COURT FILE AND PARTIES
COURT FILE NO.: CV-12-458462
DATE: 20130122
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: DOWNTOWN PALLETS LTD., Applicant
AND:
ONTARIO FOOD TERMINAL BOARD, Respondent
BEFORE: Low J.
COUNSEL:
James P. McReynolds, for the Applicant
Luisa Ritacca and Ben Kates, for the Respondent
HEARD: October 22, 2012
ENDORSEMENT
[1] The applicant seeks relief from forfeiture of a commercial tenancy at the Ontario Food Terminal.
[2] The applicant is in the pallet recovery business. The applicant’s principal, Jose Catarino, has worked at the Ontario Food Terminal since 1981 as a buyer. In the course of his activities he observed a business opportunity in the recovering and reselling pallets. He incorporated the applicant in 2004 for the purpose of carrying on that business.
[3] On October 31, 2008, the applicant and respondent signed a letter agreement dated October 2, 2008, whereby the applicant was permitted to occupy space within the Terminal premises. The agreement, on the letterhead of the respondent, provides as follows:
The Board will enter into a month to month rental of land agreement with you effective October 1, 2008. The monthly payment for the leased area will be $2,440.67 plus GST. The following conditions must be maintained and must not be comprised [sic].
The leased area will consist of a designated area of 40FT x 75FT in size. You are to strictly operate within this designated area only. You are no longer to operate along the east roadway near the cold storage or another are of the Terminal.
You will be permitted to have one 16Ft x 20FT storage container to park all your equipment. At no time will any of your equipment be parked on any dock or near the exterior of any building at the end of each business day.
There are no pallets to be left on leased area overnight unless locked in a trailer. This includes under or on top of any trailers.
The leased area must be kept clean and clear of any debris at the end of each business day.
No garbage or other items are to be received or unloaded by you or any of your employees. Buyers’ [sic] with garbage on their trucks must be reported to OFTB Police or OFTB staff members.
You and your employees will strictly observe and perform all rules, regulations, by-laws and/or statues [sic] of the City of Toronto, the Province of Ontario and the Government of Canada or other authority.
I, Joe Catarino agree to pay $2,440.67 plus GST due on the 1st of each month payable to the Ontario Food Terminal Board with the understanding that this lease agreement is strictly month to month and that at any time either the landlord or tenant may terminate the lease agreement given that either party shall provide 30 days written notice. Furthermore, I acknowledge that the above conditions are to be met.
IN WITNESS WHEREOF the parties hereto have duly executed these presents as of the date above written on this 31st day of October, 2008
[4] The space leased to the applicant was in the southeast quadrant of the terminal and was on Ontario Hydro land which was the subject of an agreement in which Hydro permitted the respondent to use the land solely for vehicular parking.
[5] On January 25, 2012, the respondent notified the applicant of its decision to terminate the applicant’s lease. The letter stated the following:
As you know, the Board has grown increasingly concerned about the amount of space you have occupied to operate your pallet recovery business. On several occasions in this year alone you have been asked to remove pallets from space for which you are not paying rent. For the most part, those requests have gone ignored.
In addition, despite what is clearly set out at paragraph 3 of the Least Agreement, you continue to store pallets, on the ground and outside of trailers for extended periods.
You business practice has now caught the attention of Ontario Hydro. The Board has given notice that the pallets and all other debris must be removed from the property beneath the hydro lines immediately. Ontario Hydro rightly considers the storage of pallets beneath its hydro lines to be a significant and very real fire hazard.
This letter is to serve as notice of the Board’s decision to terminate the Lease Agreement with Downtown Pallets Ltd. Pursuant to the Lease Agreement, Downtown Pallets Ltd. has until the end of business day on February 29, 2012 to vacate the premises.
I would ask that you take every step to immediately remove pallets and any other debris from the space not covered under the Lease Agreement and that any remaining pallets are removed on or before February 29, 2012.
[6] The applicant’s business had grown rapidly and its space requirements had outgrown its leased space. In a letter dated February 10, 2012, the applicant acknowledged that it had been non-compliant with lease, stated that it was looking for additional space outside the Terminal for storage and indicated a willingness to enter into a lease of alternate space in the terminal.
[7] The respondent was not willing to rescind its notice to terminate but did offer to rent alternate space to the applicant within the Food Terminal at the northeast quadrant away from the Hydro lines. On February 22, 2012, solicitors for the respondents provided a draft lease for the new tenancy to which the applicant, through its solicitors responded with proposed changes. A course of negotiation did not result in a new lease as the parties were unable to come to terms.
[8] On March 5, 2012, the respondent terminated the applicant’s tenancy and the applicant vacated the premises. Contemporaneously the applicant secured new premises 5.5 km away from the Terminal and, since that time, the applicant has operated its pallet recovery business from its new base outside the Terminal.
[9] The applicant seeks an order granting it relief from forfeiture and an order requiring the respondent to permit it to re-occupy the premises that it occupied under the original agreement of October 2, 2008.
[10] The applicant argues that there was no cause and no legitimate business reason for the respondent to terminate the lease agreement and that the respondent therefore had no right to do so despite the provision in the agreement allowing for termination by either party on 30 days written notice.
[11] The applicant argues that although it had been in contravention of the agreement for periods of time prior to the giving of notice of termination, it had cured the defaults. The applicant challenges the bona fides of the respondent’s allegation that the accumulation of the applicant’s pallets under the hydro lines had attracted the attention of Ontario Hydro and relies on the fact that the letter produced from Ontario Hydro is dated January 25, 2012 (the same date as the respondent’s letter giving notice of termination) and on the absence of warnings by Ontario Hydro that the presence of pallets on the ground were a threat to the license granted by Ontario Hydro to the terminal to use its lands.
[12] The applicant argues that even if there was just cause for termination, the respondent was not entitled to termination because its notice of termination did not comply with s. 19(2) of the Commercial Tenancies Act.
[13] In my view, the application should be dismissed.
[14] This was not a situation where the lease was forfeited but rather one where the lease was terminated in accordance with its own terms. The situation is governed by Maverick Professional Services Inc. v. 592423 Ontario Inc., (2001) 2001 8540 (ON CA), 147 O.A.C. 209; [2001] O.J. No. 1877; 42 R.P.R. (3d) 59 (C.A.) where the court affirmed the principle that the parties to a lease for a term certain may terminate before the end of a term by exercising an option clearly provided for in the lease and the presence or absence of breach is not a factor in the exercise of that right. The principle is applicable a fortiori where the effect of the termination is not to truncate a term certain but to exercise the right of termination of a month to month lease upon notice in accordance both with the agreement and the statute. (See also 1397633 Ontario Inc. v. Oxford Properties Group Inc. (2003), 8 R.P.R. (4th) 72, [2003] O.J. No. 1212, (C.A.).)
[15] The lease, although typed on the letterhead of the respondent, was not a contract of adhesion. It appears that the lease agreement was drafted to address specifically the applicant’s business of pallet recovery. The termination provision was of benefit to both parties: if the pallet recovery business was not sufficiently profitable to support the lease, the applicant would not be locked into a long term liability but rather had the option to terminate on 30 days written notice. On the respondent’s side, the termination provision gave it the flexibility to terminate if required in order to expand the core function of the Terminal which is trade in farm products.
[16] There is no ambiguity in the language relating to the parties’ rights of termination and there is, in any event, no suggestion that at the time of entering into the agreement, the parties understood or intended that there be a gloss limiting the right of termination to situations where there was cause or where the respondent could show a legitimate business reason for doing so.
[17] The tenancy was clearly monthly and not for a fixed term, and termination upon the period of notice given by the respondent’s letter was in compliance with the agreement and the Commercial Tenancies Act, R.S.O. 1990, c. L. 7, s. 28.
[18] In my view, there is neither an express nor implied term requiring the existence of any condition as justification for termination of the lease by either party.
[19] Accordingly, the argument that the notice was defective in that it did not give reasonable time, pursuant to s. 19(2) of the Commercial Tenancies Act to remedy the breach, is irrelevant as breach was not a precondition to the respondent’s right to terminate. Similarly, the acceptance of rent following knowledge on the part of the respondent that the applicant was in breach of the lease is no bar to its right to terminate in accordance with the terms of the agreement. In this regard, Malva Enterprises Inc. v. Rosgate Holdings Ltd. (1993), 1993 8675 (ON CA), 14 O.R. (3d) 481 (C.A.) and its progeny do not assist the applicant.
[20] The applicant relies on Tannous (c.o.b. Tannous Produce) v. Ontario (Food Terminal Board), (2003) 35 B.L.R. (3d) 135; [2003] O.J. No. 2633 and W & T Mushroom Ltd. v. Ontario Food Terminal Board, (2009), 87 R.P.R. (4th) 271; [2009] O.J. No. 4727. It is argued that where the Ontario Food Terminal Board is the contracting party with a lessee for space in the Terminal, there must be either breach of lease giving rise to justified forfeiture or a legitimate business reason for termination by the Board.
[21] I am not persuaded that the two decisions stand for that proposition.
[22] In Tannous, the facts and the lease were different in several material respects.
[23] Tannous had been a lessee for a vending stall in the terminal for 34 years under an “evergreen lease” for one year terms that renewed automatically. Prior to Board insisting, in 1994, on a new clause that the lease was terminable by it at any time for any reason whatsoever upon thirty days written notice and terminable by the lessee on thirty days notice but effective only at the end of a term, the Tannous lease had been automatically renewed for three decades.
[24] The dispute arose because Tannous was sharing his stall with another vendor. This was not permitted by the lease and the Board sought to terminate for breach. The stall sharing had subsisted for several years and, according to the applicant’s evidence, the sharing had been condoned by the Board’s manager. Tannous commenced action challenging the validity of the notice to terminate and in response, the Board also gave notice that it proposed not to renew for the following year’s term.
[25] The decision in Tannous was on a motion for an interlocutory injunction. There was material to satisfy the court that the tests for an interlocutory injunction were met and that an interlocutory order was justified in the circumstances. On the facts of that case and in the particular context of that lease, the Board had conceded that it could not arbitrarily terminate a lease and that there needed to be a legitimate business reason for doing so. It was therefore unnecessary for the court to make a ruling on the point and I do not read the Tannous decision as one in which the court decided, as a matter of general application, that the Ontario Food Terminal Board must have a legitimate business reason (presumably a present legitimate business reason) for exercising a contractual right to terminate a lease to which it is party pursuant to its own terms.
[26] The lease in issue at bar did not start as an evergreen lease and there is no suggestion that absent a leased space in the terminal the applicant would be put out of business as was the case in Tannous.
[27] I do not accept the suggestion that as a matter of law, a lease agreement between the respondent a lessee of space within the Food Terminal contains the implied term conceded in the case of the Tannous lease and there is no factual basis for implying such a term in the circumstances of the lease in question here.
[28] In my view, the unambiguous language of the lease between these parties does not require the existence of any condition precedent for the exercise of the termination rights of either party.
[29] While I am of the view that Tannous did not decide that the Ontario Food Terminal Board must have a legitimate business reason for exercising its right to terminate leases with its lessees generally, I am nevertheless satisfied that it had a legitimate business reason. The applicant’s business had clearly outgrown the amount of space that it had leased such that it was in breach of the lease terms on more than one occasion and not for trifling periods of time. The applicant’s storage of pallets in contravention of the terms of the agreement caused the Board to be in a state of non-compliance with its agreement with Ontario Hydro for use of the Hydro lands. The Board’s offer to lease alternate space within the terminal to the applicant was a reasonable one; it evidences bona fides on the part of the Board but the fact of the offer is not a necessary component of the legitimate business reason.
[30] W & T Mushroom was also a lessee of a stall in the Food Terminal under a lease similar to that in Tannous. The applicant had been a lessee for some 25 years as a food vendor. There had been was a dispute over winter trailer storage charges and an outstanding amount of $918.75 in respect of those charges was cited in the Board’s notice to quit. The lessee had also had a history of being late in rent payment for its vendor stall, but that was not cited in the notice to quit. There appears to have been acceptance of rent following the breach. The Board advised in its notice that it intended not to renew the lease and gave notice to quit in 50 days from the date of the notice.
[31] The court agreed with the applicant that that contract was one of adhesion. On that basis, the agreement was to be construed contra proferentum. On the facts in W & T Mushroom, it appears that the case was one of relief from forfeiture rather than a termination of the agreement upon its own terms. The court held that the purported “notice of non-renewal” was not provided for in the lease, that the notice did not meet the standard of clarity and fairness required in the circumstances, and that it was therefore defective. It was apparent that the underlying rational for the issuing of the notice was the failure to pay $918.75 arising out of a dispute over trailer storage charges for which a termination of the tenancy, and consequently the cessation of the applicant’s business, would be a grossly unfair result.
[32] In my view, the court’s decision in W & T Mushroom does not assist the applicant given the significant differences in the nature of the agreements, the histories of the parties in relation to each other and the factual matrixes of each case.
[33] The application is dismissed. Costs to the respondent, fixed at $20,000 all inclusive.
Low J.
Date: January 22, 2013