COURT FILE NO.: 12-CV-456157

ONTARIO

SUPERIOR COURT OF JUSTICE

DATE: November 21, 2013

BETWEEN:

MORGUARD CORPORATION and BRAMALEA CITY CENTRE EQUITIES

Plaintiffs

– and –

2063881 ONTARIO INC.

Defendant

Kenneth Pimentel for the Plaintiffs

HEARD: November 15, 2013

Perell, J.

REASONS FOR DECISION

A. INTRODUCTION AND OVERVIEW

[1] This is a motion for a default judgment for damages after the termination of a commercial tenancy.

[2] I adjourned the motion when it originally came on, because I was not satisfied that the Plaintiff Landlord, Morguard Corporation and Bramalea City Centre Equities, had provided sufficient evidence to calculate the damages for the Defendant Tenant, 2063881 Ontario Inc.’s, breach of the lease.

[3] The Landlord was claiming $454,985.55 plus interest at the rate of 5% over the prime rate, but I was not satisfied that the Landlord had properly taken into account the principle of mitigation or properly applied the formula for calculating damages as described by Justice Bora Laskin in the famous and leading case of Highway Properties Ltd. v. Kelly, Douglas and Co., 1971 123 (SCC), [1971] S.C.R. 562. Although it was a default judgment motion, it did not seem just to grant the Landlord a half million dollar judgment without being satisfied that the damages were calculated in accordance with the law.

[4] The problem of calculating damages was exacerbated by the circumstance that it was a default judgment motion and the onus of proving a failure to mitigate would be on the Tenant, who of course was absent because it had been noted in default. This situation of calculating damages for the breach of a lease when a tenant has been noted in default and does not defend the landlord’s action arises with some frequency in motions court, and so I adjourned the motion to allow the Landlord to file further material or to return with an argument as to how to address the problem of properly calculating its damage claim.

[5] The Landlord returned with additional evidence, but it abandoned the unproven portion of its claim for damages for lost future rents.

[6] For the reasons set out below, I grant the Landlord judgment in the amount of $250,000, all inclusive.

B. PROCEDURAL BACKGROUND

[7] On October 11, 2011, the Landlord filed a motion in writing for a default judgment.

[8] Justice Morgan granted the Landlord judgment in the amount of $21,033.41 being the arrears of rent owing to the date of termination and unpaid year-end reconciliations. However, Justice Morgan directed that the Landlord submit further information to address the issue of mitigation.

[9] Almost two years later, the Landlord filed additional evidence and on September 20, 2013, the Landlord moved for a judgment for damages for the unpaid rent for the balance of the lease term. I adjourned the motion, and I made the following endorsement:

This is a default judgment motion to calculate damages for the termination of a commercial tenancy. Having read the motion record, I am not satisfied that the plaintiff has provided sufficient evidence to calculate damages for breach of contract. Accordingly, I am adjourning the motion to allow the Plaintiff to file further material as it may be advised. I am seized of the matter. Adjourned to Friday November 15, 2013.

[10] The Landlord filed an additional affidavit in which it revised its claim for damages as described below.

C. FACTUAL BACKGROUND

[11] Morguard Corporation and Bramalea City Centre Equities are together the Landlord of a shopping centre known as Bramalea City Centre in the City of Brampton.

[12] 2063881 Ontario Inc. was the Tenant of unit 310 at the shopping centre under a written lease dated September 1, 2010. The particulars of the Lease are as follows:

• The term of the Lease was for five years commencing on September 29, 2010 and ending on October 31, 2015.

• The gross leaseable area of unit 310 was 927 square feet, and pursuant to sections 1.01 (g) and 4.02 of the Lease, the Tenant agreed to pay minimum rent at the annual sum of $65.00 per square foot.

• Under section 5.03 of the Lease, the Tenant agreed to pay its proportionate share of taxes imposed against the Shopping Centre.

• Under sections 6.02 and 6.03, the Tenant agreed to pay its proportionate share of costs and expenses of maintaining, operating, repairing, and administering the Shopping Centre.

• Under section 8.01 of the Lease, the Tenant agreed to pay as additional rent a contribution to a promotion fund that was to be the greater of $1.35 per square foot per annum or $1,350 per annum, which sum was to be increased by the consumer price index.

• Under section 8.02 of the Lease, the Tenant agreed to pay as additional rent a contribution to an advertising fund that was to be the greater of $1.35 per square foot per annum or $1,350 per annum, which sum was to be increased by the consumer price index, such amount, however, not to exceed $4,920.

• Under sections 1.02 and 4.11 of the Lease, the Tenant agreed to pay interest on any unpaid rent at the stipulated rate, (which in this case was 5% over the Prime Rate).

• Under section 16.03, the Tenant agreed that if legal proceedings were brought to enforce the Lease, it would pay the Landlord’s legal expenses on a solicitor and client basis.

[13] The Tenant took possession of unit 310 in the fall of 2010.

[14] On December 13, 2011, the Landlord delivered a notice of default to the Tenant for failure to pay rent. The Tenant did not cure the default, and on December 19, 2011, the Landlord delivered a second notice of default.

[15] The Tenant still did not cure the default, and on January 3, 2012, the Landlord re-entered the premises, delivered a notice of termination, and terminated the Lease. The notice of termination stated that the termination was without prejudice to the Landlord’s rights under the Lease and at law to: (a) all payments of rent and other sums and charges payable under the Lease which were in arrears; (b) all payments of rent and other sums and charges in arrears or accruing due over what would have been the unexpired term of the Lease had not been terminated; and (c) any and all expenses incurred by the Landlord and caused by the forfeiture of the Lease, including all legal and professional fees on a full indemnity basis.

[16] The Landlord attempted to mitigate its damages, but despite its efforts, it was unable to locate a new tenant or occupant for unit 310, until recently, as described below.

[17] In September 2013, the Landlord calculated the Tenant’s monthly rent under the Lease to be $9,912.21, broken down as follows:

Minimum Rent $5,048.33
Common Area Maintenance $1,828.65
Realty Taxes $1,208.25
HVAC Basic $135.57
HVAC Recoveries $319.88
Promotion Fund $115.59
Advertising $115.59
HST $1,140.34

[18] Before interest and costs and based on the monthly rent, the Landlord originally calculated its damages to be $476,018.96 broken down as follows:

Arrears of Rent:

January 4-31, 2012 $8,936.10

Feb. 2012-Oct. 2015 $446,049.43

Year-end adjustments $337.01

[19] On the return of the adjourned motion, the Landlord revised its claim for damages as described in paragraphs 8 and 9 of Andrew Butler, the General Manager of the Bramalea City Centre. Paragraphs 8 and 9 state:

8. The Landlord has licensed the Premises to a Sharpe Innovative Body and Skin Solutions Inc. o/a Shape Body & Skincare for the period between January 1, 2013 (Licence Agreement). During the term of the Licence Agreement, the Landlord anticipates collecting $21,600 in rent from Shape. …

9. The Landlord has calculated its damages for loss of future rent on a present value basis from January 4, 2012 to December 31, 2014 in the amount of $324,351.24 as follows:

(a) January 4-31, 2012 $8,936.10

(b) February 2012 to December 2014 @$9,912.21 per month) $337,015.14

(c) Mitigation credit $21,600.00

Total: $324,351.24

D. DISCUSSION AND ANALYSIS

1. The Landlord’s Claim for Lost Future Rents

[20] On a motion for a default judgment under rule 19.05, the facts pertaining to liability are deemed to be true but facts pertaining to damages must be proven. The plaintiff must adduce evidence to support his or her claim. The court must make a judicial determination with respect to the quantum of damages to be awarded against the defendant in default: Umlauf v. Umlauf (2001), 2001 24068 (ON CA), 53 O.R. (3d) 355 (C.A.), at paras. 8-9.

[21] A landlord, having terminated the lease and given proper notice to the tenant, may assert the full panoply of contractual remedies arising from the lease: Canadian Medical Laboratories Ltd. v. Stabile (1997), 7 R.P.R. (3d) 170 (C.A.), at para. 40.

[22] One such contractual remedy is the “present recovery of damages for losing the benefit of the lease over its unexpired term” See Highway Properties Ltd. v. Kelly, Douglas & Co., 1971 123 (SCC), [1971] S.C.R. 562, where Justice Laskin described the Landlord’s several remedial alternatives, with my emphasis added:

The developed case law has recognized three mutually exclusive courses that a landlord may take where a tenant is in fundamental breach of the lease or has repudiated it entirely, as was the case here. He may do nothing to alter the relationship of landlord and tenant, but simply insist on performance of the terms and sue for rent or damages on the footing that the lease remains in force. Second, he may elect to terminate the lease, retaining of course the right to sue for rent accrued due, or for damages to the date of termination for previous breaches of covenant. Third, he may advise the tenant that he proposes to re-let the property on the tenant's account and enter into possession on that basis. Counsel for the appellant, in effect, suggests a fourth alternative, namely that the landlord may elect to terminate the lease but with notice to the defaulting tenant that damages will be claimed on the footing of a present recovery of damages for losing the benefit of the lease over its unexpired term. One element of such damages would be, of course, the present value of the unpaid future rent for the unexpired period of the lease less the actual rental value of the premises for that period.

[23] The proper measure of damages for a terminated lease is the unpaid rent to the date of the breach (the arrears of rent) plus the present value of the the loss of the future rent, which is the present value of the unpaid rent for the unexpired period of the lease less the actual rental value of the premises for that period.

[24] Thus, where the Landlord terminates the lease and delivers what has come to be known as a “Kelly Douglas Notice,” the proper measure of damages for the tenant’s breach is not the total of the rental payments for the balance of the lease term: A.B. Investments Ltd. v. Khan, 2011 ONSC 4491, at para. 29. Such a measure would fail to account for the costs saved by the breach and fail to take into account that the landlord is free to benefit from its property by leasing to a new tenant.

[25] In the case at bar, the Landlord has already received a judgment for the arrears of rent from Justice Morgan, and its claim is for the unpaid rent up to December 2014, when the licence to Sharpe Innovative Body and Skin Solutions Inc. ends.

[26] Thus, the Landlord has abandoned its claim for future rents for the period January 2015 to end of October 2015 and reduced its claim from $476,018.96 to $324,351.24.

[27] The $324,351.24 claim, however, must be further reduced because the Landlord did not do a present value calculation, which is the current worth of a future sum of money or stream of cash flows given a specified rate of return. Although Mr. Butler said the Landlord’s claim was on a present value basis, he did not actually do the present value calculation.

[28] Using the online CMHC Mortgage Calculator, a present value for $337,015.14 at a rate of return of 3% for a three-year period yields a present value calculation of $296,827.33. Using a 10% rate of return, the present value calculation is $243,689.89.

[29] Doing the best I can to be fair to the Landlord, which did not assist me by providing evidence of a present value calculation, and to the Tenant, which did not defend the action, I calculate the Landlord’s damages to be $250,000, all inclusive, and not $454,985.55 plus interest, as originally claimed.

[30] The postjudgment interest rate shall be 3%. I make no award with respect to costs.

E. CONCLUSION

[45] For the above reasons, I grant judgment for $250,000, as aforesaid.

Perell, J.

Released: November 21, 2013