CITATION: Smiles First Corporation v. 2377087 Ontario Ltd., 2017 ONSC 4306
COURT FILE NO.: CV-17-572631
DATE: 20170713
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SMILES FIRST CORPORATION and UNION HEALTH AND DENTAL CENTRE
Applicants
– and –
2377087 ONTARIO LIMITED o/a INTERNATIONAL UNION OF PAINTERS AND ALLIED TRADES DISTRICT COUNCIL No. 46, JOE RUSSO, 2445855 ONTARIO INC. and FRANK CUNDARI
Respondents
T. Walker and M. Boire, for the Applicants
A. Huggins and R. Nobleman, for the Respondents
HEARD: May 12, 2017
Cavanagh, J.
Introduction
[1] The applicants are in possession of premises defined below as the Leased Premises. The applicant Smiles First Corporation operates a wellness centre at the Leased Premises through its subsidiary Union Health and Dental Centre Inc. (“Union Health”). The applicants are referred to in these reasons, together, as “Smiles First”.
[2] The Leased Premises are owned by the respondent 2377087 Ontario Limited (“237”) which is owned and controlled by the International Union of Painters and Allied Trades District Council No. 46 (“Painters District Council 46”). The respondent 237 and Painters District Council 46 are referred to in these reasons, together, as the “Landlord”.
[3] The Landlord sent a “Notice of Termination by Landlord” to Smiles First on March 21, 2017 giving notice of termination of the leasehold interest of Smiles First for the Leased Premises and advising that the Landlord intends to re-enter the Leased Premises and take possession on May 1, 2017. The Landlord’s position on this application is that Smiles First is a month-to-month tenant and that its leasehold interest is subject to termination on thirty days’ notice.
[4] Smiles First maintains that it is lawfully in possession of the Leased Premises as assignee of the right, title and interest of 2445855 Ontario Inc. (“244”) pursuant to a valid and effective Assignment of Lease made the 31st day of October, 2016. Smiles First applies for a declaration that the Assignment of Lease is binding and enforceable against the Landlord and that it shall remain valid until the expiration of the term of the lease made with 244. Smiles First also seeks an order granting relief from forfeiture of its leasehold interest in the Leased Premises pursuant to s. 21 of the Commercial Tenancies Act and s. 98 of the Courts of Justice Act.
[5] For the following reasons, I have concluded that (i) there was no valid and effective assignment by 244 to Smiles First pursuant to the Assignment of Lease of its right, title and interest in and under the Head Lease; and (ii) Smiles First is not entitled to relief from forfeiture under the CTA or under the CJA.
[6] As a result, the application is dismissed.
Background Facts
Parties
[7] This application is concerned with lands and premises located at 130 Toro Road, Toronto (the “Property”). A portion of the Property that consists of 7882 square feet (the “Leased Premises”) is at issue on this application.
[8] The registered owner of the Property is 237. 237 is owned and controlled by the Painters District Council 46. 237’s sole purpose was to hold registered title to the Property from and after October 2, 2013. As noted, Painters District Council 46 and 237 are referred to herein, together, as the “Landlord”.
[9] The respondent 244 was, from January 1, 2015 until October 31, 2016, the tenant of 237 at the Leased Premises The respondent, Frank Cundari (“Cundari”) was an officer and director of 244 and, at all material times, its guiding and directing mind.
[10] The applicant Smiles First operates a wellness centre through Union Health at the Leased Premises. Smiles First subleased the Leased Premises from 244 between February 1, 2015 until on or about October 31, 2016. The President and C.E.O. of Smiles First is Dr. Azim Parekh (“Parekh”).
[11] The respondent, Joe Russo (“Russo”) was the former business manager of Painters District Council 46.
[12] By order dated May 9, 2017, the application was dismissed, on consent, against Russo, 244 and Cundari.
Head Lease
[13] On or about January 12, 2015, the Landlord executed an offer to lease dated January 12, 2015 to lease 8,342 square feet (the Leased Premises) to 244 for a term of 5 years and 6 months commencing February 1, 2015 and expiring July 31, 2020.
[14] On or about July 31, 2015, an amended offer to lease was executed between the Landlord and 244 revising the original lease by amending the portion of the Lease Premises to be occupied by 244, as tenant, from 8,342 square feet to 7,882 square feet and amending the rent accordingly (the “Head Lease”).
[15] The Head Lease provided for a term of 5 years and 6 months commencing August 14, 2015 that expiring February 14, 2021. Subject to the tenant not being in material default, the Head Lease contained a one-time 5 year option to extend the term of the lease, on terms.
The Smiles First Sublease
[16] On or about September 24, 2014, Union Health executed an agreement in principle with Painters District Council 46 that addressed a proposed lease of the Leased Premises with the support of Painters District Council 46. This document was signed by Russo on behalf of Painters District Council 46.
[17] In or about February 2015, negotiations to lease the Leased Premises were carried out between representatives of Smiles First, Cundari and Russo. On or about February 1, 2015, Smiles First entered into a Letter of Intent with 244 to lease the Leased Premises for a term commencing on February 1, 2015 and expiring on January 31, 2020.
[18] Smiles First took possession of the Leased Premises in March 2015, with a fixturing period until July 2015. Rent was scheduled to commence in July 2015. Rental payments and operating expenses were made by Smiles First to 244.
[19] Smiles First provided affidavit evidence from Parekh that when the Letter of Intent was negotiated, he believed that 244 and Cundari were representatives of Painters District Council 46 and authorized to negotiate a lease of the Leased Premises on its behalf. According to Parekh’s evidence, Cundari did not disclose that 244 was a tenant in the Leased Premises when the Letter of Intent with Smiles First was negotiated.
[20] The Letter of Intent under which Smiles First took possession of the Leased Premises is referred to in these reasons as the “Sublease”.
Defaults in payment of rents by Smiles First under Sublease and by 244 under Head Lease
[21] According to Parekh’s affidavit, he learned on or about May 26, 2016 that Cundari and 244 were not affiliated with Painters District Council 46, and that 244 had a head lease with the Landlord that provided for rentals being paid by 244 to the Landlord that were substantially lower than the rentals being paid by Smiles First to 244 under the Sublease.
[22] This information came to Parekh’s knowledge when he was forwarded a copy of a letter dated May 23, 2016 written by Kenneth E. Rigmaiden (“Rigmaiden”), the General President of the International Union of Painters and Allied Trades, AFL-CIO. In this letter, Rigmaiden wrote that Russo, by agreeing with Cundari to lease the Leased Premises to 244, and by agreeing that 244 would then sublease the Leased Premises to Smiles First at higher rent, breached his fiduciary duties owed to Painters District Council 46.
[23] After discovering this information, Smiles First decided not to make rental payments to 244 beginning June 2016. Smiles First has provided evidence that it was “instructed” by a representative of the Landlord to stop paying rent. The Landlord has provided evidence that its representative made an off-hand remark that “the only way the Applicants could get out of their Subleases was to stop paying rent”, and that he did not counsel the applicants to stop paying rent. In my view, nothing turns on this disagreement for purposes of this application.
[24] On or about June 14, 2016, 244, which was no longer receiving rental payments from Smiles First under the Sublease, fell into default in payment of rent under the Head Lease.
[25] On or about September 26, 2016, the Landlord issued a Notice of Rent Default to 244 and provided it until October 12, 2016 to cure the default or the Head Lease would be terminated effective as of that date.
[26] On September 30, 2016 Smiles First was locked out of the Leased Premises by 244 for failure to pay rent under the Sublease.
Settlement negotiations involving the Landlord, 244 and Smiles First.
[27] On or about October 6, 2016 legal counsel representing both 244 and Smiles First wrote to legal counsel for the Landlord to advise that 244 and Smiles First had entered into a tentative agreement to resolve all outstanding matters with respect to the Leased Premises that is contingent on approval by the Landlord of “assigning 244’s Lease to Smiles and/or International [the Landlord] entering into a new head lease with Smiles”.
[28] As a result of this correspondence, the legal representatives of the parties entered into without prejudice negotiations in respect to the Lease Premises and, in furtherance thereof, the parties and their legal representatives attended a settlement meeting on October 21, 2016. The parties are not in agreement concerning the outcome of the settlement discussions.
[29] Smiles First submits that it did not enter into a settlement, and that the communications among the parties in respect of the negotiations towards settlement are inadmissible in evidence because they are subject to settlement privilege. Smiles First’s evidence is that, while there were negotiations with the Landlord involving a new lease, Smiles First decided to proceed with an assignment of the head lease from 244.
[30] Smiles First, in the reply affidavit of Parekh, introduced evidence that:
a. On October 21, 2016, the lawyer for the Landlord delivered an offer to settle to former counsel for Smiles First in an effort to negotiate a new lease with Smiles First independent of Cundari.
b. The Landlord’s lawyer advised that Smiles First could continue to occupy the Lease Premises under the terms of 244’s lease, but it would run the risk of (a) the lease being found invalid due to fraud, or (b) the lease not being renewed when the term expires in just over 3 years.
c. Smiles First decided to proceed with an assignment of lease from Cundari [and 244].
d. Smiles First notified the Landlord by email on November 4, 2016 that “[o]nce the transfer of lease takes place on Monday between Smiles First and Cundari, we will be in touch to finalize things between the two of us”. This email stated that a “release from the union [in favour of Cundari and 244] as we discussed was a part of this agreement”.
e. In January 2017, Smiles First received Minutes of Settlement from the Landlord’s lawyers which provided that Cundari was abandoning his rights under the Head Lease.
f. Since Smiles First had received an assignment of Cundari’s rights under the Head Lease, “on notice, and with the tacit approval of the Painters Union”, Smiles First refused to execute the Minutes of Settlement. Parekh appended to his affidavit as an exhibit a copy of the Minutes of Settlement provided to Smiles First in January 2017.
[31] The Landlord submits that a final settlement was reached with 244 and Smiles First on or about November 4, 2016 when the Landlord negotiated with Parekh, representing Smiles First, what the Landlord described as the final rental rate for a new lease.
[32] I have concluded that I do not need to consider the communications that Smiles First claims are inadmissible because of settlement privilege in order to decide the questions raised on this application and, therefore, I do not need to decide whether these communications are or are not inadmissible in evidence because of settlement privilege, or whether Smiles First has waived any such settlement privilege.
Assignment of Lease
[33] On October 31, 2016 a written Assignment of Lease was executed by 244 as assignor and Smiles First as assignee (the “Assignment of Lease”).
[34] Smiles First went back into possession of the Leased Premises on or about November 5, 2016.
[35] Beginning in December 2016, Smiles First paid rent at the rate provided by the Head Lease directly to the Landlord.
Refusal by Smiles First to Execute Minutes of Settlement
[36] Smiles First refused to execute the Minutes of Settlement document that was provided by the Landlord in January 2017 because it had received an assignment of the rights of 244 under the Head Lease.
Notice of Termination of Lease by 237
[37] By Notice of Termination by Landlord dated and sent on March 21, 2017 the Landlord gave notice to Smiles First that it terminates the “Lease dated March 20, 2017” between the Landlord and Smiles First for premises at 130 Toro Road. This notice was 30 days’ notice on the basis that Smiles First was on a month-to-month tenancy.
[38] In response, Smiles First wrote to the Landlord’s lawyers by letter dated March 24, 2017. In this letter, Smiles First advised that its occupation of the leased premises is subject to an assignment of the Offer to Lease dated July 31, 2015 and that the assignment was executed in October, 2016.
[39] In response, by letter dated March 30, 2017, the Landlord’s lawyers advised Smiles First, that (i) 244 had abandoned the head lease dated July 31, 2015 on terms agreed to by Smiles First so that there was no lease in effect to be assigned, (ii) 244 was in default of rent in October 2016 which was not cured, and (iii) no prior notice was given of the assignment to the Landlord. On this basis, the Landlord took the position that the purported assignment was null and void. The Landlord expressed its intention to take possession of the Lease Premises on May 1, 2017 in accordance with the Notice of Termination.
Analysis
[40] The following issues arise on this application:
a. Whether there was a valid legal assignment by 244 of its right, title and interest in and under the Head Lease to Smiles First pursuant to the Assignment of Lease, such that Smiles First is lawfully entitled to remain in possession of the Leased Premises.
b. Whether the assignment by 244 of its right, title and interest in and under the Head Lease to Smiles First pursuant to the Assignment of Lease is ineffective because the requirements of paragraph 7 of the Head Lease were not satisfied.
c. Whether there was there an equitable assignment of the Head Lease from 244 to Smiles First that is binding of the Landlord?
d. Whether the Landlord is estopped from insisting on its strict legal rights, or waived its strict legal rights.
e. Whether Smiles First entitled to relief from forfeiture as a subtenant under s. 121 of the CTA or s. 98 of the Courts of Justice Act.
a. Was there a valid legal assignment by 244 of its right, title and interest in and under the Head Lease to Smiles First pursuant to the Assignment of Lease, such that Smiles First is lawfully entitled to remain in possession of the Leased Premises?
[41] Smiles First submits that the Assignment of Lease is legally valid and effective and that it is entitled to remain in possession of the Leased Premises as assignee of the right, title and interest of 244 in and under the Head Lease.
[42] The Landlord submits that there is no legally valid assignment of the Head Lease because the preconditions to an assignment were never met. The Landlord relies upon the provisions of the Assignment of Lease that was executed by 244 and by Smiles First.
[43] The Assignment of Lease includes the following recitals:
WHEREAS the Assignor and Assignee have agreed to an assignment of a lease relating to … [the Leased Premises] … on the terms set out herein;
AND WHEREAS the Property is leased to the Assignor pursuant to the terms of the attached Offer to Lease (hereinafter referred to as the “Lease”), which Lease is attached hereto as Schedule “A”.
AND WHEREAS the Assignor has agreed to accept the total amount of Seventy Thousand Dollars ($70,000.00), as full and final satisfaction of all rental arrears owing to October 31, 2016, all incurred legal costs, all incurred bailiff costs and all other costs associated with this matter.
[44] The Assignment of Lease includes the following operative provision:
NOW THEREFORE IN CONSDIERATION (sic) of the mutual premises …, the Assignee and Assignor do hereby agree as follows:
- The Assignee shall deliver a (sic) certified funds to the Assignor’s counsel, Salvatore Manella Professional Corporation, in trust, in the amount of $70,000.00 to be released upon execution and delivery of this Assignment of Lease to the Assignee. Upon receipt thereof, the Assignor shall request the consent of the Landlord under to (sic) Lease to the assignment thereof in favour of the Assignee. Upon receiving the Landlord’s Consent, the Assignor shall thereafter transfer and assign to the Assignee all of the right, title, and interest of the Assignor, as Tenant, in and under the Lease, including the right to occupy the Premises for the purpose of conducting a dental professional practice, together with all benefits and advantages to be derived under the Lease, to have and to hold the same unto the Assignee and subject to the Tenant’s obligations thereunder.
[45] The Landlord submits that, by the terms of the Assignment of Lease, before 244 was contractually able to assign its right, title and interest in and under the Head Lease to Smiles First, it was first required to receive Landlord’s consent to the assignment. The Landlord submits that because it was never asked for its consent and did not provide its consent, a precondition to any assignment, the Assignment of Lease is ineffective to effect a transfer and assignment to Smiles First of 244’s right, title and interest in and under the Head Lease. The Landlord submits that 244 abandoned the Head Lease at the end of October 2016 thereby terminating it and, as a result, the Sublease also came to an end. The Landlord submits that Smiles First remained in occupation as a month to month tenant and that the Landlord validly terminated this tenancy by notice of termination dated March 21, 2017.
[46] In response, Smiles First submits that under ss. 23(1) and (2) of the CTA, when consent by a landlord to an assignment of lease is required in a lease and withheld, relief may be requested from the court. Smiles First submits that I may relieve against any failure to obtain the Landlord’s consent to the assignment of the Head Lease. Smiles First also relies upon the decision in Beaver Fuels Management Ltd. v. Baker’s Dozen Holdings Corp., [2006] O.J. No. 5743 in support of this submission.
[47] Subsections 23(1) and (2) of the CTA provide:
- (1) In every lease made after the 1st day of September, 1911, containing a covenant, condition or agreement against assigning, under letting, or parting with the possession, or disposing of the land or property leased without license or consent, such covenant, condition or agreement shall, unless the lease contains an express provision to the contrary, be deemed to be subject to a proviso to the effect that such license or consent is not to be unreasonably withheld.
(2) Where the landlord refuses or neglects to give a license or consent to an assignment or sub-lease, a judge of the Superior Court of Justice, upon the application of the tenant or of the assignee or sub-tenant, made according to the rules of court, may make an order determining whether or not the license or consent is unreasonably withheld and, where the judge is of the opinion that the license or consent is unreasonably withheld, permitting the assignment or sub-lease to be made, and such order is the equivalent of the license or consent of the landlord within the meaning of any covenant or condition requiring the same and such assignment or sub-lease is not a breach thereof.
[48] In my view, these provisions of the CTA do not apply to relieve against the failure of 244 to seek and obtain the consent of the Landlord to the assignment to Smiles First of the right, title and interest of 244 in and under the Head Lease, as called for by the terms of the Assignment of Lease. These statutory provisions authorize a judge to relieve against an unreasonable refusal by a landlord to consent to an assignment or sub-letting based upon a provision in a lease containing a covenant against assigning or sub-letting which, pursuant to s. 23(1), is deemed to be subject to a proviso to the effect that such a licence or consent is not to be unreasonably withheld. These statutory provisions do not, however, confer statutory authority to a judge to re-write the terms of a contract between the assignor and the assignee of a lease (to which the landlord is not a party) setting out the agreed upon terms for an assignment of a lease.
[49] Beaver Fuels was concerned with a landlord’s claim that a sublease was invalid because the tenant did not comply with the subleasing provisions of its lease (because a written acknowledgment from the subtenant was not delivered). The landlord claimed that the lease was terminated which, in turn, terminated the sublease. The subtenant sought relief from forfeiture under s. 21 of the CTA that allows a subtenant to move for relief against a lessor proceeding to enforce a right of re-entry or forfeiture under “any covenant, proviso or stipulation in a lease”. Perell J. reviewed the jurisprudence concerning relief from forfeiture and, at para. 43, wrote that “the ultimate question is whether the Court should exercise its equitable jurisdiction to relieve against the forfeiture imposed by common law because it is an excessive remedy in all the circumstances”. Perell J. exercised his statutory authority under s. 21 of the CTA to relieve against forfeiture under a provision “in a lease”, and to grant relief from forfeiture.
[50] In my view, the reasoning in Beaver Fuels does not apply to the question of whether, under the Assignment of Lease, there is a legally valid assignment of the rights of 244 under the Head Lease to Smiles First. The Landlord relies upon the language of the Assignment of Lease in support of its position that 244 did not effectively assign its right, title and interest in and under the Head Lease to Smiles First because a condition to such assignment, receipt of the Landlord’s consent, was not fulfilled. In respect of this submission, the Landlord does not rely upon any “covenant, proviso or stipulation” in the Head Lease and, therefore, there is no forfeiture by the Landlord to relieve against.
[51] Smiles First also submits that the Landlord cannot rely upon the provisions in the Assignment of Lease that require the Landlord’s consent before 244 is able to effectively transfer and assign its interests in the Head Lease to Smiles First because the Landlord is not a party to the Assignment of Lease and because it is only binding as between the assignee and the assignor. Smiles First cites Fifth Dimension Technologies Inc. (Re), [2002] O.J. No. 1260 in support of this submission.
[52] In Fifth Dimension, the court considered whether there was an absolute assignment of a lease by a lessee of equipment where the trustee in bankruptcy of the lessor argued that the notice of assignment to the lessor was defective and, therefore, invalid. The court held that notice to the obligor (the lessor) was not required to effect a valid assignment and that the fact that there has been no notice of the assignment to the lessor will not affect the assignment as between assignee and assignor. The court held that lack of proper notice could affect the rights and obligations as between the assignee and the obligor, but not as between the assignee and the assignor: Fifth Dimension, at paras. 59-60.
[53] In my view, the decision in Fifth Dimension is not applicable to this case. The rights and obligations as between assignor, 244, and the assignee, Smiles First, are defined by the terms of their contract, the Assignment of Lease. This is not a case where, in support of this submission, the Landlord relies upon a lack of notice to it to object to the validity of an assignment of the Head Lease.[^1] The Landlord relies upon the terms agreed to by 244 and Smiles First in the Assignment of Lease, and argues that the contractual precondition for an effective assignment, receipt of the Landlord’s consent, was not satisfied.
[54] Smiles First also submits that the requirement for the Landlord’s consent in the Assignment of Lease cannot bind the Landlord because the Landlord is not a party to the contract. Smiles First relies on Levine v. Davies, 1998 CanLII 3606 (ON CA), [1998] O.J. No. 140 in support of its submission that a mistake involving the requirement to consent cannot bind the parties to that undertaking. This principle does not apply to this case. The question is not whether the Landlord is bound by the Agreement to Lease. The question is whether there was a valid and effective assignment by 244 to Smiles First of its right, title and interest in and under the Head Lease. In my view, the answer to this question depends upon the interpretation of the Assignment of Lease according to settled principles of contractual interpretation.
[55] The interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine the intent of the parties and the scope of their understanding. To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement. The evidence that can be relied upon under the rubric of “surrounding circumstances” should consist only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting: Sattva Capital Corp. v. Creston Moly Corp., [2014] S.C.R. 633 at paras. 47, 57, and 58. I apply these principles in my interpretation of the Assignment of Lease.
[56] The Assignment of Lease is a contract between 244 and Smiles First. The Landlord is not a party. The parties to the Assignment of Lease agreed between themselves on the terms upon which an assignment to Smiles First of the right, title and interest of 244 in the Head Lease would become effective. The parties agreed that, upon receipt into its lawyer’s trust account of the $70,000 payment, 244 “shall request the consent of the Landlord under to (sic) Lease to the assignment thereof in favour of the Assignee”. The parties agreed that, upon receiving the Landlord’s consent, 244 shall thereafter transfer and assign its right, title and interest in and under the Head Lease to Smiles First. The Assignment of Lease does not provide for an assignment by 244 of its interest in the Head Lease under any other conditions.
[57] According to the ordinary and grammatical meaning of the words used by 244 and Smiles First in the Assignment of Lease, there was no effective assignment of the right, title and interest of 244 in and under the Head Lease because the Landlord’s consent was never received by 244. The requirement for receipt by 244 of the Landlord’s consent to the assignment of the Head Lease was a true condition precedent upon which the existence of a valid and effective assignment of the Head Lease depended and, until it was satisfied, there could be no assignment of the Head Lease by 244 to Smiles First: Zhilka v. Turney, 1959 CanLII 12 (SCC), [1959] S.C.R. 578 at para. 11.
[58] I therefore conclude that there was no valid and effective legal assignment by 244 to Smiles First of its right, title and interest in and under the Head Lease pursuant to the Assignment of Lease.
b. Is the assignment by 244 of its right, title and interest in and under the Head Lease to Smiles First pursuant to the Assignment of Lease also ineffective because the requirements of paragraph 7 of the Head Lease were not satisfied? If so, is the Assignment of Lease valid as an assignment in equity?
[59] The Landlord also submits that the assignment of the Head Lease to Smiles First is not binding on the Landlord because the requirements for a valid assignment set forth in paragraph 7 of the Head Lease were not satisfied.
[60] Paragraph 7 of the Head Lease provides:
So long as the Tenant is not in default under the terms of the Lease, the Tenant may assign or transfer this Lease without the Landlord’s consent, provided the Landlord is provided with a written notice of the assignment prior to the completion of the assignment or transfer of the Lease.
[61] The Landlord submits that there were two requirements for a valid assignment: (i) the Tenant is not in default under the terms of the Head Lease, and (ii) the Landlord is provided with a written notice of the assignment prior to completion of the assignment or transfer of the Head Lease. The Landlord submits that neither requirement was satisfied when the Assignment of Lease was made.
[62] The Landlord relies on the evidence of 244’s representative, Cundari, that, although 244 paid rent to remedy default in payment of rent that was due on June 14, July 14, August 14 and September 24, 2016, no rent was remitted by 244 for rent due on October 14. Therefore, on the date of the Assignment of Lease, October 31, 2016, 244 was in default under the terms of the Head Lease. The Landlord also relies on the evidence of Cundari that no prior notice was given to the Landlord of the Assignment of Lease.
[63] Smiles First relies on correspondence from the lawyer for 244 dated October 6, 2016 and from the Landlord’s lawyer dated October 21, 2016 as constituting actual or constructive notice to the Landlord of the assignment. In his October 6, 2016 letter, the lawyer for 244 wrote to the Landlord on behalf of both 244 and Smiles First. He advised that the parties have entered into a tentative settlement to resolve all outstanding matters with respect to the leased premises. He also wrote: “However, the agreement is contingent on International’s [the Landlord’s] approval of assigning 244’s Lease to Smiles and/or International entering into a new head lease with Smiles”.
[64] The Landlord’s lawyer’s October 21, 2016 email to the lawyer for Smiles First (that Smiles First partially redacted because, I presume, of its assertion of settlement privilege), included the following:
Your client needs to decide whether he wishes to continue with Cundari on whatever terms, with the risk of a court finding that our Lease with Cundari is void due to fraud (and therefore the lease is at an end and he is out and so is your client), or risk that once Cundari’s lease is over in just over 3 years, we increase the rent such that he vacates; in which case again your client’s lease is over.
Our client’s offer above ameliorates his [Smiles First’s] bad deal.
Please let me hear from you by mid-week failing which I expect I will be advised to pull the offer as we will be pursuing Cundari to terminate the lease.
[65] The Assignment of Lease had not been signed when the October 6, 2016 letter was send by 244’s lawyer on behalf of 244 and Smiles First. The October 6 letter asks the Landlord to negotiate potential avenues for resolution, one of which was an assignment of the lease. The partially redacted October 21 email from the Landlord’s lawyer discloses that the Landlord is urging Smiles First to accept its offer, failing which it would likely be pursuing termination of the Head Lease. This email is not consistent with the Landlord having been given notice of an assignment of the Head Lease. I do not agree with Smiles First’s submission that either of these pieces of correspondence constitutes actual or constructive notice of the Assignment of Lease.
[66] I accept Cundari’s evidence that shows that the requirements in the Head Lease for a valid assignment that is binding on the Landlord were not satisfied.
[67] In response to the Landlord’s submission, Smiles First submits, citing 683632 Ontario Ltd. v. Lang, 1999 CarswellOnt 111 at para. 11, that I should, nevertheless, recognize the validity of the assignment in equity because (i) there was a meeting of minds between 244 and Smiles First with respect to the assignment, and (ii) there was part performance by Smiles First referable to the assignment by payment of rent due under the Head Lease to the Landlord. In the Lang case, Low J. also held that there is an additional requirement to establish the existence of an equitable assignment, that it must be established that it would be a fraud in the person denying the assignment to take advantage of the assignment not being in writing.
[68] I do not regard the Lang decision as applicable. The question in Lang was whether it had been established that there was an equitable assignment to defeat the operation of section 4 of the Statute of Frauds which applies to an assignment of a lease. This case does not involve the Statute of Frauds. In addition, I do not agree that the payment by Smiles First to the Landlord of the amount of rent due under the Head Lease shows, on the evidence before me, an intention by the Landlord to accept the validity of the Assignment of Lease which, in my view, would be necessary for me to treat the Assignment of Lease as a valid and effective equitable assignment. The parties were in settlement negotiations during the period when rent was paid by Smiles First to the Landlord. Smiles First has asserted that communications in respect of settlement are subject to settlement privilege. There could be a number of reasons why rent was paid to and received by the Landlord, and I do not accept that Smiles First has shown that receipt of rent by the Landlord supports an equitable assignment of the Head Lease.
[69] Smiles First also relies upon Levine v. Davies, 1998 CanLII 3606 (ON CA), [1998] O.J. No. 140 (C.A.) in support of its submission that Smiles First performed acts of performance consistent with the assignment of the Head Lease having taken place that supported an equitable assignment. In that case, the court held that, notwithstanding the absence of a formal assignment, there were acts of part performance by the assignee of a lease and that equity looks to what the parties intended. The Court of Appeal gave effect to the parties’ intention and concluded that the lease was validly assigned in equity.
[70] The decision in Levine also involved a failure to comply with the Statute of Frauds. In my view, this decision does not apply here. Smiles First has also not shown that the Landlord intended to accept and consent to an assignment of the Head Lease and, therefore, it cannot be said that recognition of the Assignment of Lease as a valid assignment in equity would give effect to the parties’ intention.
[71] I do not agree that Smiles First has shown that, by accepting rent and allowing Smiles First to remain in possession of the Leased premises, the Landlord intended that the assignment of the Head Lease to Smiles First was valid and effective. I do not agree that accepting the Assignment of Lease as an equitable assignment would give effect to the intentions of the parties. I decline to treat the Assignment of Lease as a valid assignment in equity.
d. Is the Landlord is estopped from insisting on its strict legal rights, or has the Landlord waived its strict legal rights.
[72] Smiles First also relies upon the doctrines of promissory estoppel and waiver. Smiles First submits that under these doctrines, a party is prevented from insisting on its strict rights when it would be inequitable for it to do so having regard to the dealings which have taken place between the parties.
[73] Smiles First submits that the requirements of promissory estoppel are satisfied if (a) there is an unequivocal promissory assurance, by conduct, word or silence, that strict legal rights will not be relied on; (b) there is an intention by the promisor to affect legal relations or knowledge that the promisee is likely to regard the promise as affecting their legal relations; and (c) there is reliance on the promissory assurance.
[74] Smiles First relies upon acceptance of rent by the Landlord as amounting to a promise by the Landlord to accept the assignment of the Head Lease, and submits that Smiles First relied upon this promise to its detriment. Smiles First also submits that, by accepting rent from Smiles First in the amounts due under the Head Lease, the Landlord has waived its right to rely on the requirements of the Head Lease to object to the validity of the assignment by 244 to Smiles First of the Head Lease.
[75] The onus is on Smiles First to show, through evidence, that acceptance by the Landlord of rent paid by Smiles First reflected the Landlord’s intention to treat the Assignment of Lease as a valid and effective. Smiles First has failed to discharge its onus of proving that the Landlord, by accepting payment of rent, intended to accept the validity of the assignment of the Head Lease to Smiles First.
[76] The acceptance of rent by the Landlord during the period when the parties were engaged in settlement negotiations does not, in these circumstances, represent an implicit assertion by the Landlord that Smiles First is in possession of the Leased Premises as an assignee of the Head Lease from 244. The decision in 1328773 Ontario Inc. (c.o.b. Angling Outfitters) v. 2047152 Ontario Ltd., 2013 ONSC 4953, [2013] O.J. No. 3575, where a landlord, by accepting rent following allegations of default on the part of the tenant, was held to have waived the right to rely on the alleged default to terminate or forfeit a lease, is inapplicable.
[77] Therefore, I conclude that the Landlord is not estopped from denying that the Assignment of Leases valid and effective or that the Landlord has not waived any of its rights under the Head Lease or at law.
e. Is Smiles First entitled to relief from forfeiture as a subtenant under the CTA or the Courts of Justice Act?
[78] The position taken by the Landlord is that 244 clearly and unequivocally abandoned the Head Lease effective November 1, 2016 and, as a result, that the Head Lease was terminated. The Landlord’s position is that the sub-lease to Smiles First came to an end with the termination of the Head Lease and that Smiles First remained in occupation of the Leased Premises as a month to month tenant, which tenancy was terminated by written notice dated March 21, 2017.
[79] In the alternative to its submission that it is entitled to remain in the Leased Premises as an assignee of the Head Lease, Smiles First seeks relief from forfeiture of the Head Lease as a subtenant and it seeks to remain in possession of the Leased Premises as a subtenant on the terms and conditions of the Head Lease. Smiles First seeks this relief under s. 21 of the CTA and/or s. 98 of the Courts of Justice Act (the “CJA”).
[80] Smiles First relies upon the decision of the Court of Appeal in Golden Griddle Corp. v. Toronto (City), 1997 CanLII 4440 (ON CA), 33 O.R. (3d) 545. In Golden Griddle, a subtenant was granted relief from forfeiture where a landlord had forfeited the term of the head lease and sought to re-enter following the tenant’s failure to pay rent and its abandonment of the head lease. The relief from forfeiture was granted on a basis that would not unfairly prejudice the head landlord, and ordered that the subtenant be bound by the terms of the head lease. Smiles First seeks relief from forfeiture on terms that allow it to remain in the Leased Premises on condition that it enter into a new lease on the same terms and conditions as the Head Lease with 244.
[81] The Landlord submits that 244 abandoned the Head Lease as part of a settlement that was negotiated and agreed upon by 244 with the Landlord, and that the Landlord did not take steps to forfeit the Head Lease. In his supplementary affidavit affirmed April 19, 2017, Parekh gave evidence on behalf of Smiles First and he appended as an exhibit to his affidavit Minutes of Settlement dated November 23, 2016 that he received from the Landlord’s lawyer in January 2017. As Parekh wrote in his affidavit, the Minutes of Settlement “provided that Mr. Cundari was abandoning his rights under the Head Lease of the Premises”.
[82] This evidence from Parekh confirms that 244 abandoned the Leased Premises as part of a settlement with the Landlord. The Minutes of Settlement that Parekh introduced into evidence, and that Smiles First refused to sign, provide that the Landlord agrees to enter into as new binding and enforceable lease agreement directly with Smiles First on terms to be agreed upon in writing. Parekh’s evidence is that, since Smiles First had received an assignment of 244’s rights under the Head Lease with the “tacit approval” of the Landlord, Smiles First refused to execute the Minutes of Settlement.
[83] The Landlord disputes that Smiles First was a subtenant after 244 abandoned the Leased Premises as of November 1, 2016. The Landlord submits that, even if Smiles First were held to be a subtenant, it is not entitled to seek relief from forfeiture under s. 21 of the CTA or s. 98 of the CJA. The Landlord relies upon the decision of the Court of Appeal in Maverick Professional Services Inc. v. 592423 Ontario Inc., [2001] O.J. No. 1877 (C.A.).
[84] In Maverick, the Court of Appeal addressed s. 21 of the CTA and s. 98 of the CJA and wrote at paras. 4, 9 and 11:
… We agree with Lax J. that the landlord was not proceeding to enforce “a right of re-entry or forfeiture under any covenant, proviso or stipulation in a lease” within the meaning of these words in s. 21 in the Commercial Tenancies Act. We accept the respondent’s submission that this wording is intended to cover a case where the tenant is in breach of, or in default under, some provision of the lease which gives the landlord the right to terminate the lease during the term and that the jurisdiction under the statute is to grant relief, in appropriate cases, from the harshness of this result. In determining whether or not to grant relief to the tenant, the court engages in a consideration of the competing interests and takes into account all of the circumstances, including the nature and gravity of the tenant’s breach or default and its relation to the value of the property [citation omitted].
In this case, the hardship is not caused to the tenant, who is content with the termination of the lease, but to the subtenant who is being put out of its space in an untimely way as a result of the act of the tenant. Had this act amounted to a breach of, or default under, the lease, the court would be able to intervene and grant relief to the subtenant. Because the act of the tenant was not a breach of, or a default under, the lease, there is no basis for the court to be able to grant relief to the subtenant under s. 21, which requires a re-entry or a forfeiture.
It follows from what we have said above that we also agree with Lax J. that the appellant is not able to obtain relief under s. 98 of the Courts of Justice Act.
[85] Smiles First does not take the position that it is currently a subtenant. The Landlord is not proceeding to enforce a re-entry or forfeiture under any covenant, proviso or stipulation in a lease. The evidence is clear that 244 agreed to abandon the Head Lease as of November 1, 2016. At the time that the Notice of Termination was given on March 21, 2017, Smiles First was no longer a subtenant.
[86] On the authority of Maverick, I conclude that Smiles First is not, as a subtenant, entitled to relief from forfeiture under s. 21 of the CTA or s. 98 of the CJA in order to allow it to remain in possession of the Leased Premises as a subtenant on the terms and conditions of the Head Lease.
Disposition
[87] The application is dismissed.
[88] If the parties are unable to resolve costs, the Landlord may make written submissions with 20 days (not to exceed 10 pages, excluding Costs Outline and offers to settle, if any). Smiles First may make written submissions within 20 days of receipt of the Landlord’s submissions (also not to exceed 10 pages). The Landlord, if so advised, may make brief reply submissions within 10 days of receipt of the responding submissions from Smiles First, not to exceed 3 pages.
Cavanagh J.
Released: July 13, 2017
CITATION: Smiles First Corporation v. 2377087 Ontario Ltd., 2017 ONSC 4306
COURT FILE NO.: CV-17-572631
DATE: 201707xx
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SMILES FIRST CORPORATION and UNION HEALTH AND DENTAL CENTRE
Applicants
– and –
2377087 ONTARIO LIMITED o/a INTERNATIONAL UNION OF PAINTERS AND ALLIED TRADES DISTRICT COUNCIL No. 46, JOE RUSSO, 2445855 ONTARIO INC. and FRANK CUNDARI
Respondents
REASONS FOR DECISION
Cavanagh J.
Released: July 13, 2017
[^1]: The Landlord makes a separate submission that the assignment is ineffective because the requirements in paragraph 7 of the Head Lease for an assignment that is valid and binding on the Landlord, including prior notice of the assignment to the Landlord, were not met.