Court File and Parties

COURT FILE NO.: CV-14-516437 DATE: 20170502 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

772067 ONTARIO LIMITED Plaintiff – and – VICTORIA STRONG MANUFACTURING CORPORATION and PAUL TERLECKI Defendants

Counsel: Paul H. Starkman, for the Plaintiff (Defendant by Counterclaim) Barry Rubinoff, for the Defendants (Plaintiffs by Counterclaim)

HEARD: March 9, 2017

Reasons for Decision

FIRESTONE J.

[1] In this action, both the plaintiff (defendant by counterclaim), 772067 Ontario Limited (“the plaintiff”) and the defendant (plaintiff by counterclaim), Victoria Strong Manufacturing Corporation (“the defendant”), bring summary judgment motions under Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg.194 (“the Rules”) for the determination of all issues in both the main action and counterclaim. The action against the defendant Paul Terlecki has been dismissed on consent.

The Parties

[2] The plaintiff is the former owner of commercial premises located at 6145 Northeast Drive., Mississauga, Ontario (“the premises”). The defendant carries on business as a manufacturer of wood trim and interior doors.

[3] Between 2008 and 2012 the plaintiff leased various units located at the premises to the defendant. In October 2014, the relationship between the parties deteriorated and the plaintiff re-entered the premises. The defendant subsequently relocated its operations in or around mid-October 2014. The plaintiff claims damages for rental arrears as well as costs related to its re-entry of the premises. The defendant counterclaims for damages arising from what it characterizes as the wrongful termination of the lease.

[4] Specifically, the plaintiff claims damages from the defendant in the amount of $189,838.59 as follows:

1. $93,035.23 for rental arrears due from November 1, 2014 to October 31, 2015, being the end date of the 2012 lease;
2. $35,719.95 for interest on rental arrears;
3. $36,983.64 (plus $4,807.87 as HST) for costs relating to the re-entry and removal of equipment;
4. $19,291.90 for interest on the costs incurred relating to re-entry and removal;
5. Post-judgment interest at 25% per annum.

[5] The defendant counterclaims for the amount of $450,590 (inclusive of interest) as follows:

1. $15,684 for lost rent value;
2. $210,169 for moving costs, which it submits are comprised of the following: a. $128,400 for expenses incurred having to re-locate its offices, showroom and door production facilities; b. $78,575 for added labour costs to re-locate its business operations and the replacement cost of components and equipment left at the premises; c. $3,194 for interest;
3. $62,212 for loss of profit;
4. $162,525 for the future cost of separating its door and moulding operations.

Issues for Determination

[6] The parties agree that the following six issues are to be determined on this motion:

1. Is it appropriate to determine the issues in both the main action and counterclaim by way of summary judgment?
2. Did the plaintiff have a right of re-entry on October 3, 2014 for non-performance of covenants?
3. Did the plaintiff have a right of re-entry on October 3, 2014 for non-payment of rent?
4. If the plaintiff exercised a valid right of re-entry on October 3, 2014 and thereby terminated the lease agreement, did the plaintiff nonetheless enter into a new agreement with the defendant to reinstate the old lease?
5. If the plaintiff exercised a valid right of re-entry on October 3, 2014 and did not agree to reinstate the old lease, what damages, if any, are owing by the defendant?
6. If the plaintiff did not have a valid right of re-entry or if the plaintiff violated the agreement to reinstate the old lease, what damages, if any, are owing to the defendant?

Factual Background

[7] Between 2008 and 2012 the defendant entered into six lease agreements with the plaintiff. Five of the agreements were written and one was oral. Some of the leases consolidated and superseded previous lease agreements and others were for additional units. The 2012 lease was the most recent one entered into by the parties. It superseded all of the other leases.

[8] The various leases entered into between the parties are as follows:

1. The 2008 Lease: The parties entered into a lease dated May 5, 2008 for a three year period beginning April 1, 2008. The 2008 lease required the defendant to pay a deposit of $2,587.17 which was paid.
2. The February 2010 Lease: The February 2010 lease extended the 2008 lease to April 30, 2015. The February 2010 lease superseded the 2008 lease. Section 3.3 of the lease stated that the 2008 deposit would be rolled forward and “adjusted to include current TMI rates and possible increase in government taxes and will become due and payable when invoiced”.
3. The May 2010 Lease: The May 2010 lease was for additional space for a period of five years beginning May 1, 2010. It required the defendant to pay a deposit in the amount of $1,305.15. The deposit was never paid and remains outstanding.
4. The 2011 Lease: The 2011 lease was motivated by the defendant’s desire for additional space. The plaintiff agreed to lease the defendant additional space and consolidated the previous leases. The new lease agreement was for a three year term from April 2011 to April 2014. The lease required a deposit of $3,072.52. The defendant failed to pay the deposit and the amount remains outstanding.
5. The 2012 Oral Agreement: In January 2012 the plaintiff agreed to lease the defendant additional space. No written agreement was executed between the parties. The defendant states that there was no discussion regarding a deposit, but that his statement from the plaintiff added a deposit in the amount of $2,241.13. The defendant never paid the deposit and it remains outstanding.
6. The 2012 Lease: In October 2012 the parties signed a new lease agreement for additional space, consolidating the units under the previous leases. The 2012 lease superseded all previous leases and is the most recent written lease entered into between the parties. The lease term expired on October 31, 2015. The 2012 lease required the defendant to pay a deposit as follows: “[t]he tenant shall pay to the Landlord the sum of One thousand eighty-three dollars and twenty eight cents ($1,083.28) to be applied on account together with the previous deposits charged (portion of which is still outstanding) of Seven thousand nine hundred dollars and eighty two cents ($7,900.82)…” The lease agreement did not break down the amounts comprising the previous deposit figure of $7,900.82. However, it reflects the following amounts: $2,587.17 for the deposit paid under the 2008 lease; $3,072.52 for the outstanding deposit under the May 2011 lease; and $2,241.13 for the outstanding deposit under the 2012 oral agreement. The total outstanding amount ($7,900.82-$2,587.17) is $5,313.65. There is no dispute that this amount is outstanding.

[9] The defendant consistently short paid rent under the 2012 lease agreement by $74.82 per month for a two year period. The defendant was to pay $9,074.84 per month but paid $9,000 per month.

[10] In August 2014, the defendant entered into a lease agreement with a third party. The defendant submits that the purpose of the new lease was to separate its door and moulding operations. The plaintiff submits that the defendant intended to move its entire operations to the new property and that its actions amounted to an anticipatory breach of the 2012 lease.

[11] From July 2014 to September 2014 the defendant failed to pay rent. By the end of September 2014, the defendant made a lump sum payment of $27,000, being the equivalent of three months of the effective rent it was paying. In an email dated September 16, 2014, Paul Terlecki (the President of Victoria Strong Manufacturing Corporation) advised the plaintiff that it had intentionally “held back the rent payment” because of damage due to flooding caused by the plaintiff’s negligence. On September 25, 2014, the plaintiff replied that “a face-to-face meeting is required so that there is clarity as to what our mutual obligations are under the Lease Agreement”.

[12] On September 9, 2014 the defendant received a rent statement, which included interest charges, consisting in part of retroactive charges, totaling $7,147.87. The defendant takes the position that the plaintiff agreed to remove the interest charges in a meeting on September 9, 2014. This is denied by the plaintiff.

[13] On October 2, 2014 the plaintiff advised the defendant that it owed $22,759.81 under the 2012 lease and demanded payment by the end of the day. The defendant takes the position that it attempted to provide the plaintiff’s bookkeeper Freya with a cheque for $9,000 that day and asked for an explanation of the remaining $13,759.81.The defendant submits that Freya refused to accept the cheque. The plaintiff submits that no cheque was ever presented to Freya.

[14] On October 3, 2014 the plaintiff effected re-entry through its bailiff. The following day, the defendant offered to provide a certified cheque for the full amount owed if the bailiff did not take further steps. However, after speaking to the plaintiff, the bailiff stated that non-payment of rent was not the only issue and proceeded to post a notice terminating the tenancy and changing the locks.

[15] Following the re-entry, the plaintiff and defendant, as well as their respective counsel negotiated terms for the defendant to regain possession. The defendant provided the plaintiff with two certified cheques totaling $22,759.81. However, the plaintiff further demanded that the defendant remedy various breaches of covenant including the following:

1. Failure to repair broken glass;
2. Failure to obtain a permit for the installation of a large dust collection system;
3. Failure to provide post-dated cheques;
4. Failure to obtain appropriate insurance.

[16] Ultimately the defendant abandoned its attempt to regain possession. Between October 10 and 23, 2014 the defendant moved its chattels from the premises to the property leased in August 2014 from a third party. In September 2014, the plaintiff entered into an Agreement of Purchase and Sale to sell the property. This transaction closed in February 2015.

Analysis

1. Is this case appropriate for summary judgment?

[17] At the hearing of this motion, in accordance with Rule 20.04(2)(a) of the Rules of Civil Procedure, both parties confirmed their agreement to have all issues in dispute in both the main action and counterclaim determined by way of summary judgment. Both parties agreed that based on the complete evidentiary record which has been placed before the court, the summary judgment process will provide a fair and just adjudication of all issues in dispute.

[18] Subrule 20.04(2)(b) of the Rules of Civil Procedure provides that the court shall grant summary judgment if “the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment”. Consequently, the court must still satisfy itself that the case is appropriate for summary judgment notwithstanding that the parties have agreed: see Anjum v. John Doe, 2016 ONSC 7784, at para. 21. For the purposes of this motion, it is unnecessary to determine whether the standard of “appropriate for summary judgment” under rule 20.04(2)(b) differs materially from “no genuine issue for trial” under rule 20.04(2)(a): see Pulcine v. Bot Construction (Ontario) Ltd., 2016 ONSC 4491, at para. 7.

[19] In Hryniak v. Mauldin, 2014 SCC 7, [2004] 1 S.C.R. 87, the court confirms at para. 5 that Rule 20 is to be interpreted “broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims”.

[20] The applicable principles which govern the summary judgment process following Hryniak are succinctly set forth in Mayers v. Khan, 2017 ONSC 200, at paras. 18-21:

i) Summary judgment must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims. It is no longer merely a means to weed out unmeritorious claims but rather a “legitimate alternative means for adjudicating and resolving legal disputes” (Hryniak, at paras. 5 and 36);

ii) An issue should be resolved in a motion for summary judgment if the motion affords a process that allows the judge to make the necessary findings of fact, apply the law to those facts, and is a proportionate, more expeditious and less expensive process to achieve a just result than going to trial (Hryniak, at paras. 4 and 49);

iii) On a motion for summary judgment, the judge must first determine if there is a genuine issue requiring a trial based only on the evidence before the judge and without using the judge’s fact-finding powers. If there appears to be a genuine issue requiring a trial, the judge should then determine if the need for a trial can be avoided by using the powers under Rules 20.04(2.1) and (2.2) (Hryniak, at para. 66); and

iv) The standard for determining whether summary judgment will provide a fair and just adjudication is not whether the procedure is as exhaustive as a trial, but rather “whether it gives the judge confidence that [the judge] can find the necessary facts and apply the relevant legal principles so as to resolve the dispute” (Hryniak, at para. 50). A judge must be confident that he or she can fairly resolve the dispute (Hryniak, at para. 57).

In Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 (“Sweda Farms”), affirmed 2014 ONCA 878…Corbett J. reviewed the process by which the court considers whether summary judgment is appropriate. He stated (Sweda Farms, at para. 33):

The court on a motion for summary judgment should undertake the following analysis:

1. The court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial;

2. On the basis of this record, the court decides whether it can make the necessary findings of fact, apply the law to the facts, and thereby achieve a fair and just adjudication of the case on the merits;

3. If the court cannot grant summary judgment on the motion, the court should:

a. Decide those issues that can be decided in accordance with the principles described in 2) above;

b. Identify the additional steps that will be required to complete the record to enable the court to decide any remaining issues;

c. In the absence of compelling reasons to the contrary, the court should seize itself of the further steps required to bring the matter to a conclusion.

The moving party bears the evidentiary burden of demonstrating that there is no genuine issue requiring a trial. Only after the moving party has discharged its evidentiary burden of proving that there is no genuine issue requiring a trial for its resolution does the burden shift to the responding party to prove that its claim has a real chance of success (Sanzone v. Schechter, 2016 ONCA 566…at para. 30).

A court should (i) be cautious to ensure that affidavit evidence does not “obscure the affiant’s authentic voice” and (ii) take “great care” “to ensure that decontextualized affidavit and transcript evidence does not become the means by which substantive unfairness enters, in a way that would not likely occur in a full trial where the trial judge sees and hears it all” (Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450…at para. 44 (“Baywood”)).

[21] In this case there is no risk of duplicative or inconsistent findings at trial: Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2016 ONCA 922, 133 O.R. (3d) 561, at para. 4.

[22] The determination to be made in this case turns primarily on the interpretation of a written lease agreement. The court has before it a full evidentiary record. There is no reason to think that any more evidence would be introduced at trial. The parties acknowledge the applicability of the “best foot forward principal” to both the main action and counterclaim. This court is entitled to presume that the parties have placed before it all of the evidence that would be before a trial judge: Aronowicz v. EMTWO Properties Inc., 2010 ONCA 96, 98 O.R. (3d) 641, at paras 17-19.

[23] While there are credibility issues in relation to the parties and their experts, both sides have had a full opportunity to cross-examine on the affidavits introduced. There are relatively few facts in dispute. It is difficult to see how a judge at trial would be any better suited to determine the matter.

[24] As a result, I am of the view that the record provides me with the necessary evidentiary record in order to adjudicate the dispute in a timely, affordable and proportional manner under rule 20.04(2). There is no genuine issue(s) requiring a trial. The issues in dispute can be resolved in a fair and just manner by way of summary judgment.

2. Did the plaintiff have a right of re-entry on October 3, 2014 for non-performance of covenants?

[25] The second issue for determination is whether the plaintiff had a right to re-enter the premises pursuant to the alleged non-monetary breaches of covenant. Section 19(2) of the Commercial Tenancies Act, R.S.O.1990, c.L.7 (“CTA”) provides as follows:

A right of re-entry or forfeiture under any proviso or stipulation in the lease for breach of any covenant or condition in the lease, other than proviso in respect of the payment of rent, is not enforceable by action, entry, or otherwise, unless the lessor serves on the lessee a notice specifying the particular breach complained of, and, if the breach is capable of remedy, requiring the lessee to remedy the breach, and, in any case, requiring the lessee to make compensation in money for the breach, and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money to the satisfaction of the lessor for the breach.

[26] The evidentiary record confirms that the plaintiff failed to comply with the notice of rectification requirements of s. 19(2) of the CTA. The plaintiff submits that notwithstanding the failure to comply with s.19(2), it had a right to re-enter for breaches of covenant without providing notice or a reasonable opportunity to remedy, pursuant to the terms of the 2012 lease. That lease provides:

Proviso for re-entry by the Landlord on non-payment of rent or non-performance of covenants which right shall become exercisable immediately upon such default being made, notwithstanding any present or future legislation to the contrary.

[27] The plaintiff submits that parties to a commercial lease can contract out of the operation of s. 19(2) of the CTA and have done so in this case. As a result, the plaintiff asserts that it was not required to provide the defendant notice of the breaches of covenants or a reasonable opportunity to ameliorate them prior to re-entry. The plaintiff relies on the decision in Mount Citadel Ltd. v. Ibar Developments Ltd (1976), 14 O.R.(2d) 318 (H.C.), in support of the proposition that s.19(2) of the CTA may be contracted out of.

[28] The defendant argues that the provisions of s. 19(2) supersede any provision of the lease attempting to nullify them so that the parties cannot contract out of s.19(2). Consequently, the plaintiff did not have a right to re-enter. The defendant also argues that the plaintiff is barred by way of waiver or equitable estoppel from relying upon the various breaches of covenant it asserts.

[29] While the plaintiff has cited Mount Citadel in support of the proposition that s.19(2) may be contracted out of, that portion of the decision was obiter and goes against the preponderance of the case law (Harvey M. Haber, The Commercial Lease: A Practical Guide (Toronto: Canada Law Book Inc. 2013), at 315. The applicable case law makes clear that s. 19(2) is a mandatory provision: see 997484 Ontario Inc. v. 2007479 Ontario Inc.; Chen v. Kennison Professional Centre Inc.; Kawartha Consumers Co-operative Inc. v. Cashway Building Centres Ltd. (1977), 73 A.C.W.S. (3d) 523 (Ont. Ct. (Gen. Div.); 780046 Ontario Inc. v. Columbus Medical Arts Building Inc. (1994), 118 D.L.R.(4th) 609 (Ont. C.A.); Novacrete Construction Ltd. v. Profile Building Supplies Inc.).

[30] The mandatory nature of s. 19(2), notwithstanding an agreement to the contrary, is supported by the important public policy purpose it serves. Section 19(2) serves to protect tenants and in this spirit courts have required strict compliance with its requirements. As the Court of Appeal states in 780046 Ontario at para. 23:

Notice is a protection to the tenant. Its purpose is to warn the tenant that its leasehold interest is at risk and to give the tenant an opportunity to preserve that interest by remedying the breaches complained of, and, where necessary, by compensating the landlord. Because courts have not looked favorably upon the remedies of re-entry, forfeiture and termination they have insisted that landlords strictly comply with the notice requirements in s. 19(2) of the Act.

[31] As a result, I find that the plaintiff had no right to re-enter pursuant to the purported breaches of covenant given that the requirements of s. 19(2) were not satisfied.

3. Did the plaintiff have a right of re-entry on October 3, 2014 for non-payment of rent?

[32] The second basis for re-entry advanced by the plaintiff is that it had a valid right to re-enter for monetary defaults. The plaintiff submits that at the time of re-entry on October 3, 2014, the defendant owed rental arrears in the amount of $22,759.81. This number is comprised as follows:

1. $6,396.93 in outstanding deposits, consisting of the following; (a) $3,072.52 due as a deposit under the 2011 lease; (b) $2,241.13 due as a deposit under the 2012 oral agreement; (c) $1,083.28 due as a deposit under the 2012 lease.
2. $7,147.87 in interest, comprised as follows: (a) $5,114 in the interest charged on the outstanding deposits; (b) $2,033.87 in interest on the outstanding amounts between January 1, 2014 and September 30, 2014.
3. $9,074.84 owing as rent for October 2014. [^1]

[33] The defendant disputes that some of these amounts were outstanding and that other amounts, while outstanding, are not properly considered rent.

[34] Specifically, the defendant submits that: (1) the outstanding deposits are not considered rent under the 2012 lease and therefore cannot ground the plaintiff’s re-entry; (2) the interest charges are deposits not rent, or, in the alternative, the plaintiff waived its right to charge interest; and (3) the plaintiff offered a cheque for October’s rent in the amount of $9,000 which is the amount of rent typically paid. Based on these grounds, the defendant submits that the notice of termination for monetary default is invalid and therefore so too was the re-entry.

[35] Even if it is accepted that the amount of arrears indicated in the notice of termination was inaccurate, such a conclusion would not lead to the result the defendant desires. The defendant submits that the common law requires strict accuracy in the notice of termination to enforce forfeiture for non-payment. In support of this proposition, the defendant relies upon the decision in Big Valley Collieries v. McKinnon, [1915] A.J. No.103 (Alta. S.C.).

[36] With respect, I do not accept this submission. Section 18(1) of the CTA clearly provides that unless otherwise agreed, the plaintiff “may at any time” re-enter a premise if rent has been outstanding for more than 15 days. Notably, it does not require any notice. Section 19(2) requires notice prior to re-entry for breaches of covenant, but that section explicitly provides that it applies to breaches “other than a proviso in respect of the payment of rent”.

[37] The record confirms that the parties did in fact agree otherwise in relation to the period of time rent had to be outstanding before a landlord could re-enter. Section 9.4.1 of the 2012 lease agreement provides that the plaintiff may re-enter “immediately” upon default on rent. Consequently, so long as the tenant had any rental arrears, the landlord was permitted to re-enter and was not required to provide notice or wait 15 days.

[38] The next question is whether or not the defendant was in fact in rental arrears at the time of the plaintiff’s re-entry.

[39] The defendant concedes that the deposits are outstanding, but contends that they cannot be considered rent under the 2012 lease. Counsel for the defendant argues that these amounts are not payments that were required to be made under the 2012 lease but rather are due under the previous lease agreements.

[40] The plaintiff submits that the terms of the 2012 lease regarding the definition of “rent” are unequivocal. Section 14 of the lease provides that “[a]ll payments and charges payable by the tenant pursuant to this lease shall, for all purposes hereunder be deemed to be rent”. As a result, the deposits owing are properly considered rent.

[41] I accept the plaintiff’s submission. The defendant’s contention that the deposits are due under previous lease agreements is at odds with its admission that the 2012 lease superseded and consolidated all previous leases. I note that in Nationwide Parking Inc. v. Daulat Investments Inc., the court held that non-payment of a security deposit is not a default on the payment of rent and must be treated as a breach of covenant. However, the terms of that lease agreement were not made clear by the court, nor has it been relied upon subsequently for the proposition that a deposit can never be considered rent. I therefore conclude that the outstanding deposits were consolidated into the 2012 lease and are to be considered rent.

[42] It follows from this conclusion that the interest charged upon the deposits are also rent under the terms of the 2012 lease. However, it is still necessary to address the defendant’s argument that the plaintiff waived its right to charge interest under the 2012 lease. The parties do not dispute that the written terms of the 2012 lease enables the plaintiff to charge interest on outstanding rent.

[43] The defendant relies upon the following facts in support of its claim of waiver. Notwithstanding the interest provisions contained the 2012 lease, the defendant was initially not charged interest on any outstanding rent payments. On January 7, 2013 the plaintiff advised for the first time, by way of email, that the plaintiff usually charged tenant’s interest and that interest was not charged presently because the defendant was paying bills which it was not obligated to pay under the terms of the 2012 lease.

[44] On January 7, 2014, the plaintiff sent the defendant a rent statement which included a sentence stating “[i]nterest owing under arrears to be added to total”. No amount of interest was listed on the statement. There was no further mention of interest until September 9, 2014, when the defendant received the plaintiff’s rent statement which included interest charges totaling $7,147.87. The defendant submits that the plaintiff orally agreed to remove the interest charges the same day. In support of this submission, the defendant relies upon an email written by Paul Terlecki which states “[a]lthough you dropped the interest…” The plaintiff did not respond to this email.

[45] In order to make out a claim for waiver, the evidentiary record must demonstrate that the party waiving the right had (1) full knowledge of the deficiency that might be relied on; (2) an unequivocal and conscious intention to abandon the right to rely on it; and (3) communicated its intention to relinquish its right (Technicore Underground Inc., v. Toronto (City), 2012 ONCA 597, 2012 CarswellOnt 11173, at para. 63).

[46] There is no evidence to demonstrate that the plaintiff waived its right to charge interest. At best, the defendant’s written assertion that the plaintiff agreed earlier to drop interest proves a subjective belief on the part of the defendant that this occurred, not that it actually occurred.

[47] Moreover, the 2012 lease agreement provides that any waiver must be in writing and signed:

The failures of the Landlord to insist upon the strict performance of any of the agreements, terms, covenants and conditions hereof shall not be deemed a waiver of any rights or remedies that the Landlord may have and shall not be deemed a waiver of any subsequent breach or default in any such agreements, covenants, terms and conditions. No waiver by the landlord hereunder shall be effective unless such waiver is in writing signed by the Landlord.

[48] Even if the email written by the defendant could constitute a waiver in writing, the plaintiff did not respond to it, let alone sign it. The case law confirms that parties are entitled to agree that conduct that would otherwise constitute waiver is not to have that effect unless it is in writing and signed: see Meg Metals Inc. v. 1243611 Ontario Ltd., at para. 81; Delphi Management Corp. v. Dawson Properties, 2014 ONSC 354, 2014 CarswellOnt 496, at para. 3; Novacrete Construction, at para. 48.

[49] In result, I conclude that the interest owed on the deposits was outstanding rent at the time of re-entry.

[50] As detailed above, the re-entry occurred on October 3, 2014. The defendant submits that on October 2, 2014 it provided the plaintiff’s bookkeeper Freya with a cheque for October’s rent for $9,000, which it says she returned to it without explanation. The plaintiff submits that the defendant never provided a cheque for this amount on October 2, 2014.

[51] Based on the evidentiary record before me, I find that the defendant did provide Freya with a cheque for $9,000 which was subsequently refused. In reaching this conclusion, I note that the plaintiff did not produce an affidavit or other evidence from Freya regarding what occurred. Therefore, the only direct evidence is from Paul Terlecki regarding his recollection of what occurred.

[52] I further note that the defendant’s version of events is consistent with the past practice of the parties, in which Freya would pick up the rent cheque at the defendant’s office. Moreover, on October 4, 2014, the defendant offered to pay the plaintiff’s bailiff the total amount claimed in the sum of $22,759.81, if it would refrain from re-entering the premises. The defendant paid this amount on October 6, 2014. It makes little sense that the defendant was willing to pay $22,759.81 on October 4, 2014 but not $9,000 on October 2, 2014. However, as noted by the plaintiff, despite the provision of the cheque for $9,000, the defendant was still technically in default of its rent by $74.84, as the rent under the 2012 lease is $9,074.84.

[53] With respect to issue number three, I therefore find that the plaintiff exercised a valid right of re-entry on October 3, 2014. Under the terms of the 2012 lease, the plaintiff was entitled to exercise re-entry immediately and without notice or delay, upon the nonpayment of rent. The evidentiary record confirms that at the time of the re-entry the defendant owed $6,396.93 in deposits, $7,147.87 in interest and $74.84 for October’s rent.

4. If the plaintiff exercised a valid right of re-entry on October 3, 2014 and thereby terminated the lease agreement, did the plaintiff nonetheless enter into a new agreement with the defendant to reinstate the old lease?

[54] Given my finding that the plaintiff exercised a valid right of re-entry, it is necessary to determine whether the parties entered into an agreement to reinstate the lease. The defendant submits that the parties entered into an agreement to reinstate the 2012 lease and that the plaintiff wrongfully terminated that agreement. The plaintiff submits that no agreement was reached.

[55] On October 2, 2014 the plaintiff advised the defendant that it owed $22,759.81 under the 2012 lease and demanded payment by the end of the day. On October 3, 2014 the plaintiff effected re-entry through its bailiff. On October 4, 2014 the defendant obtained two certified cheques in the aggregate amount of $22,759.81, payable to the plaintiff. The defendant offered to provide these cheques to the bailiff if he did not take further steps. However, after speaking to the plaintiff, the bailiff stated that non-payment of rent was not the only issue and proceeded to post a notice terminating the tenancy and changing the locks.

[56] On October 6, 2014, the plaintiff sent an email to the defendant stating “… [i]f you pay the full rent to Freya, she can have you back in operation immediately. I have no intent to restrict your business. This is very simple if you have the rent money you can be in business immediately.” The defendant replied the same day as follows, “[c]an we pay in trust to your lawyer, or can he hold the certified cheques made to u until we iron everything out? U said it urself that there are things u want to touch on? We still don’t know how you came to $13,759.81?” The plaintiff replied and stated that the answer to paying in trust was “no”. He wrote:

If you want to open tomorrow you must pay rent in the full amount of the Notice. You are responsible for costs also which we will require an additional certified cheque or cash.

Your breaches of covenant will be addressed in the letter from my lawyer but I do not want these breaches to be a barrier to you conducting business.

[57] On October 6, 2014 the defendant paid the plaintiff the full sum of $22,759.81 and asked that the lease be reinstated. The defendant did not pay the plaintiff’s costs of re-entry at that time.

[58] On October 7, 2014 the parties’ lawyers began corresponding. The plaintiff’s lawyer indicated that in order for the defendant to be allowed to regain possession, it would have to pay the re-entry costs as well as remedy a number of covenant breaches. Counsel for the defendant replied that an agreement had already been reached by the parties and that the plaintiff was now acting in breach of it. Nonetheless, they agreed to pay the costs of the re-entry as well as remedy some, but not all, of the alleged breaches of covenant. Counsel for the plaintiff denied that any agreement had been reached and stated that the proposal was “unacceptable”. In order for the defendant to resume business, it had to agree to all of the plaintiff’s terms.

[59] On October 8, 2014 the defendant abandoned its attempt to reinstate the lease agreement and through its counsel asked for access in order to remove its assets. As noted by the plaintiff in its reply to this request, “[u]p until today your client is not concerned about removing its chattels and equipment from the premises and was instead negotiating to re enter [sic] the premises on terms…The tenant can remove its equipment and chattels”.

[60] In order to determine whether the parties reached an agreement to reinstate the lease, the governing test is whether:

they have formed a mutual intention to enter into a bargain with each other and, further are in agreement as to the terms of the bargain…The communications of the parties must have created an “offer” that sets out the offeror’s willingness to enter into an agreement on certain terms; this is then matched with a corresponding…“acceptance”…[t]he acceptance must precisely match the terms of the offer:

John D. McCamus, The Law of Contracts, 2nd ed. (Toronto: Irwin Law, 2012), at 31.

[61] I find that the plaintiff’s email stating “if you pay the full rent to Freya, she can have you back in operation immediately” constitutes the initial offer. The defendant then makes a counteroffer to pay the requisite sum in trust. The plaintiff rejects this offer and requires payment of the full rent as well as an additional cheque for the costs of re-entry. The defendant subsequently provides the cheque for the outstanding rent. The issue is whether the defendant’s failure to pay the costs of re-entry at this stage undermines the “mirror image rule”- that the acceptance directly match the offer (The Law of Contracts, at 31).

[62] I find that the defendant did match the terms of the offer and thus an agreement to reinstate the lease was created. Although the plaintiff gave evidence to the effect that he understood the defendant to be refusing to pay the costs of re-entry, the evidence indicates that the defendant was willing to pay the re-entry costs and was simply waiting for an accounting.

[63] This is supported by the fact that plaintiff’s counsel, in its October 7 letter, sets out the costs of the re-entry along with supporting documents. The date of the bailiff’s invoice is October 6, 2014 and the invoice for the company providing security is dated October 7, 2014. Consequently, the defendant could not have known the full costs of re-entry prior to October 7, 2014 when there is a written confirmation of his willingness to pay. Further, it would be illogical for the defendant to pay the full $22,759.81, despite disputing $13,759.81, unless it was making a bona fide effort to regain access to the premises by complying fully with the plaintiff’s terms.

[64] The plaintiff adduced no evidence that it ever communicated the costs of the re-entry prior to its October 7 letter. One cannot be expected to pay for something for which they do not know the cost. The plaintiff’s subsequent insistence on the rectification of various covenant breaches is at odds with its earlier statement that it did not want the covenant issues “to be a barrier to… conducting business”.

[65] I therefore conclude that while the plaintiff exercised a valid right of re-entry, it subsequently reinstated the lease agreement with the defendant.

[66] I would note that the plaintiff submits that the defendant “committed an anticipatory breach of the 2012 lease” when it entered into a lease for a third party property and stopped paying rent in June 2014.

[67] I would not give effect to this submission. The plaintiff tendered little evidence to support its allegation that the defendant entered into the lease with the third party for the purposes of repudiating its lease with the plaintiff. The defendant explained that it entered into the lease for additional space in order to separate its door and moulding operations. The defendant intended to retain its door manufacturing operations at the premises and relocate its moulding operations to the third party property. The defendant’s explanation is supported by the drawings it produced outlining its plan to divide its operations. The defendant’s desire for additional space is consistent with the fact that it rented additional units from the plaintiff four times between 2008 and 2012.

[68] The plaintiff’s expert was unable to point to any evidence to contradict the defendant’s claim that separating its door and moulding operations offered economic advantages. I therefore find that the defendant’s reasons for entering into the third party lease are credible. I find that the defendant committed no anticipatory breach of the 2012 lease.

5. If the plaintiff exercised a valid right of re-entry on October 3, 2014 and did not agree to reinstate the old lease, what damages are owed by the defendant?

[69] Having found that the parties entered into a new agreement to reinstate the old lease following a valid re-entry, it is necessary to determine whether there are any amounts owing by the defendant.

[70] The defendant argues that the plaintiff’s refusal to allow the defendant to regain possession following the reinstated agreement amounts to a “fundamental breach of contract”. A fundamental breach of contract is a breach that substantially deprives the innocent party of the benefit of the agreement. The parties agree that it is necessary to address the following five factors to determine whether a fundamental breach has occurred:

1. The ratio of the party’s obligations not performed to that party’s obligations as a whole;
2. The seriousness of the breach to the innocent party;
3. The likelihood of repetition of such breach;
4. The seriousness of the consequences of the breach; and
5. The relationship of the part of the obligation performed to the whole obligation.

Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc, 2008 ONCA 92, 2008 CarswellOnt 590, at para. 36.

[71] “[T]he effect of an acceptance by the innocent party of a fundamental breach is that it brings the contractual relationship to an end, or terminates the contract prospectively and frees the innocent party from any future obligation under the contract” (Karimi v. Gu, 2016 BCSC 1060, 2016 CarswellBC 1593, at para. 196). Obligations and rights already accrued are not affected (Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, at para. 40). Acceptance of the repudiation may be inferred from the party’s actions, including their non-performance of subsequent obligations (Harvey Kalles Real Estate Ltd. v. Haji-Seyed-Abolghasem-Tehrani, 2015 ONSC 4073, 2015 CarswellOnt 9633).

[72] The plaintiff’s refusal to allow the defendant access to the premises following the renewed agreement amounts to a fundamental breach. It deprived the defendant of the entire benefit of the contract and required it to move its entire operations. The defendant accepted this breach by relocating and claiming damages. As a result, the defendant is relieved from its obligations to pay any prospective obligations including rent under the reinstated lease. The plaintiff therefore is not entitled to such amounts.

[73] The plaintiff is, however, entitled to its re-entry costs. The plaintiff’s re-entry was valid and the defendant agreed to pay the plaintiff’s costs of re-entry as a condition for reinstating the lease. The plaintiff claims $36,983.64 plus HST for the costs of re-entry and removal of the defendant’s equipment. However, as indicated above, the plaintiff is only entitled to its costs up to, but not including, the date of its breach, namely October 7, 2014.

[74] $23,310 of the plaintiff’s claimed costs relate to security for the dates the defendant moved its operations. The plaintiff is not entitled to these costs as they arose following its fundamental breach. The remaining $13,673.64 arises from the plaintiff’s re-entry and includes bailiff, locksmith, security and legal costs.

[75] The plaintiff is entitled to its bailiff and locksmith costs given that such costs were incurred prior to October 7, 2014. These amounts total $2,267.20 plus HST. The plaintiff is further entitled to its security costs up to, but not including, October 7, 2014. This amount equals $2,100 plus HST (119 hours of security minus 14 hours for security provided October 7, 2014 at $20 per hour).

[76] Regarding the claim for legal fees, the evidence submitted by the plaintiff consists of a legal bill from its lawyer for nine days between October 6, 2014 and November 4, 2014 for $9,026. Only one day is before October 7, 2014. I allow the sum of $1,000 inclusive of HST.

[77] The total amount to be paid by the defendant to the plaintiff in the main action is $5,367.20 plus HST on the sum of $4,367.20 ($2,267.20 plus $2,100).

6. If the plaintiff did not have a valid right of re-entry or if the plaintiff violated the agreement to reinstate the old lease, what damages are owing to the defendant?

[78] Given my determination that the plaintiff wrongfully terminated the reinstated lease, it is necessary to quantify the defendant’s counterclaim. In Dasham Carriers Inc. v. Gerlach, 2013 ONCA 707, 2013 CarswellOnt 15820, the Court of Appeal held at para. 18 that “[t]here is no special approach to the calculation of damages recoverable by a wrongfully evicted tenant. The calculation is governed by the rule applicable to all breaches of contract: the tenant is entitled to be placed in the same position as if the lease agreement had been performed.”

[79] The defendant claims $450,590.99 in damages, inclusive of interest, consisting of the following amounts in accordance with their expert report:

1. $15,684 for lost rent value consisting of: a. $7,254 as it constitutes the proportionate share of the October rent for the 28 days remaining in the month, following the October 3 termination; b. $7,951 for the return of its deposit under the 2012 lease; c. $25 for its mailbox key deposit; d. $454 in interest calculated at a rate of 1.3%.
2. $210,169 for moving costs comprised as follows: a. $128,400 for expenses incurred in having to re-locate its offices, showroom and door production facilities; b. $78,575 for added labour costs to re-locate its business operations and the replacement cost of components and equipment left at the premises; c. $3,194 in interest calculated at a rate of 1.3%.
3. $62,212 for loss of profit;
4. $162,525 for the future cost of separating its door and moulding operations.

[80] The defendant does not seek the ordinary costs of moving its trim/moulding equipment as it had planned to do this in any event.

[81] The plaintiff’s expert quantifies damages in the amount of $18,727.

[82] The defendant claims $15,684 for lost rent value. The plaintiff submits that they have no major concerns with the defendant’s claim for lost rent value. However, the plaintiff’s expert opines that the interest on the principal sum calculated at a rate of 1.3% is $330, reducing the sum owed under this head of damage to $15,560.

[83] I accept the damages for lost rent value with one modification. As the plaintiff was entitled to re-enter the premises on October 3, 2014 and the lease was not re-instated until October 6, 2014, the appropriate date from which to calculate lost rent value is October 6, 2014. There was no lease agreement between October 3 and 6, 2014 and therefore no lost rent value can be attributed to that time period. The principal sum owing is therefore $6,476.48. Accounting for the loss of deposits, the total sum owed under this head of damages is $14,452.48 plus interest at a rate of 1.3%.

[84] The defendant claims $206,975 (exclusive of interest) for moving costs, consisting of $128,400 for expenses incurred for having to re-locate its offices, showroom and door production facilities and $78,575 for rush moving costs. The plaintiff’s expert disagrees and assesses damages (exclusive of basic interest) at $3,143.

[85] The divergence between the experts stems partially from the underlying assumptions each makes. The defendant’s expert assumes that the defendant would have kept its door operations at the premises indefinitely. The plaintiff’s expert assumes that the defendant would have moved its entire operations on its own volition in October 2014, or, in any event, would have been required to move its operations on October 31, 2015, being the end of the lease term.

[86] As noted above, I find that the defendant only intended to move its moulding operations to the new property. The defendant repeatedly gave evidence to this effect. The defendant produced plans sketched in 2014 to divide its operations. While there is no date indicated on these plans, neither the plaintiff nor the plaintiff’s expert produced any evidence to rebut the defendant’s assertions. On cross-examination, the plaintiff’s expert was unable to point to any evidence which indicated it was not economically feasible for the defendant to separate its operations.

[87] However, I find that the defendant would have been required to move its door operations from the premises at the expiry of the 2012 lease. While the defendant pointed to the parties’ histories of renewals, the relationship between the parties had clearly soured by October 2014. Furthermore, the plaintiff had already sold the premises to a third party and therefore it is with them that a renewal would likely have been negotiated. There is no evidence in the record from which I can conclude that the third party would have granted a renewal.

[88] Therefore, I decline to award any damages for the defendant’s cost of moving its door operations as the defendant would have been required to move its operations by October 2015.

[89] The defendant also seeks damages it incurred as a result of having to execute an unplanned, rushed move. The costs of an unplanned, rushed move would exceed the costs of a planned move. The issue goes to quantum.

[90] The defendant submits that it incurred $78,575 in damages as a result of the severe time constraints imposed by the plaintiff to move its entire business operations. This figure is comprised of the following amounts:

1. $5,000 for payment to Doncaster Machinery Movers;
2. $875 for the payment to EZ Lift Toronto Ltd. for the delivery and rental of a fork and scissor lift;
3. $8,700 for the payment to Mac M Technologies;
4. $32,000 for the payment to MM Electric Ltd.; and
5. $32,000 for the payment to VK Building Concepts.

[91] The plaintiff and its expert dispute these costs. Many of the plaintiff’s submissions relate to inadequate proof of payment or the fact that the amounts claimed are still outstanding. The defendant readily acknowledges that some debts are still owing. In my respectful view, it is immaterial whether the debts have been satisfied.

[92] I will address each in turn.

[93] The defendant claims $5,000 in rushed moving costs reflecting part of its total payment to Doncaster Machinery. The defendant asserts that this reflects the fact that had time permitted, it could have done much of the electrical disconnect and packing of machines itself. I accept this explanation and see no basis to reduce it.

[94] The plaintiff points out that the defendant claims $875 relating to the rental of a fork and scissor lift and that these items were presumably used to relocate both door manufacturing and trim equipment. The defendant in his affidavit deposes that “had time permitted, [the defendant’s] own personnel would have been able to dismantle the various overhead fixtures instead of having to rent a scissor lift and forklift to do so”. I accept this explanation. The rental costs of the fork and scissor lift is therefore properly included as a rushed cost.

[95] The defendant claims $8,700 for “industrial woodworking equipment disconnect services”. The plaintiff argues that the bulk of this fee relates to moving its trim operations, as the estimate provided for disconnecting the woodworking equipment in the future is only $750. However, that estimate goes on to delineate costs for “equipment move and placement” and “equipment installation and leveling” at $3,000 each for a total of $6,750. These services are substantially the same. I therefore conclude that some of the services comprising the $8,700 relate to trim operations and as a result I would reduce this amount to $6,750.

[96] The defendant claims $32,000 in rush nature costs arising from “switch, boxes, wires, splitters and additional materials”. Paul Terlecki deposed that the rushed move caused some of these items to be damaged, or left behind at the insistence of the plaintiff. The quantum is evidenced by a receipt from MM Electric for this amount. The plaintiff submits that there is no basis to consider them rushed costs. It further argues that these items may have been used to service new and/or trim equipment, neither of which it is liable for. I accept the defendant’s explanation that the rushed nature of the move caused at least some of the above materials to be damaged or left behind. However, the defendant has filed no evidence upon which I can conclude that the entire bill for $32,000 relates to wrongfully damaged or abandoned property. I am not satisfied that all expenses comprising this bill can be properly categorized as rushed moving costs. I therefore reduce the amount owed to $5,000.

[97] The defendant claims $32,000 of a $36,160 invoice payable to VK Building Concepts as rushed moving costs. The plaintiff disputes the entire amount on the basis that VK Building Concepts is not a moving company. However, as explained by the defendant in cross-examination, he was “getting anybody” to help with moving given the exigencies of the situation. I accept this explanation as credible. However, I would reduce the amount. Even if the defendant could have hired its own personnel to do much of the work, it acknowledges that some outside help would have been required. Moreover, the defendant would have been required to pay its personnel for their work in any event. I therefore would reduce the amount owing to the defendant to $15,000.

[98] In sum, the defendant is entitled to $32,625 for its rushed moving costs plus any applicable HST.

[99] The defendant argues that its eviction severely disrupted its business and resulted in the loss of HGH Design Build (“HGH”) as a customer. The plaintiff contests this assertion.

[100] The defendant has offered no proof to corroborate its claim that it lost HGH as a customer as a result of the plaintiff’s repudiation of the reinstated lease. As a result, no damages are owing by the plaintiff to the defendant for this alleged loss. I further find that the defendant’s business was partially disrupted on its own accord. The defendant was initially locked out because of their breach of the lease agreement. Therefore, even if the defendant did lose HGH as a result of the disruption, it was in part a consequence of its own actions.

[101] The defendant seeks $162,525 in order to separate its door and moulding operations in the future. This figure is based upon a quote received from a moving company. The plaintiff submits that the defendant has no grounds to claim costs it has not yet incurred.

[102] The defendant relocated to its new premises in October 2014. The defendant has not separated its business to date. Furthermore, by its own evidence, the defendant’s business has been thriving as a result of its new set up, notwithstanding its operations are not separated. As a result, I decline to award any damages for the future cost of separating its door and moulding operations.

Disposition

[103] For the reasons set forth above, I grant judgment in the main action and counterclaim as follows:

1. The plaintiff (defendant by counterclaim), 772067 Ontario Limited, is to have judgment against the defendant (plaintiff by counterclaim), Victoria Strong Manufacturing Corporation, in the amount of $5,367.20 plus applicable HST and interest.
2. The defendant (plaintiff by counterclaim), Victoria Strong Manufacturing Corporation, is to have judgment against the plaintiff (defendant by counterclaim), 772067 Ontario Limited, in the amount of $47,077.48 consisting of the following amounts: i. Lost Rent Value: $14,452.48
   1. $6,476.48 the proportionate share of October 2014 rent calculated from the date of wrongful termination to the end of the month;
   2. $7,951 for the return of the defendant’s deposit under the 2012 lease;
   3. $25 for the defendant’s mailbox key deposit. ii. Rushed Nature Costs: $32,625 plus any applicable HST

[108] I encourage the parties to agree on the issue of costs. If they cannot, I am to be contacted within 30 days in order to set a timetable for the delivery of cost submissions. I wish to thank counsel for their oral and written submissions which were of great assistance to the court.

Firestone J.

Released: May 2, 2017

[^1]: These figures actually equal $22,619.64. It is unclear what accounts for the difference between this figure and $22,759.81. However the difference is immaterial as both parties have accepted this accounting and the defendant ultimately paid $22,759.81.