ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 06-CV-316828PD2
DATE: 20120203

B E T W E E N:

1212763 ONTARIO LIMITED
Plaintiff

Howard Wolch , for the Plaintiff

• and -

BONJOUR CAFÉ, MEHDI ALIKHANI, MAHNAZ GOLCHIN, ALAUDIN VISRAM, MUMTAZ VISRAM, 1312215 ONTARIO INC., ALBERT C. K. AU (also known as Chun-Keung Au),MAN SIK KIM, JEONG RAN PARK, MI KYUNG LEE, CAFÉ EBENEZER INC., IN-PYO HONG, YINGJI INTERNATIONAL (CANADA) CORP., LIU LIHONG, XIAO YAN LI and CHUN MING LI
Defendants

Eduardo Lam , for the Defendants 1312215 Ontario Inc. and Albert C. K. Au
Mark Ross, for the Defendants Café Ebenezer Inc. and Inpyo Hong

HEARD: September 13, 14 and 15, 2011

GRACE J.

REASONS FOR JUDGMENT

[ 1 ] At issue is a commercial landlord’s ability to recover unpaid rent from prior operators of a small Toronto based coffee shop.

[ 2 ] The essential facts are not in dispute.

[ 3 ] 1212763 Ontario Limited (“763” or “landlord”) is the current owner of a building at 245 Fairview Mall Drive, North York, Ontario. On the ground floor is a small unit containing 821 square feet (the “premises”). 763’s predecessor rented the premises to Bonjour Café for five years on terms set out in a lease dated February 15, 1996 (the “Lease”). The Lease was scheduled to expire on February 28, 2001 but gave Bonjour Café the right to extend the term for five more years.

[ 4 ] With the landlord’s consent, Bonjour Café could assign the Lease. 763 allowed the Lease to be assigned six times over a span of eight years between late 1996 and March, 2004. The option to extend the lease until February 28, 2006 was exercised during that time period.

[ 5 ] In 2005, the last assignee (operator 7) stopped paying rent. The landlord eventually terminated the Lease and rented the premises to someone else at a lower rental.

[ 6 ] 763 then looked for a source of recovery of the arrears and the difference between what 763 would have received until the end of the term of the Lease and what the new tenant promised to pay. 763 claims the principal sum of $76,813.81.

[ 7 ] Trial proceeded against operators 3 (1312215 Ontario Inc. (“131”) and Albert C.K. Au) and 5 (Café Ebenezer Inc. (“Ebenezer”) and In-Pyo Hong). The others either couldn’t be found or 763 decided they were not worth pursuing.

[ 8 ] The claims against 131, Mr. Au, Ebenezer and Mr. Hong arise from this context. As a condition of consenting to an assignment, the landlord obtained an agreement from each exiting operator and if a corporation, its principal to satisfy any amounts the new operator failed to pay under the Lease.

[ 9 ] 131, Mr. Au, Ebenezer and Mr. Hong signed such an agreement. This action involves two issues: first, do the agreements impose liability on all or any of 131, Mr. Au, Ebenezer and Mr. Hong and if so, how much money is owed?

A. Background

[10] The Lease was assigned to 131 on October 1, 1998. 763 consented to the assignment and agreed to extend the term until February 28, 2006. The parties’ arrangement was documented. A Consent to Assignment of Lease was signed by 763, 131, Mr. Au and others.[^1] As that document contemplated, Mr. Au executed an indemnity. He agreed to be “jointly and severally bound with” 131 “for the fulfilment of all covenants, obligations and agreements” of 131 under the Lease.[^2]

[11] 131 operated a café for less than two and a half years. On February 16, 2001, it assigned the lease to two individuals.[^3] Once again, a Consent to Assignment of Lease was signed. It provided that the assignment of the Lease did not release 131 “from its obligation to pay all of the Rent from time to time becoming due under the Lease and from the observance and performance of all of the terms, covenants and conditions” the Lease obligated the tenant to perform.[^4]

[12] Just as he had at the beginning of the relationship, Mr. Au signed an Indemnity as required by the Consent to Assignment of Lease. On demand Mr. Au agreed to pay “Rent and all other sums in respect of which default shall have occurred and all damages that may arise in consequence of the non-observance or non-performance of any covenants, obligations or agreements” contained in the Lease if the tenant failed to do so.[^5] The indemnity was to “remain in full force and effect until the end of the Term of the Lease notwithstanding any future assignments of the Lease.”[^6]

[13] In fact, the Lease was assigned three more times. Two involved Ebenezer: as assignee in March 2002 and as assignor in February, 2003.

[14] Notice of these assignments was not given to 131, Mr. Au or any of their predecessors.

[15] When Ebenezer obtained an assignment of the Lease in 2002, the parties took familiar steps.[^7] Another Consent to Assignment of Lease was signed by 763, Ebenezer, Mr. Hong and others.[^8] On this occasion, Ebenezer obtained an assignable option to extend the term for five more years at a “Rent which shall be negotiated by the Landlord and Tenant having regard to fair market rent for” similar premises.[^9]

[16] As the Consent to Assignment of Lease contemplated, Mr. Hong signed an indemnity. He agreed to be “jointly and severally bound with” Ebenezer “for the fulfillment of all covenants, obligations and agreements” of the Tenant under the Lease.[^10]

[17] In 2003, Ebenezer assigned the Lease without exercising its option to further extend the term.[^11] Furthermore, the assignable option was not referenced in any of the documents executed in connection with that transaction.

[18] Again a Consent to Assignment of Lease was signed by 763, the assignor (Ebenezer), the new assignee and their principals including Mr. Hong. As it contemplated, a Supplementary Indemnity was signed by Ebenezer and Mr. Hong. The wording of the promise to indemnify was unchanged from that used in 2001 and set forth in paragraph 12 of these reasons.

[19] However, the clause dealing with the duration of the promise was modified. Four words were added. To make them readily identifiable, they are italicized. The indemnity was to “remain in full force and effect until the end of the Term of the Lease and any extensions thereof notwithstanding any future assignments of the Lease.” [Emphasis added]

[20] The revolving door of operators continued. The Lease was assigned again in 2004. At that time the new operator and the landlord agreed to extend the lease for three more years expiring February 28, 2009 at a base rental per square foot of $32 in the first, $33 in the second and $34 in the third year of the extended term.[^12]

[21] Notice of the assignment was not given to Ebenezer, Mr. Hong or any of their predecessors.

[22] In July, 2005, rent went into arrears. The default was not cured. Two months later, a bailiff took possession of the premises on behalf of 763. A notice was posted. It advised that 763:

…expressly preserves its rights under your Lease to look to you for all Rent and other charges owing at the present time and throughout the balance of the Term of your Lease, and intends to seek recovery of damages incurred by reason of the Landlord losing the benefit of the balance of the Term of your Lease…

[23] Effective March 1, 2006, the premises were leased to a new tenant at a significantly lower base rental. 763 calculated its claim and made demand on those who had signed indemnities. Payment was not voluntarily made. These proceedings followed.

(Decision continues with Issues, Analysis, Crossclaim, and Costs sections exactly as provided in the source text.)

GRACE J.

Released: February 03, 2012