COURT FILE NO.: CV-09-394140
DATE: 20141118
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
KIKI KAPALUA INC. carrying on business as LOKI SALON
Plaintiff/Defendant
by Counterclaim
– and –
1203840 ONTARIO LIMITED
Defendant/Plaintiff
by Counterclaim
Catherine Moreau, for the Plaintiff/
Defendant by Counterclaim
H. Richard Bennett and Joseph Figliomeni, for the Defendant/Plaintiff by Counterclaim
HEARD: June 9, 10, 11, 13, 16, 17, 18, 19,
20, 24, 25, 26; October 14, 15,
16, 17, 2014.
CHIAPPETTA J.:
Overview
[1] The parties’ relationship as landlord and tenant was without significant issue for many years of a 10-year lease agreement until the landlord sought timely payment of arrears in rent and the tenant questioned the accuracy of the amounts said to be outstanding. The Plaintiff tenant now sues the Defendant landlord for an unquantified amount of rent it claims it overpaid the landlord. The landlord countersues the tenant for $266,688.65, the amount of rent and interest it claims it is owed by the tenant. For reasons set out below, I have concluded that the tenant owes the landlord the amount of $118,761.68 in arrears of rent, plus interest on that amount as accrued upon payment of those amounts into Court.
Preliminary Issues
- Plaintiff’s Counsel of Record
[2] The Plaintiff’s counsel of record at the time of trial was Hugh G. Lissaman. Mr. Lissaman attended on the first day of trial and advised the Court that Ms. Catherine Moreau wished to act in person on behalf of the Plaintiff, having terminated his services on May 31, 2014. As the Plaintiff is a corporation, Mr. Lissaman sought leave of the Court in accordance with Rule 15.01(2) of the Rules of Civil Procedure (the “Rules”) to have the Plaintiff represented by Ms. Moreau. Upon review of the motion materials, the Defendant was not opposed. Ms. Moreau is the sole officer, director, and shareholder of the corporate Plaintiff. I therefore ordered that Mr. Lissaman be removed from the record in accordance with Rule 15.04(1) of the Rules and exercised my discretion to grant leave to Ms. Moreau pursuant to Rule 15.01(2) of the Rules, as requested, to represent the corporate Plaintiff.
- The Defendant’s Request to Admit
[3] On May 13, 2014, the Defendant served a Request to Admit on the Plaintiff pursuant to Rule 51.02(2) of the Rules, by sending a facsimile transmission to the attention of Mr. Lissaman. The Plaintiff failed to respond to the Request to Admit within 20 days after it was served, in accordance with Rule 51.03 of the Rules. The Plaintiff is therefore deemed to admit the truth of the facts as alleged therein. The Defendant brought a motion for judgment returnable June 9, 2014, serving a motion record, factum, and book of authorities on Mr. Lissaman. The Plaintiff now seeks to withdraw the deemed admissions. Ms. Moreau terminated the retainer with Mr. Lissaman on May 30, 2014; she is self-represented and clearly expresses a desire to defend the alleged admissions as set out in the Defendant’s Request to Admit. In the circumstances, I exercise my discretion to grant the Plaintiff leave to withdraw the deemed admissions. The Defendant is entitled to its costs of preparing the motion materials.
[4] The Defendant is seeking costs on a substantial indemnity basis. I see no reason to award costs on a substantial indemnity basis. The Defendant claims costs of $4,581.75 on a partial indemnity basis. While I do not doubt that the time as set out in the costs outline submitted by the Defendant was incurred in good faith, the issues on the motion were not complex; the research was neither novel, nor obscure and the arguments were straightforward. In my view, considering these factors and the reasonable expectations of the parties, costs are fixed at $2,000.00 and made payable by the Plaintiff to the Defendant within 30 days of the release of the within Reasons for Judgment.
Background
[5] The Plaintiff tenant, Kiki Kapalua Inc., carrying on business as Loki Salon (“Loki”) entered into a lease with the Defendant landlord, 1203840 Ontario Limited (“120”) commencing August 1, 2003 wherein the Plaintiff, as a commercial tenant, would rent the premises located at 33 Hazelton Avenue, Suite #H107, Toronto, M5R 2E3 (the “premises”), for a term of 10 years with an option to renew for a further 5 year period. The tenant did not exercise her option to renew the lease and vacated the premises on July 31, 2013, the end of the term of the lease.
[6] On June 27, 2003, the tenant duly executed the Agreement to Lease – Net (“agreement to lease”), irrevocable until 5:00 p.m. on July 2, 2003. Pursuant to the agreements between the parties, the tenant was obligated to pay the landlord a monthly base rent, plus a proportionate share of annual operating costs, as defined in the lease (“additional rent”). The specific amount of both payments is to be calculated as an amount per square foot of 33 Hazelton Avenue, Toronto, M5R 2E3 (the “building”).
[7] The premises is defined in the agreement to lease as “consisting of approximately 3,485 square feet of rentable space, more or less, subject to actual measurements by the landlord’s architect or qualified surveyor”.
[8] Additional rent is defined in the agreement to lease as follows:
The Tenant acknowledges and agrees that it is intended that the Lease and the rentals payable thereunder are completely Net and Carefree to the Landlord, that the Landlord is not responsible during the Term or any renewal thereof for any costs, charges, expenses and outlays of any nature whatsoever arising from or relating to the use and occupancy of the Premises or the contents thereof or the business earned on therein, and the Tenant shall pay as Additional Rent all charges, impositions, costs and expenses related to the Premises and the use and occupancy there.
[9] On July 7, 2003 the tenant and the landlord duly executed the lease (“the lease”).
[10] The relevant portions of the lease are as follows:
1.1(a) Premises
That part of premises municipally known as 33 Hazelton Avenue, Toronto, Ontario being particularly those premises located on the fourth (4th) floor thereof comprising of approximately 3,485 square feet of gross rentable space, more or less, subject to actual measurements by the Landlord’s architect or qualified surveyor (“Premises”).
1.1(d) Additional Rents
Proportionate share of annual operating costs as defined in Article 4 payable monthly in advance and presently estimated for 2003 at $15.00 per square foot of rentable area per annum.
2.2 Measurement
The exact area of the Premises whether or not ascertained at the date hereof, shall be measured by an Architect or surveyor (whose certificate shall be final and binding) from the outside face of external walls to the centre line of walls dividing the Premises from other Premises or units without deduction for columns, shafts or any other obtrusions within the Premises.
2.3 Net Lease
This is a completely net lease to the Landlord, except as expressly herein set out. The Landlord is not responsible for any expenses or outlays of any nature arising from or relating to the Premises, or the use or occupancy thereof, or the contents thereof or the business or profession carried on therein. The Tenant shall pay all charges, taxes, impositions and outlays.
4.2 Payment of Operating Costs
The Tenant shall pay to the Landlord the Tenant’s Proportionate Share of all Operating Costs.
4.3 Operating Costs
“Operating Costs” means (without duplication) any amounts paid or payable whether by the Landlord, or by others on behalf of the Landlord for maintenance, operating, repair, replacement to and administration of the Property or allocated by the Landlord to the Property and for services provided generally to tenants, calculated as if the Property was 100% occupied by tenants during the Term, including without limitation:
(a) The cost of insurance which the Landlord is obligated or permitted to obtain under this Lease;
(b) The cost of supplies, security, janitorial, landscaping, window cleaning, garbage and snow removal services;
(c) The cost of heating, ventilating and air conditioning;
(d) The cost of fuel, steam, water, electricity, telephone and other utilities used in the maintenance, operating or administration of the Property, including charges and imposts related to such utilities to the extent such costs, charges and imposts are not recovered from other tenants;
(e) Salaries, wages and other amounts paid or payable for all personnel involved in the repair, maintenance, operating, security, supervision or cleaning of the Property, including fringe benefits, unemployment and workmen’s compensation insurance premiums, pension plan contributions and other employment costs;
(f) Auditing, accounting, legal and other professional and consulting fees and disbursements;
(g) The costs of repairing, operating and maintaining the Property and of all replacements and modifications to the Property or such equipment, including:
a. Those incurred by the Landlord in order to comply with laws or relations affecting the Building;
b. Incurred by the Landlord in providing and installing energy conservation equipment or systems and fire safety systems;
c. Incurred by the Landlord to make alterations, replacements or additions to the Property intended to reduce operating costs, improve the operation of or maintain its operation of the Property as a first class industrial building; and
d. Incurred to replace machinery or equipment which by its nature requires replacement;
All to the extent that such costs are fully chargeable in the lease year in which they are incurred in accordance with sound accounting principles;
(h) The cost of the rental of all equipment, supplies, tools, materials and signs;
(i) All costs incurred by the Landlord in contesting or appealing taxes or related assessments including legal, appraisal and other professional fees, and administration and overhead costs;
(j) Depreciation on all fixtures, equipment and facilities which, by their nature, require periodic replacement or substantial replacement (but excluding any structures and permanent parts thereof) at rates on the various items determined from time to time by the Landlord in accordance with sound accounting principles;
(k) 15% of the sum of all Taxes, Operating Costs, and Utilities, which 15% represents direct management and administrative costs applicable to the repairing, maintenance and operation of the Property;
Operating Costs shall exclude or have deducted from them as the case may be:
a. All amounts which otherwise would be included in operating costs which are recovered by the Landlord from tenants as a result of any act, omission, default or negligence of such tenants;
b. Such of the Operating Costs as are recovered from insurance proceeds, to the extent such recovery represents reimbursement for costs previously included in Operating Costs;
c. Interest on debt and capital retirement of debt;
d. Costs arising as a result of the Landlord’s negligence or people for whom in law the Landlord is responsible for or which arise as a result of the Landlord’s breach of the terms of this Lease;
e. The costs of major repairs and replacements to the structure of the building;
f. Costs which the Landlord pays as a tenant’s allowance or inducement to a tenant.
Costs incurred in maintaining and operating the Property may be attributed by the Landlord to the various components of the Property in accordance with reasonable and current practices and on a basis consistent with the nature of the particular cost being attributed, and the costs so attributed may be allocated to the tenants of such components accordingly.
4.4 Proportionate Share
The Tenant’s Proportionate Share of Operating Costs shall mean that proportion of such cost that the Premises shall bear to the total floor area of the building (or such portion of the building to which a particular Operating Cost related as determined by the Landlord in its sole discretion) as determined by the Property’s architect or surveyor in accordance with Section 2.2.
[11] From the inception of the lease through to March 30, 2013, the landlord charged the tenant base rent and her proportionate share of additional rent in accordance with 3,485 as the square footage for the premises and 19,737 as the square footage of the building.
[12] In or about October 2006, the tenant began experiencing difficulties paying her rent on time and in full. For six months, through to March 2007, the landlord worked with the tenant permitting the tenant to delay or split its monthly payment obligations from time to time and repay those amounts that defaulted due to insufficient funds.
[13] In March 2007, the landlord began requesting the tenant pay her rent by certified cheque and offered to work with the tenant on a payment plan to make up the growing arrears. As of December 2007, the tenant owed over $20,000 in arrears. The tenant remained in arrears yet the landlord took no steps to evict the tenant. Rather the landlord continued to offer the tenant ways to make up the arrears by way of a payment plan. The landlord worked with the tenant and took no action on the arrears from October 2006 until December 2009. The tenant remained in arrears often not responding to the landlord’s written offers of support and assistance.
[14] In or about February 2008, the tenant began asking the landlord to provide supporting documentation to substantiate its calculations of additional rent as defined by the lease; specifically the supporting documentation to substantiate the tenant’s proportionate amounts charged to it for taxes, maintenance and insurance (“TMI” or “TMI supporting documentation”). At that time the request was limited to the supporting documentation for the 2007 TMI charges for maintenance. The request would continue throughout the year and evolve into a request for all TMI supporting documentation from the commencement of the lease.
[15] Mr. D’Aloisio, the owner of 120, testified that all of the TMI supporting documentation from the commencement of the lease was always available to the tenant to review at her discretion. He refused to photocopy it for the tenant but he advised the tenant verbally that she could attend at his office located in the same building as the tenant’s salon, to review and copy the supporting material at any time. Ms. Pat Murray, the property manager for 120, testified to this as well, saying that she too invited the tenant verbally in 2008 and 2009 to review any TMI supporting documentation the tenant wished to review by attending the office, going through the records with her accountant and photocopying them as desired. These statements however are contradicted by the documentary evidence on this issue and I do not accept them. A review of the documentary evidence indicates that the offer was not made at the time in 2009. Had the landlord made the invitation it testified to at trial, perhaps there could have been at least a chance that the offer would have been accepted, a discussion could have followed and litigation could have been avoided.
[16] Rather, the documentary evidence is such that in response to the tenant’s request for TMI supporting documentation, the landlord advised the tenant in writing, through his property manager, that the lease did not obligate it to provide the tenant with the information requested and that the landlord had fulfilled its obligation to provide the tenant with annual statements of TMI expenses showing the calculation of the tenant’s share of actual TMI. At no time prior to taking legal steps to evict the tenant, did the landlord or the property manager provide the tenant with a written invitation to review the TMI supporting documentation from the commencement of the lease, either directly, through her accountant or through her lawyer. Rather, the numerous pieces of correspondence on this issue from the landlord or its representative indicate that the landlord only refused the request to provide the TMI supporting documentation, without offering the tenant an opportunity to attend 120’s office to review and copy whatever TMI supporting documentation she wished.
[17] The tenant repeated her request for the TMI supporting documentation throughout 2009, eventually paying the landlord base rent only and remitting the additional rent to her lawyer, Mr. Lissaman’s trust account, pending receipt of the TMI source documentation as requested. By December 2009, there was $41,000 in Mr. Lissaman’s trust account, earmarked for the landlord upon receipt and verification of the TMI source documentation from 2003 through to 2009.
[18] In September 2009, the landlord retained a professional architect to measure the premises, at the tenant’s request. The architect determined that the square footage was 600 square feet more than set out in the lease, or 4,154 square feet.
[19] In December 2009, the landlord had its accountant prepare TMI supporting documentation and an annual statement of TMI expenses for the year 2007 only. The landlord invited the tenant and\or her accountant to review these documents with his accountant. Neither the tenant nor her accountant attended the review. The tenant testified that she denied the invitation as the calculations were based on the revised square footage of the premises (4,154 square feet) and the source documentation was limited to 2007. I find the tenant’s explanation disingenuous. If she truly wanted to verify the TMI charges for the year 2007, the very year for which she began questioning the accuracy of the amounts, I would have thought that she would have welcomed such an opportunity in 2009, prior to any legal action, to review the 2007 TMI supporting documentation. This review and the following discussions with the respective accountants may have served the parties well and may have avoided this litigation.
[20] On December 16, 2009, after many last chances and sufficient warnings, the landlord locked the tenant out of the premises for arrears in rent. On December 23, 2009, the tenant thereafter commenced the within action seeking damages in the amount of $300,000 for overpayment of additional rent, loss of business, and damage to reputation. On December 24, 2009, the tenant received relief from forfeiture and resumed operations at the premises. Thereafter, the tenant paid a Court Ordered amount on account of base rent to the landlord directly, and the additional sums on account of additional rent in dispute were paid into Court.
[21] The landlord defended the tenant’s claim and issued a counterclaim. The landlord alleges that pursuant to the terms of the lease, the tenant is indebted to the landlord in the amount of $266,688.65 for unpaid additional rent and recalculated base rent, and interest.
[22] In December 2011, the landlord had the square footage of the building as a whole and each of the rental units therein measured. The results were such that the square footage of the building increased from 19,737 to 22,060 and the square footage of the premises increased from 3,485 to 3,894.
[23] On March 31, 2013 the landlord recalculated the tenant’s base rent and her proportionate share of TMI owing for the years 2005-2012, using the square footage of 22,060 for the building and 3,894 for the premises. On May 23, 2014, the landlord calculated the tenant’s base rent and proportionate share of TMI owing for 2013 using the square footage of 22,060 for the building and 3,894 for the premises.
[24] In May 2013, the landlord served a copy of the TMI supporting documentation on the tenant, for the calendar years 2005-2012. The TMI supporting documentation for 2013 was served in June 2014.
The Issues
[25] As noted above, the tenant’s pleading seeks damages for overpayment of additional rent, loss of business and damage to reputation. No evidence was led by the tenant in relation to her claims for loss of business and damage to reputation. The trial proceeded on the narrow issue of additional rent. The tenant claims she has overpaid on additional rent and the landlord claims entitlement to additional rent. The dispute between the parties depends upon a finding of the appropriate square footage of the premises and the building to be used to calculate the tenant’s proportionate share of additional rent and whether the charges of additional rent as detailed in the TMI supporting documentation for the years 2005-2013 were appropriate and in compliance with the lease.
(i) Square footage of the premises
[26] Pursuant to the lease, the tenant is obligated to pay to the landlord additional rent as defined therein. The calculation of the tenant’s proportionate share of additional rent is dependent on the square footage of the building and the square footage of the premises. The appropriate square footage of the premises and the building for the purpose of calculating additional rent is therefore the first issue before the court.
[27] There is no issue that both the agreement to lease and the lease (although with a non- initialed typo) describe the square footage of the premises as approximately 3,485 square feet. From the inception of the lease in 2003 through to March 30, 2013 the landlord charged the tenant its proportionate share of additional rent on the basis of 3,485 square feet for the premises and 19,737 square feet for the building.
[28] In or around November/December 2009, the tenant had been in arrears for over 3 years and had been requesting some form of the TMI supporting documentation for almost two years. Given the relevance of the square footage of the premises to the charges, the tenant sought to confirm the square footage of the premises. Ms. Moreau testified that she first asked a client of hers to prepare a rough measurement and then she called Planit Measuring to complete a more formal measurement. She advised that in December 2009 Planit Measuring concluded that the premises was 2,804 square feet. She had this measurement certified by Michael Laurie, P. Eng., of Planit Measuring on January 20, 2010.
[29] A representative from Planit Measuring did not testify. There is no evidence in terms of the method of measurement used by Planit Measuring to reach the conclusions as certified. Moreover both the agreement to lease and the lease are specific in that the actual square footage of the rentable space is subject to actual measurements by the landlord’s architect or qualified surveyor. It is the landlord’s measurements that reign superior to that of the tenant’s. For these reasons I do not accept the measurement of the premises at 2,804 square feet as advanced by the tenant.
[30] Nor do I accept, however, the measurement of the premises of 3,894 square feet or the building of 22,060 square feet as advanced by the landlord.
[31] In 2011, the landlord retained the services of Measure Masters Ontario Corp. (“Measure Masters”) to measure the square footage of the building as a whole and each of the rental units therein. The measurements were done by Mr. Keith Wilson who is neither a surveyor nor an architect (a fact that is irrelevant given my findings below). The owner of Measure Masters, Ms. Kelly O’Halloren was qualified as an expert for the landlord to give opinion evidence on the verification of commercial measurement. Ms. O’Halloren analyzed Mr. Wilson’s file notes and AutoCAD drawings and confirmed that Mr. Wilson applied the method of measurement contained at s. 2.2 of the lease. The results of Measure Masters were such that the square footage of the building increased from 19,737 to 22,060 and the square footage of the premises increased from 3,485 to 3,894.
[32] Both the agreement to lease and the lease state the premises at approximately 3,485 square feet. Both acknowledge that this measurement is subject to actual measurements by the landlord’s architect or qualified surveyor. The agreement to lease and the lease differ to the extent that only the lease references “gross” rentable space. The lease also provides a detailed method of measurement. It is a difference, however, without distinction, in the particular circumstances of this case.
[33] The landlord seeks by way of counterclaim an amount of arrears from 2005 which includes both the base rent and the additional rent calculated in 2013 on the 2011 measurements of the premises and the building done by Measure Masters. It is unconscionable to me that this request is being made.
[34] On March 31, 2013, the landlord used its 2011 measurement of 3,894 and 22,060 square feet respectively, to recalculate the amounts owing to it by the tenant pursuant to the lease for the tenant’s base rent and proportionate share of operating costs for the years 2005 to 2012. These amounts were previously calculated and charged to the tenant in the applicable year, using 3,485 and 19,737 respectively. The landlord then calculated the tenant’s base rent and proportionate share of operating costs going forward for the last year of the lease based on the new measurements Measure Masters completed almost 9 years into the 10-year lease.
[35] The landlord submits that the language of the agreements between the parties is such that the landlord’s contractual right to measure the premises and alter the contractual consideration crystallizes when the parties dispute the approximate measurement as set out in the agreements. I disagree. The language does not contemplate a re-measurement upon dispute. Rather, it reads that the measurement therein is an approximate number and that the landlord may confirm the number with the use of a qualified architect or surveyor. The measurement impacts the payment by the tenant of both base and additional rent; implicit in the right granted is its timely exercise. It is not commercially reasonable to conclude that the untimeliness in this case was the intention of the parties in 2003 when they agreed to defer actual measurement of the premises to the landlord. Considering the circumstances up to and including March 2013, the landlord’s retroactive recalculation was not a reasonable exercise of a contractual right. Rather it a was reactive uppercut to the tenant’s reasonable, yet unprecedented, efforts to review the TMI supporting documentation.
[36] For 9 years of a 10-year lease the calculations of the tenant’s base rent and proportionate share of TMI was governed by the only square footage of the premises specifically stated in the agreement to lease and the lease at 3,485 and the square footage of the building at 19,737. The agreements defer the exact measurement to the landlord’s architect or surveyor. A variation to the measurement as estimated has a resultant variation to the tenant’s consideration as contracted as it impacts the tenant’s obligation to pay both base rent and additional rent. As a variation impacts an essential term(s) of the commercial agreement, in my view, implicit in the granting of the right to the landlord is the obligation of the landlord to exercise its right within a reasonable time after the commencement of the lease; 9 years into a 10-year lease is not reasonable.
[37] I have no reason to doubt the accuracy of the measurements advanced by Ms. Halloran. I agree that the method of measurement is specifically detailed at Schedule A, s. 2.2 of the lease. I agree that Measure Masters followed this method as detailed in their report marked as Exhibit 11 and that the method as detailed in the lease is not inconsistent with the reference to rentable space in the agreement to lease. None of these findings however are relevant in the circumstances of this case.
[38] The parties governed themselves one way for almost 9 years of a 10-year lease. Charges were rendered for base rent and additional rent in consideration of 3,485 square footage for the premises and 19,737 square footage for the building. If the landlord is entitled to additional rent, the amount should be calculated with the original contractually stated square footage and not a measurement done almost 9 years into a 10-year lease.
For these reasons I have concluded that the square footage of 3,485 for the premises and 19,737 for the building is the contractual square footage applicable to the calculation of the tenant’s rent and proportionate share of TMI.
(ii) Taxes, Maintenance, and Insurance (TMI)
[39] The second issue before the court is whether the tenant’s proportionate share of additional rent as charged by the landlord for the years 2005-2013 is appropriate and in accordance with the lease. Although the lease commenced in 2003, the TMI supporting documentation was available only from 2005 onwards.
[40] The tenant’s position is that the amount for additional rent levied for 2005-2013 is incorrect. The evidence led by the tenant to establish its position is deficient. There is no evidence before the Court sufficient to conclude that the landlord levied inappropriate charges of additional rent to the tenant for the years 2005-2013.
[41] For the purposes of advancing this position, the tenant relied on the evidence of Mr. Christopher McKinnon, CMA, qualified as an expert to give opinion evidence in the area of management accounting. In terms of his proffered evidence, as a result of a midtrial motion brought by the landlord, I made the following findings and resultant order:
Mr. McKinnon presents as a credible witness. He is honest and straightforward. His testimony, however, but for the exceptions, was not opinion evidence in the area of management accounting. Rather, but for the exceptions, he testified as to his opinion as to whether the TMI charges levied by the landlord were in accordance with the terms of the agreement to lease and the lease. This is my role as the trial judge.
I have concluded that Mr. McKinnon’s opinions fail to constitute opinions which relate to a subject matter that is properly the subject of expert opinion evidence. In accordance with the Court of Appeal’s decision in R v. Abbey, 2009 ONCA 624, 97 O.R. (3d) 330 at para. 78, as the evidence does not meet all of the preconditions of admissibility it must be excluded and I need not address the considerations that arise in the second-phase “gatekeeper” function. It is noted, nonetheless, that, having heard the totality of the evidence from Mr. McKinnon, I find little probative value therein. The decisions upon which Mr. McKinnon opines are mine to make. He has no special skill, knowledge or training in commercial lease interpretation. Little weight would be given to his evidence if admitted. In these circumstances it would be incorrect not to exercise my gatekeeper function to exclude the evidence.
Finally, I find that there is no basis upon which to admit the evidence of Mr. McKinnon as a fact witness. Mr. McKinnon testified that the source of his information and knowledge is from Ms. Moreau or Mr. Lissaman. Mr. McKinnnon has no personal knowledge of the facts at issue.
An order is therefore granted, excluding in its entirety the evidence of Mr. McKinnon but for the evidence relating to the following:
Record retention;
Proper format and preparation of TMI statements;
Proper application of GST and HST on additional rent or TMI charged by the Defendant to the Plaintiff; and
The definition of sound accounting principles.
[42] In terms of the 4 exceptions, the following is to be noted:
Mr. McKinnon testified that it was both understandable and reasonable for 120 not to be able to produce TMI supporting documentation for 2003 and 2004.
Mr. McKinnon testified that the format and presentation of the TMI annual statements were appropriately in accordance with that as prepared by 120’s accountant, Mr. Irv Spitzen. On March 31, 2013, Ms. Murray revised the TMI annual statements for 2005-2012 in this format and continues to use this accepted format to this day.
Mr. McKinnon’s opinion was that 120’s application of the GST and HST to the 15% administration fee that 120 charged as additional rent pursuant to the lease was inappropriate. On March 31, 2013, Ms. Murray, on behalf of 120, revised the TMI annual statements for 2005-2012 and restated its GST and HST calculations in accordance with Mr. McKinnon’s opinion. The treatment continues to this day.
Mr. McKinnon did not give any specific evidence on the definition of sound accounting principles. He suggested that the classification of certain additional rent charges may possibly be capital and not operating expenses. There was no evidence proffered by the tenant that any of the additional rent charges were improper as they should properly be capital and not operating expenses. As will be referenced below, Ms. Murray sufficiently explained why she classified certain expenses as operating and why such classification was in accordance with the lease.
[43] In general terms and without definitive conclusions both Ms. Moreau and Mr. McKinnon questioned some of the invoices included in the TMI supporting documentation for 2005-2012. They questioned whether the charges should be levied as they seem to relate to a specific tenant, may be duplicative, are invoiced to Mr. D’Aloisio (owner of 120), are invoiced to or from Ron-Dal Investments or Ron-Dal Mechanical Contracting(other companies owned by Mr. D’Aloisio), or might be capital in nature. Neither witness testified conclusively that the charges should be excluded from the calculation of additional rent as they failed to comply with the lease or were not otherwise proper charges, rather they questioned the respective appropriateness or sought further discussion or information on a limited number of particular charges.
[44] The tenant was provided with the TMI supporting documentation for the years 2005-2012 in May of 2013 and the TMI supporting documentation for 2013 when it was completed in 2014. At no time up to the trial did the tenant ever advise the landlord of any questions or issues she had with any particular charge as it appeared in the TMI supporting documentation. She did not seek clarification and she did not seek explanation. Rather, throughout her examination in chief, the tenant raised a general concern about the appropriateness of a limited number of charges throughout the 9 years’ worth of TMI supporting documentation provided to her.
[45] The Plaintiff tenant bears the onus of establishing that on the balance of probabilities the additional rent charged was improper and not in accordance with the lease. To satisfy her onus, the tenant provided the Court with nothing but speculative argument and hypothetical wonderment. The tenant was unable to advise the Court of a dollar amount she submits she overpaid and was unable to point to even one invoice and definitively say that it was improper. The Court is therefore left without evidence to substantiate the tenant’s submission on this issue. The tenant has not satisfied the onus upon her.
[46] In terms of its counterclaim, the Defendant landlord bears the onus of satisfying the Court that the amounts it states it is entitled to for additional rent are proper amounts charged in accordance with the agreements between the parties. In order to satisfy this onus in part, the landlord led evidence from Ms. Murray, Property Manager for 120.
[47] As the Property Manager for the building, Ms. Murray maintains its financial records. She is accountable for calculating the annual TMI statements and charges. Commencing in 1969, Ms. Murray has been employed in capacities with different employers that required her to maintain the financial records of the respective company. She started in property management in the early 1980’s upon taking one and a half years of a certified general accounting course. In 1992, she started her own property management company, PM Management, and she completed her property management studies at Humber College in 1994.
[48] The landlord hired PM Management in 1994 to manage some of his residential properties. The landlord purchased the building in 1996. PM Management was hired by the landlord upon purchase to manage the building. Since 1996, Ms. Murray has been maintaining the financial records of the landlord as they pertain to the building. She tracks and records all of the financial transactions of the company and prepares the annual TMI calculations for the commercial tenants therein.
[49] Ms. Murray testified to the accuracy and appropriateness of the tenant’s annual additional rent charges in terms of their compliance with the lease. She advised that the form of lease in question has been consistent since 1996 and has been used as a template with every tenant. Since 1996, she has been accountable for collecting rent from the building’s tenants, for 120’s booking and for preparing the annual TMI statements in accordance with the form lease since 1997.
[50] I found Ms. Murray’s evidence on the appropriateness of the additional rent charges at issue to be honest and informed, and I accept it. Ms. Murray addressed the questions posed by the tenant in her testimony, admitted her minor errors or inadvertence in record keeping and sufficiently explained why each additional rent charge that she specifically detailed over the 9 years complied with the lease. I have concluded that the amounts sought by the landlord from the tenant as additional rent from 2005-2013 as evidenced by the TMI supporting documentation filed at Exhibit 1, Volumes 2-10 and detailed in the TMI annual statements at Exhibit 1, Volume 11 and prepared by Ms. Murray, are accurate, appropriate and in accordance with the lease. I make this conclusion in part as a result of the following evidence from Ms. Murray:
She demonstrated through her evidence a sound understanding of accounting principles and of the lease and she displayed objectivity in her treatment of additional rent incurred.
She conducted an extensive and thorough review of all TMI supporting documentation from 2005-2013. She reconsidered each and every invoice and its compliance with the terms of the lease, matched up each and every invoice with the TMI supporting documentation, admitted and corrected error or inadvertence and prepared detailed lists of charges that correspond to every item listed on the annual TMI statements.
She accepted the comments of Mr. McKinnon as they pertained to the treatment of GST and HST and in 2013 recalculated the additional charges at issue.
She answered each question posed by the tenant in her examination in chief, reasonably explaining why the specific charges applied directly to the building, why it was an operating cost and not a capital expenditure, why it complied with the language of the lease and why some of the TMI supporting documentation was addressed to Ron-Dal Investments or Ron-Dal Mechanical Contracting.
She testified that pursuant to the terms of the lease part of the additional rent charged to the building’s tenants each year includes an amount in pension benefits earmarked for 120 employees who will eventually retire.
She reviewed each invoice again after the tenant’s testimony and she found four errors, the net effect was $1,700 in favour of the landlord. She sufficiently explained the errors to the Court, and agreed to waive this amount.
She sufficiently explained the classification of an additional rent expense as capital as opposed to operating and 120’s use of a cash method of accounting as opposed to an accrual method of accounting, explaining as an example why the roof repair was a capital expense at a cost of approximately $160,000 and the treatment of that expense in terms of a depreciation charge to the tenants.
In 2013, she reworked the annual TMI statements from 2005 through to 2013 to conform to a format recommended by 120’s accountant and Mr. McKinnon. The statements were served on the tenant in their revised format in May 2013.
[51] I am satisfied therefore that the additional rent charged to the tenant as evidenced in the TMI supporting documentation for 2005-2013 was appropriate and in accordance with the provisions of the lease.
[52] Ms. Murray testified, explaining her calculations to the Court, that considering the TMI supporting documentation, and the original square footage of the premises and building, the landlord is entitled to an amount of additional rent of $118,761.68. I accept this calculation.
[53] I have therefore concluded that in accordance with the lease, the Defendant landlord is entitled to the amount of $118,761.68 in additional rent from 2005-2013.
Interest
[54] The Defendant landlord is seeking interest on $118,761.68 at the rate of 18% per annum, compounded monthly in accordance with s. 4.10 of the lease.
[55] Section 4.10 of the lease reads as follows:
All rents and additional rents past due shall bear interest from the date on which the same became due until the date of payment at the rate being the greater of 3% above the prime rate, chargeable by the Landlord’s leading banker and 1-1/2% per month (18% per annum, compounded monthly).
[56] Given the circumstances of this case, the additional rents cannot be said to have been “past due” such that the landlord is not entitled to interest on the additional rent as contracted.
[57] In accordance with Court Orders of December 24, 2009, January 19, 2010 and February 23, 2012 the Plaintiff tenant paid sums into Court on account of the additional rent in dispute. I am advised by counsel for the Defendant that the sum of approximately $135,000 is currently deposited with the Accountant of the Superior Court of Justice to the credit of this action. The additional rent was therefore not past due, as contemplated by the language of the lease. Rather, it was paid by the tenant in accordance with a Court Order and held in trust, pending resolution of a dispute between the parties. There was therefore no “contractual bargain” between the parties that the higher interest rate contracted for past due payments would apply in the circumstances of this case. (Stellarbridge Management Inc. v. Magna International (Canada) Inc., 2004 9852 (ON CA), [2004] 71 O.R. (3d) 263 (Ont. C.A.) at paras. 89-90 (Application for leave to appeal to the Supreme Court of Canada denied)).
[58] While it is true that the landlord did not receive the benefit of the funds, there is no indication that the landlord did anything but fully accept this arrangement and at least on one occasion motion the Court for it. The landlord did not ask that the funds accrue interest in accordance with the lease but rather accepted that interest would accrue on the funds as paid by the tenant, in accordance with the Courts of Justice Act, R.S.O. 1990, c. C.43.
[59] The landlord is entitled to an amount for arrears in rent. It is entitled to interest on that amount as contemplated by the Orders directing the tenant to pay those amounts into Court. It is not entitled to the contractual interest rate in the absence of the prerequisites as bargained or a clear intention of the parties to incorporate the contractual interest rate into the Order directing payment into Court of the funds in dispute.
Disposition
[60] The Plaintiff tenant’s claim is dismissed. Judgment is granted in favour of the Defendant landlord on its counterclaim in the amount of $118,761.68 plus interest accrued on that amount as it was paid into Court by the tenant. The Accountant of the Superior Court of Justice is directed to release to the Defendant the amount of $118,761.68 plus interest as it accrued on that amount as it was paid into Court by the tenant. The remaining amounts in Court should remain therein until the costs award for this action are settled.
Costs
[61] The parties are encouraged to agree on an appropriate award of costs. Success was somewhat divided in this case as the Court did not accept the measurements advanced by the landlord. Further, the Defendant landlord is encouraged to heed my findings with respect to its intentional failure to provide the TMI supporting documentation when it was first requested in 2007, instead of waiting until the conflict between the parties had reached a difficult level for resolution. If the parties are unable to agree on an appropriate cost award I would ask that the parties appear before me to make brief submissions in this regard, after having detailed discussions sufficient that each party understands and fully appreciates the submissions of the other. The submissions should include a complete accounting of the funds remaining with the Accountant of the Superior Court of Justice.
CHIAPPETTA J.
Released: November 18, 2014
COURT FILE NO.: CV-09-394140
DATE: 20141118
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
KIKI KAPALUA INC.
Plaintiff/Defendant
by Counterclaim
– and –
1203840 ONTARIO LIMITED
Defendant/Plaintiff
by Counterclaim
REASONS FOR JUDGMENT
CHIAPPETTA J.
Released: ** November 18, 2014**