COURT FILE NO.: 12919/99

DATE: 2014 April 23

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

FOUNTAS HOLDINGS CORPORATION

Plaintiff

– and –

J.S. MELO INC.

Defendant

I. Schein and M. Maurer, for the Plaintiff

J. Crouchman, for the Defendant

HEARD: November 13, 14, 15 and 18, 2013 at Kingston

tausendfreund J.

REASONS FOR JUDGMENT

OVERVIEW

[1] The Plaintiff seeks damages for interference by the Defendant with the Plaintiff’s use of a Right-of-Way (“ROW”) over the Defendant’s property. The Defendant denies that there has been any such interference. In the alternative, the Defendant challenges the Plaintiff’s theory of damages.

FACTS

[2] In or about 1994, the Plaintiff, through a corporate predeceasor, acquired title to the property municipally known as 178 Ontario Street, Kingston, Ontario. It is a 4-storey building with a vacant lot at the rear. The street level floor of the building was used for restaurant purposes. The second floor was leased for commercial purposes. The remaining three floors were renovated by the Plaintiff to accommodate 15 apartments leased to residential tenants. The damages at issue in this trial do not include the use of the street level floor of this property.

[3] As stated, at the rear and adjacent to the building on 178 Ontario Street is a vacant landlocked piece of land made available by the Plaintiff to its tenants for parking and garbage removal purposes (“parking lot”). Access to the parking lot is from King Street by virtue of a ROW over the property now owned by the Defendant and municipally known as 279 - 285 King Street (“the Defendant’s property” or “the King Street property”).

[4] The ROW included in the Plaintiff’s purchase of 178 Ontario Street was 11 feet wide. It broadens by 2.7 feet at the entrance to the parking lot. The ROW “…grants [to the owner of 178 Ontario Street], its administrators and assigns and its agents, servants, and workmen, its customers and tenants to go, return, pass and re-pass with or without automobiles, horses, carts, wagons, trucks and other vehicles laden or unladen, in, through, along and over the ROW.” There was no height restriction in the grant of the ROW.

[5] Prior to October 1991, the Plaintiff had made the parking lot available to its tenants to accommodate up to fifteen vehicles. The tenants paid an average of $60.00 per month for the use of each parking space. In addition, the Plaintiff had arranged for a commercial 5’ x 5’ garbage dumpster for use by the Plaintiff’s tenants. It was situated in the parking lot and was regularly emptied by a front-end loader operated by a garbage disposal firm.

[6] In or about 1991, the Defendant’s property had been assembled by Stuart Holdings Limited for a proposed hotel development. The existing structures were removed leaving a vacant lot. The contemplated construction of a hotel on the Defendant’s property was expected to materially interrupt the Plaintiff’s ROW access to the parking lot. Negotiations between Stuart Holdings Limited and the Plaintiff resulted in an agreement of October 23, 1991 (“ROW agreement”). This provided in part:

WHEREAS Stuart Holdings Limited is in the process of demolition and construction of a new building on properties known as 279 King Street East and 285 King Street East… ;

AND WHEREAS the former property was subject to a ROW ... used as access to and from parking spaces at the rear of 178 – 188 Ontario Street, Kingston from and to King Street and as a service entrance for deliveries, garbage collection and other business purposes related to said property;

AND WHEREAS the building plans and specifications… will significantly affect the rights and future use and development of the property…

…the parties hereto agree as follows:

1. The existing ROW… shall be closed for a period of four months (October 15^th, 1991 to February 15^th, 1992), and it shall cease physically to exist as a result of the new building.

2. The new building shall contain a new and fairly direct route from King Street through it to the rear of the property municipally known as 178-188 Ontario Street which will substitute for the old ROW.

3. The second party [the Plaintiff] acknowledges the plans for the new building and the aforesaid new rear entranceway contained therein and accepts same in lieu of the old ROW…

4. …alternate parking during the period of closure and construction [Stuart Holdings] shall provide [the Plaintiff], its employees, tenants, guests, and invitees with 22 open area, non-attended parking spaces on property known as Block “D”… during the foresaid four month period, and to be fully paid for by [Stuart Holdings].

5. During the period of construction [Stuart Holdings] shall install a dumpster for the collection of garbage from [the Plaintiff’s] property, and all costs of operating the dumpster or other garbage … shall be born by [Stuart Holdings].

6. [Stuart Holdings] shall re-pave… the parking lot… .

[7] Based on that agreement, alternate parking was provided for the Plaintiff’s tenants in a vacant lot located nearby and referred to in the agreement and colloquially known as “Block D”. The tenants continued to pay for parking and the Plaintiff was reimbursed by Stuart Holdings for the parking expenses on “Block D.”

[8] Once the ROW was closed by agreement, Stuart Holdings proceeded to excavate the Defendant’s property in anticipation of the construction of a proposed hotel contemplated for that property. Yet this was not to happen for almost ten years. The contemplated four months at first turned into four years. Stuart Holdings was placed into bankruptcy. RBC foreclosed on the property. The now excavated property was left as a gaping hole which prevented all access to the parking lot. The parking expense reimbursement to the Plaintiff for “Block D” ceased. The Plaintiff initially funded the tenants’ parking expense for the years 1992 – 1994. As of 1995, the Plaintiff’s tenants were then on their own with respect to parking.

[9] On January 26, 1995, the Defendant purchased the King Street property from RBC for $1,726,000. That conveyance by way of a vesting order was, of course, subject to the Plaintiff’s use of the ROW.

[10] Despite the Defendant’s acquisition of the King Street property, it remained a gaping hole for a further four year period during which the Plaintiff still could not access its parking lot.

[11] The Defendant contacted the Plaintiff to advise of its plans to construct a hotel on the site and that the Plaintiff’s ROW access would be restored within 2.5 years. That time estimate stretched to four years. By then, construction of the foundation and underground garage had proceeded to the stage that the ROW access for the Plaintiff was restored as of September 28, 1999. The hotel officially opened for business on January 24, 2000.

[12] Although the Plaintiff could then access its parking lot, the size and nature of the ROW had been altered. Essentially, it had become a tunnel through the hotel building. The entrance width on King Street was reduced from the original 11’ to 9’11” and the exit from the parking lot was now 13’11½” compared to the prior 15.7’. A problematic change for the Plaintiff was the imposition of a height restriction where none had previously existed. Front-end loaders could no longer access the Plaintiff’s parking lot. This caused the Plaintiff to proceed with alternate and more costly garbage removal measures. The Defendant admits that the dimensions of the restored ROW are insufficient to permit front-end loader access to the parking lot and that the tenants’ garbage must now be removed by other means. As well, the constructed ROW through the hotel building at the entrance into the parking lot was now 3’ lower than the parking lot surface. This required the Plaintiff to re-grade parts of its parking lot which is described in further detail below.

ANALYSIS

[13] Ferguson J. in MacKenzie v. Matthews [1998] O.J. No. 5342, as approved by the Court of Appeal (1999), 46 O.R. (3d) 21 referred to legal principles applicable to the grant of a right-of-way:

18 … legal principles were set out in Golisky et al. v. Romanuik, [1951] O.W.N. 401 (Ont. C.A.):

The limits of the right are determined by reference to the language of the express grant creating the right of way. In a case where that language admits of reasonable doubt as to the nature and extent of the rights, the Court may look to the circumstances existing at the time of the grant.

[14] Fallowfield v. Bourgault (2003), 68 O.R. (3d) 417 (Ont. C.A.) addressed the ancillary rights flowing from the grant of an easement as follows:

[10] Where an easement is created by express grant, the nature and extent of the easement are to be determined by the wording of the instrument creating the easement, considered in the context of the circumstances that existed when the easement was created. …

[11] In interpreting the meaning and intent of an express easement, the concept of ancillary rights arises. The grant of an express easement includes such ancillary rights as are reasonably necessary to use or enjoy the easement. … Halsbury's explains the concept at p. 10, para. 20, in the following way:

The express grant of an easement is also the grant of such ancillary rights as are reasonably necessary for its exercise or enjoyment. The ancillary right thus implied must be necessary for the use and enjoyment, in the way contemplated by the parties, of the right granted; … The dominant owner is entitled to protect his right to enter and repair by preventing the doing on the servient tenement of anything which would materially interfere with or render more expensive or difficult the exercise of the right, … It is no defence to proceedings by the dominant owner to show that he may still exercise his right if he only expends more money or exercises greater skill.

[41] Only after the extent of the easement has been determined should the court consider whether what was done constitutes a substantial interference with the intended use and enjoyment of the easement. …

[15] In one of the earlier cornerstone decisions concerning the rights granted by a right-of-way, the Ont. C.A. in Devaney v. McNab 1921 CarswellOnt 291 stated that p.2:

[24] … It is well settled that the rights of the parties must be determined according to the true construction of the grant … the grantor must not derogate in any way from his grant. Where the thing that is complained of is the erection of a substantial and permanent structure upon the land over which the grantor has already given a right of way, it appears to me to be almost impossible to say that there is not a real and substantial interference with the right conveyed. …

[25] … where the plaintiff's right depends upon the terms of a written grant, it ought not to be easy for the grantor to cut down the full extent of the privilege which for valuable consideration he has conveyed.

[27] … where the structure complained of is permanent in its nature, there is a real danger that the plaintiff, if he does not assert his rights, and acquiesces in its continuance, may be taken to have abandoned his right to complain, and to have so acquiesced in the thing complained of as to prevent him from hereafter asserting his rights. …

[16] The ROW agreement contemplated interruption of the Plaintiff’s access to its parking lot for four months. For reasons noted, these four months extended to eight years when the use of the ROW was finally restored in September 1999. However, it was restored with reduced dimensions. It is now narrower and has a height restriction that previously did not exist. I find that the permanent structure of the hotel represents an interference with the ROW originally granted. That interference is actionable as against the Defendant.

[17] Wrongful interference with another party’s ROW constitutes a nuisance: Saint v. Jenner [1973] 1 All E.R. 127 and Lafferty v. Brindley 2001 CarswellOnt 5445 at para.74. Schoeni v. King, [1944] O.R 38 (Ont. C.A.) at para.24 held that a party who created a nuisance is liable unless the nuisance is remedied without undue delay, once the party became aware of it. The Defendant urges that upon its purchase of the King Street property in 1995, it acted reasonably and with due dispatch in its attempts to obtain all necessary consents and permits to allow it to proceed with the construction of the hotel which started in or about 1999. Accordingly, the Defendant states that it should not be liable for any damages prior to September 1999 when the ROW was restored. In my view, the Defendant either knew or should have known that its purchase of the King Street property on January 26, 1995 was subject to a ROW in favour of the Plaintiff. As such, the existence of that ROW and the obligations flowing from it should have been considered by the Defendant as part of the cost of doing business and should have been included in its consideration to proceed with the development of the property for the construction of a hotel. To have kept the Plaintiff waiting four years until the Defendant had obtained all necessary approvals for the proposed hotel construction was to unfairly visit upon the Plaintiff certain obligations that were entirely the Defendant’s.

[18] When should the clock then start? In view of the then existing excavation, the Plaintiff’s use of the ROW reasonably could not have been restored until the hotel construction had proceeded to the stage when physical access could again have been possible. However, the Defendant could and should have made accommodations for the Plaintiff for parking and garbage removal in like manner as the 1991 ROW agreement had. In my view, a grace period of one year in this case should apply. I find that the Defendant’s obligation for damages is to be effective from January 27, 1996 to September 28, 1999 when the ROW was reopened. Damages which the Plaintiff seeks for that period is for the loss of apartment and commercial office rental income and loss of parking income.

[19] The Plaintiff’s rental property at 178 Ontario Street is situated in downtown Kingston. The consensus of anecdotal evidence in this trial is that parking availability in downtown Kingston during the 1990s and indeed as it still is today, is at a premium. The contradicted evidence of the Plaintiff, which I accept, is that during the 1980’s and early 1990’s, while parking was accessible and available, the Plaintiff’s rental vacancy rate was nil. When the Plaintiff’s parking was no longer available for tenants, the Plaintiff then started to experience a vacancy rate for its rental units. This continued until the Plaintiff’s parking lot became accessible again in 1999. The Plaintiff seeks that loss of rental income as part of its claim for damages. That claim has been quantified in the report filed as Exhibit 5. I accept the methodology and the assumptions used by the author of that report, Neil Maisel (“Maisel Report”). I adopt the assumption of a vacancy rate of 1.8%. That is the vacancy rate experienced by the Plaintiff for a similar rental building owned by the Plaintiff located nearby in downtown Kingston. That vacancy rate compares to the vacancy rate of 2.45% for the entire City of Kingston. I also adopt an assumed vacancy rate of 50% for commercial space located on the second floor of the Plaintiff’s building. Finally, as I hold that the starting date for these damages is January 27, 1996, one year later than the starting date used in the Maisel report, I will adopt as damages for that period 80% of the amount calculated by the author in the Maisel report using the above noted assumptions:

a. Apartment rental $ 121,600 ($152,000 @ 80%)

b. Commercial office rental 32,800 ($41,000 @ 80%)

c. Parking 22,000

$ 176,400

[20] As applies to all claims for damages, the Plaintiff had a duty to mitigate to the extent it could be accomplished. The Defendant states that the nearby parking area known as “Block D” remained available during the years in question. Had the Defendant paid for parking on “Block D” for its tenants, the vacancy rate could have been reduced. I find that this likely would have been so. No figures or values in that regard were made available as part of the evidence. As a result, I must use global values. As stated, I find that the vacancy rate could have been reduced somewhat. Against expected additional income must be offset the parking expense the Plaintiff would have incurred. I set that net global figure at $10,000. Accordingly, I find what is due to the Plaintiff by the Defendant, for the loss of rental and parking income for the years 1996 to 1999, is the sum of $166,400.

Value of 178 Ontario Street

[21] The parties each called a real estate appraiser to provide an opinion on the impact, if any, on the value of 178 Ontario Street in view of the now more limited ROW access to the parking lot from King Street.

[22] Michael Cotman, was called by the Plaintiff and Stephen Rayner by the Defendant. Both are experienced local real estate appraises with the AACI designation.

A. Cotman Opinion

[23] Of the three generally recognized approaches to value, namely the cost, income and direct comparison approaches, Mr. Cotman considered and applied the income approach to value to be the most reliable in this case. He stated the generally recognized principle that the income approach to the value of a property is the present or discounted worth of future benefits which can be achieved from the ownership of that property. After comparison with investments of a similar nature, the net income is then capitalized to provide an estimate of value. He also stated that loss in value, if any, can be estimated by doing an analysis of the variances in net income resulting from a decrease in gross income or an increase in operating expenses.

[24] He considered two factors which, in his view, directly affected the net income of the subject property:

a. Reduction in usable parking spaces; and

b. Increased garbage handling costs resulting from the reduced height and width of the access laneway.

[25] His review of the Plaintiff’s rent rolls indicated that parking spaces were rented to tenants at $60.00/month in 2008, the year that he prepared his report. Based on his research of the then available parking in downtown Kingston, he concluded that there were then no monthly spaces available and that there were waiting lists. He also concluded that the market rent for a parking space was $100.00/month. Based on architectural sketches which he reviewed of the layout of the parking lot, he assumed that the lot was large enough to accommodate 16 parking spaces. In view of the height and width restriction, garbage could no longer be collected by means of a commercial bin to be picked up by a front end loader. A number of smaller bins were now placed in the spaces which had previously been used for parking. This reduced the number of available spaces by five. By calculating the estimated gross loss in potential rent for these parking spaces, less an allowance for vacancy and the cost of operating expenses, he concluded that there was a net loss in parking income of $5,300 per year. However, I find on the evidence, that the parking lot could not accommodate 16 spaces, but was limited to a maximum of 15. Accordingly, I find that the loss of parking spaces to have been 4. Using the same calculation as did Mr. Cotman, I conclude that the annual loss in parking income was $4,100.

Garbage Costs

[26] The evidence is that the front-end loaders which previously serviced garbage pickup could no longer access the parking lot due to the reduced width and height restriction of the laneway. That called for the various smaller garbage bins to be rolled out to the street for pick up purposes. This increased the garbage pickup costs by $14,800 per year.

[27] After reviewing comparable properties, Mr. Cotman concluded that a capitalization rate of 9.0% was considered appropriate. He also opined that the now more restricted access would have a global impact on annual increased costs. He considered a minimum allowance of $25,000 for such likely expected expenses. Applying these above noted values, Mr. Cotman concluded there would be a loss in market value of this property of $250,000. I noted above that, in my view, the loss of parking spaces would be 4 rather than 5, as used by Mr. Cotman. In addition, I find that a more conservative figure of $15,000 for unexpected annual contingencies is more appropriate than the $25,000 sum used by Mr. Cotman. By entering these numbers into the calculation, I find that $225,000 would be the more appropriate figure, assuming there is a loss.

B. Rayner Report

[28] As did Mr. Cotman, Mr. Rayner prepared an opinion of value of 178 Ontario Street as of 2008. He, like Mr. Cotman, considered the impact on the parking lot of the reduced width and height restriction of the ROW. He concluded that there was no impact on the value of 178 Ontario Street. As this conclusion differs from the Cotman opinion, it bears closer examination.

Parking

[29] Mr. Rayner stated:

It has been put forward that there are 16 parking spaces available at the rear of the building, and on paper, this may be theoretically and physically possible, but it would be extremely difficult … based on our inspection, if the rear area were occupied by 16 cars, there would be very limited maneuverability in the rear yard for cars to enter and exit, for service vehicles such as delivery vehicles, garbage pick-ups, ETC., and there would be no room for a large garbage bin or the truck required to pick-up such a bin. There are 11 parking spaces in place at present and this is quite reasonable.

[30] Mr. Rayner did not provide any details to support his opinion or why it would not be feasible for 16 cars to be accommodated on the parking lot. He also failed to state that parking has now been reduced to 11 spaces to accommodate several garbage bins, when formerly there had been 1 commercial size garbage container. In cross-examination, Mr. Rayner agreed that he had prepared an appraisal report of 178 Ontario Street in 1990 and it included a reference that this parking lot serviced 15 vehicles. Mr. Rayner failed to state why he now thought the reduced number of parking spaces to be quite reasonable. He provided no data to support that opinion nor did he provide any data on why more parking spaces than 11 could not be feasible.

[31] Mr. Rayner used the rate of $60/month for the 11 parking spaces, but did not undertake a survey or review of the 2008 rates applicable for downtown Kingston. Mr. Cotman, who undertook such a review, concluded that the 2008 market rate for a parking space per month was $100. I prefer and accept that opinion.

Garbage Removal Costs

[32] Mr. Rayner provided the opinion that garbage removal costs to the owner had not increased since the construction of the hotel. I find that to be contrary to the evidence of Waste Management of Canada. That company stated that garbage pick-up by means of a front-end loader was no longer feasible in view of the height restriction, but could be accommodated by means of rolling individual bins to the street for pick-up with an associated increased cost. Mr. Cotman calculated these annual increased collection costs to be $14,900 which I accept.

OTHER FACTORS

[33] There is also the issue of limited access based on the reduced width and height restriction of the ROW, with the corresponding greater difficulty in accessing the parking lot. This may have a possible effect on increased construction and repair costs. According to Mr. Cotman, it would have a negative impact on value. Mr. Rayner did not address this consideration.

[34] In summary, I prefer and accept the opinion of Mr. Cotman that the narrower ROW with its height restriction has an impact on the value of 178 Ontario Street property. As stated above, I found that to be $225,000.

GRADING OF PARKING LOT

[35] As already noted, the hotel construction had the ROW meet the parking lot at a level 3 feet lower than the parking lot surface. To match up these two surfaces, part of the parking lot was graded to lower its surface. It left the parking lot with a post-construction grade ranging from 11-17%. The pre-construction grade had ranged from 3-11%. Requirements for the City of Kingston contemplate a grade steeper than 10% to be only permissible in unusual situations and then only with the regular use of de-icing material during the winter months. Essentially, the evidence is that the parking lot area close to the ROW is too steep and that at least two parking spaces cannot be used regularly during the winter months for that reason.

[36] Murray Josselyn provided an opinion in 2002 that the steepness of the parking lot could be rectified at a cost he then quoted of $16,000. In 2011, Mr. Josselyn provided an updated opinion of $75,000 for this proposed work. This was based on a third party quote of $37,738 plus certain contingencies and the cost of receiving the necessary approvals from the City of Kingston, as detailed in the Josselyn Engineering Inc. report of May 2, 2011 filed as Exhibit 10. I accept the sum of $50,000 as the amount required to adequately re-grade the parking lot.

[37] The summary of the amount of damages due to the Plaintiff by the Defendant is as follows:

a. Loss of rental income $ 166,400.00

b. Reduction in value of 178 Ontario Street 225,000.00

c. Grading of parking lot 50,000.00

$ 441,400.00

[38] Absent offers to settle, partial indemnity costs would be payable to the Plaintiff. If required, I may be spoken to on the matter of costs within 30 days. In the alternative, the issue of costs will then be deemed to have been resolved.

Honourable Mr. Justice Wolf Tausendfreund

Released: April 23, 2014

COURT FILE NO.: 12919/99

DATE: 2014 April 23

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

FOUNTAS HOLDINGS CORPORATION

Plaintiff

– and –

J.S. MELO INC.

Defendant

REASONS FOR JUDGMENT

Tausendfreund J.

Released: April 23, 2014