Superior Court of Justice - Ontario

CITATION: Feng v. Chen et al., 2017 ONSC 1360

COURT FILE NO.: CV-16-565283

DATE: 2017-02-28

RE: Jing Feng AND: Xue Yun Chen, Yao Xiang Chen (also known as Andy Chen), and 2375544 Ontario Inc.

BEFORE: The Honourable Madam Justice J. T. Akbarali

COUNSEL: G. Sidlofsky and R. Kwan, for the Applicant R. P. Quance, for the Respondents

HEARD: February 17, 2017

ENDORSEMENT

Overview

[1] The applicant, Jin Feng, is a commercial tenant under a lease agreement with the respondent corporation. The lease was for a five year term, expiring on January 31, 2017. However, it included a clause allowing Ms. Feng to renew the lease for a further five year term on three months’ written notice. Thus, Ms. Feng had to deliver written notice of her intention to renew the lease by October 31, 2016 in order to comply with the terms of the option.

[2] Ms. Feng alleges that she approached the representatives of her landlord on three occasions about her desire to renew the lease and each time she was assured the lease would be renewed without her needing to do anything further. In reliance on those assurances, she did not deliver written notice. When October 31, 2016 passed, the landlord notified her that it would require vacant possession of the premises at the expiry of the lease term.

[3] Ms. Feng brings this application arguing that the landlord is estopped from requiring strict compliance with the terms of the renewal provision, and seeks a declaration that the lease has been renewed for a five year term. The landlord opposes the relief and insists Ms. Feng was obliged to strictly comply with the terms of the option to renew.

[4] I find that the landlord is estopped from requiring strict compliance with the terms of the renewal provision of the lease. The landlord lulled Ms. Feng into a false sense of security so that she would not exercise her right under the lease to renew the term in writing. It did so because it wanted possession of the leased premises for one of its principals. Accordingly, I grant Ms. Feng’s application for a declaration that the lease has been renewed for a further five year term.

The Facts

[5] On this application, the parties treated the affidavits of their witnesses as examinations in chief. Cross-examinations were conducted outside of court, and I was provided with the transcripts. Further cross-examinations took place before me. Below, I describe the parties’ evidence on the key issues, and then I turn to my findings and my assessment of the credibility of the witnesses.

[6] Ms. Feng operates her small business, a gift shop, from leased premises at 334 Spadina Avenue in Toronto. She signed a lease with a five year term, expiring on January 31, 2017. Around December 2013 she received notice that the property was being sold to the corporate respondent. The corporate respondent took an assignment of the lease. Ms. Feng was directed to make all future rental payments to her new landlord.

[7] Shortly thereafter, she met the respondent Andy Chen. Andy Chen, together with his sister Xue Yun (also known as Vicky) Chen are the principals of the landlord. Ms. Feng understood the corporate landlord was a family business. She believed it also included Andy and Vicky Chen’s mother, Ying Chen, although Ying Chen is not, as it turns out, a principal of the landlord.

[8] Vicky Chen and Ying Chen, together with Vicky Chen’s husband, operate a business just up the street from Ms. Feng’s shop. The Chen business is located at 346 Spadina Avenue, in premises that it leases. Ying Chen sells goods from a cart at the corner of Spadina and Dundas. At the end of the day, Ying Chen parks her cart inside the building at 334 Spadina Avenue right by Ms. Feng’s shop. Vicky Chen and Ying Chen are at the Chen business daily. At first, Andy Chen was there often, but at some point, he started operating his own business and now goes to the Chen business about once a week.

[9] Whenever Ms. Feng has issues with the property, she will contact a member of the Chen family. Often it is Andy Chen, but she also contacts Vicky Chen and occasionally deals with Vicky Chen’s husband or Ying Chen. The dealings between the parties have been almost exclusively in person, which is easy since they are just up the street from each other, or on the phone.

[10] Consistent with that history of verbal dealings, Ms. Feng testified that she had verbal discussions with the Chen family on three separate occasions about renewing her lease. I review each of these below.

The April Discussion

[11] In the spring of 2016 Ms. Feng had been thinking about her lease renewal. She could not find a copy of her lease. She tried to get a copy from her former landlord’s lawyer, but that proved unsuccessful.

[12] Thereafter, in April 2016, Ms. Feng was walking on Spadina Avenue and found Andy and Vicky Chen in the front of the Chen business. She stopped to talk to them. She deposed that she told them she wanted to renew her lease but she could not find it. She said she remembered she had to give some amount of notice of her intention. Ms. Feng’s evidence is that Andy Chen agreed to renew her lease.

[13] Andy Chen deposed in his affidavit that Ms. Feng only indicated she was “considering” whether to renew her lease, and no agreement to renew the lease was made. However, in cross-examination, Andy Chen gave different evidence. He admitted that Ms. Feng said she wanted to renew the lease and that he agreed to re-let the property to her. However, he claimed that he told her she had to provide notice in writing.

[14] Vicky Chen deposed that there was a general discussion with respect to the possible renewal of the lease in April 2016. She stated that Ms. Feng had asked Andy Chen what she had to do if she wanted to renew the lease, and he told her she would have to write a letter or provide an email to him in accordance with the lease. According to Vicky Chen, Andy Chen did not agree to renew the lease. Vicky Chen maintained this evidence in her cross-examination.

The August Discussion

[15] Ms. Feng deposed that in August she approached a lawyer about preparing a new lease and was advised that the landlord’s lawyer ought to prepare it. Later that same day, she was walking past the corner of Spadina and Dundas where Ying Chen operates her cart. She saw Vicky Chen was with Ying Chen and she stopped. She told them she had just come from speaking to a lawyer about renewing the lease and raised the topic of a new lease with them. According to Ms. Feng, both Vicky Chen and Ying Chen assured Ms. Feng that she did not have to do anything further to renewal the lease. They told her that the landlord’s lawyer would prepare the necessary documentation.

[16] Ms. Feng also deposed that she told them that she and her husband were considering selling a convenience store that her husband owns and operates to focus on her small business.

[17] Vicky Chen also gave evidence about this discussion. In her affidavit she stated that Ms. Feng mentioned the possibility of renewing the lease, and that Ying Chen told her to talk to Andy about that. She denied ever telling Ms. Feng not to worry about the renewal or that she did not have to do anything further to renew the lease. She also deposed that she told Ms. Feng not to sell her husband’s convenience store. In cross-examination, however, she claimed that she could not remember Ms. Feng mentioning anything about renewing the lease. She said Ms. Feng was already in conversation with her mother when she arrived. In her oral evidence, Vicky Chen said she only said hello to Ms. Feng and told her not to sell the convenience store. I note that Ms. Chen gave oral evidence on February 17, 2017. Her affidavit was sworn on January 9, 2017. No explanation for this discrepancy in her evidence was provided.[^1]

[18] Ying Chen also provided affidavit evidence on which she was cross-examined. In her affidavit she deposed that she spoke to Ms. Feng about Ms. Feng’s husband’s convenience store, but she denied any conversation about Ms. Feng’s visit to the lawyer. She deposed that when the topic of renewing the lease was raised, she told Ms. Feng that Ms. Feng should talk to Andy Chen about that. However, in cross-examination, Ying Chen denied that she spoke with Ms. Feng about the lease at all in August 2016. Ying Chen’s affidavit was also sworn on January 9, 2017 and she also gave evidence on February 17, 2017. No explanation for this discrepancy in her evidence was provided.

The September Phone Call

[19] In September 2016, Ms. Feng deposed that wanted to follow up on the renewal of her lease. She had called Andy Chen several times. She wanted to know if the landlord would be seeking a rent increase and whether it would agree to a further option to renew. When she had been unsuccessful in reaching him, she went to the Chen business and told Ying Chen she wanted to speak to Andy Chen about the lease renewal.

[20] Ms. Feng deposed that the next day in the evening, Ying Chen came to her store. Ms. Feng’s friend Li Li was minding the store for her at that time. Ms. Li placed a call to Ms. Feng using hands-free on a cell phone. Ms. Li thus heard the contents of the call.

[21] Ms. Feng’s and Ms. Li’s evidence was consistent. They both recalled Ying Chen saying that she had told Andy Chen that Ms. Feng wanted to discuss the lease renewal. Ying Chen said that Andy was very busy but that when he returned from a trip to China in November he would deal with the renewal at the same time he would deal with renewing the lease for a ramen restaurant next door to Ms. Feng’s business. Ying Chen told her not to worry, and that she didn’t need to do anything other than wait to hear from Andy Chen.

[22] Ying Chen deposed that all she told Ms. Feng was that she would have to speak to Andy Chen about renewing the lease. She denied knowing anything about the restaurant’s lease and deposed that Andy was not in China at that time. In cross-examination, she testified that Ms. Feng had been to the Chen business the previous day looking for Vicky Chen or Andy Chen. Ying Chen said she went to the store to see what Ms. Feng wanted. When she learned it had to do with renewing the lease, she told her to speak to Andy Chen.

The landlord advises it needs possession of the leased premises.

[23] Ms. Feng’s evidence is that, in reliance on the discussions she had with the Chen family, she did not provide written notice to renew the lease. She was waiting for the landlord to deliver the new lease and to discuss any rent increases and the possibility of a further renewal of the lease. Based on her discussion with Ying Chen, Ms. Feng was not expecting to hear from Andy Chen until sometime in November. As a result, October 31, 2016 came and went without Ms. Feng renewing the lease in writing.

[24] On November 8, 2016, Ms. Feng received a letter from the landlord’s lawyers, stating that the landlord required her to vacate the leased premises by January 31, 2017.

[25] I pause here to note that it is clear that the landlord wanted the premises Ms. Feng was leasing to be vacated so that the Chen business could relocate to that space. This may have been precipitated by the fact that its landlord was selling the property at 346 Spadina Avenue and the new owner had plans to develop it. The respondents argue they did not know of the new owner’s plans until later in November. Vicky Chen admits there were workers measuring the property before November, but she understood it had something to do with property tax. However, as is apparent below, Vicky Chen was aware at least by the end of October 2016 that her landlord would be developing the property.

[26] After receiving the letter, Ms. Feng looked again for her lease. She managed to find a copy. She then made a clumsy attempt to exercise the renewal provision in writing by back-dating a letter to October 31, 2016 and giving it to a mailman to deliver. The letter arrived at the Chen business on November 9, 2016. Later that day, counsel for the landlord wrote to Ms. Feng advising her that the delivery of the notice was not in compliance with the lease and not an effective exercise of the option to renew.

[27] That same evening, Ms. Feng and her husband, Larry Lei, went to see Vicky Chen at the Chen business. Ms. Feng recorded their conversation.

[28] The translation of the recording reveals that when Ms. Feng brought up Ying Chen’s promise that her lease would be renewed, Vicky Chen did not deny that any promise had been made, but rather said Ying Chen’s promise did not count. When Ms. Feng asserted that Vicky Chen had made the same promise (during the conversation she had with Vicky and Ying Chen in August, although Ms. Feng recalled it taking place in September), Vicky Chen again did not deny making the promise. There was then this exchange:

Jin Feng: That is not what you said! How can you just lie? This is definitely not what you said at the time. Both you and your mom said you would lease it to me. Both of you said it together.

Vicky Chen: That was a long time ago.

Jin Feng: No, it was not! It was just September. Early September. You really did promise me.

[29] Ms. Feng recorded another conversation she had with Vicky Chen that day. Ms. Chen came to Ms. Feng’s store to discuss Ms. Feng’s inventory. Ms. Feng’s husband Mr. Lei was also present. When Ms. Feng said again that Ms. Chen promised her she could re-let the premises, Vicky Chen again did not deny making the promise. She said, “What will we do if we take the rental back?” There was then this exchange:

Larry Lei: But why (I didn’t [give written notice]) because she said you didn’t need to worry, and you said the same. Both you and your mom said that at that time.

Ms. Feng/Mr. Lei: You literally said like that at that time. Both you and mother said that.

Vicky Chen: Um, well, how about… How about… We were also thinking… Let me check with them first. If it is ok, I will try my best to rent it to you.

[30] There is a third recording, also from November 9, 2016. In it, Ms. Feng was trying to get Vicky Chen to discuss the lease renewal. It is apparent from this recording that the parties discussed the fact that the Chen business’s landlord was going to ask it to move out of its leased premises. Vicky Chen indicated that she became of aware of this at the “past month end” – in other words, in October, 2016. Vicky Chen stated, “If they delay, we will sub-lease to you.” Again in this conversation, Vicky Chen does not deny promising Ms. Feng that she could re-let the premises.

[31] There is one other exchange between the parties in the immediate aftermath of the landlord’s notice that it would retake possession of the leased premises. Ms. Feng sent a message to Vicky Chen using the messaging service We Chat. Ms. Feng again related her understanding from her previous discussions with Vicky Chen that she could re-let the premises. She also asked Vicky Chen if she could return some merchandise she had bought from the Chen business.

Credibility and Conclusions on the Evidence

[32] I accept Ms. Feng’s evidence of the interactions she had with the Chen family members. Ms. Feng’s evidence is consistent and it is consistent with her actions.

[33] There would have been no need for Ms. Feng to continue to follow up with the Chen family about renewing her lease if all she understood she had to do was deliver written notice. Her efforts at following up with them, and taking other steps like consulting a lawyer, all indicate she was anxious to renew her lease and was waiting for the landlord to deliver the necessary documents to her. I accept Ms. Feng’s evidence that her business was important to her and her family, and that she and her husband were planning to sell his convenience store to concentrate on her business. Ms. Feng also continued to purchase inventory for her business, including in October 2016. There would have been no reason for her to do that if she was not intending to continue to operate her business.

[34] Ms. Feng’s evidence was supported by the evidence of her husband, Mr. Lei. It was also supported by the evidence of Ms. Li, an independent witness.

[35] Moreover, the oral discussions between Ms. Feng and the Chen family members about renewing Ms. Feng’s lease were consistent with their dealings, which were almost always in person or over the phone.

[36] The respondents argued that Ms. Feng’s evidence about the agreement she reached with Andy Chen in April 2016 should be rejected because in none of her recorded conversations with Vicky Chen, nor in the We Chat message she sent, does she reference the April agreement. I do not find this argument persuasive. I find Ms. Feng focused on the discussions she had with Vicky Chen when she was talking to Vicky Chen. This does not mean no agreement was reached with Andy Chen, who himself testified he agreed to re-let the premises to Ms. Feng in April 2016.

[37] The respondents also argue that Ms. Feng and her husband were experienced business people who were knowledgeable about leases and who knew Ms. Feng had obligations with respect to exercising her option to renew the lease. Ms. Feng’s evidence, which I accept, was that she could not find her lease and had told Andy and Vicky Chen that. In any event, I find that Ms. Feng’s reasonable belief was that, as between the parties, they had agreed to renew her lease without the written exercise of the renewal option. I thus reject the respondents’ argument. Whatever Ms. Feng might understand to apply to leases generally, she understood that her renewal had been effected by the parties’ oral discussions. That was exactly what the Chen family purposely led her to believe.

[38] The respondents also argued that the ramen restaurant’s lease was renewed earlier in 2016, so it would not make sense to renew Ms. Feng’s lease and the restaurant’s lease at the same time. I also reject this argument. The question is not when the ramen restaurant’s lease was up for renewal, but whether Ms. Feng was reassured that her lease would be renewed in November together with another tenant’s lease. In other words, the statement is relevant not because it was true, but because it was made.

[39] Unless I specifically rely on it, I do not accept the evidence of the Chen family members. First, I reject Vicky Chen’s evidence. Her oral testimony directly contradicted her affidavit evidence and yet she maintained both were true. Accordingly I find that her evidence is not reliable. I also have doubts as to its credibility. For example, she maintained that Andy Chen did not agree to re-let the premises to Ms. Feng in April 2016, although even Andy Chen admitted he had done so.

[40] Andy Chen’s affidavit evidence also differed from his oral evidence. I find that his oral evidence bears a closer relationship to what actually occurred than does his affidavit evidence. However, I do not find credible his assertion that he told Ms. Feng to renew her lease in writing. If he had told her that she would have done it. To conclude otherwise would be inconsistent with the many other steps she did take to try to renew her lease.

[41] Finally, I reject the evidence of Ying Chen. When asked simple questions in cross-examination, like whether it was important to her that her business have a premises from which to operate, she refused to agree. The only matter on which she was definitive was that she never reassured Ms. Feng that Ms. Feng could renew the lease, something that is inconsistent with Vicky Chen’s recorded statements. I do not find Ying Chen to be credible.

[42] I also reject the respondents’ evidence that they did not know about the need to relocate the Chen business until later in November. It is inconsistent with the recording of Vicky Chen’s conversation with Ms. Feng. Andy Chen admitted in cross-examination that he did not want Ms. Feng to renew the lease. He also testified that he wanted the Chen business to move into that space.

[43] The respondents’ counsel argued that Andy Chen might not have wanted Ms. Feng to renew the lease because he wanted to rent the premises for more. I reject this suggestion, which is pure speculation, and which comes in the absence of any evidence that the parties ever entered into rent negotiations. Neither do I accept that the Chen family wanted the property but did not want to occupy it themselves. They had a reliable tenant, which is an asset for a commercial landlord. There was no reason to go looking for another tenant.

[44] Thus, even if they did not know exactly what the landlord’s plans were for 346 Spadina Avenue, I find that the respondents had determined they wanted the property for the Chen business well prior to October 31, 2016. I find that when Vicky Chen discouraged Ms. Feng from selling her husband’s convenience store in August 2016, it was because she knew at that time that they intended to move the Chen business into the premises Ms. Feng was leasing.

[45] The question then is whether these facts establish proprietary estoppel. If they do not, the respondents are entitled to require strict compliance with the terms of the renewal provision. An option is a right that is strictly construed and must be performed in accordance with its terms: 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., 1991 CarswellOnt 2200 at paras. 12-14.

Proprietary Estoppel

[46] The elements that must be established to make out proprietary estoppel are not controversial. The parties agree the applicant must establish (i) encouragement of the plaintiff by the defendant owner; (ii) detrimental reliance by the plaintiff to the knowledge of the defendant owner; and (iii) the defendant owner seeks to take unconscionable advantage of the plaintiff by reneging on an earlier promise: Schwark Estate v. Cutting, 2010 CarswellOnt 350 (C.A.) at para. 16.

[47] There was an issue raised before me about Ying Chen’s role in these events. It is clear that Ms. Feng understood Ying Chen to be a principal of the landlord. It is equally clear Ying Chen is not a principal of the landlord. Ms. Feng alleges Ying Chen had ostensible authority and she was entitled to rely on Ying Chen’s assurances as well as those given by Andy Chen and Vicky Chen.

[48] I need not decide that issue because even without Ying Chen’s assurances, my view is that Andy Chen’s and Vicky Chen’s assurances are sufficient for the doctrine of proprietary estoppel to be made out.

[49] First, Ms. Feng was encouraged by both Andy Chen (in April 2016) and Vicky Chen (in August 2016) to believe the landlord would renew her lease. Vicky Chen encouraged Ms. Feng to believe that all she had to do was wait, and the landlord’s lawyer would prepare the paperwork.

[50] Second, Ms. Feng relied on that encouragement to her detriment. I find that the respondents knew she was relying on their promises to renew the lease without her needing to do anything further. Indeed, they intended that she do so, in order to allow the option to expire without Ms. Feng exercising her option in writing so they could then take possession of the property for the Chen business.

[51] Ms. Feng also relied on that encouragement to continue to buy inventory. She bought over $75,000 of inventory in October 2016. In the summer of 2016, she purchased inventory from the Chen business. While Vicky Chen was selling inventory to Ms. Feng, she were also planning to retake the leased premises for the Chen business.

[52] The last element of the test asks whether the respondents seek to take unconscionable advantage of Ms. Feng by reneging on their earlier promise. I find that this element of proprietary estoppel is also made out.

[53] Unconscionability is determined by a five part test: (i) Ms. Feng must have made a mistake as to her legal rights; (ii) Ms. Feng must have expended some money or done some act on the faith of her mistake belief; (iii) the respondents must know of the existence of their own right which is inconsistent with the right claimed by Ms. Feng; (iv) the respondents must know of Ms. Feng’s mistaken belief of her rights; and (v) the respondents must have encouraged Ms. Feng in her expenditure of money or in the other acts which she has done, either directly or by abstaining from asserting their legal right: Schwark Estate, paras. 27-29. I consider each of these elements below.

[54] First, Ms. Feng made a mistake as to her legal rights. She thought she had effectively renewed her lease by securing Andy Chen’s agreement to re-let to her in April. That mistake was reinforced by Vicky Chen’s promises and assurances in August 2016. It was also a reasonable mistake in view of the history of the parties’ dealings, which almost invariably were either in person or over the phone.

[55] Second, Ms. Feng both, spent money acquiring further inventory on the faith of her mistaken belief, and she did not exercise the option to renew the lease in writing. I do not think anything turns on the fact that not exercising the option is a failure to act rather than a positive act, especially when her failure to act was exactly the result the respondents were trying to provoke.

[56] Third, the respondents knew that, by the terms of the lease, Ms. Feng had to exercise her right to renew her lease in writing. Andy Chen’s evidence was that he knew it when he spoke to Ms. Feng in April 2016. They knew their right to insist on strict compliance with the renewal provision was inconsistent with Ms. Feng’s belief that she had effectively renewed the lease in her oral discussions with Andy Chen, later reinforced in her discussions with Vicky Chen.

[57] Fourth, the respondents knew that Ms. Feng mistakenly believed she did not have to renew her lease in writing to effect the renewal of the term. As I have already found, this was the result they intended to bring about through their assurances and promises.

[58] Finally, the respondents encouraged Ms. Feng. In the summer of 2016, Vicky Chen accepted her order to purchase merchandise from Vicky and Ying Chen’s business. Vicky Chen also actively encouraged Ms. Feng to wait for the landlord’s lawyer to prepare a new lease.

[59] Vicky Chen and Andy Chen were principals of the landlord. I find that the assurances they gave Ms. Feng were assurances of the landlord.

[60] Accordingly the unconscionability element of the test has been established. Proprietary estoppel has been made out.

Is Ms. Feng in default of the lease?

[61] There was some suggestion before me that Ms. Feng was not entitled to renew her lease because she was in default under the lease for failure to pay gas bills. There is no dispute that the lease was a care-free lease and that Ms. Feng was responsible for the gas bills.

[62] However, the evidence established that Andy Chen originally switched the name on the gas bill for Ms. Feng’s leased premises out of her name when the landlord bought the property. He testified that he asked her to change it back. Ms. Feng’s evidence is that she followed up with Andy Chen repeatedly because she needed his cooperation to move the account back into her name. Andy Chen never gave that cooperation. While he testified that she could have changed the name on her own, he admitted on cross-examination that he had never called the gas company to find out what needed to be done to arrange the name change.

[63] Moreover, Andy Chen admitted he never gave any bills or any accounting for the bills to Ms. Feng. He never asked her to pay the amounts owing on the gas bills. Without knowing what the bills were, Ms. Feng hardly could have met that obligation. In 2014, Andy Chen even refunded monies Ms. Feng had overpaid in respect of other bills without applying the overpayment to the gas bills.

[64] Accordingly, I find that Ms. Feng was not in breach of her lease. The landlord cannot make it impossible for Ms. Feng to meet a condition of the lease and then decline to renew the lease because she is in breach of that condition.

Conclusion

[65] I allow Ms. Feng’s application for declaratory relief. I declare that Ms. Feng’s lease for the premises municipally known as 334 Spadina Avenue, Toronto has been renewed for a five year term commencing February 1, 2017.

[66] I order that, if the parties cannot agree on a monthly rental rate, they proceed to arbitration pursuant to the terms of the lease to determine the rental rate for the renewal period.

[67] If the parties cannot agree on costs, the applicant shall deliver costs submissions not to exceed five pages plus any relevant attachments by March 13, 2017. The respondents shall deliver costs submissions, not to exceed five pages plus any relevant attachments by March 20, 2017.

Madam Justice J. T. Akbarali

Date: February 28, 2017

[^1]: Vicky Chen deposed she did not read English. She testified through an interpreter. However, she insisted that the language in her affidavit came from her and she did not resile from the contents of her affidavit.