OVERVIEW

[1] The Little Shoe Palace is a children’s shoe store operating out of premises owned by the respondent Pelmark Developments Limited since 1977. The last written lease expired in 1990, and the parties after that time entered into oral agreements governing the tenancy. In June, 2014, the principals of Little Shoe Palace and Pelmark negotiated a written lease effective January 1, 2014 for a period of five years. The written lease was executed by Pelmark and delivered to Little Shoe Palace. Little Shoe Palace’s evidence is that the lease was executed, and left for pick-up together with a catch-up rent cheque for increased rent from January to September. The catch-up rent cheque was received and cashed by Pelmark, although it denies receiving the executed lease. Both parties operated as if the lease were in place. However, following the sale of the building to CB 3185 in 2015, the question of whether there was a lease became hotly contested. After being advised of steep rent increases by the new owner, Little Shoe Palace produced the signed lease. CB 3185 takes the position either that Little Shoe Palace did not execute and return the lease but signed it only once advised of the rent increases, or that as a bona fide purchaser for value without notice, the unregistered commercial lease is not binding on it. Little Shoe Palace takes the position that it signed the lease, it may have been lost by Pelmark or went astray, but in any event, there was part performance under the lease and it is enforceable. There is a separate issue as to whether an alleged collateral agreement to pay additional rent amounts (escalations) for the period 2008-2013 operated as a pre-condition to the effectiveness of the 2014 lease.

Issues

[2] The issues are as follows:

(1) Was there a valid lease between the Little Shoe Palace and Pelmark, whether signed or unsigned?

(2) Was there communication of acceptance of the lease and if not, was there part performance sufficient to enforce the lease notwithstanding the Statute of Frauds, R.S.O. 1990, c. S.19?

(3) Was the lease conditional on the 2008-2013 escalation arrears of $7,550?

(4) As the lease was not registered on title, is it binding on the purchaser CB3185?

Factual Background

[3] The Little Shoe Palace is a children’s shoe store operating out of premises owned by the respondent Pelmark Developments Limited since 1977. Joseph Marmorstein is the sole officer and director of the Little Shoe Palace, and has been operating the Little Shoe Palace since 1979. In its 35 years of tenancy, the Little Shoe Palace and Pelmark only had a written lease for the period 1979 through 1990. After 1990, Little Shoe Palace continued to operate as if it were governed by a lease, and negotiated and paid for increased rent throughout the period.

[4] In 2007, Little Shoe Palace and the Pelmark property manager Harvey Bisgould entered into a verbal lease significantly increasing the rents from $2,450 to $3,600 per month. In 2008, the new Pelmark property manager Libby Wolkenstein presented Little Shoe Palace with a lease setting out rent of $5,198 and a base year of 2007 for escalations, or additional rent. Little Shoe Palace did not agreed to those terms, did not pay that rent, and did not agree to pay the escalations. Little Shoe Palace continued its tenancy with no written lease agreement until 2014.

[5] By June 2014, Little Shoe Palace had been a 35 year tenant of the building owned by Pelmark, and had not had a written lease since 1990. It had not paid escalations since the written lease expired in 1990.

[6] It is common ground that Pelmark prepared and signed a five year lease with Pelmark, for a term January 1, 2014 to December 31, 2018 and provided a copy of it to Marmorstein in June, 2014. The first issue is whether Marmorstein accepted the terms of that lease and either returned the lease or the lease went astray.

[7] Marmorstein’s evidence is that he signed the lease after Pelmark’s property manager Wolkenstein dropped the lease off at his store. The rent due under the new lease was higher than under his previous oral agreement. He testified that he put the signed lease in an envelope with a cheque dated September 16, 2014 which covered catch-up rental payments at the higher rate under the new lease from January through September, 2014. He says that he left the envelope to be picked up, as was his normal practice. He testified that when he checked the lease had been removed from the pile. He says he confirmed with an employee that the envelope had been taken, but no employee was called to give evidence.

[8] The evidence is undisputed that the September catch-up rent cheque was received in the Pelmark office in Don Mills, and was subsequently cashed by Pelmark. Receiving a rent cheque in the Pelmark office was of the ordinary. Both Wolkenstein and Paisley agreed that normally Wolkenstein picked up the rent cheques from Little Shoe Palace and deposited them herself. The evidence of Wolkenstein and Paisley is that no lease was received either by Wolkenstein or at the Pelmark office. Nonetheless, the parties after that time conducted themselves as if the lease were in full force and effect. The rent paid by Little Shoe Palace is the amount of rent required under the terms of the new lease, not the pre-existing oral lease. Those cheques were accepted and cashed by Pelmark, which extended the right to occupy the premises to Little Shoe Palace. There were continuing disagreements about the obligation to pay escalation arrears.

[9] On August 31, 2015, Pelmark sold the building to the respondent CB 3185. In September 2015, the new owner Claude Bitton of CB 3185 wrote to Marmorstein advising that the rent would nearly be doubled effective October 1, 2015 and advising Marmorstein that the tenancy was month-to-month. After receiving the letter Marmorstein brought the original signed lease to Libby Wolkenstein, the property manager for CB 3185, who had previously been the property manager for Pelmark. The position of CB 3185 is that the lease was in fact executed by Marmorstein only after Bitton sent the demand for an increased rent in an attempt to fabricate a binding agreement that had not previously existed and to defeat the argument that the Little Shoe Palace tenancy was on a “month-to-month” basis.” CB 3185 also takes the position that the new lease was conditional on the payment of escalation arrears, and so is not binding. Finally, CB 3185 takes the position that since the lease was not in writing, and CB 3185 had no actual notice, the lease is not binding on CB 3185.

Issue #1: Was there a valid lease, whether signed or unsigned?

[10] I set out my findings of fact below. Some of the witnesses give testimony which cannot be reconciled with the other witnesses. As a result I must evaluate credibility, testing the veracity of the witnesses by reference to objective facts proved independently of their testimony, including documents, by considering their motives, the internal consistency of their evidence, and assessing overall probabilities and plausibility.

[11] The evidence on all sides has implausible features. The documentary evidence is incomplete and unsatisfactory. I must decide where I consider the balance of probabilities lies having regard to the evidence before this court. The trier of fact is not required to believe or disbelieve a witness’ testimony in its entirety. On the contrary, a trier may believe, none, part or all of the witness’ evidence and may attach different weight to different parts of the witness’ evidence. (R. v. D.R. 1996 CanLII 207 (SCC), [1996] 2 S.C.R. 291 at para. 93).

[12] In assessing the plausibility of evidence, I must determine that it is in harmony with the preponderance of probabilities, what a practical and informed observer would readily regard as reasonable in the context of the events: Faryna v. Chorny, 1951 CanLII 252 (BC CA), [1951] B.C.J. No. 152, [1952] 2 D.L.R. 354 (B.C.C.A.)

Discussions Negotiating Lease

[13] On June 9, 2014 Marmorstein and Paisley met to discuss lease terms. According to Marmorstein, they agreed to a new lease rate commencing January 1, 2014, with a five-year term and going-forward escalations under the new lease on a 2013 base year starting in 2014. A key issue is alleged past escalation arrears for the 2008-2013 period. Marmorstein’s evidence is that he refused to pay alleged past escalations, since he did not have a written lease in place that required him to pay escalations.

[14] According to Paisley, they agreed to the new lease on the condition that Marmorstein pay escalation arrears totaling $7,550 for the 2008-2013 period (i.e., incorporating additional rent on a base year 2007, as if there had been a lease in place that gave the right to escalations.) A handwritten note from the meeting, written by Paisley, setting out the lease term and the base rental rates with their initials or signatures at the bottom was introduced in evidence. In contrast to the new rents with initials/signatures on this exhibit which is reflected in the new lease following the meeting, nothing in writing shows that escalations for the 2008-2013 were agreed to at the meeting. Nothing in writing at this time refers to the payment of escalation arrears as a precondition to the validity of the lease.

[15] Paisley testified that he asked Wolkenstein to draft the new lease based upon the terms agreed upon at the meeting, and that he told Wolkenstein the terms. Wolkenstein drafted the lease which was then reviewed and approved by Paisley, who made certain changes to it. The lease was then signed by Wolkenstein and delivered to Marmorstein. Notably, the lease agreement drafted by Wolkenstein on Paisley’s instructions after the June 9 meeting made no reference to the 2008-2013 escalation arrears.

[16] The evidence surrounding the meeting of June 9 has certain deficiencies. Neither Paisley nor Marmorstein could initially recall the date, and ultimately accepted the date provided by Wolkenstein. I place little weight on the confusion with respect to dates, and Marmorstein readily agreed to the corrections with respect to dates. Marmorstein initially thought that Wolkenstein left the lease in his store in August; on the evidence such as letters referred to below, it is more likely that the lease was left for signature in June. However, while dates may be off by months, little turns on this, and I find that Marmorstein’s evidence was otherwise consistent, there was no motivation to fabricate these dates (i.e., June vs. August), and the confusion is attributable to the passage of time.

[17] In her first affidavit Wolkenstein stated she was present when the agreement to pay the escalations was discussed at the meeting. On cross-examination she admitted that she was present for only part of the meeting and did not hear Paisley and Marmorstein agree to the payment of escalations. As noted above, when she drafted the new lease on Paisley’s instructions, there is no reference to the payment of escalation arrears, and there is a “final agreement” clause.

[18] Under cross-examination, Paisley said that they didn’t put the agreement to pay escalation arrears in writing because it was a “handshake deal.” The preponderance of the evidence, however, leads me to find that there was no agreement to pay escalation arrears for a period in which Little Shoe Palace had no written lease, although there was agreement to pay escalations going forward. This is most plausible given the evidence.

[19] There was no reference to the payment of past escalation arrears or any condition relating to escalation arrears from 2008-2013 in the eight page Commercial Lease Agreement drafted and signed by Pelmark and presented to Marmorstein after the June 9, 2014 meeting. The 2014 Lease contains a “Final Agreement” clause which provides:

This Agreement terminates and supersedes all prior understandings or agreements on the subject matter hereof. This Agreement may be modified only by a further writing that is duly executed by both parties.

[20] Mr. Marmorstein had no written lease agreement between 1990 and 2014. Paisley was pursuing the 2008-2013 escalation payments based on his theory of the continuation of the last written lease that had expired in 1990. However, the escalations clause in the new lease is very detailed and complicated. The escalations clause in the new lease defines additional rent as a proportionate share of annual operating increases, excluding capital costs and structural costs over base year 2013, for 7 enumerated categories of costs such as real estate taxes, insurance, snow removal and garbage. The escalations clause in the new lease defines proportionate share, estimates and adjustments, and the obligation on the Landlord to provide a written accounting.

[21] It is not likely that Mr. Marmorstein orally agreed to imply such a term for a prior period where there was no written lease, where the additional rent obligation was not in writing, and where the very nature of an additional rent/escalation clause would require significant detail as to how the additional rents were to be calculated. There was very little reason for Marmorstein to agree since it was a large amount and there was no written lease agreement which obliged him to pay escalation arrears for 2008-2013. He was firm in his evidence that he only agreed to the additional escalation charges set out in the June 2014 lease, effective January 1, 2014 for a base year of 2013 on a go forward basis only, and not the past escalation arrears. This is consistent as well with the hand-written documents tendered as exhibits.

[22] The experience of another tenant, Arthur Weitz, supports the evidence of Marmorstein. Weitz was an optician who had leased from Pelmark for 25 years. Weitz did not have a lease for the ten years prior 2012. Paisley raised the escalation arrears issue with Weitz in the 2012 through 2014 period, and asked for escalations going back to 2008 even though Weitz did not have a lease going back to that period of time. In 2014, Pelmark dropped its claim for escalation arrears and only sought escalations from 2012 going forward. Paisley ultimately forgave the 2014 and 2015 escalations, and Weitz’s evidence was that he never actually paid the 2012 and 2013 escalations.

[23] Weitz gave evidence that the escalation arrangements in 2014 were not related to the lease arrangements, and the lease was not granted in exchange for agreeing to escalation payments. Thus, in approximately the same time period, Weitz was also confronted with the 2008-2013 demand for escalation arrears which he refused; the lease was not conditional on the payment of escalations; Weitz never paid the escalations; and Weitz did not sign a new lease and no one followed up with him. In terms of the operation of Pelmark as a landlord towards its tenants, this supports the evidence of Marmorstein.

The Missing Lease

[24] Following the meeting of June 9, 2014, Wolkenstein wrote two letters to Marmorstein requesting delivery of the signed lease. On July 2, 2014 Wolkenstein wrote a letter to Marmorstein referring to the agreement of with Michael Paisley on June 9, 2014 and stating:

There is an outstanding amount due for escalation since 2008 – 2014. Please have a check ready in the amount of $7,550.00. I will pick it up along with the signed lease on Monday, July 7, 2014. (emphasis added)

[25] On July 31, 2014 Wolkenstein wrote another letter requesting postdated cheques for rent owing under the new lease, including both catch-up cheques from January 1, 2014 and additional postdated cheques to the end of December 2014 to represent the rental increase under the new lease, as well as postdated cheques for the 2008-2013 escalation arrears. She asked that Marmorstein let her know when she could pick up the “signed lease and checks.”

[26] There is no further written communication requesting delivery of the signed lease from Pelmark after July 31, 2014.

[27] Marmorstein’s evidence is that he left the signed lease in an envelope with a cheque for catch-up of base rent from January through September 20, 2014. The cheque was dated September 16, 2014 and was cashed. Wolkenstein denies picking up the envelope or ever seeing a signed version of the lease. Paisley denies this as well. However, Paisley gave evidence that the September 16, 2014 cheque was received in his office in Don Mills. This was out of the ordinary, since tenant cheques were normally picked up by Wolkenstein who deposited those cheques herself.

[28] Subsequent communications from Wolkenstein affirmed the existence of the lease and would have given no clue to Marmorstein that the signed lease had not been received. Wolkenstein agreed at trial that there is nothing in writing to Little Shoe Palace seeking a signed lease after the July 2014 letters. Indeed, the correspondence implies that there is a signed lease. In January 2015, Wolkenstein wrote a letter to Marmorstein stating “as per your lease agreement – please deliver cheques” referring to the higher base rent in the new lease agreement.

[29] On June 25, 2015 Wolkenstein wrote to Marmorstein as follows:

As per your Lease agreement and agreement with Michael [Paisley]. There is an outstanding amount due for escalation since 2008-2014. Please submit payment in the amount of $7,550.00…as soon as possible…..This amount has been discussed and agreed upon a year ago and we still have not received any payment.

[30] Of note, the June 25, 2015 letter does not refer to a request for a written lease, and does not refer to the new lease as being unsigned. Rather, it specifically refers to “your Lease agreement.” The correspondence deals only with the 2008-2013 escalation arrears issue. Again, if Paisley and Wolkenstein had been following up with respect to the unsigned lease this would have been the place to raise the issue. The absence of any mention of an unsigned lease at this point undermines the evidence that there were repeated follow ups, or Paisley’s evidence that in May, 2015 Marmorstein was asked to and refused to sign the lease. No rrequest for a signed lease had been made to Marmorstein in writing since July 2014, almost a year ago, and his evidence is that he had provided a written lease.

[31] In her affidavit, Wolkenstein stated that between January 2014 and December 31, 2014 she had made repeated requests for the tenancy agreement to be signed and returned. Other than the two July letters, nothing is in writing. I find Wolkenstein’s evidence on this point lacks credibility. In her first affidavit she said that she was present in the meeting with Marmorstein and Paisley in June, 2014 at which time Marmorstein agreed to execute a new lease effective January 1, 2014 for 5 years, in return for the payment of rent increases and outstanding escalation charges which Paisley agreed to reduce. On cross-examination she conceded she was not in that portion of the meeting and did not witness an agreement to pay escalations. In her first affidavit, she said that between January 2014 and December 31, 2014 she had made repeated requests for the lease of January 1, 2014 to be signed and returned. However, the oral agreement was not reached until June, 2014 as a result of a meeting in June 2014. On cross-examination she agreed that she could not have made these communications until after the July 2014 letter. In her supplementary affidavit sworn March 10, 2016 she states that after she sent her letter of July 2, 2014 she spoke to Marmorstein on at least three occasions, the first being in the month of October 2014, requesting both payment for the escalation costs and a copy of the lease. There is no indication as to why her story changed from repeated requests for a signed lease from January through December, to three calls starting in October. There is nothing in writing to support this. Given the changes in her affidavit evidence and her cross-examination, I do not find her credible on this point.

[32] Paisley said he emailed Wolkenstein several times after June 2014 concerning the escalations but could not recall emails dealing specifically with the lease; Paisley undertook to produce these emails, but none were ever produced, and Wolkenstein says she never received any email follow-ups from Paisley although she did testify that Paisley called her to follow up about it. At trial, Paisley confirmed that it wasn’t until after he entered the deal to sell the building to Bitton that he started looking for the signed lease and realized he did not have one. This was sometime between March and May 2015. As the applicant submits: “if he didn’t realize he didn’t have a lease, he couldn’t have been following up with Libby.” All of the post July 2014 correspondence with Marmorstein relates to the escalation dispute and not the signed lease. I find that Paisley did not realize he did not have a signed lease until after he had signed the agreement of purchase and sale with CB 3185. There are points where had Pelmark known about the missing lease, they would logically have had to include a reference to that lease in writing, and they failed to do so.

[33] In addition, the evidence demonstrates that Pelmark’s record keeping practices were sloppy. Wolkenstein initially gave evidence that she delivered only one signed lease to Marmorstein based on her protocol, but given evidence with respect to other items in her file, at trial she conceded that there was no protocol. I also note below errors in descriptions of history of the tenancy, the dates of leases, and the terms of the new lease provided to CB 3185 in the sale process.

Sale of the Building

[34] Pelmark and CB 3185 entered into an Agreement of Purchase and Sale dated March 13, 2015. Paisley and his staff began reviewing the files. In an email to his counsel dated April 17, 2015, Paisley noted that he had reviewed the tenant understandings and spoken with the property manager, and he did not have signed leases from some tenants. Pelmark’s counsel, Mark Shiner, advised Paisley that there may be a lease done by way of letter, and “a lease may be a valid oral lease if it is connected to paper.”

[35] On May 4, 2015, Mr. Paisley’s lawyer Rob Shiner wrote to CB 3185’s lawyer, Rob Pollock, acknowledging that the payment of escalation rent by Little Shoe Palace had not been “finalized”, and a meeting was pending to discuss the matter. This confirms Marmorstein’s statement that there was no agreement to pay escalation arrears. It is inconsistent with Paisley’s evidence that there was a final deal. I note that the letter from Pelmark’s lawyer is obviously incorrect in stating that the tenant had occupied the premises since 1992 pursuant to a series of five year leases. This information presumably came from Pelmark, and demonstrates sloppiness regarding the history of leases in the file.

[36] There is a difference between Paisley and Marmorstein with regard to a meeting in May 2015. Paisley says the meeting was to discuss escalation arrears, Little Shoe Palace’s commitment to pay escalation arrears, and to sign the 2014 lease. Paisley says he asked Marmorstein to sign a lease document, but he refused. Marmorstein says they met but it was to discuss escalations and not the lease. I prefer the evidence of Marmorstein; his recollection of matters relating to his lease was in all instances except for dates much more clear. The terms, obviously, meant more to him. Paisley forgot, or erroneously recalled, matters as set out in this judgment. He was also a busy businessman; his position as landlord at Pelmark was a sideline to his main business, and he acknowledged his lack of focus on Pelmark or record-keeping at the trial.

[37] The sloppy record-keeping of Pelmark is evident in the June 12, 2015 email from Rob Pollock (Pelmark’s counsel) to Mark Shiner (CB 3185’s counsel). It refers to the unsigned lease dated November 11, 2014 in a number of places. There was no evidence that there was any lease dated November 11, 2014.

[38] On July 14, 2015, Paisley emailed Marmorstein with regard to outstanding escalations, 2008 to 2013. The letter does not refer to an unsigned lease. Rather, it states that in June 2014, Marmorstein agreed to renew for a further term, and Paisley agreed to reduce the 2008-2013 escalation as well as replace the rear door and repair the front door. This letter again is directed to the escalations, and contains a representation from Paisley he viewed the parties as bound by the terms of the 2014 lease. It is also relevant to the argument that the lease was conditional on payment of escalation arrears. It states: “Your payment of the increased amount, and the consideration of our work done constitutes your acceptance of the contract.” It also states that he would allow Marmorstein 7 days, until July 21, 2015 to make full payment, or “we shall have no option but to begin legal action to collect all outstanding amounts.” This is an implicit acknowledgement that the escalation issue is a separate contract actionable through a collection action, rather than a conditional or collateral agreement that would invalidate the lease. There was no threat to terminate the lease, just to collect the escalation arrears.

[39] The only place where there is a reference to the lease not being signed in correspondence with Marmorstein or his representatives is the July 22 letter from Pelmark’s lawyer Shiner to Botnick, the Little Shoe Palace’s lawyer. The letter is four pages long. In the letter there is one sentence which states: “As discussed, your client provided you with a copy of the lease dated January 1, 2014. This lease has not been signed but apparently the Tenant is relying on the terms of same. I will leave this issue aside for now and will address other matters respecting the current arrangments.” The lengthy letter then raises the escalation arrears issue in 1.5 pages of text, and goes on to deal with a list of seven other numbered issues. Marmorstein’s lawyer replied by letter dated August 4 dealing with a number of the issues between the parties and denying that Marmorstein agreed to pay the escalation arrears, although not dealing with the mention of the unsigned lease. Marmorstein testified that he did not have a copy of this letter, and it’s possible that his lawyer spoke with him about its contents only and did not forward the letter. It is the only document in writing to Marmorstein or his counsel after July, 2014 that refers to the lack of signed lease. It is one sentence in a four page letter. Everything else refers to the lease terms being in effect between the parties, and an ongoing dispute as to whether there was an agreement to pay the $7,550 in escalation arrears.

[40] On August 4, 2015 Paisley presented a Tenant Acknowledgement to Marmorstein to sign. The Tenant Acknowledgement set out all of the terms of the lease with the exception of the base year for escalations being in error. It required a release of all claims, and forgiveness of the escalation that Paisley had been pursuing. This is also consistent with Pelmark’s forgiveness of Arthur Weitz’ escalations.

[41] Marmorstein’s evidence and the documents at trial indicate that he refused to sign the tenant acknowledgement in light of ongoing disputes regarding improperly connected Hydro charges, among other issues. He did not wish to release the hydro claim, which arose because he had recently discovered that hydro from upstairs was being plugged into the Little Shoe Palace hydro, and had been for a number of years.

[42] There were subsequent meetings and correspondence between Paisley and Marmorstein. On August 19, 2015 Paisley and Marmorstein met. Both testified about this meeting. The spreadsheet prepared by Paisley and reviewed at the meeting references a new lease as of January 1, 2014 suggesting that there was a valid lease. On the back of the spreadsheet there is Paisley’s handwriting. The $7,550 of past arrears is crossed out by Marmorstein, but the escalations for 2014 and 2015 are not crossed out. This is consistent with Marmorstein’s evidence that he did not dispute the 2014 and 2015 escalation referred to in the new lease, and he did not agree to the 2008 – 2013 escalations. There is also a reference to the electricity set – off claimed by Marmorstein, in an amount which he later admitted was not the actual cost to the Little Shoe Palace.

[43] On August 28, 2015, Marmorstein emailed Paisley identifying an error in the Tenant Acknowledgement was that Marmorstein did not agree to the past escalations. In this email he specifically referred to the “current lease.”

Summary

[44] There are three main scenarios regarding the lease: (i) it was signed by Marmorstein in the summer of 2014 and received by Pelmark together with the cheque, and was lost in the Pelmark office; (ii) it was signed by Marmorstein in the summer of 2014 but not received by Pelmark since it went astray before reaching Pelmark’s office, although the cheque was received; or (iii) it was signed by Marmorstein in October, 2015 and he lied about it.

[45] The applicant’s case is that Marmorstein signed the lease in 2014, as he says he did, the envelope was picked up but the lease went astray either before arriving at the Pelmark office, or was lost by Pelmark. Pelmark argues there was no communication of acceptance of the lease, but acknowledges that the parties acted as if the lease were in place. CB 3185 argues that Marmorstein only signed the lease in October, 2015 and has lied to this court about the date he signed it. Such conduct is, however, tantamount to fraud, which is not met on the evidence that I have heard. All subsequent correspondence after September, 2014 between the parties refers to the current lease. The only reference to an unsigned lease is one sentence in a letter between counsel for Little Shoe Palace and Pelmark in August 2015. Other communications between the parties in writing referred to the new lease or the current lease. Marmorstein paid amounts owing under the new lease. Pelmark extended occupancy under the new lease terms.

[46] On a balance of probabilities, I find that Marmorstein did sign the lease. I find that he left the lease in an envelope for pick-up together with the September 16, 2014 cheque for make-up amounts owing under the new lease, which arrived in the Pelmark office in an unusual manner. Pelmark and Little Shoe Palace wrote about the new lease, acknowledged the new lease, and both parties behaved as if the new lease was in effect. Pelmark extended the right to occupy the premises, and Little Shoe Palace paid the higher rent.

[47] I find that the parties agreed orally on the lease terms in the meeting of June 9, 2014, which were set out in the written lease drafted and signed by Pelmark in June, 2014 and delivered to Little Shoe Palace. I find that Little Shoe Palace accepted those terms when Marmorstein signed the lease in August, 2014, and left it to be picked up together with the make-up cheques. However, I find that acceptance of the lease was not communicated to Pelmark, as discussed below.

Issue #2: Was there communication of acceptance of the lease and if not, was there part performance sufficient to enforce the lease notwithstanding the Statute of Frauds?

[48] Pelmark’s position is that the acceptance of the lease was not communicated to the Landlord. Communication of acceptance is an essential element in the formation of a contract. As Perell, J. states in Premium Properties Ltd. v. Subway Franchise Restaurants of Canada Ltd., 2014 CarswellOnt 6934, 2014 ONSC 3150 at paras. 11-12, with specific reference to a lease:

11 An option, be it an option to grant a lease, to renew a lease, or to extend a lease, is a unilateral contract in which the landlord makes an offer to rent premises.

12 As with respect to any unilateral contract, to create a lease contract, the offer must be accepted by the grantee (the putative tenant), and the law is that the grantee of the option must strictly comply with the conditions of the offer and must actually communicate acceptance of the offer…

[49] Marmorstein believed he had communicated acceptance. He left the envelope in the normal place for pick-up, as was the ordinary course for the pick-up of rental cheques. The make-up rent cheque at the higher rent level under the new lease, which was in the envelope with the lease, was cashed. He continued to occupy the premises and pay the higher rent. After the two letters asking for a signed lease in July, 2014, the next letters from Pelmark (January and June, 2015) referred to “your lease agreement”. Nothing in the lease agreement specifies how acceptance shall be communicated. At the same time, nothing in the lease agreement waives the requirement for communication of acceptance of the lease.

[50] Pelmark signed the lease and delivered it for signature to Little Shoe Palace. However, the evidence of Pelmark’s witnesses is that they did not receive the lease back from Little Shoe Palace. It is possible the lease dropped out of the envelope. The burden was on Little Shoe Palace to communicate acceptance. The landlord’s silence on this point, and subsequent acts of reaffirmation, however, mean that the landlord is estopped from taking the position that acceptance of the lease was not communicated: Maracle v. Travellers Indemnity Co. of Canada, 1991 CanLII 58 (SCC), [1991] 2 S.C.R. 50 (S.C.C.) Both parties conducted themselves as if the lease was signed. The landlord cashed the make-up cheque, and the subsequent cheques at the higher rent level. Nothing in writing even identifies the unsigned lease as an issue until one line in a letter between lawyers in August, 2015, one year later.

[51] I also find that the lease is valid under the doctrine of part performance. The Statute of Frauds, R.S.O. 1990, c. S.19, ss. 1 and 3, provides that leases for terms exceeding three years must be in writing and signed to be enforceable. However, the equitable doctrine of part performance can operate to take an agreement respecting land out of the operation of the Statute of Frauds on the basis that to enforce the statute would be unconscionable in the circumstances where a party has acted to its detriment in carrying out its obligations under the unenforceable contract: Brown’s Cleaners & Tailors Ltd. v. OMERS Realty Corp., 2010 ONSC 1073 (SCJ) at para. 34. In Campbell Pools Inc. v. Seville Group Inc., 2015 ONSC 2314 (SCJ) at para. 98, Justice Beaudoin held that there are 4 elements to part performance: (a) performance must be referable to the agreement; (b) the acts of performance must be acts of the plaintiff, (c) the contract must be one for which the law would grant specific performance if it had been properly evidenced in writing, and (d) there must be clear and proper evidence of the existence of the contract. As set out above, these 4 factors are met here.

[52] The mere payment of money does not qualify as part performance, unless it can be said to be unequivocally related to the alleged contract: Clark Machine Inc. v. R. Difruscia Holdings Limited, 2010 ONSC 5449 (SCJ) at paras. 37 – 40. In this case, the acts of part performance by Marmorstein – payment of increased amounts of rent and occupation of the premises under the lease – are unequivocally referable to the terms of the written lease dealing with the property. Pelmark accepted the rents at the higher levels, afforded Little Shoe Palace the right to occupy the premises, and affirmed the existence of the lease in writing.

[53] As such I find it would be unconscionable to enforce the Statute of Frauds. The occupancy, payment of and acceptance of rent at the higher rate in accordance with the 2014 lease, coupled with the letters from Pelmark referring to the lease agreement, and Pelmark’s tenant acknowledgement are sufficient acts of part performance to take the 2014 lease outside the operation of the Statute of Frauds and render it enforceable by action.

Issue #3: Was the lease conditional on payment of 2008-2013 escalation arrears of $7,550?

[54] CB 3185 submits that that the lease was conditional on the payment of escalation arrears of $7,550 in the 2008 to 2013 period. In his submissions on behalf of Pelmark, Pelmark’s counsel takes no position. He noted that Paisley spoke well of a tenant of 30 some years. Pelmark never threatened to terminate the new lease. Even if the payment of escalation arrears was described as a condition, the letter of July 21, 2015 indicates that Pelmark would take legal action to collect the arrears, not terminate the lease. Paisley’s counsel also noted there was no doubt in Paisley’s mind that Pelmark was observing the lease agreement. In the statutory declaration which Paisley provided to CB 3185, he noted that the lease has not been signed, but the tenant had been paying monthly rents in accordance with the terms of same.

[55] The written lease agreement contains a “Final Agreement” clause. As the applicant submits, an entire agreement clause is generally intended to lift and distill the parties’ bargain from the muck of negotiations. In limiting the expression of the parties’ intentions to the written form, the clause attempts to provide certainty and clarity. An entire agreement clause, such as this Final Agreement clause, deals with what was done or said before the agreement was made, and seeks to exclude those statements and acts from muddying the interpretation of the agreement. The parol evidence rule directs that a written contract may not be contradicted by evidence of the oral and written statements made by the parties before the signing of the contract: Soboczynski v. Beauchamp, 2015 ONCA 282 at paragraphs 43 – 46; Latner Estate v. Latner, 2016 ONSC 364 at paras. 29-30.

[56] In PCL Construction Canada Inc. v. Global Events Management Group Inc., 2016 ONSC 689 at paragraphs 49 – 50, the court held that where a contract did not provide for an obligation or a condition precedent and the contract had an entire agreement clause, an obligation could not be imposed which was not in the contract. Here, the alleged oral agreement to pay escalation arrears was reached on June 9, 2014, while the written lease was drafted in June and signed in August. The agreement to extend the right of occupation for a period of five years commencing January 1, 2014 for the payment of the increased rent amounts is inconsistent with implying a term that the right of occupation could be rescinded for a reason not mentioned in the written lease.

[57] CB 3185 argues that the agreement to pay escalation arrears is a separate oral agreement constituting a condition precedent to the lease obligations, and the existence of a separate oral agreement which is not inconsistent with the main agreement may still be enforced citing Corey Developments Inc. v. Eastbridge Developments (Waterloo) Ltd., 1997 CanLII 12254 (ON SC). They submit that the oral agreement on payment of escalation arrears does not contradict the terms of the lease. I find that there was no enforceable agreement to pay the escalation arrears. As such, it cannot be a condition precedent to the validity of the lease. Further, to make the lease conditional on the payment of escalation arrears would be inconsistent with the main lease agreement as to term of tenancy, right to occupation and right of quiet possession.

[58] CB 3185 also rely on the implied duty of good faith as set out in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494 as the basis for enforcement of the oral agreement because Marmorstein did not conduct himself in an honest manner. I find no basis for the operation of the duty of good faith in contractual performance to superimpose a requirement to pay escalation arrears as a precondition to the lease obligations. There is simply no factual basis for so finding.

[59] I find that the lease agreement was not conditional on the payment of the escalation arrears.

Issue #4: Is the lease binding on the purchaser CB 3185?

[60] CB 3185 submits that the lease agreement is not binding on CB 3185 as it did not have actual knowledge of Marmorstein’s commercial leasehold interest. The lease was not registered on title pursuant to section 44 (1) (4) of the Land Titles Act, R.S.O. 1990, c. L.5. CB 3185 claims that Little Shoe Palace had a month-to-month arrangement; Paisley’s solicitor advised Bitton’s solicitor that the Little Shoe Palace had not signed any lease agreements since 1985; there was no lease registered on title; and the unsigned lease agreement would not be enforceable under the Statute of Frauds. I have already disposed of this latter point.

[61] A bona fide purchaser for value without actual knowledge of a prior agreement will be protected if the lease is not registered as required. There are exceptions, however. One is actual notice. An unregistered interest in land may be protected where the subsequent purchaser has actual notice of the nature of the private agreement and its legal effect: Sandhu v. Paterson, 2016 ONSC 1748 (SCJ) at paragraph 38.

[62] The burden of proving lack of notice is on the person alleging that he or she is a purchaser for valuable consideration without notice. A person has actual notice if “he or she is aware of the existence of a legal right. It is not necessary that the person have knowledge of the precise details of that right”: Sandhu, para. 41. The test is “whether the registered instrument holder is in receipt of such information as would cause a reasonable person to make inquiries as to the terms and legal implications of the prior instrument: Sandhu, paragraph 40.

[63] Another exception is willful blindness. The purchaser will not be protected if he or she is wilfully blind in order to avoid actual knowledge of a particular interest. Knowledge in the hands of the purchaser’s agent, such as a lawyer, will also be deemed to be knowledge of the purchaser: Sandhu, para. 43. In the Sandhu case, the Sandhus were consistently and incrementally made aware of the existence of a commercial lease, confronted with repeated evasive answers about the lease terms, and wilfully blind to the implications of evasiveness. The court held that they should have insisted on some confirmation of the lease arrangements in the Agreement of Purchase and Sale: Sandhu paragraph 78.

[64] If the purchaser “shuts his eyes to the facts presented to him and puts the suspicions aside without further inquiry “ or refrains from asking questions because he suspects there is something wrong, the purchaser will be wilfully blind to the issues: Cybernetic Exchange Inc. v. J.C.N. Equities Limited, 2003 CarswellOnt 4762 (SCJ) at para 232.

[65] Little Shoe Palace argues that CB 3185 had actual notice or was wilfully blind. I agree.

[66] The sale closed on the basis of a Statutory Declaration sworn by Paisley on August 28, 2015. In the Statutory Declaration the landlord Pelmark confirmed that, subject to para. 13, the tenant had an unsigned lease for a term of 5 years, and set out the commencement date of January 1, 2014, termination date of December 31, 2018, and the amount of rents and terms, with the mistaken reference to a base year of 2007 for escalations. Section 3 of the Statutory Declaration states that “the Lease has not been altered or amended and has not been terminated, surrendered and is in good standing and in full force and effect and is unmodified subject to Para. 13 below”.

[67] Paragraph 13 of the Statutory Declaration is critical. It provides that:

The Landlord has advised the Purchaser of the status of this lease in the Agreement of Purchase and Sale and the Purchaser has expressly agreed to assume same “as is. Specifically, the Lease has not been signed, the Tenant continues to remain in possession without formally acknowledging the Lease but paying monthly rent in accordance with the terms of same. All references herein to the Lease do not in any manner whatsoever alter the fact that the lease has not been signed and that the tenancy of Little Shoe Palace is being assumed on an “as is” basis.… The Tenant has been paying $4,500.00 per month and the Landlord has accepted payment of same….The Purchaser has acknowledged the status of this lease and agreed to assume same subject to and in accordance with Schedule B 4(M) [delivery of tenant acknowledgment or statutory declaration] and Schedule D Para. 3 [statutory declaration] of the Agreement of Purchase and Sale…

[68] It is notable that consistent with some of Pelmark’s record – keeping issues evident in this case, there were small clear errors in the Statutory Declaration. The Statutory Declaration references an unsigned commercial lease agreement dated November 11, 2014 which I find never existed and was not produced, but it actually outlines terms consistent with the lease effective January 1, 2014. It calls for additional rent (escalations) over base year 2007, which is not reflected in any document, whereas the new lease is over base year 2013. The statutory declaration confirms an error in the lease wherein HST was duplicated as well as an error in the rent in that the rent in the 5th year of the term is not specified. In any event, it repeatedly references a lease. It is vague, likely deliberately. It does not say Marmorstein was on a month-to-month tenancy.

[69] In his oral argument, counsel for CB 3185 submitted that this provision is very, very confusing, and the only thing certain about that document is that “the property is not vacant”. However, this very confusion raises the question as to whether CB 3185 had actual notice or was wilfully blind to issues raised with respect to the lease of Little Shoe Palace.

[70] The agreement of purchase and sale was signed March 9, 2015 and amended on June 12, 2015. The agreement of purchase and sale, paragraph 26, provides in part that the agreement represents the “entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein.”

[71] The amendment to the agreement of purchase and sale provides that: “Buyer hereby acknowledges that no further information is required from Seller to complete its due diligence investigations.” There is a specific acknowledgment with respect to the Little Shoe Palace, including reference to “The lease contains an error wherein HST was duplicated as well as an error re the rent in the fifth year of the term not being specified”, acknowledgment of an unsigned lease dated November 11, 2014 and an unsigned commercial renewal agreement January 1, 2015. The amended agreement of purchase and sale specifically provides with respect to the Little Shoe Palace that

The Purchaser acknowledges the status of this lease and agrees to assume same “as is” and without requiring any further documentation regarding the lease subject to Schedule B 4(M) [tenant acknowledgment/statutory declaration] nor requisitioning any matters whatsoever respecting the lease nor requiring any adjustment to the purchase price.

[72] The agreement states that the buyer will have performed its own due diligence. There was, however, no evidence of due diligence efforts on the part of CB 3185 to ascertain the nature and status of the Little Shoe Palace lease. In addition, CB 3185 contracted out of reliance on any representations concerning the lease and cannot now rely on them.

[73] On May 4, 2015, Paisley’s lawyer wrote to CB 3185’s lawyer indicating that the tenant has had been paying rent in accordance with the five-year lease agreement, and stating:

Note of course that if the tenant for some reason asserts that the 5 (5) year lease is not binding, this is advantageous to your client as it will secure her earlier vacant possession. My client is not prepared to force the issue…

[74] As of May 4, 2015, there is actual notice to CB 3185 that the Little Shoe Palace and Pelmark are operating under the impression that the 5 year lease is binding. The email from CB 3185’s lawyer to Pelmark’s lawyer amending the agreement of purchase and sale on June 12, 2015 confirms receipt of the lease, and CB 3185 acknowledges that no further information is required from the seller to complete its due diligence investigations. The purchaser acknowledges the status of this lease and assumes the same “as is” without requiring further documentation. Again, the purchaser contracted out of getting more information or documents to clarify, which speaks to the issue of willful blindness.

[75] Bitton gave evidence at trial which conflicts with that of Paisley. I prefer the evidence of Paisley on these points. On cross-examination and in his affidavits, Bitton says that Paisley told him that the tenancy is month to month. This conflicts with the Statutory Declaration which does not say so, and also conflicts with evidence at trial that Paisley told Bitton no more than that there was an unsigned lease and he was not clear as to the status of the tenancy. On cross-examination on affidavits, Bitton specifically said that Paisley told him that Little Shoe Palace claimed to be a month-to-month tenant. At trial, when cross-examined by Paisley’s counsel, Bitton initially said the communication was done through lawyers and he did not speak to Paisley about these matters. He later contradicted himself and said that Paisley told him several times that all of the tenants were month-to-month. The cross-examination by Paisley’s counsel confirmed that Bitton’s evidence was that without a lease, in his view, month-to-month is an implied term.

[76] Bitton was also evasive in his evidence at trial about the extension of the closing date. He initially said the extension was the result of not having a tenant’s acknowledgement from Little Shoe Palace and something to do with financing. He also gave evidence at trial concerning mortgage financing that he was seeking, despite having advised the other parties in May 2016 in response to a production request that there was no mortgage application. At trial he was asked to produce his mortgage application the next day and said he would; he attended the next day without a mortgage application and told the court that he had made a mistake. The evasiveness and conflicting evidence combined with the information provided to his lawyer and the illogical leap from the Statutory Declaration to the idea that Marmorstein was simply a month-to-month tenant, leads me to find that CB 3185 and Bitton were wilfully blind at the very least to the issue regarding the status of the lease.

[77] In his evidence it was clear that Bitton jumped to the conclusion that an unsigned lease was synonymous with a month-to-month tenancy. For example in his testimony he said he got a Statutory Declaration saying it was an unsigned lease. He said he was told by Paisley that the Little Shoe Palace was month-to-month, that he had an unsigned lease. By jumping to a conclusion that an unsigned lease could only be a month-to-month tenancy, Bitton was wilfully blind. When Marmorstein’s lawyer suggested in cross-examination that Bitton could have contacted Marmorstein, counsel for Bitton stated that this suggestion was not grounded in reality. However, where the exact nature of the legal interest was as clearly in question as it was here, and the statutory declaration was confusing, the failure to seek further information (such as contacting Marmorstein to confirm the status of the lease) represents willful blindness. Paisley gave evidence that there is nothing stopping the purchaser from contacting the tenant, and nothing in writing asking for clarification.

[78] I find that CB 3185 was wilfully blind to the issue of Little Shoe Palace’s lease. I have found that there was a valid lease, the terms of which are in writing coupled with part performance. Counsel for CB 3185 was advised that there was an unsigned lease which both parties were complying with as if it were binding, and was advised of part performance. Thus, CB 3185 was affixed with knowledge of a significant risk to its position, post-sale, that the Little Shoe Palace was only a month-to-month tenant. There were enough indicia of an interest in land that CB 3185 should have asked the questions: instead, it chose not to ask questions and remain wilfully blind. As such, the lease operates to bind CB 3185.

Conclusion

[79] This Court declares that the Commercial Lease Agreement entered into the 1st day of January 2014 between Pelmark Developments Ltd. (Landlord) and Little Shoe Palace (Tenant) is valid and effective in accordance with its terms. That lease is binding on the successor Landlord, CB 3185 Ontario Inc.

Costs

[80] If the parties are unable to agree on costs, then costs will be dealt with as follows. Little Shoe Palace is to provide its written costs submissions to Judge’s Administration within 8 days, together with a Bill of Costs. Pelmark and CB 3185 to respond within a further 5 days. Reply in a further 3 days, if any. If any party takes issue with amounts sought, then they are to submit their own Bills of Costs.

[81] Pelmark’s position is that it is entitled to costs from Little Shoe Palace since no relief was sought against it, and it should not have been named as a respondent. Pelmark’s costs submissions seeking its costs are to be provided to Judge’s Administration within 8 days; Little Shoe Palace to respond within a further 5 days; reply if any in a further 3 days. Costs submissions limited to three pages plus Bill of Costs.

Kristjanson J.

Released: November 10, 2017

CITATION: Little Shoe Palace v. Pelmark Developments Ltd., 2017 ONSC 5268

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

LITTLE SHOE PALACE LTD.

Applicant

– and –

PELMARK DEVELOPMENTS LTD. and CB 3185 ONTARIO INC.

Respondents

REASONS FOR JUDGMENT

Kristjanson J.

Released: November 10, 2017

Little Shoe Palace v. Pelmark Developments Ltd., 2017 ONSC 5268

Case Summary

OVERVIEW

Issues

Factual Background

Issue #1: Was there a valid lease, whether signed or unsigned?

Discussions Negotiating Lease

The Missing Lease

Sale of the Building

Summary

Issue #2: Was there communication of acceptance of the lease and if not, was there part performance sufficient to enforce the lease notwithstanding the Statute of Frauds?

Issue #3: Was the lease conditional on payment of 2008-2013 escalation arrears of $7,550?

Issue #4: Is the lease binding on the purchaser CB 3185?

Conclusion

Costs

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Issues

Statutory Provisions 3

Legal Tests 2

Legislation 2