ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-14-500065
DATE: 20140626
BETWEEN:
RAYS OUTFITTERS INC.
Applicant
– and –
LIXO INVESTMENTS LIMITED
Respondent
Allison Speigel, for the Applicant
Charles Wagman, for the Respondent
HEARD: 21 May 2014
REASONS FOR DECISION
mew j.
[1] The applicant was at all material times the tenant of commercial premises leased to the applicant by the respondent landlord. On 7 January 2014, the landlord entered the subject premises and purported to distrain against the applicant’s goods due to non-payment of arrears of rent said to be owed by the applicant.
[2] The applicant says that the landlord’s distress was unlawful, unreasonable and excessive for the following reasons:
(a) The tenant did not owe the landlord rent on 7 January 2014 because one of the landlord’s directors had granted the tenant a verbal extension for the payment of rent owed for November and December 2013 until 8 January 2014;
(b) In the process of distraining, the landlord simultaneously changed the locks to the premises and thereafter denied the tenant access to the premises, thereby forfeiting the lease and rendering the “simultaneous and subsequent” distress unlawful;
(c) The landlord distrained after sunset, rendering its distress unlawful;
(d) The landlord forcibly entered the premises in order to distrain, rendering the distress unlawful;
(e) Even if otherwise lawful, the landlord’s distress was excessive because it was based on an alleged amount owing which included non-rent related amounts and amounts that the landlord was not entitled to collect under any circumstances, and because the value of the goods that the landlord seized, being approximately $383,000, far exceeded the alleged amount owing ($25,053);
(f) The landlord’s actions were motivated, at least in part, by personal reasons arising out of a romantic relationship between one of the landlord’s directors and the principal of the applicant tenant.
[3] The applicant seeks declarations that:
(a) The distress carried out by the landlord at the premises was unlawful and excessive;
(b) The landlord’s behaviour was vindictive and unreasonable;
(c) On 7 January 2014, the landlord forfeited the lease;
(d) The landlord is not entitled to collect any rent that would have become due after 7 January 2014; and
(e) The landlord had had and has no right to distrain against any of the tenant’s goods.
[4] The applicant also seeks an order, inter alia, that:
(a) The tenant be granted access to the premises;
(b) To the extent that any of the tenant’s goods are no longer located on the premises, that the tenant be permitted to cover those goods from wherever they are now located;
(c) Directing a trial of the issue of damages.
[5] The respondent landlord opposes the relief sought and by a separate application seeks orders for:
(a) Payment of the sum of $22,500 for arrears of rent owed as of 1 April 2014;
(b) Payment of rent at the rate of $4,500 per month covering the period from 15 April 2014 to the date of judgment; and
(c) A declaration that the landlord is entitled to distrain against the property of the tenant.
[6] The grounds for the position taken by the landlord include the following:
(a) The tenant had failed to pay November and December 2013 rent (cheques for both periods having been dishonoured);
(b) The landlord had not agreed to postpone the date for payment of rent owing and, accordingly, the landlord legally distrained against the tenant’s goods on 7 January 2014;
(c) Although the landlord changed the locks to the premises on 7 January 2014, the notice of distress posted at the premises expressly stated that the lease was not being terminated;
(d) After the landlord had destrained against the tenant’s goods, the tenant said that it wanted to terminate the lease and retrieve its goods;
(e) The landlord has, since distraining against the goods, being notified that all of equipment in the premises, as well as 300 bolts of fabric, belong to a third party, rather than to the applicant. Accordingly, the landlord has not sold any of the applicant’s goods.
Was there an agreement permitting the applicant to postpone payment of rent?
[7] There is no dispute that the applicant had not paid its November and December rent, totaling $9,000.
[8] The uncorroborated evidence of the applicant’s principal, Van Thi Truong, is that one of the respondent’s directors, Adel Kirloss, verbally agreed to extend the date for payment of the November and December 2013 rent until 8 January 2014.
[9] In an email exchange between the parties on 17 December 2013 the applicant was advised that the respondent’s accounting department, and not Mr. Kirloss, was dealing with the issue of overdue rent. Furthermore, Ms. Truong was expressly told that the landlord would not wait until 8 January 2014 to collect any amounts already due and payable.
[10] Although Ms. Truong maintains that, following this exchange, she remained of the belief that she had until 8 January 2014 to pay arrears of rent because of her oral agreement with Mr. Kirloss, on 6 January she received an email from the respondent advising her that the outstanding balance was $6,253, that the respondent was expecting payment by no later than the next day (7 January 2014) and that the respondent “is prepared to protect it’s [sic] interests and will move forward with lock out procedures if payment is not received [by 7 January]”. When Ms. Truong responded to this email saying that she would only pay the monthly rent of $4,500 without any extra charges, and that the landlord had failed to fulfil its obligations under the lease because of flooding that had occurred in the unit and lack of heat, another email was sent by the respondent to the applicant (at 2:14 p.m. on 7 January 2014) stating that payment in full needed to be made before 3:00 p.m., failing which immediate steps would be taken by the landlord to protect its interest.
[11] No evidence was provided by Mr. Kirloss. Instead, the respondent filed affidavits from Allan Brown (its property manager), Johnny Gonzalez (its bookkeeper) and Scott Macdonald (a general contractor working for a number of property management firms including the respondent), none of which satisfactorily addressed Ms. Truong’s allegations that (a) she was in a personal relationship with Mr. Kirloss; or (b) Mr. Kirloss had verbally agreed to an extension of the time to pay rent. Mr. Brown states that he, not Mr. Kirloss, was personally responsible for the overseeing of the applicant’s account and continues:
“No such extension was given to the Tenant. I am not aware of any “personal relationship” with [Mr. Kirloss], as alleged. I strongly believe that [Ms. Truong] has come up with the alleged relationship in an attempt to avoid payment of rent.”
[12] Mr. Gonzalez says:
“[Ms. Truong] alleges a “personal relationship” with [Mr. Kirloss]. She alleges that she was locked out the day after she “broke up” with [Mr. Kirloss] and that the changing of the locks was “the reaction” of [Mr. Kirloss] to her breaking up with him. Her allegations are false. She was locked out because she failed to make a payment towards her arrears of rent, despite my numerous emails requesting payment.”
[13] In the absence of any contemporaneous documentary evidence corroborating Ms. Truong’s assertion that the respondent, through Mr. Kirloss, agreed to give the applicant until 8 January 2014 to make good the arrears of rent, I conclude that there was no meeting of the minds between the parties with respect to such an extension and, accordingly, that the applicant was in arrears at the time of the respondent’s purported distraint.
Did the landlord forfeit the lease?
[14] A landlord must choose between the mutually exclusive remedies of forfeiture and distress. If a landlord forfeits the lease and, simultaneously, or thereafter, distrains, the distress is illegal and the landlord is liable in damages: Dubien v. Beechwood Promenade Inc. (1992), 22 R.P.R. (2nd) 88 (Ont. Ct. Gen. Div.); Tosomba v. Base General Contracting Limited, 2012 ONSC 1839.
[15] It does not automatically follow from the fact that the landlord has changed the locks to rented premises that the landlord has forfeited the lease. More significant than the changing of the locks is whether the intended or actual effect is to exclude the tenant from the premises. If so, then the lease is terminated and any subsequent distress is unlawful: Falwyn Investors Group Ltd. v. G.P.M. Real Property (6) Ltd., [1998] O.J. No. 5258 (Gen. Div.); Project 360 Investments v. 1301584 Ontario Ltd. (2008), 71 R.P.R. (4th) 210 (Ont. Sup. Ct.).
[16] In the present case, as already noted, just a day before it purported to exercise its distress remedy, the respondent notified the applicant that it had an outstanding balance of $6,253, the full amount of which had to be paid by no later than the next day (7 January 2014).
[17] Yet, on the notice of distress, posted at the premises on 7 January, reference was made to “rent arrears owing and other breaches and cost of the tenancy agreement in the amount of $25,053.00 in addition to the balance of the tenancy agreement plus costs and damages”. The notice also provided:
“…It has been necessary for the protection of your goods and for the protection of the landlord’s right of distress that the locks for the premises be changed but that, notwithstanding the change of locks by the landlord for the purpose of protecting such goods, your rights as tenant to the premises continues [sic] to be recognized and you may upon request to the landlord or its managers, or its bailiff, re-enter the premises and continue to occupy same and use same and replevy your goods upon payment of the rent arrears plus charges, fees and expenses as aforesaid. For greater certainty, this is not a forfeiture of the lease but a distress against your goods and is not intended in any way to terminate the tenancy agreement.”
[18] It is worth remembering that this process had previously been described in an email from the landlord as a “lock out”.
[19] The figure of $25,053.00 contained in the notice of distress comprises of the following:
November 2013 rent $ 4,500
December 2013 rent $ 4,500
Electrical repairs $ 1,073
NSF fees $ 500
Administration fees $ 680
Delivery fee $ 300
Additional security deposit equal to 3 months’ rent $13,500
[20] On 8 January 2014 Ms. Truong called Mr. Kirloss and offered to immediately pay the rent arrears of $9,000 and get back into the premises. Mr. Kirloss refused and indicated that the applicant would have to pay the full amount of $25,053 referred to in the posted distress notice. Ms. Truong’s evidence is that:
“Were it not for the distraint and lock out of the Premises, Tenant had the funds and would have paid the Postponed Rent on January 8, 2014 as had been agreed upon.”
[21] There was, in fact, a flurry of emails on 8 January 2014. In one of them, Ms. Truong wrote to Mr. Kirloss “you locked the door too soon. It means you don’t want us to operate any more you are not legally to keep my assets inside the rental unit. I would like to know when you can open the door so that I can move my assets out of the rental unit?”
[22] In another email she wrote: “…I will not rent this unit any more. The date and time of moving out I will inform you shortly.”
[23] There were also email comments of a more personal nature. In another email on 8 January Ms. Truong wrote to Mr. Kirloss:
“I would like to know as to why you changed the lock of my rental office and I could not come in to work today? I have requested to make payment on January 8, 2014 as per my email below because only at that time I have the money no other time before that.
You made me to pay on January 7, 2014 when I don’t have the money.
In term of business you are not right because I have informed you of the date to make payment in advance and you knew that but you keep asking me for payment the day earlier knowing that I cannot pay then you locked me out of my office early morning of January 8, 2014.
Yesterday, January 7, 2014 you gave me a bill of over $6,000, but I refused to pay for the repair of the heater over $1,000, I believe it is not my responsibility as I have explained in previous email. I only pay for the rent. Why today I came in and you locked my rental office and you posted on the door that I owe you $25,000? Everyone can see it on the front door of my rental office.”
Her email continues a little later:
“I am very sad and hurt when you treat me like this, in term of personal relationship I did not use your money and I am honest. In term of business I am very clear but you did not treat me right.
In personal relationship I known you for 6 months but you are not honest, you made me hurt that’s why I don’t want to continue the relationship, you play game with me and in business you play game with me too. I am very sad and hurt, I felt unfortunate as a lady. I slipped in the office painfully in the body but today I felt very pain not only in the body but more pain in the heart.”
[24] The landlord’s position, simply put, is that the tenant made it clear very soon after the tenant’s goods were distrained against, that the tenant did not wish to resume occupation of the premises. The landlord points to email traffic from Ms. Truong, including the emails extracted above.
[25] Both parties employed lawyers to address the consequences of the events of 7 January 2014. There were telephone discussions and correspondence. It is common ground that the parties were attempting to negotiate a mutually acceptable solution. The affidavit of Allan T. Brown, the landlord’s property manager, sworn on 1 April 2014, makes reference to a telephone conversation between the lawyers for the landlord and tenant respectively in which the tenant’s lawyer advised the landlord’s lawyer that the tenant wanted to terminate the lease. The landlord also makes reference to a letter from the tenant’s lawyer (from a firm other than the firm now representing the tenant) most of which is redacted, but an un-redacted portion of which makes reference to the tenant wishing to terminate the lease agreement and resolve the case amicably.
[26] At the beginning of the hearing of the application, the tenant moved to strike the portions of the Brown affidavit and its exhibits referenced above on the basis that they were without prejudice settlement communications. I deferred making a ruling on this until I had more context. Having now heard the full argument of the application, I agree that the impugned paragraphs of the Brown affidavit (namely paragraphs 36 and 37) and their related exhibits (exhibit M and N, other than the paragraph numbered (4) on page 2 of the letter exhibited as exhibit N) should be struck out and, as a result, excluded from the record.
[27] Ms. Truong deposes to having been told by her former solicitor that the solicitor had repeatedly requested that the tenant be allowed to re-enter the premises but that the landlord had denied those requests without justification.
[28] Furthermore, there is correspondence, which does not appear to have been settlement correspondence, or otherwise written on a without prejudice basis, in which the solicitor writes (on 22 January 2014):
My client is still waiting to gain entry into the leased premises to collect paperwork. Please advise when she can do so TODAY. Thank you.
Then on 23 January:
When can she get into the premises. Surely there is someone else who can let her in.
[29] In a further email, dated 27 January 2014, marked “without prejudice” the former solicitor for the tenant wrote:
“Further to my voicemail message of this morning, I am now requesting for the fourth time that my client be permitted to re-enter the premises. As you know, in order to have a legal distraint, the tenant must remain in possession of the premises. As a result of being locked out of the leased premises since January 7, 2014, my client has sustained significant damages. Moreover, the changing of the locks by your client and the failure to permit the tenant re-entry into the leased premises constitutes a termination of the lease. One cannot terminate and distrain at the same time. Accordingly, your client’s distraint is illegal and my client is entitled to remove her goods.”
[30] In open correspondence on 4 March 2014, the current lawyers for the tenant reiterated the position previously taken on behalf of the tenant in without prejudice correspondence, namely, that the landlord had lost its right to distrain against the tenant’s chattels by refusing to allow the tenant access to the premises. The letter went on:
“The Tenant requires immediate access to the Premises to at least remove her books and records….The Tenant requires the Records to comply with its legal obligations to the Tenant’s employees (e.g. to provide the employees with their T4 forms).
[31] On 21 March 2014 the parties attended in motions scheduling court before Himel J. Her file order notes that:
The landlord is prepared to allow supervised access to the premises which is ordered to take place on Monday, March 24/14 at 10:00 a.m.
[32] Ms. Truong states that in accordance with the order of Himel J., she attended the premises for approximately 20 minutes on 24 March 2014, accompanied by two of the tenant’s employees, a representative of the landlord and a bailiff (whose fee of $141.25 was paid by Ms. Truong). According to Ms. Truong, she was permitted to enter the front office area only. When she requested access to the warehouse portion of the premises in which, amongst other things, an inventory list was located, the landlord’s representative refused.
[33] On behalf of the landlord, it was submitted that the order of Himel J. restricted access to the front office area of the premises. However, no such restriction appears on the face of Himel J.’s order.
[34] The landlord also submits that there is no letter from the tenant or its lawyer saying that the tenant wants to go back into possession. The only evidence of that is contained in Ms. Truong’s affidavit, which, it submits, is not credible having regard to the other evidence.
[35] The immediate reaction of Ms. Truong to the events of 7 January 2014 was an emotional one. Although I have found that there was no effective agreement to extend the time for payment of the rent owing by the tenant, in the absence of an affidavit from Mr. Kirloss, I accept that there was a personal relationship of some sort between him and Ms. Truong. The breakdown of this relationship, which appears to have coincided with the events of 7 January (there was text traffic between the two in the days immediately prior to that in which Ms. Truong told Mr. Kirloss she was ending the relationship) no doubt played a part in the way in which Ms. Truong reacted. I would therefore not place a great deal of stock in her statements that she wished to move her goods out of the premises.
[36] Far more telling is the subsequent stance taken on behalf of the landlord with respect to providing the tenant with access to the premises. Aside from the landlord’s description of the process as a “lock out”, even when access was finally obtained (assisted by a consent order from this court), the landlord’s representative refused to allow the tenant access to a portion of the rented premises in which her inventory list was located.
[37] Furthermore, the purported distress effected by the landlord demanded payment of a sum which the tenant was not contractually bound to pay under the lease. While there may be some debate about whether the tenant was required to pay for electrical repairs and administration fees, the inclusion in the notice of $13,500 by way of an additional security deposit equal to 3 months’ rent was not something that the landlord was entitled to pursuant to the terms of the lease. By demanding payment of $25,053 before permitting the tenant to return to the premises, the landlord was virtually ensuring that the tenant would be unable to return.
[38] Having regard to all of the circumstances, the effect of the landlord changing the locks to the premises, taken together with the landlord’s demand for an inflated sum as a condition of the tenant being allowed to return to the premises, as well as what can charitably described as an un-responsive stance to the numerous requests made by the tenant for access to at least her records and, ultimately, her inventory list, leads to the conclusion that the landlord has forfeited the lease.
Conclusion
[39] In light of my determination that the landlord forfeited the lease, it follows that the landlord’s distress was unlawful. It is, accordingly, not necessary for me to decide whether distress occurred after sunset or whether it was excessive. Nor do I make any determination as to the landlord’s motivation and, in particular, whether the landlord acted in a vindictive or unreasonable manner. Those are matters which are more appropriately dealt with in relation to the issue of damages.
[40] By reason of the foregoing, the court:
Declares that on 7 January 2014 the landlord forfeited the lease;
Declares that the distress carried out by the landlord at the premises on 7 January 2014 was unlawful;
Declares that the landlord is not entitled to collect any rent that would have become due after 7 January 2014;
Declares that the landlord had and has no right to distrain against any of the tenant’s goods;
Orders that the tenant be granted access to the premises within 24 hours from the date of this judgment to enable the tenant to remove the tenant’s goods from the premises and that the tenant be thereafter granted continuous access to the premises for 7 days beginning on the date on which the tenant is first provided with access to the premises;
Orders that, to the extent that any of the goods seized by the landlord from the subject premises are no longer located on the premises, that the landlord returns such goods to the tenant or permits the tenant to remove such goods from wherever the landlord or its agents may be holding the tenant’s goods;
Directs a trial of the issue of the damages claimed by the tenant.
[41] The court further dismisses the relief sought by the landlord in its companion application (Court File No. CV-14-501219) save and except that the tenant shall pay to the landlord pro-rated rent for the period 1 – 7 January 2014 of $1,035.62 (7 x $147.9452 per day).
Costs
[42] The parties provided costs outlines. In fixing costs, the court is required to consider the factors set out in rule 57.01(1) and fix an amount that is fair and reasonable to the unsuccessful party in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant: Boucher v. Public Accountants Council of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 at para. 26.
[43] The applicant requested partial indemnity costs (inclusive of disbursements and H.S.T. of $26,755.14). The respondent, if successful, would have claimed costs on a similar basis of $11,901.03. In my view, a fair and reasonable amount for the costs payable by the landlord to the tenant would be $20,000 inclusive of disbursements and applicable H.S.T.
Mew J.
Released: 26 June 2014
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
RAYS OUTFITTERS INC.
Applicant
– and –
LIXO INVESTMENTS LIMITED
Respondent
REASONS FOR JUDGMENT
Mew J.
Released: 26 June 2014