746612 Ontario Ltd. v. Urigold Holdings Ltd., 2016 ONSC 922
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
746612 ONTARIO LTD. Applicant
– and –
URIGOLD HOLDINGS LTD. Respondent
COUNSEL:
Samantha Iturregui, Counsel for the Applicant
Jonathan P.M. Collings, Counsel for the Respondent
HEARD: February 4, 2016
T.D.RAY, J
1This application under rule 14 is for a determination of the rights of the parties under a lease agreement dated September 15, 2010, and an order for the payment or repayment of monies in accordance with that determination.
2The applicant, known as Ormes Furniture, is an established furniture retailer and the tenant of premises owned by the respondent at 1487 Cyrville Road, Ottawa.
3The parties have framed the issues as follows:
a. Is the plaintiff entitled to a refund of the monies it paid to the defendant for a “continued good relationship”?
b. Did the defendant act lawfully in taking over the management of the building?
c. Is the plaintiff responsible for the payment of the depreciation of the HVAC units?
d. Is the repair of the roof an operational cost which should be borne by plaintiff?
e. Has the defendant breached its duty of good faith and honest performance in its dealings with the plaintiff?
4The material facts are as follows:
a. The lease agreement was signed September 15, 2010.
b. In December, 2010, the respondent sought $55,000, and after discussion, obtained from the applicant an ex gratia payment of $24,000. There was no legal obligation to make this payment. The applicant claims it was threatened by the respondent with a deterioration of business relations if the applicant did not pay it. The respondent says the lease was signed with a stipulated rent that was incorrect, and that his request for money was actually for cost overruns, but acknowledged there was no legal obligation on the respondent.
c. Two months later, the defendant sought payment by the plaintiff of architect fees. The plaintiff refused.
d. May 10, 2013, the defendant demanded the plaintiff pay depreciation for the HVAC system saying it had been inadvertently omitted from the operating expenses for 2011. The defendant says it is clearly covered by the lease. The plaintiff says that the HVAC system is being properly maintained, and that one or more of the units needs to be deactivated as being unnecessary. The defendant says they are not being properly serviced and maintained.
e. December, 2010, the roof began to leak. The plaintiff followed the defendant’s direction and called a roofing company. The roof continued to leak and was found to be caused by inadequate drainage on the roof. In December, 2014, the defendant approved the installation of a changed run-off system with roof drains, and the plaintiff was billed for the work. The defendant says those costs are payable as maintenance costs under the lease.
f. December 2, 2014, the defendant notified the plaintiff that it was going to take over administration and property maintenance, and would be charging an additional 15% in accordance with the lease provision. The plaintiff provided the defendant with the contact information for all those responsible for maintenance, snow removal, and HVAC maintenance. The defendant’s position is that the plaintiff had not fulfilled its obligations to maintain, and was in breach of the lease, requiring that the defendant step in.
g. In June, 2015, Apollo notified the plaintiff that it was now taking over property maintenance. The plaintiff’s position is that it has continued to arrange for and pay for all maintenance plus the 15% maintenance fee (which has been paid into trust), and wants an adjustment.
Payment by the applicant of $24,000 over three years to the respondent:
5The applicant’s position that it is entitled to return the $24,000 because the respondent failed to be friendly with the applicant has no merit. The relations between the parties are governed by the terms of the lease agreement. The applicant’s position that it only paid the money because it was threatened with bad relations may well be true, but there was no legal obligation for it to pay any amounts outside of the lease agreement. To make the point, the respondent asked the applicant to pay architect fees shortly afterwards, and the applicant refused.
Management of the premises:
6Section 5.2 of the lease agreement provides , The Tenant shall be permitted to operate and pay the balance of the operating expenses outlined herein excluding the 15% management and administration fee provided the tenant operates and manages the building as a prudent landlord would, failing which the Landlord reserves the right to take over management of the building.
7The plaintiff says that it maintained the HVAC system in an adequate fashion except for a short period when its maintenance contractor went out of business. It produced a report from a new contractor reporting that the HVAC system is fine, but that at least two of the units should be deactivated as being unnecessary.
8After purporting to take over management of the building and charging the plaintiff the 13%, it did nothing. The plaintiff continued to contact contractors, manage, and pay for all the operating expenses. The respondent argued that since there were long term maintenance contracts in place, there was nothing for it to do anyway. I agree. The respondent has in fact not taken over management of the building, and had no ground for doing so. There is insufficient evidence to establish that the tenant failed to manage to “building as a prudent landlord would”. The applicant is entitled to be credited with any management and administration fee it has paid to the respondent, and to return of the fees it paid into trust.
Payment by the applicant for depreciation of the HVAC system:
9The applicant says there is nothing in the lease agreement to require the applicant to pay depreciation on the HVAC system. The respondent points to the listing of the premises prior to the lease as describing only taxes and insurance to establish that no depreciation of the HVAC system was anticipated. While the listing is of interest, it is the lease agreement that the parties signed. It is the lease agreement that sets out the rights and obligations of the parties. The applicant also points to the failure of the respondent to have the applicant pay depreciation for some time after the lease was entered into. I do not see the relevance of the respondent failing to assert the charge earlier, unless it was an issue of a retroactive claim. Waiver was not asserted.
10Following are the relevant provisions in the lease:
Section 1.1 (d) Operating Costs and Taxes: Tenant’s Proportionate Share estimated and payable monthly in advance as provided in this Lease;
Section 2.1(l) “Operating Costs” means (without duplication) all amounts of every kind and nature paid, incurred or payable by the Landlord or its agents in connection with the maintenance operation, repair, replacement and administration of the building, calculated as if the Building were 100% occupied by tenants during the Term including, without limitation:
(vii) the cost of repairing, operating, and maintaining the Building and the equipment serving the Building and the cost of all replacements additions and modifications to the Building or such equipment, except where such costs are attributable to inherent structural defects in the Building.
(ix) all costs incurred by the Landlord in installing energy conservation equipment or systems and life safety systems;
(x) depreciation or amortization of the following (unless charged fully in the period in which they are incurred), all as determined by the Landlord with sound accounting principles:
the costs referred to in subparagraph 2.1 (l)(vii) and (ix); and
the cost of alterations, replacements and additions to the Building which are intended to reduce Operating Costs or improve the operation of the Building;
5.1 Net Lease. This lease is a completely net lease to the Landlord, except as expressly set out in this lease. The Landlord is not responsible for any expenses or outlays of any nature arising from or relating to the Premises or the use or occupancy of them, or the contents of them or the business carried on from them. The Tenant shall pay all charges, impositions, and outlays of every nature and kind relating to the Premises except as expressly set out herein.
11I do not accept the applicant’s argument that the listing brochure is of any assistance in determining the applicant’s liability for depreciation. I have bolded the relevant words from the above portions of the lease which demonstrate that the applicant is to pay depreciation on the cost of all equipment serving the Building. The HVAC system is part of the equipment serving the building.
Payment by the applicant for the roof modifications:
12The applicant’s position is that the installation of roof drains is part of the “structure” and therefore it is not liable as an operating cost. The respondent’s position is that is an operating cost. While a roof is certainly part of the structure, I do not accept that roof drains are part of the structure. There was no evidence to suggest that there was an inherent structural defect that caused or was caused by the need for roof drains to improve drainage. I would have expected expert evidence if that were the case. The applicant is responsible for operating costs as follows:
2.1 (1) (viii)) The cost of repairing, operating, and maintaining the Building and the equipment serving the Building and the cost of all replacements, additions and modifications to the Building or such equipment, except where such costs are attributed to inherent structural defects in the Building.
13The defendant’s obligations are as follows:
9.1 Landlord’s Maintenance and Repairs
(a) The Landlord covenants to keep the following in good repair as a prudent owner (i) the structure of the Building including exterior walls and roofs, and (ii) the Common Areas. The cost of such maintenance and repairs (other than the repair of inherent structural defects) shall be included in the Operating Costs.
14I have bolded the reference to structural or inherent structural defects in the above provisions. The applicant is responsible for the cost of the roof drains.
Duty of Good Faith
15The parties argued good faith – both for and against the respondent. While good faith is an important element in any contractual relationship, there is no evidence in this case that the absence of good faith affected the parties’ conduct of their relations under the agreement. The agreement is clear. There is no allegation of misrepresentation. The applicant suggested the respondent had not been very nice, and there had been disagreements. Disagreements in commercial arrangements are not uncommon. The parties chose to resolve these disagreements through the courts. That does not raise an issue of good faith in this case.
16The answers to the issues framed by the parties in paragraph 3 above are as follows:
a. No
b. No
c. Yes
d. Yes
e. No
Costs
17Both parties filed costs outlines. If the parties are unable to agree, they may make submissions of two pages or less within 14 days and with another 5 days for reply.
Honourable Justice Timothy Ray
Released: February 5, 2016
CITATION: 746612 Ontario Ltd. v. Urigold Holdings Ltd., 2016 ONSC 922
COURT FILE NO.: 15-65306
DATE: 2016-02-05
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
746612 ONTARIO LTD. Applicant
– and –
URIGOLD HOLDINGS LTD. Respondent
REASONS FOR JUDGEMENT
Honourable Justice Timothy Ray
Released: February 5, 2016