ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-11-440299
DATE: 20120104

BETWEEN:

MORGUARD CORPORATION, MORGUARD REALTY HOLDINGS INC., and MICHAEL A.J. CATFORD, EDWARD C. KRESS, MICHAEL F.B. NESBITT, K. RAI SAHI, FRASER R. BERRILL, PAUL F. COBB, DAVID A. KING, AND ANTONY K. STEPHENS as trustees of MORGUARD REAL ESTATE INVESTMENT TRUST
Applicants

– and –

INNVEST PROPERTIES OTTAWA GP LTD., as general partner for and on behalf of the partners of InnVest Properties Ottawa Limited Partnership, INNVEST PROPERTIES OTTAWA LIMITED PARTNERSHIP, INNVEST PROPERTIES OTTAWA NOMINEE LTD., LGY TRUSTEE INC. as trustee of LEGACY HOTELS REAL ESTATE INVESTMENT TRUST, 3428851 CANADA LTD., FAIRMONT HOTELS & RESORTS INC., and DELTA HOTELS LIMITED
Respondents

Barbara Grossman & Jeremy Millard, for the Applicants

R.S.M. Woods & Marcy McKee, for the Respondent, Delta Hotels Limited
James Bunting, for the Respondents, InnVest Properties Ottawa GP Ltd., InnVest Properties Ottawa Limited Partnership, InnVest Properties Ottawa Nominee Ltd., LGY Trustee Inc. as trustee of Legacy Hotels Real Estate Investment Trust and 3428851 Canada Ltd.
Eli Mogil, for the Respondent, Fairmont Hotels and Resorts Inc.

HEARD: December 19, 20 & 21, 2011

LEDERER J.:

INTRODUCTION

[ 1 ] This is a motion for an interlocutory injunction. It was argued over parts of three days: December 19, 20 and 21, 2011. There is some urgency. The application for the permanent injunction is to be heard during the month of May 2012. The simple answer would be to leave things as they are and wait for the application to be decided. The application of the legal principles involved do not justify that result.

[ 2 ] The applicants own a hotel in the City of Ottawa. The hotel is subject to a lease held by InnVest Properties Ottawa GP Ltd. or one of its associated entities (“InnVest”). Delta Hotels Limited (“Delta”) manages the hotel, pursuant to a Hotel Management Agreement. This agreement will expire on December 31, 2011. Hotels operated by Delta are identified as Delta hotels, are managed to standards it sets and serviced by infrastructure it provides. Delta is a recognized brand. Delta has confirmed that, with the expiry of the Hotel Management Agreement, it will cease to operate the hotel, withdraw its services and remove any signs or other demonstration that it is a Delta hotel. The applicants say that, pursuant to the lease, Delta is obliged to continue. By this motion, they seek to compel Delta to operate the hotel until the application is decided.

BACKGROUND

Facts

[ 3 ] During the month of October 1992, the hotel was leased by Pensionfund Realty Limited, its owner at the time, to Delta. In 1997, as a result of a series of transactions, the lease was assigned to Legacy Hotels Real Estate Investment Trust (“Legacy”). In September 2007, a limited partnership, which included InnVest, acquired Legacy. The partners “divided up” the assets of Legacy. Among the assets InnVest acquired was the lease. In December 2007, the applicant, Morguard Corporation or one of its associated entities, purchased the hotel. Morguard Investments Limited, Morguard Corporation and Morguard Real Estate Investment Trust (“Morguard”) are the assignees of the original landlord. Accordingly, at the time the motion was argued, Morguard was the landlord and InnVest was the tenant.

[ 4 ] Delta has been operating the hotel since 1992, which is when it entered into the lease and became the tenant. On October 27, 1998, subsequent to the assignment of the lease, Delta entered into the Hotel Management Agreement and continued to run the hotel. Delta has entered into Hotel Management Agreements with each of the successive assignees, including the current tenant, InnVest. Morguard, the owner of the property, is not a party to the Hotel Management Agreement.

[ 5 ] The initial term of the lease was to end in 2006. The tenant had the right to extend the lease for ten more years. At that time, Legacy was the tenant and exercised the option. The lease will expire on December 31, 2016.

[ 6 ] In 2006, the Hotel Management Agreement was amended and re-stated as an agreement directly between Delta and Legacy. The term of the Hotel Management Agreement remained the same. It was to end on the earlier of the expiry of the lease or December 31, 2010. During the fall of 2010, Delta advised InnVest that it “was not interested in managing the Delta Ottawa after the expiry of the Management Agreement on December 31, 2010”. On November 17, 2010, InnVest sent a letter to Delta explaining its view that, pursuant to the lease, Delta was obliged to keep the hotel named the “Ottawa Delta” until December 31, 2016, the day the lease would expire. On the same day (November 17, 2010), InnVest wrote to Morguard and, relying on the requirements of the lease, requested the consent of the landlord to a change in the name of the hotel. No consent was forthcoming. On December 30, 2010, Delta and InnVest entered into an agreement which, among other things, extended the Hotel Management Agreement for one year, to December 31, 2011.

[ 7 ] During the course of the year 2011, the parties met in the hope of finding a resolution to the impasse. On July 6, 2011, Delta wrote to Morguard confirming that the Hotel Management Agreement between Delta and InnVest would expire on December 31, 2011. “[T]he [H]otel will no longer be known as the ‘Delta Ottawa’ after December 31, 2011. Delta will be removing all signs and other materials in the hotel with the ‘Delta’ name on them…”. By letters, dated August 8, 2011, Morguard informed both Delta and InnVest that the course of action set out by Delta in its letter of July 6, 2011 contravened the lease, was not acceptable and would have a material adverse effect on the hotel and its revenue. On October 12, 2011, Morguard served both Delta and InnVest with a Notice of Default, pursuant to section 19(2) of the Commercial Tenancies Act. On October 19, 2011, Innvest, Delta and Morguard met to try and resolve matters. These discussions were unsuccessful. Morguard subsequently commenced these proceedings.

Provisions of the Lease

[Text continues exactly as provided in the source...]

LEDERER J.

Released: 20120104

JUDGMENT

LEDERER J.

Released: 20120104