Court File and Parties

COURT FILE NO.: CV-14-10798-00CL

DATE: 20151014

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: In the Matter of the Receivership of Crate Marine Sales Limited, F.S. Crate & Sons Limited, 1330732 Ontario Limited, 1328559 Ontario Limited 1282648 Ontario Limited 1382415 Ontario Limited and 1382416 Ontario Limited.

BEFORE: Penny J.

COUNSEL: James P. McReynolds for the Moving Party, 2124915 Ontario Inc.

R. Brendan Bissell for the Responding Party, A. Farber & Partners Inc.

Maya Poliak for Krates Keswick Inc.

HEARD: October 6, 2015

Endorsement

[1] This is a motion for an order requiring A. Farber & Partners Inc., as receiver and manager appointed by the court, to pay occupation rent in the amount of $319,016 for its use of the Lagoon City Marina from December 8, 2014 to April 30, 2015.

[2] There are two issues:

(a) whether the Receiver is liable for occupation rent (as that term has come to be defined in the case law); and, if so,

(b) what amount is owing as occupation rent?

[3] The Marina is on Lake Simcoe near Brechin, Ontario. It is owned by 2124915 Ontario Inc.

[4] 212 acquired the Marina in 2007 subject to a lease in favour of Steven and Greg Crate as trustees “for a company to be incorporated.” It is common ground that the lease was never assigned to any corporate entity. The lease expired on April 30, 2015.

[5] Greg and Steve Crate were the principals of the debtor companies, which I will refer to collectively as Crate Marine. The Marina was one of several locations operated by Crate Marine.

[6] On November 21, 2014, the Receiver was appointed as interim receiver of Crate Marine. That appointment became a full-blown receivership by order of the court dated December 8, 2014. Shortly after November 21, 2014, the Receiver changed the locks at the Marina. 212 made a request for a key. In early December, 2014 the Receiver granted 212 access rights to the Marina subject to certain terms. Those terms included:

(a) access to be for emergency purposes only;

(b) Receiver could take away access at any time;

(c) access required notice to the Receiver;

(d) 212 would not permit unauthorized access to Marina;

(e) 212 would not use the access to assert any rights as landlord against Marina; and

(f) 212 would report to the Receiver if it became aware of any out of the ordinary course of business activity taking place at the Marina.

[7] As noted by the Receiver in its Third Report of February 8, 2015, upon issuance of it appointment order, the Receiver “took possession of” the various Crate Marine properties (including the Marina) and “secured ongoing utility, insurance and other services in the Receiver’s name.”

[8] It is clear from the evidence that 212’s consistent position, from at least December 22, 2014 onwards, was that it was owed occupation rent of $66,821.66 per month.

[9] It is also clear that the Receiver’s consistent position throughout was that it was not liable for occupation rent.

[10] Although there were brief discussions in mid-December 2014 about a new or extended lease, nothing was agreed. 212 pursued its own initiatives and on January 15, 2015, announced that it had entered into a new lease of the Marina, effective May 1, 2015, with Pride Marine Group.

[11] 212 initially took the position in the receivership proceedings that that, by virtue of the lease being with Greg and Steve Crate personally, the Marina did not fall within the scope of the Crate Marine receivership at all. Newbould J. recommended in his December 8, 2014 endorsement that the principal lenders, Crawmet, the Receiver and 212 engage in discussions and ordered that, if no agreement could be reached, the issue of carving the Marina out of the receivership could be brought back on. No agreement was ever reached but 212 did not pursue this issue in any further proceedings.

[12] On April 30, 2015, however, 212 sought and was granted leave to bring its motion for occupation rent by way of notice of motion within the receivership proceedings.

[13] I was advised that the Receiver was unsuccessful in attracting an acceptable bid for the Crate Marine business. Crawmet’s stalking horse bid, through Krates Keswick Inc., won the day. As a result, KKI owns the remaining Crate Marine operations and is, effectively, competing against Pride’s marina operation at Lagoon City. Crawmet has effectively indemnified the Receiver in this proceeding and will, as a result, be the payor of any occupation rent found to be due and owing to 212.

[14] It was common ground that, although marina activity obviously slows down considerably in the winter, part of the Crate Marine operation at the Marina involved the winter storage of boats. The Receiver’s principal purpose in securing the Marina site was, in fact, to protect the buildings, equipment and the boats stored at the Marina for the winter (almost all of which were owned by third parties). The Receiver collected a modest amount through fees paid by third party boat owners to Crate Marine for winter storage at the Marina.

[15] As it happened, 212 and its new tenant, Pride, had a significant economic interest in these boats remaining on site until April 30, 2015. This is because, in all likelihood, boat owners who had chosen the Lagoon City location would elect to remain there under new management in the spring. Indeed, 212 took the position that, because of its economic interest in this continued custom from existing owners with boats stored on the Marina site, the Receiver was prohibited from removing boats from the Marina.

[16] Another important circumstance surrounding this dispute is that the Marina lease included not only the land and buildings but “all machinery and equipment, including without limitation the travel lift.”

[17] Disputes almost immediately arose (and remain outstanding) between 212 and the Receiver over which equipment at the Marina as of December 8, 2014 was owned by 212 and which by Crate Marine.

[18] As early as January 2015, 212 filed a proof of property claim for all machinery and equipment at the Marina site. 212 took the position, as a result, that the Receiver was prohibited from removing any equipment from the Marina.

[19] As early as 2010, the Crates were in arrears of Marina rent to 212 of up to $773,870. Some payments against the arrears were accomplished but by December 8, 2014, 212 was still owed arrears of rent of some $501,950. The evidence is that no payment had been received at all since July 2014. There is no explanation for why this level of arrears and pattern of non-payment was permitted to remain outstanding for so long.

[20] The evidence also shows that all known payments of rent to 212 were made by Crate Marine Sales Limited. There is no evidence that Greg and Steve Crate ever paid the rent personally. The available evidence shows that all costs and revenues associated with operations at the Marina were booked by Crate Marine Sales Limited.

[21] An action for use and occupation of property is generally founded on the principle of an implied agreement by an occupier to pay for the use of the occupied property. This principle has sometimes been expressed as a “presumption” that when there is occupation by one person of premises belonging to another, by express or implied permission, reasonable compensation for the use has been agreed between the parties. Since Bank of Montreal v. Steel City Sales Ltd., 1983 CarswellNS 47, it has been accepted that a court-appointed receiver is bound by the same general principle; a person is bound to pay rent when they occupy and use premises belonging to someone else (at para. 29).

[22] More recently, in Beatty Limited Partnership (Re) (Bkcy.), 1991 CanLII 7260 (ON SC), Steele J. articulated the necessary act of occupation as requiring some form of deprival of use, saying :

In my opinion the deprivation by the trustee of the landlord's right of possession is the same as actual occupation by the trustee. It is a question of fact in each case whether or not the trustee actually occupied or deprived the landlord of his right of use of the premises.

[23] A review of the authorities confirms that liability for occupation rent very much turns on the facts of the particular case. A number of factors have been deemed relevant to this determination, however:

(1) changing the locks;

(2) keeping assets of the estate on the premises;

(3) bringing prospective buyers to the premises;

(4) employing persons to perform maintenance work on the premises; and

(5) employing persons to take inventory of the premises.

[24] In the present case, although the Receiver changed the locks, 212 was given the key. It is true that 212’s access was regulated to some extent. It is not been shown, however, that the conditions of access imposed by the “key agreement” deprived 212 of a use to which it was otherwise entitled. By virtue of Newbould J.’s December 8, 2014 endorsement, 212 was entitled to bring on its motion that the Marina should not be part of the receivership at all, but it never did so. Nor has it been shown that 212 would have done anything differently than the Receiver did upon its appointment to secure the property.

[25] The case of Sasso v. D.A. MacLeod Co., 1991 CarswellOnt (Gen Div), on which 212 relies heavily as an analogous case is, in my opinion, distinguishable on its facts. In that case, the landlord could not enter into a new lease without first allowing the trustee to exercise its rights in relation to the premises. Here, due to the pending expiry of the lease, there was no such limitation. 212 in fact found a new tenant and entered into a new lease with that tenant.

[26] Also, unlike the Sasso case, the Receiver was not keeping material Crate Marine assets on the premises in hopes of selling the business as a going concern. By 212’s own admission, most of the assets on the premises were either 212’s or belonged to third parties. 212 took the position that the Receiver was prohibited from removing any machinery, equipment or stored boats owned by third parties from the Marina site. The Receiver acquiesced in that demand.

[27] There is no evidence the Receiver brought prospective purchasers to the premises. Indeed, the evidence is that 212 brought prospective tenants to the premises and, as discussed earlier, concluded a new lease arrangement with one of them.

[28] One of 212’s central arguments is that the presence of the stored boats blocked or obstructed access to launch facilities and the like. But it was winter; no one was launching boats. And the very thing 212 complains of – the presence of the stored boats creating a so-called obstruction – was regarded by 212 is one of its assets or at least necessary for its financial interest. 212 insisted that the Receiver not remove stored third-party boats from the site.

[29] Finally, while the Receiver did employ former Crate Marine people at the site, they were there almost solely for the purposes of security; security, I might add, which was almost entirely for the benefit of 212, since most of the assets on the site were claimed by 212 as its property or as being subject to its financial interest.

[30] On the threshold question, therefore, I find the Receiver did not “occupy” the premises in the sense necessary to attract liability for occupation rent. For this reason, the motion is dismissed.

[31] The Receiver also argued it could not be liable to 212 for occupation rent because the tenants were Greg and Steve Crate, who were not subject to the receivership.

[32] The Receiver relied for this argument on Re Checkout Food Marts Limited, 1975 CarswellOnt 115. In that case, Henry J. held that there was no obligation on the part of a trustee to pay occupation rent for premises leased by an entity not in bankruptcy. “[T]he landlord,” he wrote, “has no claim against the occupier so long as the head lease continues in existence and no dealings between the landlord and the occupier take place that have the effect of substituting the occupier for the original tenant.”

[33] Had it been necessary to do so, I would have held that because Crate Marine Sales Limited in fact operated from the Marina, actually paid the rent and booked Marina revenues and costs, there was a sufficient nexus with 212 to make Crate Marine Sales Limited liable to 212 for the use of that property. Accordingly, I would have found that one of the exceptions specifically identified by Henry J. (payment of rent by the occupier to the landlord, who accepts it) applied here so that the core principle of Re Checkout Food Marts has no application.

[34] On the second issue, had the result been different, I would have held that the rent provided for in the lease is the best evidence of market rent, such that if occupation rent were owing, it should be valued at $319,016 less whatever amounts the Receiver paid for utilities etc. that would otherwise have been included in the amount of rent under the lease.

[35] In conclusion, the motion is dismissed.

[36] I encourage the parties to reach an accommodation on costs. In the absence of an agreement, the Receiver may submit a brief written submission, not to exceed two typed, double-spaced pages, together with a bill of costs, within seven days. 212 may file a responding submission, subject to the same page limit, within a further five days.

Penny J.

Date: October 14, 2015