Court File and Parties

Court File No.: CV-16-547377 Date: 2016-07-21 Ontario Superior Court of Justice

Between: Merly Maria Castillo, Applicant And: Salvatore Cancelli and Anna Cancelli, Respondents

Counsel: William J. Burden and Caitlin Russell, for the Applicant Scott Turton, for the Respondents

Heard: June 24, 2016

Before: G. Dow, J.

Reasons for Decision

[1] This Application (and Cross-Application) seeks to determine the meaning of a clause in a one page, lay person drafted “Commercial House Lease Agreement” (“Lease”) dated April 19, 2012, which neither party drafted. By way of background, the Applicant (and Cross-Respondent), Merly Maria Castillo (“Ms. Castillo”) purchased a variety store business operating on the main floor and basement of 1602 Dufferin Street in April, 2012, from Jianshi Wu. The Respondents (and Cross-Applicants) Salvatore and Anna Cancelli, (“the Cancelli’s”) bought the property May 30, 2013, from Amy Hong Shao (“Shao”). The Cancelli’s were aware of the convenience store operating on the premises and were provided with a copy of the Lease which states in Clause 1:

“Period 5 years, start 01 day of Feb. 2011 to 30 day of Jan 2016. From 01 day of Feb. 2016 later, the tenant has the 5 years priority to rent the property.”

[2] Salvatore Cancelli deposed and was cross-examined that neither the real estate agent or the lawyer they dealt with suggested this meant it granted the tenant a right to renew the Lease for the additional 5 year period.

[3] Ms. Castillo came to Canada from the Philippines in 1988 and worked cleaning houses. She lives in the neighbourhood with her husband and learned of the store being for sale from the previous owner-operator when she went into the store to buy something. She now works in the store as an owner-operator 7 days a week with some assistance from her husband. Ms. Castillo has a degree in accounting from a university in the Philippines. The “Buy/Sell Agreement” to purchase is also a one page document subject to a second page listing items that were included (or not) in the sale.

[4] Both the Lease and the Buy/Sell Agreement reflect a direct, without lawyer assistance approach to drafting the terms of the agreement. Ms. Castillo has made efforts to sell the business (at a profit) using the purported option to renew as having value.

[5] The Cancelli’s also live in the neighbourhood with Salvatore Cancelli retiring from a teaching position in the Toronto Catholic School Board in 2015. His spouse, Anna, retired from a position in the Ontario Government at the end of 2001. Mr. Cancelli was cross-examined on their intention to build and operate a small Italian-style fast food restaurant with their son at this location given its proximity to Corso Italia on St. Clair Avenue West, a short distance to the north as well as a nearby school and library.

[6] The property has residential apartments above the ground floor which the Cancelli’s admit provide additional rental income.

[7] In cross-examination on his affidavit, Mr. Cancelli testified the advice from the lawyer acting on the real estate transaction was this “deal is a mess”. The Lease was “not really in good English and anybody can make his own understanding of this”. The lawyer advised them to “go somewhere else and have it understood”. No legal opinion was obtained before the real estate transaction was completed.

[8] The issue between the parties came to a head after Ms. Castillo presented a prospective purchaser of her business to the Cancelli’s under Clause 10 of the Lease which states:

“The tenant have the right rent to other people to operation, but ask and get permission by the landlord. The landlord have the priority to adjust the rent, but should keep in the reasonable range and did not affect the formal operation of the business”.

This was met with a letter from the Cancelli’s to Ms. Castillo dated October 22, 2015, advising the Lease was not going to be extended and vacant possession was required effective January 30, 2016.

[9] By letter dated November 18, 2015, Ms. Castillo exercised “my option to renew my Lease on the same terms and conditions for a period of 5 years commencing February 1, 2016”.

Issue: Meaning of “5 years priority to rent the property”

[10] The word “priority” appears in the Lease document three times, two of which are referenced above. The third is in Clause 9 which states:

“The landlord keep the priority to adjust price of water, hydro, and the gas, after discuss with the tenant, the range of the adjustment should be lower than the range of province allowed”.

[11] The parties agreed as part of the analysis for contractual interpretation, the word “priority” should be given the same meaning wherever it appears in the document. Ms. Castillo submits “priority” should and can effectively be determined to mean “right of” or “absolute right”. However, the word “right” also appears in the document on four occasions and, as submitted by the Cancelli’s, substituting “right” for “priority” requires an analysis of how that affects the purpose and meaning of this alternate word where it appears.

[12] The word “right” is used in Clauses 4, 5 and 12 in addition to Clause 10 repeated above. In Clause 4, after contemplating the tenant adding items that increase the use of water and electricity “the landlord have the right to adjust” the tenant’s contribution to paying the electricity and water bills by comparing the amount to the previous years’ bills. In Clause 5, the “tenant have the right to decorate the store and the basement, but negotiate with landlord first”. In Clause 12, the “original document and copy have the same right by the law”.

[13] The parties also agree the general rules of contractual interpretation are set out in the decision of the Court of Appeal in Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205 and requires (at paragraph 24) interpretation of it:

“ (a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective; (b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the “cardinal presumption” they have intended what they have said; (c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract), (d) in the fashion that accords with sound commercial principles and good business sense, and that avoid a commercial absurdity.”

[14] In this regard, my first conclusion would be that although the Cancelli’s did not draft the Agreement, the only evidence about who drafted the Agreement is from Ms. Castillo who testified and was cross-examined about it being drafted by the previous landlord, Shao. As a result, should there be an ambiguity on the intention or meaning of a clause, the issue should be determined by construing the clause in favour of the party that did not draft it.

[15] With regard to giving meaning to the first clause, providing for an additional five years occupation to the tenant, I am concerned that holding it does not give the tenant the option to renew renders the clause ineffective. The parties acknowledge that Ms. Castillo had the ability to match any tentative agreement to rent the premises as a convenience store to another. It also seems the original parties to the agreement did not contemplate the possibility of the landlord not seeking to re-rent the premises which the Cancelli’s seek to rely on in support of its position, to exclude Ms. Castillo from the premises. I note the Cancelli’s had the option to marshal evidence from the previous landlord, Shao of her actual intention, as the drafter of the document, and chose not to do so.

[16] With regard to the second aspect of the analysis and determining the intention of the parties that they intended what they have said, I would conclude as above. That is, the possibility of the landlord not seeking to re-rent the premises was not considered. Further, I am troubled by the fact if the Cancelli’s position is to succeed, they can effectively evict Ms. Castillo for the briefest period of time, change their plans and re-rent the premises as a convenience store which would be completely contrary to the agreement reached between the parties to the Lease.

[17] Regarding the third aspect and the need for objective evidence of the factual matrix, one could raise the fact that the Cancelli’s have not moved forward with their plan to construct and operate an Italian style fast food restaurant. I accept that they have not done so given the necessity to determine whether their right to do so begins in 2016 or 2021. I remain troubled by the fact they have failed to provide evidence from the previous owner, Shao as the drafter of the Lease (or why it is not available) that she contemplated the 5 year option clause as restricted to the situation where the existing tenant had only the right to match a third party offer to lease the space. This, in my view, is completely contrary to the straightforward and direct nature of the entire document.

[18] With regard to the need to apply sound commercial principles and good business sense, my conclusion is that the landlord has accepted an amount for rent, with potential for increases if expenses such as the utilities rose and made the arrangement not profitable. The tenant agreed to pay an amount for rent that provided for the opportunity to be profitable but also protected its need to maintain the business at the location it was operating in and for a period of time that offered some stability.

[19] As a result, I conclude Clause 1 of the Lease provides the tenant with the option to renew the lease for the five year period February 1, 2016 until January 31, 2021.

[20] In my view, this interpretation does not render the use of the word “priority” where it appears elsewhere inappropriate or absurd.

Costs

[21] The parties agreed the successful party should be awarded costs in the amount of $7,500 inclusive of fees, HST and disbursements. I agree this amount is appropriate and same is awarded payable by the Cancelli’s to Ms. Castillo forthwith.

Mr. Justice G. Dow Released: July 21, 2016