CITATION: KS 522 and 526 Yonge Street Inc. v. Moon Kim, 2016 ONSC 802
COURT FILE NO.: CV-15-537675
DATE: 2016-02-16
Ontario Superior Court of Justice
BETWEEN:
KS 522 and 526 YONGE STREET INC. Applicant
– and –
MOON KIM and JOO KIM Respondents
COUNSEL: Peter T. Henderson, for the Applicant Scott A. Rosen, for the Respondents
HEARD: December 11, 2015
REASONS FOR DECISION
Firestone J.
[1] This application is brought in order to resolve a dispute between the applicant landlord KS 522 and 526 Yonge Street Inc. (“KS 522”) and the respondent tenants Moon Kim and Joo Kim (“Kim”). The dispute is whether certain rental arrears were released or forgiven by a lease extension agreement entered into between the parties. The applicant seeks the following relief:
a) a declaration that the rental arrears set out the first item on the tenant statement dated August 28, 2015, attached to the notice of application as Schedule A, were not released or forgiven by a lease extension agreement dated August 4, 2015;
b) a declaration that the tenant statement dated August 28, 2015, attached to the notice of application as Schedule A, is accurate and binding on the parties, in so far as it indicates the amount of the arrears at December 31, 2014, a corresponding credit applied as of August 1, 2015, and the amount of rent currently payable on a monthly basis.
ISSUE FOR DETERMINATION
[2] This application requires me to interpret section 3 of the extension agreement, regarding an allowance to the tenant in the amount of $23,024.37. The key issue for determination is whether under the new agreement, this amount is simply rental arrears that can be forgiven at the option of KS 522, or whether Kim is entitled to this allowance separate and apart from any arrangement to pay back such arrears.
[3] For the reasons that follow, I find that Kim is not entitled to an allowance of $23,024.37 separate and distinct from any arrears that have been amortized and folded into the lease extension agreement.
FACTUAL BACKGROUND
[4] The previous lease agreement between the parties expired on November 30, 2013. KS 522 and Kim were subsequently unable to agree on new terms until July 30, 2015 when they entered into the “email agreement.” This “email agreement” was then formalized in a written agreement dated August 4, 2015. It is agreed between the parties that at or about the time the lease extension agreement was entered into, Moon was in arrears of rent in the amount of $23,024.37.
[5] The key term in the new agreement is contained in section 3, which reads as follows:
- Allowance - The Tenant will receive an allowance the amount of $23,024.37 (inclusive of HST). At the Landlord’s option, it will be payable in cash, as a rental credit, as a set-off against rental arrears, or as a combination thereof. The Landlord will give notice of its election in conjunction with execution and delivery of this Agreement. To the extent the Landlord elects to pay the allowance in cash, the Tenant shall use such cash payment to improve the Premises.
[6] On August 28, 2015, KS 522 delivered to Moon a tenant statement purporting to set off the arrears of $23,024.37 within the meaning of s.3 of the lease extension agreement. By letter dated September 10, 2015, counsel for Moon objected to the August 28th statement, asserting that the arrears have been wiped out and negated by the settlement agreement.
POSITION OF THE PARTIES
[7] KS 522 argues that the lease extension agreement did not release or forgive the arrears that had accumulated. It relies on a term in the email agreement dated May 26, 2015 to the effect that “the landlord will not be releasing the tenant from the current arrears of $23,521.17.” It submits that the interpretation of the lease extension agreement advanced by Kim is not commercially reasonable.
[8] Moon asserts, correctly, that the accumulated arrears have been amortized and folded into the new agreement. They point to the fact that they have been paying a new monthly rent amount and intend to keep doing so. On that basis they argue that the rent arrears claimed by KS 522 were paid by virtue of the $4.95 per sq. foot per year charge contained in the Agreement such that the rent credit provision contained in the Agreement is due and owing to Moon.
[9] Moon relies on the interpretive principle of contra proferentem: i.e. that any ambiguity in a contractual term should be interpreted against the author of that term. It is agreed that KS 522 drafted the terms of the lease extension agreement.
ANALYSIS
[10] In a contractual dispute such as this, there are two interpretive principles which are of assistance.
[11] The first is that the entire factual matrix and context surrounding a contractual agreement must be considered. The utility of considering the context of an agreement was emphasized recently by the Supreme Court in Sattva Capital Corp v. Creston Moly Corp, 2014 SCC 43, at paras. 47-48.
[12] The second is the objective theory of contract formation. Under this principle, in considering the common intention of the parties when they enter into a contract with one another, regard is to be had for an objective and reasonable interpretation of their conduct, rather than any subjective intention or desire that may actually be driving their behavior: see Olivieri v. Sherman, 2007 ONCA 491, paras 44-51; S.M. Waddams, The Law of Contracts (6th edition, 2010), paras. 141- 146.
[13] In applying these interpretive principles I find that an objective and reasonable interpretation of the lease extension agreement, considering the entire factual matrix surrounding it, is that the parties folded the arrears into the increased monthly rent payable under the new agreement, while forgiving any lump-sum payment of the arrears from the tenant (Kim) to the landlord (KS 522). The arrears were to be paid back in increments over the term of the new agreement rather than by way of a block lump sum payment.
[14] To adopt the interpretation of the agreement suggested by Moon would amount to giving them an allowance of $23,024.37 without any corresponding benefit KS 522. Where is the consideration for such an allowance? What has Moon given in return?
[15] The principles of contractual interpretation, especially among commercially sophisticated, arms- length parties, assume reciprocity and mutuality in the obligations of the parties. Where is the reciprocity for the sum of $23,024.37 which is sought by Moon if that sum is free and clear of any rental arrears?
[16] I do not accept that Moon’s consideration for the allowance could arguably be their agreement to enter into the new lease. Such an interpretation of the new agreement does not seem like an objectively reasonable one and, in any event, is not clearly advanced by the respondents. Rather, they argue that agreement to pay the arrears essentially amounts to actual repayment of those arrears.
[17] Moon argues that the rent arrears claimed by KS 522 were paid by virtue of the $4.95 per sq. foot per year charge contained in the agreement. However the rental arrears have not been paid in full by virtue of the new agreement. There is merely an agreement to pay back the arrears over the life of the new contract.
[18] In my respectful view, Moon’s argument grounded and based on contra proferentem does not support their position. When considering the factual matrix surrounding and driving the new agreement, and the set off granted to them by KS 522 August 28, 2015, I find that section 3 of the lease extension agreement is not ambiguous.
[19] Contra proferentem is an interpretive principle of last resort, to be used when all other rules of construction fail: Reliance Petroleum Ltd. v. Stevenson, 1956 SCC, [1956] S.C.R. 936 at 953; Geoff Hall, Canadian Contractual Interpretation Law (2nd edition, 2012), pp 69-70.
[20] Based on the factual matrix of this application there is no need to invoke that principle. The objective and reasonable meaning of the lease extension agreement is clear.
[21] For the reasons set forth above, the declaratory relief set forth above at paragraph 1 of these reasons is granted. The parties have agreed on the issue of costs. In accordance with that agreement Moon is to pay KS 522 $3,500 all inclusive.
[22] I wish to thank the parties for both their oral and written submissions which were of great assistance.
Firestone J.
Released: February 16, 2016
CITATION: KS 522 and 526 Yonge Street Inc. v. Moon Kim, 2016 ONSC 802
Ontario Superior Court of Justice
BETWEEN:
KS 522 and 526 YONGE STREET INC. Applicant
– and –
MOON KIM and JOO KIM Respondents
REASONS FOR DECISION
Firestone J.
Released: February 16, 2016