ONSC 2682 COURT FILE NO.: CV-16-95 DATE: 2016-04-21

ONTARIO SUPERIOR COURT OF JUSTICE

In the matter of Commercial Tenancies Act, R.S.O. 1990, Chapter L.7.

B E T W E E N:

LAKEHEAD ROOFING & METAL CLADDING LTD.

Rosa Carlino, for the Applicant

Applicant

• and -

1304808 ONTARIO INC.

Daniel Matson, for the Respondent

Respondent

HEARD: March 24, 2016, at Thunder Bay, Ontario

Mr. Justice W.D. Newton

Decision On Motion

Overview

[1] This is an application by a commercial tenant for a declaration that the landlord has wrongfully distrained assets and equipment of the tenant or, alternatively, for a declaration that the landlord has excessively distrained the assets and equipment of the tenant.

[2] The parties agree:

1. That there had been a distraint; and,
2. That if the tenancy had been terminated then the distraint was unlawful.

[3] The parties disagree on whether:

1. Rent was in arrears;
2. The tenancy was terminated at the time of distraint; and,
3. The distraint was excessive.

[4] The tenant submits that these factual disputes can be resolved on the present record. The landlord submits that a trial is required to resolve one or more of these factual disputes.

[5] By way of background, it is relevant that Mr. Perrier, a director of the landlord, is also a 20% shareholder of the tenant. Mr. Perrier deposed that in late 2015 “the respondent and applicant (along with various directors and shareholders) ceased to get along” and that “the relationship deteriorated to the point that by the end of January 2016, the parties could no longer operate together.” Those circumstances led to the landlord delivering a notice to the tenant on January 29, 2016, terminating the tenancy effective February 29, 2016.

1. Was the rent in arrears?

[6] Mr. Brescia, president of the tenant, deposed that there was not a written lease agreement between the parties and that, in the past, the landlord would invoice the tenant at the end of the month for that month’s rent and utilities although invoices were not regularly delivered by specific dates. Further Mr. Brescia deposed that the tenant was “regularly provided leniency for payment… allowing 30 to 60 days after receipt of invoice.”

[7] Mr. Perrier, director of the landlord, deposed that the lease agreement provided for monthly rent of $5290 and the tenant’s pro rata share (60%) of utilities. He deposed that on February 12, 2016, he delivered a distraint notice and statement to the tenant setting out arrears of rent and utilities at $66,291 to February 29, 2016. That statement references five invoices but only the invoice for February rent, dated February 1, 2016, and the invoice for January and February utilities, dated February 12, 2016, were attached to the statement. It is apparent, therefore, that at least utility costs were not billed monthly. It is not clear, on the record before me, whether the other three invoices were delivered to the tenant. Mr. Brescia deposed that February 12, 2016 was the first time that the tenant had received this invoice and that there were no arrears of rent at that point.

[8] In response to the distraint notice, the tenant paid $59,951.98 to the landlord representing rent and utilities up to February 10, 2016.

[9] On the face of it, it appears that some rent may have been in arrears but the actual amount in arrears will depend upon the timing of the delivery of the invoices. To determine the actual arrears owing at the time of distraint will require further production, discovery and evidence, either by affidavit and cross-examination or oral evidence at trial. The amount of rent in arrears is obviously relevant to the third issue, whether the distraint was excessive.

2. Was the tenancy terminated at the time of distraint?

(a) Termination of the lease

[10] The notice given January 29th 2016 provided:

NOTICE OF TERMINATION OF LEASE

TO: Lakehead Roofing & Metal Cladding Ltd. (the “Tenant”)

RE: Premises occupied by Lakehead Roofing & Metal Cladding Ltd. municipally known as 1450 Rosslyn Road, Thunder Bay, Ontario (the “Premises”)

Notice is hereby given by the undersigned, Landlord that the tenancy by which you occupy the Premises is hereby terminated effective February 29, 2016.

You are required to vacate the Premises on or before that date.

Dated: January 29, 2016 1304808 Ontario Inc.

Per: ­­­­­­­­­­­­­­­­­­­­­­­­­­­­________________________ Ken Perrier, Secretary-Treasurer

(b) Restriction of access to the premises

[11] Mr. Perrier deposed that, after sending the notice of termination, one of the other tenants, Perhol Construction, informed him that some of their property was missing and that the shared front gate to the premises was left unlocked. Again, it is relevant to note that Mr. Perrier is a partner in Perhol Construction. Mr. Perrier deposed that, for security reasons, he delivered a notice to the tenant advising that the locks were being changed but that the tenancy was not being terminated.

[12] The notice sent on February 10, 2016, provided:

To: Lakehead Roofing & Metal Cladding (the “Tenant”)

Re: Changing of Locks at 1450 Rosslyn Road, Thunder Bay, Ontario (the “Premises”)

Notice is hereby given by the undersigned, Property Manager that the locks at the Premises you are a tenant at are being changed effective February 10, 2016.

The reason for the change is that the Property Manager has been informed by the other tenants of the building that some of their property has gone missing and that on 2(two) occasions the Premises have been left unsecured and the lights have been left on.

As the property manager we will be taking care and control of the property in the best interest of the Tenants. The property will have full access to all tenants from 7:00am to 5:00pm Monday to Friday for the tenants to operate their business as usual. If access is required in the evening, weekends or holidays please contact the Property Managers lists below with 24 hrs notice.

Sorry for any inconvenience this may cause, but in the best interest of all the business and their property we feel this is required.

Contact info:

Ken Perrier Email: perhol@tbaytel.net Cell: 807-626-3656

Jim Hollinsworth Email: jhperhol@tbaytel.net Cell: 807-626-6545

Sincerely.

Property Manager 1304808 Ontario Inc.

Per: ­­­­­­­­­­­­­­­_____________________________ Ken Perrier, Secretary-Treasurer

(c) Notice of distraint

[13] Two days later, on February 12, 2016, the landlord delivered the notice of distraint and the February 12, 2016, statement previously discussed. The notice of distraint provided as follows:

Notice to Tenant

To: LAKEHEAD ROOFING & METAL CLADDING LTD. (“Tenant”)

RE: Premises at 1450 Rosslyn Road, Thunder Bay, Ontario

The goods and chattels on these premises have been destrained for non-payment of rent, pursuant to provisions of a lease between the Tenant and 1304808 Ontario Inc., and provisions of the Commercial Tenancies Act. R.S.O. 1990, Ch.L.7.

And take further notice that if you do not within five days of this distress, pay the rent arrears and costs, they will be appraised, advertised, and sold to satisfy the landlord’s claim and costs.

And take notice it was necessary for the protection of the goods and chattels and for the protection of the lessor’s right to distress that the locks to the premises be changed. In spite of the change of locks by the landlord, for the protection of the goods and chattels, this does not constitute the termination of your lease until February 29, 2016. Your rights as tenant to the premises continue to be recognized, and you may upon request to the landlord re-enter the leased premises and continue to occupy and use them and redeem your goods and chattels upon payment of the rent arrears plus costs and charges.

Dated this 12th day of February, 2016.

1304808 Ontario Inc.

Per:

KEN PERRIER

The Law

[14] In Falwyn Investors Group Ltd v. GPM Real Property, [1998] O. J. No. 5258 Lederman J. in dealing with similar circumstances noted:

(i) Changing of the Locks

18 A distraint is illegal where the landlord has re-entered the premises and thereby terminated, or forfeited, the lease. Practically, re-entry may be effected by the changing of the locks upon the premises. However, the mere act of changing the locks alone is not determinative of a forfeiture of a lease. The landlord must deprive the tenant of possession as well. (See Glenmac Corp. v. McGonigal (1991), 115 A.R. 55 (C.A.); Commercial Credit Corp. v. Harry D. Shields (1980), 29 O.R. (2d) 106 (H.C.J.), aff'd (1981), 32 O.R. (2d) 703 (C.A.); Mundell, supra; Rawlins v. Monsour (1978), 20 O.R. (2d) 705 (C.A.)).

20 In Commercial Credit, supra, the tenant was in receivership and had vacated the leased premises. The receiver returned the keys to the premises to the landlord in an attempt to surrender, or disclaim, the lease. The landlord accepted the keys but refused to accede to the receiver's contention that the lease was surrendered. The receiver was advised, verbally and in writing, that the lease was continuing in force. The landlord then took the further step of changing the lock on the premises to secure any remaining goods. A notice posted by the bailiff concerning the distraint indicated that security concerns required controlled access and that the tenant could arrange access to the property by contacting the landlord.

21 Holland J. found that there was no intention on the part of the landlord to terminate the lease. As stated at 114:

It appears to me on the evidence of Hawes that there was no acceptance of a surrender of the lease. He accepted the keys but took the position verbally and through the solicitors for the company, and in the wording of the notice posted by the bailiff that the tenancy was still in effect. (Emphasis mine.)[Emphasis added]

[15] The language of the notice posted in the Commercial Credit case is very similar to the language used in the landlord’s distraint notice in this case.

Analysis

[16] I conclude that the landlord, in changing the locks, did not deprive the tenant of possession. Although inconvenient, the notice provided that the tenant was to have full access from 7 a.m. to 5 p.m. on weekdays and after hours, on 24 hours’ notice.

[17] I conclude, therefore, that the tenancy was not terminated at the time of distraint.

3. Was the distraint excessive?

[18] I have already concluded that the amount of arrears, if any, cannot be determined on this record.

[19] Mr. Brescia, on behalf of the tenant, deposed that the approximate value estimated by the landlord for the chattels being held for distraint is approximately $178,000. Mr. Brescia estimated that the total value of equipment and chattels being held for distraint is in excess of $250,000. That estimate is only an assertion without particulars. To conclude whether the distraint was excessive requires both a determination of the arrears and the value of the goods distrained. I conclude that further evidence is required to determine the extent, if any, of excessive distraint.

Disposition

[20] The resolution of the first and third issues requires further evidence. If there is a finding that there were no arrears of rent or a finding of excessive distraint then the tenant will be entitled to damages. Proof of damages will also require a trial.

[21] I direct that this application proceed as follows:

1. Within 30 days the tenant shall serve a statement of claim seeking damages;
2. The statement of defence shall be delivered within 20 days thereafter;
3. Within 20 days from the delivery of the statement of defence each party shall deliver a sworn affidavit of documents;
4. Discoveries, if required, are to be completed within 90 days thereafter; and,
5. Either party may set the action down for trial once discoveries are completed.

[22] Costs of this application are reserved to the judge disposing of the action.

[23] I wish to make one brief comment about the conduct of counsel. During the argument, counsel for the landlord delivered case authority to me and, at the same time, to counsel for the tenant. While the authority was not novel it is my expectation that counsel will provide authority that they intend to rely upon to opposing counsel at the earliest opportunity and not during argument. I note that counsel for the tenant delivered a brief of authorities well in advance of the return of this application. Such an exchange of authority ensures that the court will have thorough and prepared submissions on the law so that there can be a just determination of the legal issues on the merits.

[24] By endorsement dated March 25, 2016, I ordered that the contempt motion returnable May 12, 2016, should not be heard by me. This was based on the fact of my prior professional involvement with some of the counsel representing one of the parties. I became involved initially because I was the only a judge available in motions and the parties agreed that it was appropriate for me to deal with some of the procedural aspects of this dispute early on. As I have directed a trial I wish to confirm that, in the interests of the appearance of justice, I should not hear this action or related motions.

“Original signed by”____ The Hon. Mr. Justice W.D. Newton

Released: April 21, 2016

ONSC 2682 COURT FILE NO.: CV-16-95 DATE: 2016-04-21 ONTARIO SUPERIOR COURT OF JUSTICE In the matter of Commercial Tenancies Act, R.S.O. 1990, Chapter L.7. B E T W E E N: LAKEHEAD ROOFING & METAL CLADDING LTD. Applicant - and - 1304808 ONTARIO INC. Respondent DECISION ON MOTION Newton J. Released: April 21, 2016 /cs