Citation: Dourada Investment Inc. v. V. Melfi Holding Ltd., 2017 ONSC 4901

COURT FILE NO.: CV-14-119329-SR

DATE: 20170911

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Dourada Investment Inc. and Carlos Lopes

Plaintiffs

– and –

V. Melfi Holding Ltd. and Vincent Melfi

Defendants

COUNSEL:

Mr. V. Arman, for the Plaintiff

Mr. D. Saverino, for the Defendant

HEARD: July 7, 2017

REASONS FOR JUDGMENT

de sa j.:

Overview

[1] The Plaintiff (“Dourada Investment Inc.” or “Dourada”) seeks summary judgment for damages and outstanding rent and utilities in relation to a property purchased from the Defendant (“V. Melfi Holding Ltd” or “Melfi”) on December 16, 2011 (the “Property”). Dourada also seeks an order directing the release of the holdback funds in the amount of $100,000 plus accrued interest to Dourada from the trust account of lawyer Martin N. Rain.

[2] Following the sale of the Property to Dourada, Melfi left a large amount of contents, scrap and waste materials in the premises. While Melfi was permitted to lease a portion of the Property to store its contents for some months, Dourada directed Melfi to vacate the Property by December 1, 2013. Despite Dourada’s repeated requests for Melfi to remove its contents and vacate the premises, Melfi’s contents occupied close to 20,000 sq. ft. of the Property until the contents were ultimately sold off by Dourada in May of 2015. The Plaintiff seeks damages from Melfi for breaching its undertaking to vacate the premises at the time of closing and rent and utilities in the following amounts:

a) Arrears of rent in the total amount of $417,875.00 in respect of a written lease agreement;

b) Damages for utility costs incurred in the amount of $31,846.80 in respect of a written lease agreement; and

c) Damages in the amount of $20,972.25 with respect to restoration and repair expenses;

[3] The Defendant resists the summary judgment motion claiming that the issues remaining in dispute require a trial to resolve them. I disagree. For the reasons outlined below, I grant summary judgment in favour of the Plaintiff in the amount $212,071.41.

[4] I also order the holdback funds of $100,000 be released to Dourada as a partial payment towards the amounts owing.

Summary of Facts

[5] The Plaintiff, Dourada, is the owner of an industrial building located at 91 Pippin Road, Vaughan, Ontario (the “Property”). Dourada purchased the Property for $4,301,000 from the Defendant, Melfi, by way of Agreement of Purchase and Sale dated December 16, 2011 (the “APS”).

[6] The APS was amended on or about January 7, 2013 (the “Amendment”), to extend the closing date from January 7, 2013 to February 4, 2013, to allow Melfi to comply with its pre-closing undertakings. The Amendment also provided that following the closing, Melfi could occupy one of the rental units located at the west side of the Property, being Unit 1 (the “Leased Premises”), for a maximum of three months. The Amendment states:

The seller will remain on the west side of the premises as a tenant occupying approximately 18,000 sq. ft. on a month to month basis for a maximum of three months. Terms will be 7.50 per sq. ft. plus HST and utilities extra (emphasis added).

[7] Melfi also gave the following undertakings:

a) To ensure the heating system be in good working order prior to closing;

b) To ensure the office area be cleaned and stripped down by January 11, 2013;

c) Agreement to have Dourada holdback $100,000 from the purchase price upon all requirements being met and the buyer being satisfied that all the terms have been completed upon which Dourada would release the funds being held in full to the seller;

d) To obtain its own liability and content insurance; and

e) To remove all of the debris and ensure the property be cleaned in a broom swept condition.

[8] Pursuant to the terms of the Amendment, upon closing, the holdback security of $100,000 was retained by Dourada’s real estate counsel.

[9] On April 25, 2013, counsel for Dourada wrote to Melfi’s counsel advising that rents in the amount of $25,000 were still owing, the HVAC had not been installed, and that metal machinery, freezers and a cooling system had yet to be been removed from the Property. In this correspondence, Dourada’s counsel reminded Melfi’s counsel that the three month maximum was quickly approaching.

[10] When the three months had lapsed, Melfi had yet to vacate the Leased Premises. Dourada agreed by way of a verbal agreement, on or about June 2013, to allow Melfi to remain at the Leased Premises as an overholding tenant on a month to month basis to allow Melfi more time to sort out its affairs.

[11] On September 6, 2013, Carlos Lopes of Dourada wrote to Vince Melfi. Lopes advised Melfi he would be required to vacate the Leased Premises by the end of November 2013. Lopes also stated that the actual area of the Leased Premises was in excess of 20,000 sq. ft. (measurement, 20,850) and that Melfi now had an outstanding rental balance of $50,500 in rent.

[12] On October 15, 2013, counsel for Dourada wrote a letter to Melfi advising that he was not in compliance with its undertakings, no effort had been made to remove its property from the Leased Premises, and the holdback funds were forfeit. Counsel for Dourada also cautioned Melfi that he would not be permitted re-entry onto the property after January 4, 2014, and any costs incurred by Dourada in removing Melfi’s contents from the location would be claimed in damages.

[13] On November 21, 2013, counsel for Dourada again wrote to Melfi’s counsel advising that Melfi had failed to comply with the Agreement of Purchase and Sale and its undertakings, that the holdback of $100,000 was forfeit, and again reminded Melfi that the Leased Premises would be locked on January 4, 2014 at which time Melfi would not be permitted to re-enter. Dourada reminded Melfi’s counsel that any costs for removing Melfi’s property would be claimed by Dourada in damages.

[14] On November 25, 2013, counsel for Melfi responded. Melfi’s counsel indicated that his client was not agreeable to the holdback being released. Melfi’s counsel also advised that he was prepared to discuss a “mutually agreeable” date to vacate the Leased Premises, but would not accept the date unilaterally selected by Dourada. According to Melfi, the rent had been paid as required. By this date, Melfi had paid rent on two occasions, being $38,000 in June, 2013 and $38,500 in October, 2013.

[15] On March 20, 2014, Carlos Lopes wrote to Vince Melfi advising that he was required to vacate the Leased Premises and that the letter was a “final notice”. In the letter, Carlos Lopes also indicated that substantial amounts were still owing in relation to Melfi’s occupancy of the Leased Premises.

[16] On March 24, 2014, Dourada’s counsel again wrote to Melfi indicating that he was required to vacate immediately. Dourada’s counsel indicated that his client would no longer tolerate the delays in vacating the Leased Premises, and the Leased Premises would be locked on April 4, 2014. According to Dourada’s counsel, Melfi was also in arrears for $135,544 by that date.

[17] On April 4, 2014, Dourada locked Melfi out of the Leased Premises. On May 15, 2014, Dourada’s counsel contacted Melfi’s counsel advising that Melfi was in breach of the terms of the Agreement of Purchase and Sale, Melfi was required to pay the outstanding rental amounts, and Dourada’s counsel requested access to the $100,000 holdback.

[18] On June 2, 2014, counsel for Melfi responded indicating that it would not settle the accounts until Melfi was provided reasonable access to check the status and condition of its property and also that Dourada was required to provide a “reasonable timetable” for removal of the said items from the Leased Premises. The letter also responded as follows: 1) the rent was agreed to on the basis of 18,000 sq. ft. for a total of $11,250; 2) the first months’ rent (in February) had already been paid, but not considered in the calculation of the amounts owing; 3) Carlos Lopes had agreed in September to give a discount of one month rent for Dourada’s usage of the facilities during the term of the rental which had not been deducted; 4) Melfi would require bills to demonstrate the utility amounts owing; and 5) Dourada had not settled its accounts with Melfi for various other miscellaneous items. Melfi’s counsel again indicated it was not willing to release the holdback until an agreement had been reached regarding all outstanding issues.

[19] On or about November 13, 2014, Dourada’s counsel cautioned Melfi’s counsel that all of Melfi’s equipment, belongings and chattels would be removed on December 1, 2014, and invited counsel for Melfi to contact her if Melfi wished to remove the chattels and equipment prior to that date.

[20] On November 14, 2014, counsel for Melfi responded indicating that Melfi would resist the unilateral imposition of a timetable to remove the property from the Leased Premises. Melfi’s counsel also acknowledged that his client had been sick for a number of months which created some difficulties in receiving proper instructions. However, the lockout in April had itself added to the delays in removing the contents.

[21] On or about November 19, 2014, Dourada’s counsel wrote to Melfi’s counsel and advised as follows: “In a further attempt to facilitate resolution of this matter, my client will allow your client to access the unit to remove his items, effective November 21^st at 9:00 a.m.” Counsel also advised that if the chattels and goods were not removed by December 10, 2014 (a period of 20 days from November 19, 2014, the date of the letter), then a notice would be served in accordance with section 34(1) of the Commercial Tenancies Act giving Melfi 5 days’ notice, failing which the goods would be appraised and sold.

[22] In response, in a letter dated December 17, 2014, Melfi’s counsel suggested that his client be permitted to keep his contents in the Leased Premises until the end of January and would agree to pay rent for both December and January at a rate of $12,995 per month plus HST. Melfi’s counsel also suggested a possible settlement for the holdback in lieu of any other outstanding amounts owed.

[23] By letter dated January 7, 2015, counsel for Melfi advised that he had been contacted by Mr. Lopes, the principal of Dourada, and that Mr. Lopes had advised that he was proceeding with a sale of the contents of the Leased Premises. Melfi’s counsel indicated that his client expected to receive an accounting for the sale.

[24] On or about March 24, 2015, Dourada’s counsel advised that Dourada had become an involuntary bailee, and that the abandoned property would be disposed of in a commercially reasonable manner having regard to its age, condition and value by way of sale including where appropriate, sale as scrap, by dumping or otherwise.

[25] On or about March 30, 2015, Melfi’s counsel wrote to Dourada’s counsel advising his client would not agree to pay rents beyond January as his client could have removed the goods from the premises by then. He again advised that his client expected an accounting for all items sold.

[26] Dourada sold whatever items of value it could sell. This included scrap metal and machinery. To date, Dourada has recovered a total of $47,854.98 in the following amounts:

a) $5,854.94 by way of payment from Recycle Trade Inc. on August 26, 2015;

b) $13,000.00 by way of payments on October 22, 2015 and November 15, 2015 from Rosemary Gillingham; and

c) $31,000 from Humber Valley Contractors Inc. on or around December 21, 2015.

[27] In the fourteen month period between February 2013 and April 2014, Melfi paid rent on two occasions, being $38,000 in June 2013 and $38,500 in October 2013. Between October 2013 and March 2015, Melfi has not paid any amounts towards outstanding rent or utilities.

Position of the Parties

[28] Dourada takes the position that it is entitled to any “outstanding” rents and utilities associated with Melfi’s occupation of the Leased Premises. Dourada seeks these rents inclusive of HST calculated on the “actual square footage” of the property which Dourada estimates at 20,000 sq. ft. up until May 2015. Dourada also seeks damages associated with repairing and restoring the Property to the condition required as specified in the Agreement of Purchase and Sale. Dourada has brought a motion seeking summary judgment to resolve its claim.

[29] Melfi disputes Dourada’s calculation of the “actual” size of the Leased Premises. Melfi takes the position that Dourada is limited by the original Agreement of Purchase and Sale to rent for the 18,000 sq. ft., a measurement Melfi submits is consistent with the “actual” square footage used. Melfi also takes the position that the lock-out precludes Dourada from seeking “rent” after April 14, 2014. Finally, Melfi argues that these “factual” disputes prevent this Court from resolving the matter by way of summary judgment.

Analysis

Is there a Genuine Issue Requiring a Trial?

[30] Pursuant to Rule 20.04(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the court shall grant summary judgment if it is satisfied there is no genuine issue requiring a trial. Animating the interpretation of 20.04(1) is rule 1.04 which requires that the rule be liberally construed to secure the just, most expeditious and least expensive determination of a proceeding on its merits having regard to the complexity of the issues and the amounts involved.

[31] The Ontario amendments changed the test for summary judgment from asking whether the case presents “a genuine issue for trial” to asking whether there is a “genuine issue requiring a trial”. The new powers in Rule 20.04(2.1) and (2.2) expand the number of cases in which there will be no genuine issue requiring a trial by permitting motion judges to weigh evidence, evaluate credibility, and draw reasonable inferences.

[32] Rule 20.04 aims to avoid protracted litigation in circumstances where such litigation is unnecessary to achieve a just result. The added powers encourage judges to make efforts to resolve matters at an early stage. The streamlined approach assists with 1) providing parties with finality as early as possible; 2) clearing unnecessary actions from an already overburdened system; 3) reducing unnecessary costs for the parties; 4) increasing access to justice where a full trial and the associated expenses would make justice unavailable for the litigant(s); and 5) providing early resolution where the costs of a trial would be disproportionate to the outcome.

[33] The judge in deciding whether to grant summary judgment must ask: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of trial? A trial is not required if the judge on the motion can 1) achieve a fair and just adjudication; 2) make the necessary findings of fact; 3) apply the law to those facts; and 4) the motion is a proportionate, more expeditious and less expensive means to achieve a just result rather than going to trial. As the Supreme Court explained in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 SCR 87, at para. 50:

These principals are interconnected and all speak to whether summary judgment will provide a fair and just adjudication. When a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceeding to trial would generally not be proportionate, timely or cost effective. Similarly, a process that does not give a judge confidence in her conclusions can never be the proportionate way to resolve a dispute. It bears reiterating that the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principals so as to resolve the dispute.

[34] The assessment, by its nature, is necessarily contextual. It involves a balancing of the various interests at play. Indeed, if the process ultimately employed to resolve the issues is disproportionate to the nature of the dispute and the amounts involved, then it will not achieve a fair and just result. (See Hryniak at para. 29). What is fair and just turns on the nature of the issues, the nature of the evidence required to resolve those issues and what is the proportionate procedure having regard to the amounts involved. As the Supreme Court of Canada explained at paras. 27-29.

A proper balance requires simplified and proportionate procedures for adjudication, and impacts the role of counsel and judges. This balance must recognize that a process can be fair and just, without the expense and delay of a trial and that alternative models of adjudication are no less legitimate than the conventional trial.

This requires a shift in culture. The principal goal remains the same: a fair process that results in a just adjudication of disputes. A fair and just process must permit a judge to find the facts necessary to resolve the dispute and to apply the relevant legal principles to the facts as found. However, that process is illusory unless it is also accessible—proportionate, timely and affordable. The proportionality principle means that the best forum for resolving a dispute is not always that with the most painstaking procedure.

There is, of course, always some tension between accessibility and the truth-seeking function but, much as one would not expect a jury trial over a contested parking ticket, the procedures used to adjudicate civil dispute must fit the nature of the claim. If the process is disproportionate to the nature of the dispute and the interests involved, then it will not achieve a fair and just result. [Emphasis added]

[35] In this case, the Plaintiff’s motion is restricted to the recovery of rents and utilities associated with the Leased Premises and damages associated with the Defendant’s breach of its undertakings. On the basis of the materials filed by both the Plaintiff and Defendant on the motion, I am in a position to render judgment in relation to the Plaintiff’s claim. I am satisfied that the facts necessary to render a fair and just determination of the claim are evident from the materials filed, and there is no genuine issue requiring a trial for a fair resolution of the matter.

How Should the Outstanding Rent/ Damages be Calculated?

[36] Melfi clearly owes rent. The primary dispute is how that rent should be calculated, both in terms of the appropriate square footage relevant for the calculation of the “monthly rent” owing and the applicable time period for which that monthly rent should be paid.

[37] On the question of the proper square footage, Melfi disputes the accuracy of Dourada’s measurements offering an alternate measurement based on its own calculation. Melfi also submits that Dourada should be held to the wording of the original Agreement of Purchase and Sale which specified 18,000 sq. ft. Given that the Plaintiff is intent on having the matter resolved by way of summary judgment, I will restrict the rental payments to a calculation based on the 18,000 sq. ft. This will obviate the need for a trial on this issue. On this basis, the monthly rental amount will be calculated at $11,250 plus HST.

[38] It remains to be decided the number of months of rent Dourada should receive. Melfi is clearly obliged to pay rent and utilities up until April 4, 2014. The question remains whether Melfi is obliged to pay any rent after April 4, 2014 when Dourada locked Melfi out of the Leased Premises. In reaching a decision on this question, I must look to the circumstances leading up to the actions of Dourada on April 4, 2014; the conduct of the parties after the April 4, 2014; and the general context which informed the actions of the parties.

[39] The evidence filed on the motion makes it very clear that Dourada never intended Melfi to have an ongoing lease at the Property. While Dourada initially agreed to grant Melfi a three-month extension to enable it to effect the necessary repairs and to remove its contents, Dourada never contemplated Melfi continuing its occupancy beyond this point. No doubt, Dourada accommodated Melfi’s circumstances in allowing it to remain after the expiry of the initial three months. That being said, Dourada’s intent was clear that it always expected Melfi to vacate the premises as soon as possible in line with the terms of the original Agreement of Purchase and Sale.

[40] On April 25, 2013, Dourada’s counsel reminded Melfi’s counsel that the three month maximum was quickly approaching. On September 6, 2013, Carlos Lopes, on behalf of Dourada, categorically demanded that Melfi vacate the Leased Premises by the end of November. In October and November 2013, Dourada advised Melfi that his continued occupation of the Leased Premises was a breach of the terms of the Agreement of Purchase and Sale and that the holdback was to be forfeit. When Dourada demanded that Melfi remove its contents by December 1, 2014, Melfi refused to be bound by Dourada’s timetable. Instead, Melfi sought to extend its occupancy to January at an increased rate of $12,995 plus HST. Clearly Melfi was aware that it was “occupying” the Leased Premises, and moreover, occupying the Leased Premises against the will of Dourada. There was no intention on the part of Dourada to extend the tenancy. Indeed, this is most clearly evidenced by the lock out of April 4, 2014. See Imperial Oil Ltd. v. Robertson, 1959 CanLII 133 (ON CA), [1959] O.R. 655 (C.A.).

[41] At common law, if a tenant remains in possession following the expiry of the term of the lease, there are four possible legal relationships that can then be created between the tenant and the landlord: (1) a tenancy at sufferance; (2) a tenancy at will; (3) a deemed new periodic tenancy, referred to as a holdover tenancy; and (4) a trespass. See AIM Health Group Inc. v. 40 Finchgate Limited Partnership, 2012 ONCA 795, 113 O.R. (3d) 187, at para 92. Epstein J.A. goes on to explain these legal relationships succinctly in the following way:

[93] A tenancy at sufferance arises when a person remains without consent after the person's right to be in possession has ended but where no demand for possession has been made. Once the former landlord demands possession, the former tenant is no longer there at sufferance and becomes a trespasser.

[94] In a tenancy at will, the tenant remains in possession with the consent of the landlord after the lease has expired, most often when they are negotiating a new lease. The tenancy at will lasts "until some other interest is created, either by express grant or by implication by the payment and acceptance of rent". A tenancy at will is determinable by either party indicating that it wishes the tenancy at will to end.

[95] Where a tenant remains in possession following the termination of a lease, or holds over, and where the landlord accepts rent from the tenant or otherwise consents, a new periodic tenancy arises at common law by implication on the same terms as the expired lease, subject to any evidence that the parties reached a different arrangement or understanding. If the original lease term was less than one year, the new tenancy is deemed to be month to month, whereas if the original lease term was for more than one year, the new tenancy is deemed to be year to year. The payment and acceptance of rent is considered evidence of the parties' intent to enter into a new tenancy arrangement. Without agreeing on other terms, it would be on the same terms as the old lease.

[96] In order to avoid the deemed creation of a yearly tenancy when the tenant holds over and the landlord accepts rent, the overholding clause is frequently inserted into commercial leases, providing that the tenancy that is created is a month-to-month tenancy. Such clauses often provide for higher rent than was paid during the original term of the lease.

[97] But if the tenant remains without paying rent, then at common law, the tenant is there at the sufferance of the landlord and is subject to ejectment: see Burritt v. Dunham, [1847] O.J. No. 18, 4 U.C.R. 99 (U.C.Q.B.).

[42] Having regard to the legal relationships outlined above, what becomes clear is that Melfi had no right of continued occupancy after November 2013. At this point in time, Dourada had made it very clear that it no longer was agreeing to extend the terms of the lease, and it expected Melfi to vacate the Leased Premises. Any tenancy, therefore, had been terminated well before April 4, 2014.

[43] While I have no doubt that the tenancy was terminated by April 4, 2014, I find that Melfi’s refusal to vacate the Leased Premises entitles Dourada to compensation up until May 2015 when the contents belonging to Melfi were ultimately sold. Whether that compensation is characterized as “rent” or as “damages” related to the breach of the undertaking to vacate should not diminish Dourada’s entitlement in the circumstances. I would grant Dourada an amount equivalent to rent less utilities for the entire period from April 4, 2014 to May 15, 2015. Given that Melfi was locked out after April 4, 2014, I would not grant Dourada the cost of utilities after this date.

[44] I also find that Dourada’s decision to manage the contents as it did was completely reasonable in the circumstances. While Melfi’s counterclaim is not before me on this motion, I find Melfi’s claim for improvident sale is without merit. Given the number of months that Melfi had been invited to attend to retrieve its contents, Dourada was more than entitled to treat the contents as abandoned by May 2015 and proceed with a sale. Indeed, in the circumstances, I find that Dourada’s decision to sell off the property in lieu of the amounts owing was a reasonable attempt to mitigate its losses. By having the contents inventoried and sold, Dourada cleared the space as Melfi was obliged to do. In relation to the contents, I would only deduct from the rents owning the value obtained by Dourada from the sale of the contents and nothing more. Had Dourada brought an application to dismiss Melfi’s counterclaim, I would have granted it.

Is Dourada entitled to Compensation for Repairs and Restoration?

[45] On the record before me, I am not in a position to properly assess or evaluate the amounts listed relating to the repairs and restoration of the Property. It is not clear to me how these amounts specifically relate to Melfi’s contractual obligations and/or a breach of its undertakings. Accordingly, I am not willing to grant an award associated with repairs and restoration on the record before me.

Disposition

[46] In total, from February 3, 2013 to May 15, 2015, Melfi occupied the Leased Premises for a total of 27.5 months. Deducting 2 months’ rent (the pre-paid rent for February 2013, as well as the rental exemption granted by Carlos Lopes in his letter from September 2013 for using the bathroom facilities), Dourada is entitled to the rent/damages calculated for 25.5 months for a total of $286,875 + $37,293.75 (HST) + $12,257.64 (utilities up to April 2014) less the $76,500.00 (rent paid) and the $47,854.98 (amounts retrieved from sale less commissions). This amounts to a total of $212,071.41.

[47] I order the Defendant Melfi pay the Plaintiff Dourada rents/damages totalling $212,071.41. I also direct that the holdback funds be released to Dourada as partial payment of the amounts owing.

[48] I invite written submissions from both parties as to costs. I would ask that those written submissions not exceed two pages.

Justice C.F. de Sa

Released: September 11, 2017

CITATION: Dourada Investment Inc. v. V. Melfi Holding Ltd., 2017 ONSC 4901

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Dourada Investment Inc. and Carlos Lopes

Plaintiffs

– and –

V. Melfi Holding Ltd. and Vincent Melfi

Defendants

REASONS FOR JUDGMENT

Justice C.F. de Sa

Released: September 11, 2017