COURT FILE AND PARTIES

COURT FILE NO.: CV-13-473944

DATE: 20131018

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2454 Bloor Street West Ltd. and 2150 Bloor Street West Ltd., Plaintiffs

– AND –

2107733 Ontario Inc. carrying on business as Moksha Yoga Studio and Don Christensen, Defendants

BEFORE: E.M. Morgan J.

COUNSEL:
Robert B. Cohen, for the Plaintiffs
Bruce G. McEachern, for the Defendants

HEARD: October 16, 2013

ENDORSEMENT

[1] Since 2007 the Defendant, 2107733 Ontario Inc. carrying on business as Moksha Yoga Studio (the “Tenant”), has run a “hot yoga” studio out of premises located at 2454 Bloor Street West, Toronto (the “Premises”). It has leased the Premises from the Plaintiff, 2454 Bloor Street West Ltd. (the “Landlord”), who inherited this lease from a previous owner when it purchased the building in June 2008. That purchase was part of the Landlord’s acquisition of the entire block of land along this stretch of Bloor Street for potential re-development.

[2] Since early 2013 the parties have been engaged in litigation regarding various aspects of this tenancy and another tenancy located in a nearby building at 2150 Bloor Street West (the “Replacement Premises”). The Replacement Premises is owned, and was leased to the Tenant, by the Plaintiff, 2150 Bloor Street West Ltd. (the “Replacement Landlord”), which is a company owned by the same owner as the Landlord. In order to fulfill its re-development plans, the Landlord desired vacant possession of the Premises (which apparently had the longest term of all the tenancies in the block of buildings that the Landlord had acquired), and the tenancy swap with a premises owned by a related company in a nearby building was the solution that the parties had undertaken to this end.

[3] On July 29, 2013, the Landlord locked the Tenant out of the Premises. As there was already an action encompassing a claim and counterclaim between the parties regarding this tenancy and related matters, and the Tenant moved immediately within the action for an interlocutory injunction restoring it to possession of the Premises until trial.

[4] On August 1, 2013, the Tenant’s motion came before Spence J. who adjourned it to allow for a full exchange of materials, cross-examinations, etc. As a term of the adjournment, the Tenant was restored to possession of the Premises on an interim basis pending the return of the motion. Despite the efforts of the parties in seeking mediation of the dispute, they have been unable to resolve their differences in the two months since the Order of Spence J. The matter has now returned for a full hearing of the Tenant’s request for an interlocutory injunction.

[5] It is by now trite law that the onus is on the Tenant, as the party seeking the injunction, to establish: 1) that there is a serious issue to be tried; 2) that it would suffer irreparable harm if the injunction were refused; and 3) that it would suffer greater harm than the opposing parties from the granting or refusal of the injunction pending a final decision on the merits. RJR-MacDonald Inc. v Canada (Attorney General), 1994 117 (SCC), [1994] 1 SCR 311, at 334. For present purposes, it should be emphasized that this is a three-part test in which the Tenant must establish all three of the criteria. A failure to meet any one part of the test will result in the injunction being refused.

[6] It must also be emphasized that the second part of the test – that there be a potential for irreparable harm – is assessed with a view to limiting the extent of judicial intervention in an interlocutory proceeding where the merits have yet to be tried. As the courts have put it, “‘[i]rreparable’ refers to the nature of the harm suffered rather than its magnitude.” Manos Foods International Inc. v Coca Cola Ltd., [1997] OJ No 1877, at para 11 (SCJ), citing RJR-MacDonald, supra, at 341. Accordingly, it is not enough for the moving party to establish that it will suffer grievous injury if the injunction is not granted; rather, the potential injury must be such that it is not compensable in monetary damages. Teklogix Inc. v Zaino, 1997 CarswellOnt3938, at para 63 (SCJ).

[7] The Landlord submits that it had two separate grounds for locking out the Tenant. In the first place, it contends that the Tenant had signed a valid and enforceable Surrender of Lease in respect of the Premises on February 1, 2012, from which it could not later resile. Secondly, it claims that the Tenant had insufficient fire exits in the Premises and, in addition, had in the past carried out unapproved renovations of the Premises making any permit for further improvements or changes difficult to obtain; as a consequence, the Landlord submits that both of these problems in the Premises not only constitute individual acts of default under the Tenant’s lease, but have together created a highly problematic situation which has jeopardized the fire insurance coverage for the building.

[8] Either of the two grounds raised by the Landlord – the Surrender of Lease or the defaults under the lease – could potentially support a termination of the tenancy in the Premises. Accordingly, in order to extend the Order of Spence J. and regain access to the Premises for the balance of the action, the Tenant must meet the RJR-MacDonald test for an injunction on both accounts. That is, it must establish that there is a serious issue to be tried, that it will suffer irreparable harm, and that the balance of convenience lies with it, whether the Landlord invokes the Surrender of Lease or the defaults under the lease.

[9] Both parties agree that the Tenant signed a Surrender of Lease which, by its express terms required the Tenant to vacate and yield up the Premises to the Landlord as of June 30, 2012. This Surrender of Lease was part of a larger agreement in which the Tenant signed an Offer to Lease on October 5, 2011, and in January 2012 a formal lease, for the Replacement Premises (the “Replacement Lease”). The Replacement Lease provided for a 10 year term in the Replacement Premises commencing January 1, 2012, with the agreement that the Tenant would remain at the Premises until June 30, 2012 during which time the Tenant would have made the Replacement Premises ready for occupation and use. The Tenant was to commence paying rent under the Replacement Lease on July 1, 2012.

[10] As part of the surrender of the old lease for the Premises and entering into the Replacement Lease, the Landlord agreed to pay the Tenant a series of inducement payments. These included, among others, a payment of $50,000 made upon signing the Offer to Lease in October 2011, and a payment of $212,500 to be paid on the date of the execution of the other documents entailed in the trade of premises arrangement (more specifically, the Replacement Lease, the Surrender of Lease, and the Estoppel Certificate as described below).

[11] The Landlord in fact made the initial $50,000 as well as a partial payment of $100,000 to the Tenant in March 2012. The Landlord submits that the balance of the signing inducement in the amount of $112,500 was agreed between the parties to be deferred until the Tenant had made significant progress toward preparing the Replacement Premises for occupation. The Tenant denies that any such deferral arrangement was agreed to, and submits that the failure of the Landlord to pay the $112,500 owing to it should prevent the Landlord from asserting that the Surrender of Lease is now enforceable.

[12] On January 31, 2012, a month after commencement of the tenancy in the Replacement Premises, the Replacement Landlord presented to the Tenant an Estoppel Certificate for signature. This Estoppel Certificate was addressed to the Replacement Landlord’s lender as well as to the Replacement Landlord itself. The Tenant received independent legal advice with respect to the Estoppel Certificate and then duly executed it. The Estoppel Certificate stated, among other things, that:

a) the Tenant was in possession of the Replacement Premises and was in the process of preparing it for use;

b) the Replacement Lease was in full force and effect, as executed;

c) the Replacement Premises had been provided to the Tenant by the Replacement Landlord in accordance with the Replacement Landlord’s obligations and the Tenant was not claiming any deduction, abatement or set-off of any rent and was not denying or challenging any of its obligations under the Replacement Lease; and

d) the Tenant was obligated at all times to “comply promptly with and conform to the requirements of all applicable statutes, laws, by-laws, regulations and ordinances and orders from time to time or at any time in force during the Term hereof and affecting the condition, equipment, maintenance, use or occupation” of the Replacement Premises; and

e) there was no agreement between the Replacement Landlord and the Tenant other than that contained in the Replacement Lease pertaining to the obligations of the Replacement Landlord and the rights of the Tenant relating to the use and occupation of the Replacement Premises.

[13] This latter provision of the Estoppel Certificate mirrored a provision in the Replacement Lease, which provided that the Tenant was obliged to “comply with all federal, provincial and municipal laws, regulations and by-laws currently in force or effect or enacted in the future.”

[14] At some point, presumably after the signing of the Replacement Lease and the Estoppel Certificate in January 2012, the Tenant discovered that there were a number of matters that needed to be resolved in order to bring the Replacement Premises into compliance with existing zoning and building code requirements for operating a hot yoga studio. These included a requirement that there be three parking spaces even though the Replacement Lease provided the Tenant with only one dedicated parking space, that the Replacement Premises be made wheelchair accessible, and that the Replacement Premises have a sprinkler system installed.

[15] The parties were able to work out an agreement in which the Replacement Landlord at its own expense would make the Replacement Premises wheelchair accessible, and would provide two extra parking spaces dedicated to the hot yoga studio (paid for by the Tenant, although the details of that arrangement remain vague). The Replacement Landlord and the Tenant were, however, unable to agree on who would bear the responsibility for installing the required sprinkler system.

[16] During this time – that is, subsequent to the Tenant’s signing of the Offer to Lease in October 2011 and through the balance of that year and into 2012 – the news of the hot yoga studio’s pending move apparently began to spread from the Tenant’s staff to its customers. The Tenant’s affiant admitted on cross-examination that the Tenant started to see a consistent reduction in revenue from its operations once this news began to get out. While the Tenant never expressed this business concern directly to the Landlord and Replacement Landlord, this fact unearthed at cross-examination hints at a reason that the Tenant may have developed second thoughts about the wisdom of changing locations to the Replacement Premises.

[17] In August 2012, the Tenant, through its solicitor, advised the Replacement Landlord, through their solicitors, that the Replacement Landlord must provide the parking spaces, wheelchair accessibility, and sprinkler system required for a hot yoga studio to operate in the Replacement Premises. The solicitors for the Replacement Tenant responded to this by indicating that the Replacement Tenant had in fact complied with all of its contractual obligations to the Tenant and that, while it had and would attempt to assist the Tenant with obtaining any necessary permits, it was not legally obliged to perform in the way the Tenant demand.

[18] On November 23, 2012, the Tenant, through its solicitor, advised the Landlord and the Replacement Landlord, through their solicitors, that it was entitled to rescind the Surrender of Lease and the Replacement Lease. The Tenant took the position that the agreements had been entered into by the parties based on a “mutual mistake” in that no one had envisioned the need for a sprinkler system in the Replacement Premises.

[19] The Tenant also took the position that the Landlord was in default of the Surrender of Lease by not paying the $112,500 balance of the $212,500 inducement payment which was supposed to have accompanied the Surrender of Lease. As indicated above, the evidence is in conflict on this point. The Landlord and Replacement Landlord have provided affidavit evidence suggesting that the parties verbally agreed to defer this payment until the Tenant was ready to take possession of the Replacement Premises, while the Tenant submits that the entire $212,500 was payable immediately upon signing the Replacement Lease and the Estoppel Certificate as appears on the face of the Surrender of Lease. What is clear is that this was the first time the Tenant made a specific demand for the payment of the outstanding $112,500.

[20] Counsel for the Landlord and Replacement Landlord pointed out in argument that the Tenant never repaid the funds it received as an inducement to enter into the Surrender of Lease and the Replacement Lease, and that, in fact, the record shows that much of the $150,000 already paid by the Landlord was spent by the Tenant. What’s more, the Tenant’s affiant has conceded that nearly half of that amount was spent by the Tenant after it advised the Replacement Landlord that it could not occupy the Replacement Premises because of the zoning and building code problems. Counsel for the Landlord and Replacement Landlord submits that the Tenant thereby took the benefit of the agreement between the parties, and that its conduct in this respect was not compatible with a party seeking rescission of the contract.

[21] In any case, on November 26, 2012 the Tenant, through its solicitor, returned the keys to the Replacement Premises to the Replacement Landlord and confirmed that it would not honour the terms of the Replacement Lease or the Surrender of Lease. The Replacement Landlord and the Landlord, through their solicitors, responded that they did not accept the return of the keys or the continuation of the Tenant’s tenancy in the Premises, and that they were therefore reserving their rights pursuant to the executed agreements between the parties.

[22] For a number of months thereafter, the parties apparently attempted to resolve their differences. The action commenced in early 2013 and negotiations continued, during which time the Tenant continued to occupy the Premises and to pay rent for the Premises, and the Landlord continued to accept the rent on the understanding that it was reserving its rights to enforce the Surrender of Lease.

[23] As indicated at the outset, this state of affairs continued until July 29, 2013, when the Landlord locked the Tenant out of the Premises, asserting its rights both with respect to the Surrender of Lease and with respect to defaults under the lease relating to the physical state of the Premises. In the meantime, the record shows that the Replacement Landlord has in fact installed the sprinkler system in the Replacement Premises. The Replacement Landlord continues to maintain that the Tenant is responsible for paying the approximately $15,000 to $20,000 cost of the sprinkler system, but the Replacement Premises is now fully sprinklered as required for a hot yoga studio.

[24] The Tenant has asserted in its affidavit material that there was a “fundamental factual belief and understanding” between the Tenant and the Replacement Landlord that was incorrect – i.e. that the Replacement Premises was already zoned for use as a hot yoga studio. This mutual mistake, according to the Tenant, prevented the Tenant from obtaining a building permit for its renovation of the Replacement Premises.

[25] In its factum, counsel for the Tenant augments this point, stating that, “[d]ue to the frustration of the agreements by the zoing and other issues unanticipated by the parties, the Tenant was never able to move to the new 2150 premises” [i.e. the Replacement Premises]. Counsel for the Tenant further submits that, “[t]he mutual mistake about zoning & the building code, and the resulting inability of the parties to obtain a building permit, or to permit the Tenant to open for business in the Replacement remises in a lawful manner, prevented the Tenant from occupying the Replacement Premises…”

[26] Counsel for the Tenant argues that the legal conclusion to be drawn from this misunderstanding is that the various agreements between the parties were effectively rendered unenforceable. As he puts it in his factum: “The Tenant was entitled to treat the agreements at an end, and to the remedy of rescission, given this mutual mistake and the Tenant’s inability to open for business in a lawful manner on the Replacement Premises.”

[27] The Supreme Court of Canada explained in Redican v Nesbitt, 1923 10 (SCC), [1924] SCR 135, that a mutual mistake that leads to rescission of an agreement must be an error in substantialibus that undermines the entire value of the consideration. That is not the situation here. Rather, what the parties here present is similar to the situation addressed in Bosworth v Professional Syndicated Developments Ltd. (1979), 1979 1732 (ON SC), 24 OR (2d) 97 (Ont SC), where a purchaser attempted to rescind an agreement of purchase and sale based on a misunderstanding of the applicable zoning requirements. The court pointed out that errors as to zoning and related requirements are not the type of unforeseeable and fundamental mistakes that generally lead to rescission. As Robbins J. (as he then was) stated at para 27 of Bosworth, “[t]he actual state of the zoning could have been readily ascertained by routine inquiry prior to closing.”

[28] Likewise, the Tenant here could have easily ascertained the state of zoning and building code requirements prior to executing either the Surrender of Lease, the Replacement Lease, and, perhaps most especially, the Estoppel Certificate. Cases in any number of provinces across the country have demonstrated that Estoppel Certificates are to be strictly enforced and that they do precisely what their name suggests – they prevent a party that has signed the Estoppel Certificate from taking a position that is contrary to the representations contained therein. See Willow Tree Holdings Limited v Sims (1991), 15 RRR (2d) 277 (NS SC); Confed Trust Co. v Gasland Oil Ltd. (1993), 1993 7095 (AB KB), 11 Alta LR (3d) 5 (Alta QB).

[29] An Estoppel Certificate signed by at tenant must be taken “as extremely strong evidence that he knew that he was acceding to vacating the premises…and that no extension of lease or tenancy would be granted.” Maple Leaf Casinos Inc. v 1071122 Ontario Inc., [1996] OJ No 4894, at para 6. In the present case, the Estoppel Certificate signed on January 31, 2012 provides equally strong evidence that the Tenant knew that it was acceding to occupy the Replacement Premises and that all was in order with respect to its new tenancy.

[30] Moreover, as stated in Bosworth, supra, at para 27, “[h]ere there was no mutual mistake resulting in a total failure of consideration…” Even if there was a mistake common to both parties in the sense that neither of them had looked into the specific zoning or building code requirements for running hot yoga studio out of the Replacement Premises, “only where a common mistake is fundamental to the contract will a party have a right of rescission.” Kiddler v Photon Control Inc., 2012 BCCA 327, [2013] 3 W.W.R. 733, at para 78 (BC CA). There is no sense that the easily resolvable parking, accessibility, and sprinkler requirements represented this kind of fundamental mistake. They may have added some costs, which in any case appear rather minor in the scheme of a long term lease, but they did not undermine the tenancy in the Replacement Premises.

[31] The court in Bosworth went on to find, at para 27, that “[i]n the contract the vendor did not warrant the zoning applicable to the lands or make any representation relating to it.” Similarly, here the Replacement Lease, as confirmed by the Estoppel Certificate, did not contain any warranty by the Replacement Landlord (or, for that matter, by the Landlord) that the Replacement Premises were zoned and ready for use as a hot yoga studio. Indeed, the contrary is true. The obligation was on the Tenant to ascertain and comply with all relevant municipal and other regulatory requirements.

[32] Robbins J. concluded in Bosworth, at para 28, that “[t]o reduce the matter to its minimum, simply because [the Defendant]…failed to pursue the standard investigation required to determine zoning is not sufficient reason or satisfactory basis upon which to roll back the executed realty transaction.” Unfortunately, the same can be said of the Tenant here. The sprinkler and parking requirements were at all times readily ascertainable by the Tenant, and are not the kind of fundamental mistake that can lead to rescission of a contract.

[33] In the face of signing both the Replacement Lease and an Estoppel Certificate that commits the Tenant to the obligations to conform to all zoning and regulatory requirements, there is not a serious case to be tried with respect to the enforceability of the Tenant’s obligations under the Replacement Lease.

[34] By extension, there is equally no serious issue to be tried regarding the Surrender of Lease. The Tenant was obliged to yield up the Premises and take up its tenancy in the Replacement Premises. Any argument regarding the sprinkler requirement imposed by the building code goes to the financial dispute between the parties. It does not raise a serious issue with respect to the enforceability of the Tenant’s obligation to surrender the Premises and to take up its tenancy in the Replacement Premises.

[35] Although the analysis of the Tenant’s request for injunctive relief could stop here, I will also go on to say, for greater certainty, that even if there were a serious issue to be tried with respect to the Surrender of Lease and the Replacement Lease, it is abundantly clear that the Tenant will suffer no irreparable harm in the sense that term is used in the case law.

[36] In his factum, counsel for the Tenant makes the irreparable harm argument as follows:

In addition, the existing Premises are irreplaceable. They are very impressive due to their high ceilings, maple hardwood flooring, windows on all four walls, and charming detail in the woodwork. Every week, and often more frequently, visitors and students tell staff members that it is the most beautiful yoga studio they have ever seen. Christensen [the principal of the Tenant] is not aware of any other prospective premises that would or could be this impressive.

[37] With due respect, and without putting too fine a point on the matter, the entire transaction between the parties demonstrates that the Premises was eminently replaceable. Charming as the woodwork may have been, all it took to induce the Tenant to move to the Replacement Premises was money. And since monetary payments formed the inducement to the Tenant to move from one Premises to another, monetary payments will suffice to compensate the Tenant for any injury it may suffer in having to make that move.

[38] To use the words of Cummings J. in Teklogix Inc. v Zaino, supra, at para 59, “the underlying consideration in determining whether irreparable harm exists is a finding, having regard to all the evidence heard on the motion, that it would not be fair and just for the plaintiff to be confined to a remedy in damages to be awarded at a later trial.” The Tenant has not met that test here.

[39] There is certainly a financial dispute between the parties – the court at a later trial will have to determine how much of the inducement payments are still owed to the Tenant, who bears the cost of the sprinkler system in the Replacement Premises, whether back rent is owing in respect of the Replacement Premises, whether the Tenant can set off any amounts it claims are owing to it as costs of the move that it should not have to bear, etc. However, the very fact that the dispute between the parties can be characterized as an entirely financial one belies the Tenant’s assertion that it will suffer irreparable harm if it has to move from the Premises to the Replacement Premises.

[40] Having reached that conclusion, there is no need to delve into the details of the second branch of this dispute relating to the physical state of the Premises. The Tenant has not made out the test for injunctive relief needed to restore itself to the Premises.

[41] Counsel for the Landlord and Replacement Landlord conceded at trial that in opposing the injunction sought by the Tenant, his clients are in effect seeking a form of equitable relief of their own – either in the nature of specific performance of the Surrender of Lease and Replacement Lease, or in the nature of an injunction prohibiting the Tenant from continuing to occupy the Premises. Accordingly, although the Landlord and the Replacement are not formally the moving parties here, they have provided an undertaking for damages to the Tenant should it later be found that the Tenant was in fact entitled to remain in the Premises.

[42] This undertaking as to damages given by the Landlord and Replacement Landlord was not strictly necessary, but it does demonstrate that the relief sought by both sides is in the nature of extraordinary relief. In denying the Tenant’s interlocutory injunction, the court is, in effect, strictly enforcing the Surrender of Lease.

[43] Since the Landlord seeks strict enforcement of the requirement that the Tenant vacate the Premises, it is also incumbent on the Landlord to strictly comply with the inducement payment terms that were to accompany that surrender. While there are a number of inducement payments set out in the agreements between the parties, it seems clear at the very least that the Tenant must now receive the balance of the $212,500 owing to it upon execution of the Surrender of Lease and the Replacement Lease. The balance of any other inducement payment issues can be addressed at trial within the context of the overall financial dispute between the parties.

[44] The Order of Spence J. dated August 1, 2013 is hereby set aside. The Tenant is to vacate the Premises forthwith and the Landlord may thereupon re-enter and re-take possession of the Premises.

[45] Upon the Tenant’s vacating of the Premises, the Landlord is to pay the Tenant $112,500. At the same time, the Replacement Landlord is to provide the keys to the Replacement Premises to the Tenant and is to allow the Tenant to occupy the Replacement Premises.

[46] Monthly rent is to be payable by the Tenant as called for in the Replacement Lease commencing forthwith upon the keys being delivered to the Tenant, which shall be considered to be the new possession date for the Tenant in the Replacement Premises. I leave it to the trial judge to determine whether any arrears in rent may be owing from July 1, 2012 until the new possession date, but no such arrears in respect of any time prior the new possession date, if there are any, shall constitute a default under the Replacement Lease that would allow re-entry by the Replacement Landlord without an order of the court. In all other respects the Replacement Lease is valid and in full force and effect; all rights and remedies thereunder are available to the Replacement Landlord and the Tenant on a going-forward basis.

[47] The parties may make written submissions on costs. I would ask that these be submitted within two weeks of the date of this endorsement, and that they be sent directly to me rather than filed with the motions office.

Morgan J.

Date: October 18, 2013