ONTARIO

SUPERIOR COURT OF JUSTICE

Court File No.: CV12-082
Date: 20130306

B E T W E E N:

1862429 Ontario Inc. operating as
Shadow River Farms

Daniel Wyjad, for the Applicant

Applicant

• and -

Dieter Sallewsky and Karin Wright

Robert Kerr, for the Respondents

Respondent

Heard: February 19, 2013

D E C I S I O N

WILCOX, J.

INTRODUCTION

[1] INTRODUCTION

[2] This case could be an ad for the value of timely legal services. The parties entered into a commercial lease with each other without obtaining legal advice. The homemade lease was not a very detailed, comprehensive document. When questions arose regarding the landlord and tenant relationship, the document did not provide much explicit guidance. The parties turned to counsel and took the litigation route. The goodwill among them that was evident at the outset was squandered, and the costs that were saved by foregoing legal assistance in creating the lease have, I expect, been incurred several times over in trying to resolve the issues after the fact instead of pro-actively. It is an unfortunate situation that could have been avoided.

APPLICATION

[3] APPLICATION

[4] The tenants have brought an application seeking:

a) a declaration that the term of the lease is from December 1, 2011 to November 1, 2013

b) an order that the landlords provide the tenants with access to the leased premises via the main gate off Highway 141 continually for the duration of the lease

c) an order restraining the landlord’s dogs from entering the leased farm premises and harming the tenants’ livestock

d) an injunction restraining the landlords from interfering with the tenants’ quiet enjoyment of the premises during the term of the lease

e) an injunction restraining the landlords from draining a pond supplying water to the tenants’ livestock, and other relief

COUNTER APPLICATION

[5] COUNTER APPLICATION

[6] The landlords have brought a counter application seeking:

a) a declaration that the tenancy ended as of November 1, 2012

b) in the alternative, a declaration that the tenancy has been properly terminated by the landlords for cause

c) an order that the tenants vacate the premises within 45 days

d) an order for rent due to the landlords from the tenants in the amount of $1,000, plus damages of $300 for bank and administrative charges, and other relief.

[7] For reasons which follow, the court finds, orders and declares that:

1. The term of the lease was from December 1, 2011 to November 1, 2013

2. The tenants breached the lease by the non-payment of rent for December, 2012 and for January and February, 2013. Consequently, the lease is terminated.

3. The tenants owe the landlords the rent for December, 2012 and for January and February, 2013, forthwith.

4. The tenants shall have to the end of April, 2013 to vacate the premises. The rent shall continue to be payable for March and April, 2013.

5. The payments due from the tenants to the landlords shall be by bank draft or some other means that provides a record of payment, but not by cash.

6. The interim orders of Mulligan J. dated November 6, 2012 and of O’Neil J. dated November 16, 2012 shall remain in full force and effect pending further court order or agreement of the parties while the tenants continue lawfully to occupy the premises.

7. Each side shall bear its own costs.

DOCUMENTS

[8] DOCUMENTS

[9] The following were filed in conjunction with these applications:

a) Affidavit of Henning Golle sworn November 6, 2012 with exhibits

b) Supplementary Affidavit of Henning Golle sworn November 14, 2012 with exhibits

c) Affidavit of Dieter Sallewsky sworn December 28, 2012 with exhibits

d) Affidavit of Janet Frenssen sworn January 4, 2013

e) Affidavit of Henning Golle sworn February 14, 2013

f) Affidavit of Laurel Golle sworn February 15, 2013

BACKGROUND

[10] BACKGROUND

[11] The landlords are in their mid-seventies. They have owned for 12 years a 350 acre farm property in Seguin Township, in the District of Parry Sound. It is not their primary residence, which is in Southern Ontario, but they did live in the house on the property at times. There are also two barns.

[12] The main access is off Highway 141 and is a hard-packed gravel road running past the house to the barn area. The secondary access to the property is the back route off Nipissing Road, which the tenant says is a poorly maintained colonial (colonization?) road, and that the back route is through fields with steep slopes, tight turns, and riverbanks on both sides and is muddy when wet. Conversely, the landlord says that it is a hard-packed dirt road.

[13] The tenants wanted the property in order to raise ostriches for meat and eggs.

[14] The landlords say that about two years prior to the start of these proceedings, they listed the property for sale. They accepted an offer to purchase from the Plaintiffs for $735,000. The deal was to close June 1, 2011 but, shortly before this, the tenants withdrew from the contract, saying they could not get financing.

[15] The tenants then approached the landlords about renting a portion of the barn and field for a short term until they could get financing for the purchase. The landlords were reluctant to lease rather than sell, but were assured by the tenants that the financing would be ready in a few months. The landlords entered into a lease with the tenants, but continued to list the property for sale in case the tenants could not get their financing. The landlords were content with an oral agreement, but the tenants insisted on drafting a written lease. The lease was signed on November 26, 2011.

[16] The major issue among the parties is over the term of the lease. Other issues have arisen involving:

a) access to the property

b) the landlords’ dogs

c) space in the barns

d) the tenants’ use of a pond as a water source

e) the Township of Seguin’s requirements for a building permit

THE TERM OF THE LEASE

[17] THE TERM OF THE LEASE

[18] The lease states in paragraph one that it goes from December 1, 2011 to November 1, 2013, a term of 23 months. However, in paragraph three, it states that it is a “one year lease”.

[19] The tenants seek a declaration that the term is as in paragraph one, i.e the longer period. Their counsel argued that it was the landlord who suggested going to a two year term because it was more appropriate for the tenants’ business. Then, when the term was changed in the final draft which the parties signed, the tenants simply forgot to change the provision in paragraph three, carried over from previous drafts, referring to a one year lease. The parties spent some time in a meeting reviewing the terms. The landlords were not rushed. The handwritten change in paragraph four was an indication that the landlord was paying close attention. Because the landlord signed, he is presumed to have read the document.

[20] The landlords seek a declaration that the term ended November 1, 2012, i.e. the shorter option. They deny suggesting the two year term, submit that the first mention of a two year term is in the lease which was signed and allege that the tenants unilaterally changed the dates (setting out the term) without telling the landlords. The landlords’ counsel pointed to paragraph 11 of the Affidavit of Henning Golle sworn February 14, 2013 in which he deposes that Karin Wright was not present and that Dieter Sallewsky was alone through much of the negotiating process, and that they had noticed a big change in Mr. Sallewsky’s personality, demeanour and physical appearance at the final meeting. The tenants only learned afterwards that Mr. Sallewsky had suffered an accident and had been hospitalized previous to that. The landlords’ counsel suggested that the ambiguity created by the conflict provision in the lease’s terms should be resolved in favour of the landlords because of the contra proferentum rule.

[21] In view of the inconsistency of these provisions, counsel for both sides argued their respective positions based on the circumstances in which the lease was negotiated.

THE NEGOTIATIONS

[22] THE NEGOTIATIONS

[23] The tenants had written to the landlords on February 1, 2011. That letter indicates that the parties had already had some discussions, the topics, extent and details of which are not made clear. The tenants outlined their plan to have an ostrich farm business which they expected to be a “great success within the first 12 to 16 months”. They revealed that they had spoken with the landlords about a lease option for the first year. They go on to outline a proposal for an Agreement of Purchase and Sale, starting with a 12 to 16 month lease, and a 1,000 bird operation which would generate funds leading to financing from a bank for the down payment. Although they did not need the house in the lease period, the tenants expressed the need for access to the two barns and offered to help clear the landlords’ items from those. They also outlined a list of substantial improvements to the property that they intended to do in the lease period at their expense, which is not costed out but which, it appears, would be considerable. Finally, the tenants write of having firstly to confirm that they could rezone the property as necessary.

[24] No offer to purchase or agreement of purchase and sale for this property was produced in these proceedings to provide in its terms any insight into the interpretation of the lease. The tenants contend that there was, in fact, no such agreement. The landlords’ counsel submitted that there had been one, but that it had been destroyed after the sale fell through.

[25] The tenants emailed a draft “tenancy agreement” dated November 13, 2011 to the landlords on October 13, 2011. It consisted of 15 paragraphs. The term was said in paragraph one to be from November 1, 2011 to October 31, 2012. Paragraph nine spoke of “this one year lease”. Rent was $1,400 per month. The rental premises were said to be located at FR Number 949 Highway 141, Rosseau, Ontario. No limits were placed on the part of the property that the tenants could use, which appeared to include the house, except that the landlords reserved the right to access some storage in the barn without notice to the tenants. It explicitly indicated that the property remained listed for sale, but also that the tenants intended to buy the property on terms that were outlined in the lease. The tenants were also given a right of first refusal if the landlords received another offer. Finally, the draft permitted the tenants to make “upgrades or changes to the wood frame barn” and stated that the tenants would also need to use the other barn at some point in the future.

[26] A series of emails and meetings ensued. The tenants produced a second draft of the lease, dated November 1, 2011, to the landlords on or about November 6, 2011. It consisted of paragraphs one, seven, nine and twelve through fifteen, being a modification of the first draft with the terms relating to the rental of the house on the property removed. The term had been changed, as had been mentioned in an email previously, to December 1, 2011 to November 1, 2012, a term of 11 months, but paragraph nine still spoke of “this one year lease”. Rent was reduced to $500 per month “for necessary farm pasture area and the wood frame barn”. Hydro and water were “over and above the monthly rental and are the responsibility of the tenant”. The rental premises were again said to be located at FR Number 949 Highway 141, Rosseau, Ontario, and the other terms were unchanged.

[27] In an email dated November 9, 2011 in answer to the landlords’ questions, the tenants indicated that pens would be erected outside the barn for the birds and that the barn was not for winter shelter, but for storing feed and supplies and setting up an incubation room for the spring.

[28] Over this period, the tenants had access to the property and were making changes to it to accommodate the ostriches, delivery of which was expected to be on December 1, 2011.

[29] Further emails were exchanged and meetings held. As previously mentioned, the tenants allege that the landlord, Dieter Sallewsky suggested at a meeting increasing the term to two years, which the landlords deny.

[30] The lease was signed on November 26, 2011. It is entitled “Residential Tenancy Agreement”, although, as noted above, the residential component had been removed. Indeed, the landlords’ counsel confirmed that it is a commercial lease.

[31] Compared to the previous draft, the lease changed the tenants from Henning Golle and Laurel Golle personally to 1862429 Ontario Inc. o/a Shadow River Farms, c/o the Golles. The terms and layout remain largely the same as in the draft, but with the paragraph numbering now consecutive from one through eight. However, the term in paragraph one was from December 1, 2011 to November 1, 2013, yet paragraph three, the old paragraph nine, continued to refer to “this one year lease”. There was also a handwritten amendment to paragraph four regarding the calculation of the closing date of any agreement of purchase and sale the parties might enter into regarding the property.

[32] Unfortunately, relations between the parties deteriorated as issues arose which the lease did not explicitly or clearly deal with. The landlords wrote to the tenants on July 17, 2012 advising that the lease expires on October 13, 2012 and no renewal or extension would be granted. The tenants’ position was that the lease did not expire until November 1, 2013.

LAW

[33] LAW

[34] In the Law of Contract in Canada, Sixth Edition, Professor Fridman discusses the interpretation of express terms of written contracts at pages 436 and following. In summary, he states that the goal of contractual interpretation is to ascertain the intention of the parties at the time that they entered the contract. Where a contract as written is ambiguous, the parole evidence rule permits the admission of extrinsic evidence to resolve the ambiguity (p. 442). That includes evidence of the conduct of the parties, including statements that they made, prior to making the written agreement, as well as their conduct at the time of entering the agreement and afterwards.

[35] Professor Fridman then lists the following canons of construction for written documents:

i) Where there is no ambiguity in a written contract, it must be given its literal meaning.

ii) Words must be given their plain, ordinary meaning, at least unless to do so would result in absurdity.

iii) The contract should be construed as a whole, giving effect to everything in it if at all possible. If there is conflict between two parts of a document, the dominating purpose must prevail, as indicating the real intention of the parties.

iv) In cases of doubt, as a last resort, language should always be construed against the grantor or promisor under the contract; verba fortius accipiuntur contra proferentem.

Number v is the ejusdem generis rule and number vi is regarding combinations of documents, which are not relevant here.

Professor Fridman expanded on the contra proferentem rule as follows:

In the words of Sir Montague Smith in McConnel v. Murphy,

where a stipulation is capable of two meanings equally consistent with the language employed, that shall be taken which is most against the stipulator and in favour of the other party.

Or, as Abella J. A. said, dissenting, in Arthur Andersen Inc. v. Toronto Dominion Bank, where the majority of the Ontario Court of Appeal, reversing the trial judge, held that an agreement between a group of companies and the bank, whereby the parties undertook to use a “mirror system of accounting”, was not ambiguous,

It is a rule meant to relieve the non-authorial party to a contract from an interpretation that party could not clearly discern from a plain reading of the document. This prevents the party who did draft and understand the contract from springing a hidden contractual burden on an unsuspecting signator.

The maxim only applies where the other party had no meaningful opportunity to participate in negotiation of the contract, where, in effect, there is inequality of bargaining power. It has, therefore, little if any application where commercial parties are of more or less equal bargaining strength and where they have an opportunity to secure legal advice.

[36] He adds at page 458, “where the contract is ambiguous, the application of the contra proferentum rule ensures that the meaning least favourable to the author of the document prevails.”

[37] In the Law of Contracts, Professor John D. McCamus also addresses the canons of construction, at pages 716 to 727. I note that he says at the outset:

Although the canons are often referred to as principles or rules, they are not rules in any meaningful sense. They are, rather, guidelines or aides to interpretation that may suggest fruitful lines of analysis, but they rarely point in the direction of an inescapable conclusion. Further, in any case of interest, it is very likely that several canons will be engaged or relied upon by the parties, some pointing in one direction, some in the other. In short, the construction or interpretation of agreements is an art, not a science. The canons are the toolkit with which the artisan must work.

[38] To the list of such canons provided by Professor Fridman, he adds one which could be applicable here. This is the preference accorded to the earlier of two inconsistent terms in a contract. He notes the arbitrariness of this rule where the inconsistent terms appear in one document, as in the present case, and that, consequently, courts use this as a last resort.

ANALYSIS AND DECISION

[39] ANALYSIS AND DECISION

[40] The lease clearly contains two irreconcilable provisions as to its term, and it is up to the court to ascertain the intention of the parties in this regard. Applying the law to the facts, I find that, as Professor McCamus said, several canons of construction are engaged and they point in different directions.

[41] In favour of the tenants are, firstly, the duty of the court to avoid any interpretation of the lease that would be commercially unreasonable and, secondly, the dominating purpose. The lease contemplated the tenants setting up a farming venture on the property and noted their intention to buy the property when financially feasible. There is no dispute that they invested time, effort and money in improvements to the property to facilitate their plans and that they carried on their business there. The dominant purpose of the lease was the farming business, and it would seem to be commercially unreasonable to invest as much as they appear to have in the property with the agreement and even the help of the landlords if they were only going to be there for 11 months or one year, as the unsigned drafts provided.

[42] Also, as a last resort, the canon preferring the earlier of two inconsistent terms, whatever its shortcomings, favours the tenants in this case. This makes sense here because the commencement and end dates for the lease are clearly set out at the very beginning of the lease, while the reference to “this one year lease” in paragraph three is less precise and is more of a descriptor or an identifier in a provision for extending the lease. It could be dropped from paragraph three without affecting the sense or readability of that paragraph, whereas the dates are a necessary part of paragraph one.

[43] Contra proferentum, to the extent it applies, would favour the landlords, as the tenants authored the lease. However, given the caveats about this rule set out in the passages quoted above from Professor Fridman’s book, it is debatable whether this rule has application here, and counsel did not engage in that debate.

[44] On balance, then, I find and declare that the term of the lease is from December 1, 2011 to November 1, 2013.

OTHER ISSUES

[45] OTHER ISSUES

[46] The term of the lease having been decided, there are some other issues to deal with. The landlords seek a declaration that the tenancy has been properly ended by them for valid cause, and an order that the tenants vacate the subject premises within 45 days, as well as an order for rent due to the landlords from the tenants in the amount of $1,000 plus damages of $300 for bank and administrative charges.

[47] The lease set the rent at $500 per month, but said nothing of how it was to be paid.

[48] The landlords allege that the tenants have repeatedly failed to pay their rent on the first of each month as promised, and that two rent cheques bounced, costing bank charges of $35 each time. Consequently, the landlords asked that the rent be paid in cash or by bank draft after August, 2012, which the tenants refused to do. The rent for September and October was not paid by October 15 and the landlords purported to terminate the lease, apparently although not explicitly, pursuant to s. 18 of the Commercial Tenancies Act, which provides for a landlord to repossess leased land if the rent remains unpaid for 15 days. The overdue payments were received on October 19, 2012. November’s rent was paid on November 14, 2012. The rent for December, 2012 and for January and February, 2013 remains outstanding.

[49] The tenants deny that the landlord had to chase them for replacement rent cheques. They state that the first problem resulted from a bank error which was corrected the same day. They do not address any other occasions with respect to non-sufficient funds cheques specifically.

[50] The tenants depose that the two months’ rent (presumably July and August, 2012) had been paid by bank draft, but, in September, 2012, the landlords demanded cash. The tenants insisted on paying by draft, alleging a need for proof of payment for the business’ records. Also, the tenants allege that the landlords were not always available to accept cash payments, and the tenants did not want to leave cash in insecure places. Furthermore, the tenants allege that the landlords damaged the tenants’ tractor and mix mill, which cost $1,433.69 to repair, and that they have other claims against the landlords for damages. The tenants are attempting to set these off against the rent. None of these claims have been proven.

[51] I am unable to resolve the conflicting accounts regarding the payment of rent up to and including November, 2012, except to say that the rent for those months was paid, even if the payments were somewhat late. There is conflicting evidence regarding whether the landlords would accept bank drafts. Certainly, it would be unreasonable for the landlords to insist on only cash payments. It would have been sensible for more reliable arrangements for the payment of rent to have been made that did not require the parties coincidentally to be on the property or in the area at the same time.

[52] The rent for the months of December, 2012 and January and February, 2013 is another matter. The tenants have deliberately declined to pay, alleging set off against the rent of unproven damages allegedly caused by the landlords. The court was provided with nothing to show that the tenants had any right to do so. Consequently, I find that the tenants have breached the lease and declare that the tenancy is terminated.

[53] The tenants owe the landlords the rent for December, 2012 and for January and February, 2013. It is due forthwith.

[54] The landlords sought an order that the tenants vacate the property within 45 days in the event that the tenancy is terminated. This I take as a recognition that the winding down and relocation of the ostrich-raising business cannot be accomplished overnight. I order that the tenants shall have until the end of April, 2013 to vacate the premises. The rent shall continue to be payable for March and April, 2013.

[55] The payments due from the tenants to the landlords shall be by bank draft or some other means that provides a record of payment, but not by cash.

PREVIOUS ORDERS

[56] PREVIOUS ORDERS

[57] The issues involving access to the property, the presence of the landlords’ dogs on the property, the tenants’ use of the barn and a pond on the property, and the tenants’ quiet enjoyment of the property remain relevant while the tenants remain on the property. These issues were dealt with in the ex parte order of Mulligan J. dated November 6, 2012 and the order of O’Neil J. dated November 16, 2012. These orders shall remain in full force and effect pending further court order or agreement among the parties, while the tenants continue to lawfully occupy the premises pursuant to this order.

[58] The issue of building permits raised by the Township of Seguin no longer appears to be relevant in view of the termination of the lease and will not be addressed.

COSTS

[59] COSTS

[60] In view of the mixed success, each side shall bear its own costs.

SUMMARY

[61] SUMMARY

[62] It is apparent from the materials that relations among the parties deteriorated and that there were confrontations or, at least, unfriendly exchanges, and accusations. This situation has the potential to escalate while the tenants remain on the property, with unfortunate results. The sides are encouraged to minimize their interaction, to be business-like when they do interact, and to bring this sorry episode to a conclusion with as little controversy as possible so that they can go their separate ways and avoid further conflict.

Justice James A. S. Wilcox

Released: March 6, 2013