGA" to "Price Chopper". In both cases it was held that the landlord’s refusal to consent to the proposed name change was unreasonable. In both cases, the proposed name change accompanied a proposed change in business model to a warehouse type of sales operation from a full-service supermarket. In the present case, there is no suggestion that the change in name from Philthy McNasty's to "The Republic House" in any way suggests a diminution of the quality of the restaurant to be operated from the leased premises.
Conclusion
[30] Taking all of the factors into consideration, it is my opinion that Sun Life's refusal to consent to the proposed name change from Philthy McNasty's to "The Republic House" is unreasonable. It was agreed during the course of oral argument that, if I found in favour of the position of Casual Restaurant, it would be appropriate for me to order that Casual Restaurant be permitted to change its operating name from Philthy McNasty's to "The Republic House" notwithstanding the relief sought in the Notice of Application is a mandatory order requiring Sun Life to provide its consent to change the operating name of the business to "The Republic House". Accordingly, it is ordered that Casual Restaurant is permitted to change its operating name to "The Republic House".
[31] In granting the relief sought, I should not be seen as condoning in any way the conduct of Casual Restaurant to date. In granting the name change, it is expected that Casual Restaurant will continue to abide fully and completely with all of the provisions of the lease and that Sun Life will continue to have full recourse to the default provisions in the lease and elsewhere in the event of any future breach.
Costs
[32] At the conclusion of oral argument, counsel provided me with their written submissions with respect to costs, in sealed envelopes. I have opened those envelopes and have considered their contents on the issue of costs.
[33] Counsel for Casual Restaurant and Philthy McNasty's submits that an Offer to Settle was presented before the commencement of the cross examination of John Minas conducted on October 11, 2012. That Offer to Settle was to consent to a withdrawal of the Application without costs provided Sun Life consented to the proposed name change. The actual Offer to Settle is hand written and is partially illegible.
[34] Although I made a finding that Sun Life should have been aware that the present Application sought a name change only, the fact that Casual Restaurant failed to make a written request to Sun Life seeking only a name change to "The Republic House", before commencing litigation, is a factor to be taken into consideration on the issue of costs.
[35] Counsel for Casual Restaurant seeks an award of substantial indemnity fees of $17,176 based on an hourly rate of $400 or alternatively an award of partial indemnity fees of $12,882 based on an hourly rate of $300. Counsel for Sun Life seeks an award of substantial indemnity fees of $53,440 based on hourly rates ranging between $410 and $525 or in the alternative an award of partial indemnity fees of $31,135 based on hourly rates of between $200 and $300. Casual Restaurant incurred disbursements of $3880 before tax while Sun Life incurred disbursements of $2801 before tax. The difference in disbursements appears to be largely accounted for by a difference of approximately $1600 in the cost of transcripts for various cross examinations.
[36] Casual Restaurant and Philthy McNasty's are entitled to partial indemnity costs of this Application. Even if I were to find that the result achieved is more favourable than the Offer to Settle, which I do not, I would not award Casual Restaurant substantial indemnity costs subsequent to the date of the Offer to Settle because of the failure to make a formal written request for a name change only before issuing the Notice of Application. Partial indemnity fees and disbursements claimed by counsel for Casual Restaurant are reasonable particularly in comparison to the fees and disbursements claimed by Sun Life.
[37] I therefore fix the costs of this application at $17,000 inclusive of disbursements and HST to be paid by Sun Life to the applicants, forthwith.
G. E. Taylor J.
Released: November 19, 2012
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Casual Restaurant Systems Inc. and Philthy McNasty's (Ontario) Inc.
Applicants
– and –
Sun Life Assurance Company of Canada
Respondent
REASONS FOR JUDGMENT
G. E. Taylor J.
Released: November 19, 2012