ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-06-08067-SR

DATE: 20130403

BETWEEN:

Mason Homes Limited
Plaintiff

– and –

Bonni Elizabeth Woodford and William David Woodford
Defendants

Paul Gemmink, for the Plaintiff

Self Represented

HEARD: December 1, 3, 2010, January 9, 10, 2012, and further written submissions November 22, 2012

REASONS FOR DECISION

EDWARDS J.:

Overview

[1] The plaintiff in this matter is a commercial landlord who had leased the premises described as Unit 11, 350 Big Bay Point Road, in the City of Barrie (the “premises”). The premises consisted of approximately 2400 square feet and were leased to Bay Point Deli and Catering (the “Deli”). The signature portion of the lease was signed on behalf of the Deli by David Woodford and Bonnie Woodford (the “Woodfords”) who were signing in their capacity as Tenant. As the evidence unfolded during the course of the trial, it became apparent that the Deli was not a legal entity and that it never was registered as a corporation. At most, the evidence would suggest that the Deli may have been registered as a name style by the Woodfords.

[2] The lease was entered into between Mason Homes Limited (“Mason”) and the Woodfords on July 24, 2002. The term of the lease was from August 1, 2002 through July 31, 2007. Throughout these reasons the lease will be referred to as (the “lease”).

[3] The plaintiff seeks damages in the amount of approximately $152,000, which represents the balance of the rent due and owing under the lease calculated from January 1, 2005 through to the end of the term of the lease being July 31, 2007.

[4] Mason is for the most part in the business of constructing residential homes but a smaller portion of its business, relates to commercial leasing. The premises are part of what could be best described as a strip mall, located not far from one of the residential home developments that was being developed by Mason in the Barrie area.

[5] The Woodfords entered into the lease for the purposes of establishing a deli which ultimately progressed into a deli and restaurant. Mrs. Woodford had a catering business prior to signing the lease but also held down a day job as a court reporter at the Newmarket courthouse. Mr. Woodford is a police officer with the Ontario Provincial Police.

[6] As a result of an opportunity that Mr. Woodford had to transfer to a location closer to his home, the Woodfords decided that they wanted to sell the deli restaurant business and therefore entered into negotiations with a prospective buyer that ultimately transpired in the sale of the business to a Carolyn Jackson (“Jackson”). An agreement was entered into between Jackson and Mrs. Woodford on November 12, 2004 with a purchase price of $150,000. This agreement will be referred to as the (“Jackson Agreement”). Mr. Woodford explained in evidence that the purchase price was arrived at on an approximate valuation of the deli/restaurant’s equipment of approximately $71,000. The balance of the purchase price was attributed to goodwill. The Jackson Agreement included various conditions (the “Conditions”) to the effect that it was conditional until November 19, 2004 to obtain Mason’s release of the tenant, the Woodfords, as to their personal covenant and approving Jackson as a tenant of the premises.

[7] The conditions were waived on November 24th by the Woodfords. To that point in time, efforts had been made to obtain the consent of Mason to approve Jackson as a tenant and to release the Woodfords from their personal covenant under the lease. These efforts were not successful.

[8] The lease contained a provision at paragraph 5, which required the Woodfords in the event that they wished to assign the lease, to obtain the consent of Mason, which consent could not be unreasonably withheld. Mason’s consent if granted had to be in writing. The consent by Mason would be conditional upon any assignee executing a written agreement directly with Mason and also agreeing to be bound by the terms of the lease. The lease further provided that any consent by Mason would not relieve the Woodfords from their obligations under the lease.

[9] Despite the efforts made by the Woodfords to obtain the necessary consent to the assignment to Jackson, such consent was never forthcoming and no waiver of the Woodfords obligations under the lease was every provided by Mason.

[10] Despite having waived the conditions in the Jackson agreement that clearly were inserted for the benefit of the Woodfords, Jackson went into possession of the deli for a period of approximately twenty days commencing in early December 2004. For reasons that were not made readily apparent, Jackson left the premises and litigation ultimately ensued between the Woodfords and Jackson, the substance of which was not before me.

[11] Despite the fact that Mason never consented to Jackson taking an assignment of the lease from the Woodfords, Mason nonetheless did receive a cheque for the rent due under the lease for the month of December 2004. The cheque was cashed by Mason. While various exhibits were tendered at trial that on their face would suggest that Jackson was being treated as the tenant by Mason, (such as the cashing of the December rent cheque), I am not satisfied that these actions by Mason, in any way, waived the obligations contemplated by paragraph 5 of the lease relating to assignment.

Closure of the Deli

[12] On December 21, 2004, Sean Mason sent an email to Eric Sparks who was the internal bookkeeper at Mason. The email was very cryptic and stated: “The restaurant has been closed, please look into liquidated damages, rents owed, etc. by Bonnie”.

[13] While Mrs. Woodford had written on December 15, 2004 to Gordon and Sean Mason imploring the Mason’s to approve Jackson as a new tenant, there is no indication in the letter of December 15th that in fact the restaurant was closed or was going to be closed. Perhaps by inference, the Masons believed that because the Woodfords were hoping to move to the Kingston area that once Jackson’s purchase had fallen through, it was implicit that the Woodfords would no longer continue at the deli restaurant.

[14] On January 5, 2005, Gordon Mason wrote to the Woodfords advising that they were in a default position and stated:

“As per item 5 of the lease (assignments), you have breached the lease by way of an “unapproved transfer”. As per item 11 (acts of default and landlord’s remedies), section 2, “When an act of default on the part of the tenant has occurred: Para.(a) the current month’s together with the next three months rent shall become due and payable immediately”.

“I am requesting that you take steps to remedy the default within 24 hours of receipt of this letter or provide the current month, plus three additional months rent (including all additional rents and applicable GST amounts for those months) to our offices prior to the close of business on Friday, January 7, 2005.”

[15] The letter of January 5, 2005 refers to item 5 of the lease (assignment) and the fact that Mason was taking the position that the Woodfords had breached the lease by way of an “unapproved transfer” as per item 11 (acts of default and landlord’s remedies). The obligations of the Woodfords with respect to how they could assign the lease are set forth in paragraph 5 of the Lease. It is clear that such ability to assign the lease was subject to the landlord’s consent which consent could not be withheld unreasonably and which consent had to be in writing. Paragraph 5 of the lease does not speak of “unapproved transfers” as referenced in the letter of January 5, 2005 from Gordon Mason.

[16] Paragraph 11 of the lease deals with acts of default and the landlords remedies. None of the acts of default referenced in paragraph 11 specifically deal with the question of an unapproved transfer. Paragraph 11 defines acts of default as follows:

(1) An Act of Default has occurred when:

(a) the Tenant has failed to pay Rent for a period of 15 consecutive days, regardless of whether demand for payment has been made or not;

(b) the Tenant has breached his covenants or failed to perform any of his obligations under this Lease; and

(i) the Landlord has given notice specifying the nature of the default and the steps required to correct it;

(ii) the Tenant has failed to correct the default as required by the notice;

(c) the Tenant has;

(i) become bankrupt or insolvent or made an assignment for the benefit of Creditors;

(ii) had its property seized or attached in satisfaction of a judgment;

(iii) had a received appointed;

(iv) committed any act or neglected to do anything with the result that a Construction Lien or other encumbrance is registered against the Landlord’s property;

(v) without consent of the Landlord, made or entered into an agreement to make a sale of its assets to which the Bulk Sales Act applies;

(vi) taken action if the Tenant is a corporation, with a view to winding up, dissolution or liquidation;

(d) any insurance policy is cancelled or not renewed by reason of the use or occupation of the Premises, or by reason of non-payment of premiums;

(e) the Premises;

(i) become vacant or remain unoccupied for a period of 30 consecutive days; or

(ii) are not open for business on more than thirty (30) business days in any twelve (12) month period or on any twelve (12) consecutive business days;

(iii) are used by any other person or persons, or for any other purpose than as provided for in this Lease without consent of the Landlord.

[17] The letter of January 5th from Mason to the Woodfords was responded to by Mrs. Woodford under cover of her letter of January 7, 2005. The letter of January 7, 2005 asked Mason to provide the Woodfords with some time to deal with the situation that had arisen with Jackson.

[18] Mr. Mason, in his evidence, testified that shortly after January 7, 2005, he quickly started getting phone calls from people who owned the equipment inside, like the wafflemaker and coffee machines. Mr. Mason acknowledged that when he began receiving these calls, the lease had not been terminated. The next step that Mr. Mason took was to change the locks. His explanation for changing the locks was to avoid so-called owners of the equipment entering the premises and removing the equipment, and the plaintiff being blamed for such removal.

[19] The owner of the wafflemaker picked up the waffle irons on January 12, 2005 (see Exhibit 10). With the concern expressed by Mr. Mason about equipment going missing and his acknowledgement that the next step was to change the locks, I have come to the conclusion that the plaintiff changed the locks of the premises as early as January 12 and certainly no later than January 13.

[20] When Mason changed the locks, there was no prior notice given to the Woodfords of Mason’s intention to change the locks. Section 19 of the Commercial Tenancies Act, R.S.O. 1990 C.L. 7 (“CTA”) provides as follows:

A right of re-entry or forfeiture under any provision of stipulation in a lease or breach of any covenant or condition in a lease, other than a proviso in respect of the payment of rent, is not enforceable by action, entry or otherwise, unless the lessor serves on the lessee a notice specifying the particular breach complained of, and, if the breach is capable of remedy, requiring the lessee to remedy the breach, and, in any case, requiring the lessee to make compensation in money for the breach, and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money to the satisfaction of the lessor for the breach.

[21] No such notice was provided by Mason to the Woodfords as required by section 19 as quoted above. On January 20, 2005, Mason again wrote to the Woodfords terminating the lease immediately. The letter provided:

“Please be advised that under Part XI of the lease, signed by you on or before July 24, 2002, Masons Homes Limited is terminating the said lease effective immediately…”. As per item 11, Acts of Default and Landlord’s Remedies, section 2, when an act of default on the part of the tenant has occurred:

(a) The current month’s rent together with the next month’s rent shall become due and payable immediately” Which we expect, failing which we will have no choice other than to pursue an alternative method of securing the lease payments.

[22] It is significant to note that neither the letter of January 5, 2005 (exhibit 5) nor the letter of January 20, 2005 (exhibit 7) references non-payment of rent as the basis for the termination of the lease. The December 2004 rental payment had been made by Jackson. There was evidence before this court that the Woodfords had, during the course of the lease, been late in paying their monthly rental payments and that Mason had been patient in awaiting any overdue payments. As such, Mason cannot rely upon the exception set forth in section 19 of the CTA that does not require notice in the event of non-payment of rent as the basis for right of re-entry. In any case, section 18(1) provides that the landlord may only re-enter the premises where rent is unpaid for fifteen days or more. Section 18(1) of the CTA provides:

Every demise, whether by parole or in writing and whenever made, unless it is otherwise agreed, shall be deemed to include in the agreement that if the rent reserved, or any part thereof, remains unpaid for fifteen days after any of the days in 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 demise 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.

[23] As the issue of the potential application of the CTA was not addressed during the course of argument, I sought further submissions from the parties with the option to reconvene court for oral argument. I have received and considered the parties’ written submissions with respect to the possible application of the CTA.

[24] Counsel for the plaintiff quite properly points to the fact that nowhere in the defendants’ statement of defence is there any reliance made on section 18 or section 19 of the CTA. It is noted by plaintiff’s counsel that while the defendants were unrepresented at trial, they did have representation from counsel with some experience in this area. It is also noted by plaintiff’s counsel that Mr. Woodford was given an adjournment of the trial to consult counsel when it became apparent at the commencement of trial that he had never been given notice of this action by his wife who had accepted service of the statement of claim on his behalf. Plaintiff’s counsel also notes that the re-entry of the premises is pleaded at paragraph 11 of the statement of claim as having occurred on January 20, 2011. The defendants in their amended statement of defence admit paragraph 11 of the statement of claim.

[25] The failure to plead the application of a statute does not preclude this court from considering the application of how a statute may apply in the circumstances presently before the court, nor does the failure to plead a statute relieve the need for the parties to comply with the statute. If the defendants had brought a motion, even at this late stage of the proceedings, seeking an amendment to their statement of defence to plead the CTA, the provisions of Rule 26 of the Rules of Civil Procedure (the “Rules”) make it quite clear that at any stage of an action the court is required to grant leave to amend a pleading on such terms as are just unless prejudice would result that could not be compensated for by costs or an adjournment. The provisions of Rule 26 of the Rules provide that the court “shall” grant leave as opposed to “may grant leave”.

[26] I fail to see how there can be any prejudice to the plaintiff in allowing an amendment to plead a statute, even at this late stage of the proceedings. The plaintiff is a sophisticated corporation with experience in the construction of residential homes and to a lessor extent with experience related to commercial leasing. As such, it would be hard to envisage a situation where the plaintiff could plead ignorance of its obligations under the provisions of the CTA.

[27] Plaintiff’s counsel has raised a more serious issue with respect to the admission made by the defendants that the re-entry occurred on January 20, 2005.

[28] An admission made in a pleading may be withdrawn, either on consent or with leave of the court. See Rule 51.05 of the Rules. While there was no formal motion before me from the defendants seeking leave to withdraw the admission made in their statement of defence, such an admission to be binding can only be binding if it conforms with the evidence at trial. If something admitted in the statement of defence turns out to be untrue, it would be a gross injustice to then not allow such an admission to be withdrawn.

[29] On the facts before this court, it is clear to me that the re-entry did not occur on January 20, 2005 but rather occurred when the locks were changed by the plaintiff sometime between January 12 and January 13, 2005. It is inconceivable, given Mr. Mason’s concern about equipment going missing, that he would have waited until January 20th to change the locks, this especially given the evidence that the owner of the wafflemaker picked up his equipment on January 12th.

[30] While the January 1, 2005 rental payment had not been paid by either Jackson or the Woodfords, the fifteen day time period provided for in section 18 of the CTA had not expired by the time the locks were changed between January 12 and 13, 2005.

[31] The question now arises as to the effect of the changing of the locks by Mason and non-compliance with section 18 of the CTA. This question came up for consideration and was reviewed by Himel J. in Novacrete Construction Ltd. v. Profile Building Supplies Inc. et al. 2000 22769 where at paragraph 64 Himel J. noted:

…the effect of changing the locks by the landlord and excluding the tenant has been held to constitute a termination of the lease. See Country Kitchen Ltd. v. Wabush Enterprises Ltd. (1981), 1981 2997 (NL CA), 120 D.L.R. (3d) 358 (Nfld. C.A.); Coopers & Lybrand Ltd. v. Royal Bank 1982 2685 (SK QB), [1982] 5 W.W.R. 156 (Sask.Q.B.).

Generally the courts have viewed that changing of the locks and excluding the tenant is an act of forfeiture disentitling the landlord to the remedy of distress: Clarkson Co. v. Consortium Group Ltd. (1983), 1983 1995 (ON SC), 40 O.R. (2d) 771 (Ont. H.C.).

There are other cases where the lease has been held not to be terminated where the locks are changed. In Glenmac Corp. v. McGonigal (1991), 115 A.R. 55 (Alta. C.A.), the court concluded the lease did not terminate where the tenant was given the new keys after the locks were changed until after the distress and remained in the possession until then. The mere act changing locks did not terminate the lease because there was no intent to deprive the tenant of the use of the premises….

[32] There is no evidence before me to suggest that Mason made any attempt to put the plaintiff back into the premises by providing a key to the premises. The evidence is quite clear that from the point that Mason changed the locks, as well as the letter of January 20, 2005, that Mason intended to ensure that the plaintiff had no access to the premises whatsoever. This case, therefore, does not fall within the category of cases reviewed by Himel J. where the courts did not find a termination of a lease where the locks had been changed.

[33] What then is the effect of the termination of the lease by the landlord? As noted by Himel J. in Novacrete, supra:

The case of Highway Properties outlines the remedies and courses of action available to a landlord in a commercial tenancy where the tenant is in fundamental breach of the lease. However, where the landlord elected to terminate the lease by his conduct, the remedies include the right to sue for rent accrued due and damages. The changing of the locks terminated the tenancy and the landlord cannot distrain for accelerated rent nor claim the rent after the changing of the locks: Country Kitchen Ltd., supra, p. 362; Beaver Steel Inc. v. Skylark Ventures Ltd. 1983 500 (BC SC), (1983), 47 B.C.L.R. 99 (B.C. S.C.) at 110; Mundell v. 796586 Ontario Ltd. (1996), 3 R.P.R. (3d) 277 (Ont.Gen.Giv.).

[34] Mason in this case made a fundamental mistake. By changing the locks as it did between January 12 and January 13 and thereby failing to comply with the provisions of section 18 of the CTA, Mason has not only terminated the lease but also terminated any entitlement that it had to sue for the balance of the rent due and owing under the lease.

[35] If I am wrong with respect to the finding that I have made in the application of section 18, there still remains the question of whether or not Mason provided adequate notice to the defendants when Mason wrote on January 5, 2005, requesting the defendants to remedy the default within twenty-four hours from the date of receipt of the letter. As previously noted, the letter of January 5, 2005 does not take the position that the defendants were in default for any other reason other than the fact that they allegedly breached the lease by way of an “unapproved transfer”. As previously noted, the defendants responded to the Mason letter of January 5 on January 7, requesting some time to deal with the situation that had arisen with Jackson.

[36] While the letter of January 5 did provide notice to rectify a deficiency, the notice did not give the defendants a reasonable opportunity to do so. See Dasham Carriers Inc. v. David Cameron Gerlach, 2012 ONSC 4797 at paragraph 62.

[37] The plaintiff, as a sophisticated business entity, failed to comply with the provisions of section 18 and section 19 of the CTA. Mason improperly terminated the lease when the locks were changed and, as such, Mason is precluded now from suing for the balance of the term of the lease.

Mitigation

[38] If I am wrong with respect to the application of the CTA, I now deal with the issue of mitigation. A secondary issue was raised during the course of argument relating to the alleged failure by Mason to properly mitigate its damages. In that regard, the Woodfords argued that the sale proceeds of the deli restaurant’s equipment did not reflect the true market value of the equipment. The evidence in this regard, regrettably, was considerably wanting. Initially, it would appear that Mrs. Woodford sought the services of an auctioneer at the request of Sean Mason. While Mrs. Woodford acknowledged that she did make that initial inquiry, she was of the understanding that the ultimate auction of the deli restaurant equipment proceeded under Mason’s auspices. Mrs. Woodford testified that she was not the one who provided instructions with respect to the auction and in any case she was denied access to the premises when the auction was conducted. The equipment which had been valued at approximately $71,000 when it was sold to Jackson in November 2004 ultimately realized $2,000 at the auction. The $2,000 was provided to Mason in cash. It goes without saying that this evidence is troubling, particularly when the equipment likely had a value greater than $2,000. The Woodfords, however, presented no evidence that established the value of the equipment when it was sold in a distress situation at auction in March 2005. The Woodfords clearly had the onus to present evidence as to the equipment value and it is impossible for me now on the evidence to determine what the equipment value was when it was sold. The Woodfords therefore fail with respect to this aspect of the mitigation defence advanced before me.

[39] The second area in which the Woodfords complained that Mason failed to properly mitigate its damages relates to the efforts made by Mason to re-rent the premises. In that regard, I heard evidence from Ashley Mason and had produced to me various exhibits relating to Mason’s efforts to mitigate. At best, it can be said that Mason was less than willing to re-negotiate the monthly rental down from what the Woodfords were paying. I am not satisfied based on the evidence that I heard that Mason did not exercise appropriate due diligence in its efforts to re-rent the premises. The onus was again on the Woodfords to demonstrate that the efforts that were made by Mason to re-rent the premises did not constitute reasonable efforts to mitigate and I heard no evidence from the Woodfords in that regard. Under the circumstances, if I had found that Mason had not improperly re-entered the premises thereby terminating the lease, I would not have found that Mason had improperly mitigated its damages.

Costs

[40] For the reasons set forth above, the plaintiff’s action is dismissed. As to the issue of costs, I am prepared to entertain submissions with respect to costs in the event this issue cannot be resolved between the parties. I point out as a preliminary issue the delay that occurred in the conduct of this trial as a result of the actions of Mrs. Woodford in failing to disclose to Mr. Woodford the existence of this litigation until the actual commencement of the trial. Mrs. Woodford’s action in that regard was blatantly improper and caused undue delay and expense in this matter. But for the fact the defendants have been successful in defending this action, the costs incurred as a result of the delay would undoubtedly have been laid at the feet of Mrs. Woodford. I will be taking the conduct of Mrs. Woodford into account with respect to any demand for costs that might be made by the defendants and would suggest that without deciding this issue that the Woodfords might wish to consider whether it is appropriate to seek their costs. If the issue of costs cannot be resolved, written submissions are to be made to the court within 15 days from the date of receipt of these reasons.

Justice M. Edwards

Date: April 3, 2013