Velouté Catering Inc. v. Bernardo, 2016 ONSC 7281
CITATION: Velouté Catering Inc. v. Bernardo 2016 ONSC 7281
COURT FILE NO.: CV-16-550119
DATE: 2016/11/29
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
VELOUTÉ CATERING INC. c.o.b. VELOUTÉ BISTRO AND CATERING and ALISE MATOS
Applicants
– and –
LYDIA BERNARDO and FRANK BERNARDO a.k.a. FRANK BERNARDO CIDDIO
Respondents
COUNSEL:
R.B. Bissell, for the Applicants
M.A. Handler and E. Evangelista, for the Respondents
HEARD: September 20, 2016
REASONS FOR DECISION
INTRODUCTION
[1] The Respondents, Frank Bernardo Ciddio (“Bernardo”) and his mother Lydia Bernardo, own a two-storey, semi-detached building (the “Property”). The second floor of the building is a residential apartment where Bernardo resides. The ground floor, the basement and the patios at the front and back of the building have been used for a restaurant (the “restaurant premises”) for many years. Bernardo operated a restaurant on these premises until 2007. A subsequent operator of the restaurant went out of business in about 2011.
[2] Bernardo approached Alise Matos and her spouse Fawzi Kotb about operating a restaurant on the ground floor of the Property. Pursuant to a lease dated April 20, 2011 (the “Lease”), they agreed to rent the restaurant premises through Velouté Bistro & Catering, which is a company controlled by Matos.
[3] The Lease was for a five-year term with a right to renew for a further five-year period. The Lease required that the right to renew be exercised by October 20, 2015. However, Velouté did not provide such written notice until January 18, 2016. It is the Applicants’ position that it is not just for Bernardo to insist on strict compliance with this pre-condition to the right to renew the Lease given that he incorrectly told them on two occasions that the Lease, in effect, did not expire until April 2017. They submit that the renewal deadline of October 20, 2015, passed while they were under the impression that the Lease did not expire until April 2017.
[4] The Applicants seek an order declaring that the Lease has been renewed or, in the alternative, an order granting relief from forfeiture in connection with the time and manner of exercising the option to renew the Lease.
[5] For the reasons given below, I have granted the Application.
BACKGROUND
[6] The Lease states:
Provided that Tenant is not then in default under this Lease, the Tenant shall have the right to renew the term of this Lease for a further term of Five (5) years commencing on the day after the last day of the then current term of this Lease and upon the same terms and conditions as set out in this Lease except the amount of Minimum Rent payable during the applicable renewal term in question, which shall be, in each case, determined at the market rent for similar space in the market area of the Leased Premises at the time of the applicable renewal as the last day of the then current term of this Lease… The Tenant shall exercise its right to renew this Lease in each such case by giving written notice thereof to the Landlord not less than Six (6) full calendar months prior to the last day of the then current term of this Lease or such right shall be lost. [Emphasis added.]
[7] Kotb states that he and Matos sought a total term of ten years, as they anticipated spending a significant amount of money on repairing and improving the restaurant premises. Kotb estimates that they have invested about $100,000 in the restaurant with about $60,000 of that amount spent on repairs and improvements to the premises.
Informal Dealings between the Parties
[8] The parties were friendly, if not friends, for many years. Kotb immigrated to Canada in 2000. Bernardo has known Matos for about 25 years and Kotb for about 15 years. Matos and Kotb worked for Bernardo in his restaurant. Bernardo was Kotb’s best man at his 2005 wedding to Matos. Bernardo lives in the apartment above the restaurant. Kotb noted that, on occasion, Bernardo would help in their restaurant if they were short-staffed.
[9] The Lease required that Velouté provide the Respondents with written notice of any improvements or repairs to the Property prior to make such repairs or improvements. There is no dispute that Velouté made improvements to the Property following discussions with Bernardo but without providing prior written notice.
Bernardo’s Mistaken Belief that Lease Ends in April 2017
[10] There is no dispute that Bernardo told Kotb on two occasions that, in effect, the Lease would end in April 2017, rather than April 2016.
[11] First, on April 29, 2015, Bernardo sent a letter to Matos and Kotb congratulating them on entering their fourth year of the Lease. The letter then went on to deal with the rent for the upcoming year. It states:
Re: Year 4 Rent
Dear Fawzi and Alise,
Congratulations on entering your 4th year operating as Veloute Bistro and Catering. The lease amount will be increasing as at your June 1st payment as per the Lease agreement.
The new rent will be as follows:
Base rent: $2,066.67 TMI: 1,395.62 HST: 450.10 Total: $3,912.39 Please provide cheques for:
June 1, 2015 [to]
December 1, 2015 We will not cash the cheques prior to the due date and if you request a few more days to deposit, we will acknowledge your request.
[12] Second, on November 10, 2015, Bernardo and Kotb exchanged the following text messages:
Kotb at 11:34 a.m.: Good morning everyone, as we been almost close to the end of the first 5 years. Happy we almost be able to go through this area but we will be happy to keep going together as a tenant for 2343 Queen street east so we will love to meet together all hopefully by end of the month on a Sunday afternoon as everyone can have some time and will be great meeting to talk about the future. Thank you for working together and looking for more years to come please let us know which Sunday can work for us all thanks and have a great day.
Bernardo at 1:39 p.m.: The end of your 4th year is in April 2016, for the lease
Kotb: Really I thought we are 5…so let’s ignore my previous message to all
Bernardo: Who did u send the messages to?
Kotb: Alise and your mom…
[13] Both Bernardo and Kotb testified that they checked their respective copies of the Lease later on November 10, 2015, and satisfied themselves that the Lease was, in fact, in its fifth year.
Kotb’s Attempts to Discuss Renewal of the Lease with Bernardo
[14] Kotb testified that he had many discussions with Bernardo about renewing the Lease.
[15] The first of these discussions occurred in July 2014. He also stated that later in the summer of 2014, he often told Bernardo that he looked forward to many more years at that location. Kotb stated that Bernardo refused his offer to buy the Property.
[16] Kotb testified that in the summer of 2015, he discussed constructing a back deck to the restaurant with Bernardo. He told Bernardo that he would only construct the deck if he was going to be a long-term tenant.
[17] Kotb recalled that each time he asked about Lease renewal issues, he was told by Bernardo that they were in the fourth year of the Lease so they did not have to deal with it: see Kotb’s Cross-Examination Transcript, Question 190; Affidavit of Kotb, at para. 25.
[18] Kotb also stated that on October 17, 2015, he met with the Respondent Lydia Bernardo at her home because Bernardo was upset at how Velouté was using the garage it shared with Bernardo. Amongst other things, Kotb testified that he told Lydia Bernardo that he wished to renew the Lease. In cross-examination Kotb confirmed that he knew that the Lease was in its fifth year when he spoke with Lydia Bernardo. Kotb further stated that Bernardo sent him a text message on October 18, 2015. Kotb testified that his responding text message on that day referred to the renewal of the Lease.
[19] When asked why he did not just send a note on October 18, 2015, confirming that Velouté had chosen to renew the Lease for a further five years, Kotb stated:
We never send note to each other about something like that. It’s always verbal talk and meeting, as a friend, and best man.
[20] Kotb testified that on October 18, 2015, he asked, by text message, to meet with Bernardo on October 21, 2015. However, Bernardo was busy and unavailable and they did not meet until November 29, 2015.
[21] Bernardo denies that he discussed the renewal of the Lease with Kotb prior to the expiry of the renewal option on October 20, 2015: see Bernardo’s Cross-Examination Transcript, Questions 82-88, 94, 108-109, 112. Bernardo states that the renewal of the Lease was only discussed on November 10, 2015, after both he and Kotb realized that the lease was in its fifth and final year: see Bernardo’s Cross-Examination Transcript, Questions 92-93. I prefer the evidence of Kotb over Bernardo’s evidence where they differ. In cross-examination, both on his affidavit and at the hearing before me, Bernardo’s recollection of events was shown to be inaccurate on more than one occasion, whereas Kotb’s evidence was presented in a straightforward and consistent manner.
[22] Accordingly, I find that Bernardo’s belief that the Lease was in its fourth year continued from his letter dated April 29, 2015 through to November 10, 2015. Further, I find there were many discussions between Kotb and Bernardo regarding the renewal of the Lease in 2014 and 2015, prior to November 10, 2015.
Plans for the Redevelopment of the Property
[23] In the first week of November 2015, Bernardo met with a commercial real estate agent to discuss the potential redevelopment of the Property. He also called an architect to prepare preliminary drawings, which were delivered to Bernardo later that month. Bernardo admitted on cross-examination that he believed that the Lease was in its fourth year at the time that he retained the architect to prepare these plans. He admitted that he was not relying on the Lease being at an end in April 2016, when he sought to have the plans prepared. Bernardo then submitted an application for a building permit to the City of Toronto in January 2016. The redevelopment would be unable to proceed if the Lease were renewed: see Bernardo’s Cross-Examination Transcript, Questions 144-149, 188-191.
Meeting on November 29, 2015
[24] Bernardo and Kotb met on November 29, 2015. Bernardo told Kotb that the right to renew the Lease had expired: see Bernardo’s Cross-Examination Transcript, Question 142. Kotb testified that Bernardo told him that he had applied to add another apartment upstairs and that he expected to have a response from the City by the end of December 2015. Kotb was prepared to close the restaurant for several months while the apartment was being constructed if the application was approved. If the plan was not approved, Kotb testified that Velouté would renew the Lease.
[25] After no response had been received from Bernardo by January 15, 2016, Kotb and Matos hired a lawyer. Their lawyer sent a letter, dated January 18, 2016, to the Respondents that formally exercised the renewal option under the Lease. The letter states, in part, that:
This letter is to advise you that the Tenant hereby exercises its option to renew its lease at the Premises. As outlined in the lease agreement, the extended term shall run from May 31, 2016 to May 31, 2021.
My client advises me that they have previously attempted to negotiate a renewal of the lease pursuant to its terms, however you refused to meet with them as you were awaiting building permit decisions from the City of Toronto, and as you advised that the Tenant was only in its fourth year of the lease, and not the fifth. This conduct could very well permit the Tenant an extension to the deadline under the lease under the doctrine of waiver, or pursuant to equitable estoppel.
[26] This Application raises the following issues:
Did the Respondents waive their right to receive notice of the renewal of the lease by October 20, 2015?
If not, should relief from forfeiture be granted?
ISSUE #1: DID THE LANDLORD WAIVE STRICT COMPLIANCE WITH THE CONDITION THAT WRITTEN NOTICE OF THE LEASE RENEWAL BE DELIVERED BY OCTOBER 20, 2015?
[27] In W.J. Alan & Co. Ltd. v. El Nasr Export & Import Co., [1972] 2 Q.B. 189, at p. 213, Lord Denning M.R. explained the principles associated with the waiver of a term of a contract as follows:
The principle of waiver is simply this: If one party, by his conduct, leads another to believe that the strict rights arising under the contract will not be insisted upon, intending that the other should act on that belief, and he does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so: see Plasticmoda Societa per Azioni v. Davidsons (Manchester) Ltd. [1952] 1 Lloyd's Rep. 527, 539. There may be no consideration moving from him who benefits by the waiver. There may be no detriment to him by acting on it. There may be nothing in writing. Nevertheless, the one who waives his strict rights cannot afterwards insist on them. His strict rights are at any rate suspended so long as the waiver lasts. He may on occasion be able to revert to his strict legal rights for the future by giving reasonable notice in that behalf, or otherwise making it plain by his conduct that he will thereafter insist upon them: Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric Co. Ltd. [1955] 1 W.L.R. 761. But there are cases where no withdrawal is possible. It may be too late to withdraw: or it cannot be done without injustice to the other party. In that event he is bound by his waiver. He will not be allowed to revert to his strict legal rights. He can only enforce them subject to the waiver he has made.
[28] A landlord may be found to have waived its right to demand strict compliance with the terms of a renewal provision found in a lease if it has participated in negotiations for the renewal of the lease after the expiry of the time for the exercise of the option: see Petridis v. Shabinsky et al. (1982), 1982 CanLII 1829 (ON SC), 35 O.R. (2d) 215; Directors Film Co. v. Vinifera Wine Services Inc. (1998), 1998 CanLII 14658 (ON SC), 38 O.R. (3d) 212, at p. 217.
[29] In my view, this case is distinguishable from Petridis in that Bernardo’s conduct did not explicitly recognize the right to renew the Lease after the expiry of that option. Unlike Petridis, there was no offer from Bernardo to renew the Lease on certain terms. Also distinguishable is Directors Film, where the issue of tenancy was not “on the table” after the deadline for renewal of the lease had passed. Nor is this case similar to Barlow v. 1137098 Ontario Inc. (1996), 5 R.P.R. (3d) 304 (Ont. Gen. Div.), where a tenant told a sub-tenant that it was not required to sign anything to renew its lease but later took the position that the sub-tenant had not exercised its right to renew the sub-lease because it had not delivered a written renewal notice.
[30] Despite the casual course of conduct between the parties, described earlier, I am not satisfied that Bernardo’s conduct led the Applicants or Kotb to believe that the requirement to provide written notice of the renewal of the Lease would be not be insisted upon.
ISSUE #2: SHOULD RELIEF FROM FORFEITURE BE GRANTED IN RELATION TO THE TENANT’S FAILURE TO DELIVER A NOTICE OF RENEWAL BY THE DATE STIPULATED IN THE LEASE?
[31] The Lease grants Velouté the right to renew the Lease for a further five-year term provided that two conditions precedent are satisfied: (1) it is not in default under the Lease; and (2) it gives written notice of the renewal to the landlord not less than six months prior to the last day of the lease. There is no dispute that Velouté was not in default under the Lease when it delivered its notice of renewal. The Applicants submit that Velouté should be granted relief from forfeiture for its failure to deliver the written notice of renewal on October 20, 2015.
[32] In Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc., 2016 ONCA 93, 393 D.L.R. (4th) 690, the Ontario Court of Appeal noted, without resolving, conflicting authority regarding whether a court may grant equitable relief from the failure to comply with a condition precedent to the renewal of a lease. In Pacella v. Giuliana (1977), 1977 CanLII 1413 (ON CA), 16 O.R. (2d) 6, at p. 8, the Ontario Court of Appeal held that a court “… has power to relieve against forfeiture, but no power to excuse performance of conditions precedent”. Subsequently, in Ross v. T. Eaton Co. (1992), 1992 CanLII 7470 (ON CA), 11 O.R. (3d) 115, 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., [1993] O.J. No. 2801, and 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 2003 CanLII 57436 (ON CA), 67 O.R. (3d) 161, the Ontario Court of Appeal ruled that a court does have such authority. In 1383421 Ontario Inc., the court, at para. 80, stated:
The court’s equitable jurisdiction to grant the Tenant relief from a failure to renew the lease properly is limited. One condition necessary for the jurisdiction to be exercised is that “the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own”.
[33] Given the weight of authority, I find that a court does have the power to grant relief for failure to properly renew a lease.
[34] In my view, the circumstances favour the grant of relief from forfeiture for the following reasons.
[35] First, Bernardo was told many times by Kotb that Velouté wished to renew its Lease well before the October 20, 2015 deadline for delivering a written notice of renewal. At that time, Velouté was led to believe by Bernardo that it was only in the fourth year of the Lease and, thus, a written notice of renewal would not be required until October 20, 2016. I find that Velouté’s failure to provide written notice of renewal by the October 20, 2015 deadline was a result of Bernardo’s misstatements.
[36] Second, once Kotb became aware on November 10, 2015, that the Lease would expire in April 2016, he attempted to arrange an appointment with Bernardo to secure the extension of the Lease. Kotb and Matos also waited to hear back from Bernardo after the meeting regarding the Lease renewal. These steps were reasonable and diligent given the long, trusting and informal relationship that they shared.
[37] Third, I find that Velouté, Kotb and Matos had made a significant investment in improvements and repairs to the Property, which would be lost because of the failure to provide timely written notice.
[38] Accordingly, Velouté is relieved from its failure to strictly comply with the requirement that it provide the Respondents with a written notice of renewal by October 20, 2015.
CONCLUSIONS
[39] For the above reasons, I grant the Application.
[40] I encourage the parties to resolve the issue of costs, failing which the Applicants shall provide their costs submissions within one week and the Respondents shall provide their costs submissions within two weeks. Such submissions shall be no more than three pages.
Mr. Justice M. D. Faieta
Released: November 29, 2016
CITATION: Velouté Catering Inc. v. Bernardo 2016 ONSC 7281
COURT FILE NO.: CV-16-550119
DATE: 20161129
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
VELOUTÉ CATERING INC. c.o.b. VELOUTÉ BISTRO AND CATERING and ALISE MATOS
Applicants
– and –
LYDIA BERNARDO and FRANK BERNARDO a.k.a. FRANK BERNARDO CIDDIO
Respondents
REASONS FOR DECISION
Mr. Justice M. D. Faieta
Released: November 29, 2016