1714959 Ontario Inc. v. Goldenshtein, 2017 ONSC 6805

CITATION: 1714959 Ontario Inc. v. Goldenshtein, 2017 ONSC 6805

COURT FILE NO.: CV-13-478146

DATE: 20171120

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1714959 ONTARIO INC., Plaintiff

– AND –

2265983 ONTARIO LIMITED and DANIEL GOLDENSHTEIN, Defendants

BEFORE: Justice E.M. Morgan

COUNSEL: Robert Calderwood, for the Plaintiff

Daniel Goldenshtein, in person

HEARD: November 14-15, 2017

REASONS FOR JUDGMENT

[1] The Plaintiff was the landlord of a commercial plaza located at 1200 Highway #7 West, Vaughan, Ontario. The Defendant, 2265983 Ontario Limited, operated a restaurant called “Mideastro” that was a tenant in Units 8 and 9 of that plaza under a lease dated February 18, 2011 (the “Lease”). The Defendant, Daniel Goldenshtein, is the principal of Mideastro and the indemnifier under and indemnity agreement between him and the Plaintiff that is appended to the Lease.

[2] Mideastro was chronically in arrears in rent and on occasion its cheques to the Plaintiff were returned NSF. Mideastro’s monthly payments to the Plaintiff included base rent, TMI, and certain other expenses such as pylon sign usage that were included as rent under the Lease. The monthly fees also included any extra charges such as a clean-up fee caused by backup in Mideastro’s kitchen, water bills attributed to Mideastro’s premises, etc. Mideastro and Mr. Goldenshtein do not dispute the particular invoices.

[3] Mr. Goldenshtein’s complaints about the landlord-tenant relationship have to do with his disappointment in the Plaintiff’s shopping plaza, not with accounting matters. He says that the traffic in the plaza was disappointingly low. He also says that the TMI and other expenses were often surprisingly high.

[4] Mideastro sometimes paid the full monthly payments owing and sometimes made partial payments. The Plaintiff produced statements detailing the amounts owing each month, the payments, and the arrears. A ledger showing all of this accounting is an exhibit in the record; in his testimony, the President of the Plaintiff, Victor Chuang, indicated that these statements were provided to each tenant of the plaza, including Mideastro.

[5] In or about June 2012, Mideastro ceased operation and moved out of the Premises. On July 11, 2012, a bailiff acting on behalf of the Plaintiff posted a Notice of Distress on the door of the premises under which Mideastro’s chattels were distrained on account of unpaid rent. By this time Mideastro had abandoned the Premises and the bailiff reported that there were not many goods and chattels left there. The following week, on July 16, 2012, the Plaintiff re-entered the premises and terminated the tenancy, at which time the bailiff left a Notice of Termination on the door of the Premises.

[6] Mideastro’s defense is, essentially, that this was all a misunderstanding. Mr. Goldenshtein testified that he was in negotiation with the owners of another restaurant – Bill’s Pit – who were planning to take over the lease from Mideastro. He further indicated that he had already introduced those owners to Mr. Chuang and that, accordingly, the Plaintiff was aware that a prospective assignment of the Lease was in the works.

[7] Mr. Goldenshtein’s position is that he expected the Plaintiff to hold off enforcing any rights in order to give him time to finalize with Bill’s Pit. He concedes, however, that the owners of Bill’s Pit were not easy to deal with, and were delaying their decision-making with respect to whether or not they would go through with taking over the Lease and moving into the premises. Apparently, since he was waiting for the potential assignee’s answer, he expected his landlord to wait for the answer as well. None of this was reduced to writing, nor, it would seem, was it explicitly discussed with Mr. Chuang. There is no evidence that an actual agreement was reached for the Plaintiff to forebear in taking any action under the Lease. Mr. Goldenshtein simply thought that Mr. Chuang and he were on the same page, as it were, and that it would be in the Plaintiff’s interest as landlord to help ensure that the assignment to Bill’s Pit would be concluded.

[8] It may or may not have been in the Plaintiff’s interest to wait to see if an assignment of the Lease would transpire; but what is certain is that in the absence of an actual agreement to the contrary it was the Plaintiff’s right to enforce the Lease when its tenant was in default of rent. As of June 2012, Mideastro was $4,235.89 in arrears. Mideastro then missed its July 2012 rental payment entirely. As of July 12, 2012, Mideastro was in arrears in moneys owing under the Lease in the total amount of $14,306.90. As indicated, several days later the Plaintiff re-entered the premises and terminated the Lease.

[9] The Plaintiff’s act of terminating the Lease put an end to Mideastro’s tenancy. Mideastro’s obligation to pay rent or any other expenses under the Lease does not extend beyond the date on which the Lease was terminated. That said, article 12.01 of the Lease provides that forfeiture of the term of the tenancy is without prejudice to the Plaintiff’s right to claim for damages for the remaining portion of the lease. This claim sounds in contract, and is a personal chose in action that survives termination of the tenancy and Mideastro’s abandonment of the premises: 80 Mornelle Properties Inc. v. Malla Properties, 2010 ONCA 850, at para 22; Highway Properties Ltd. v. Kelly Douglas and Co., 1971 CanLII 123 (SCC), [1971] SCR 562.

[10] Mr. Goldenshtein’s liability as indemnifier parallels Mideastro’s liability. The indemnity agreement that is appended as a schedule to the Lease provides that his liability to cover Mideastro’s obligations under the Lease extends beyond the termination of the Lease. This is a form of remedy that goes beyond the ordinary remedies that would have been at the Plaintiff’s disposal under traditional landlord-tenant law: Goldhar v. Universal Sections and Mouldings Ltd., 1962 CanLII 116 (ON CA), [1963] 1 OR 189 (Ont CA). Indeed, from a property law point of view it allows a landlord to have its cake and eat it too – i.e. to re-take its property from the tenant and charge the tenant for its use.

[11] That said, Mideastro’s and Mr. Goldenshtein’s obligations are expressly set out in the Lease and the indemnity agreement. I am advised by counsel for the Plaintiff as well as by Mr. Goldenshtein himself that Mr. Goldenshtein had legal advice when he signed the indemnity agreement. During the hearing I pointed out to Mr. Goldenshtein that this was a rather harsh form of indemnity agreement. He stated that he was under considerable business and personal pressure at the time, which made him anxious to sign the Lease (which was replacing a previous lease due to Mideastro having found new investors). But he confirmed that he was represented by a lawyer and that he did understand what he was signing. The Lease and accompanying indemnity agreement may be onerous for the tenant and the indemnifier, but neither the circumstances of its signing nor its terms make it unconscionable.

[12] The one qualification to the landlord’s rights under the contractual approach is that it arguably has a duty to mitigate its losses by making reasonable efforts to re-let the premises: Victoria Park Avenue Associates Limited Partnership v. Magnaflex Industries Inc., (2000), 37 RPR (3d) 283 (Ont. S.C.J.), aff’d [2002] O.J. No. 4079 (Ont CA), leave to appeal to SCC denied [2003] 1 SCR xiii. It is certainly the case that where the premises has actually been re-let mitigation has taken place and must be accounted for in any damages calculation: Toronto Housing Co. v. Postal Promotions Ltd. 1982 CanLII 1982 (ON CA), 39 OR (2d) 627 (Ont CA).

[13] Mr. Goldenshtein testified that a couple of months after the termination of the lease, he received a phone call from Mr. Chuang asking if Mideastro would assign to the Plaintiff its liquor license for the premises – which it ultimately did. Mr. Chuang confirmed in his testimony that he had indeed asked for this, but indicated that he viewed this as a minor request and that the license was of little real value although it might make it easier to find a new restaurant tenant. Mr. Goldenshtein disagreed with that, and stated that a liquor license is something like the “holy grail” of the restaurant business, and that it is of great value to a restaurant owner.

[14] According to Mr. Goldenshtein, it was his understanding that if he signs over the license the Plaintiff would not pursue him on the personal indemnity agreement. Mr. Goldenshtein related that this was not said between him and Mr. Chuang in so many words, but that Mr. Chuang had assured him, speaking euphemistically, that if he assigns the liquor license he needn’t worry and that the Plaintiff “won’t kill him.”

[15] I do not doubt Mr. Goldenshtein’s sincerity in relaying this conversation. I believe he thought that the assignment of the liquor license would at least buy some good will from the Plaintiff. It is also obvious that assigning the liquor license was in Mideastro’s and Mr. Goldenshtein’s own interest, as it would contribute to the Plaintiff’s mitigation of damages by assisting the search for a new tenant. Unfortunately, whatever Mr. Goldenshtein may have thought about the agreement to assign the liquor license, nothing was written down and no specific quid quo pro appears to have been agreed to by the Plaintiff.

[16] In the result, the signing over of the liquor license did not buy any good will from the Plaintiff. Mr. Chuang conceded that the license could potentially help find a new restaurant tenant, but denied that the assignment carried with it any agreement on his part to abandon the Plaintiff’s right to claim under the indemnity agreement.

[17] I am forced to conclude that there was no agreement by the Plaintiff not to proceed against Mr. Goldenshtein on the indemnity agreement. Nothing to that effect was agreed upon with the kind of specificity to allow me to conclude that they had reached an enforceable contract. Mr. Chuang may have encouraged Mr. Goldenshtein to think that he would be getting softer treatment in return for his cooperation with the license, and, indeed, Mr. Chuang may have played Mr. Goldenshtein in leading him on in this way; but the result was that Mr. Goldenshtein simply signed with the hope of fair treatment rather than with a guarantee of fair treatment. Any conversation that took place between them appears to have been a casual one that did not lead to an actual meeting of the minds.

[18] The Plaintiff here adduced evidence that it made reasonable efforts to mitigate. The leasing agent who had the listing for the property testified at trial and described the various marketing steps that she went through. The plaza in which the premises was situated was going through some economic hardship as the customer traffic was not high; in addition, it had lost Starbucks, its one ‘triple A’ tenant. Eventually, however, the agent was approached by the owners of Bill’s Pit, who were again interested in the location for a new restaurant. Negotiations ensued, and eventually a lease was entered into commencing November 1, 2012. The lease was at a somewhat lower rent per square foot than the Mideastro lease had been, and, in addition, there was a 3 month rent-free period up front; accordingly, the Plaintiff began receiving rent in partial mitigation of its losses on February 1, 2013.

[19] The Plaintiff sold the plaza in which Mideastro and Bill’s Pit were located in March 2015. Mr. Chuang testified that the claim under the Mideastro Lease was not sold to the purchaser of the plaza, but rather was held back by the Plaintiff as an asset that it continues to own. The Plaintiff is therefore within its rights in continuing to pursue the present value of future rental losses even after the sale of the plaza: see 80 Mornelle Properties, supra, at para 22.

[20] The leasing agent testified that the rent agreed to by Bill’s Pit was in the range of what one could reasonably for these premises, and I have no reason to doubt her. Likewise, Mr. Chuang related the negotiation process for the new lease, and I have no reason to doubt that he negotiated in good faith for the best rent he could achieve on the Plaintiff’s behalf. The Lease to Mideastro, which originally was set to expire on August 31, 2018, began at $30/sq. ft. and escalated to $35/sq. ft., while the Bill’s Pit lease began at $25/sq. ft. and escalated to $28/sq. ft. during the relevant period.

[21] Further, I note that Mideastro counterclaimed for, inter alia, credit for the security deposit it gave to the Plaintiff upon signing the Lease. Mr. Chuang conceded in his testimony that the security deposit of $30,000 was credited by the Plaintiff toward the rental losses it incurred upon termination of the Lease.

[22] Counsel for the Plaintiff was unsure, however, whether in calculating interest on the rental loss this credit should be taken up front or at the end of the calculation. I have concluded that it is most realistic and fair to credit the security deposit up front so that interest does not continue to accrue on money already held by the Plaintiff. That credit has been factored into the interest calculations below, and the $30,000 deposit must be deducted from the amount the Plaintiff claims.

[23] Taking all of this into account, the Plaintiff’s damages calculation is as follows:

$ 4,235.89 – arrears in rent as of June 1, 2012 (according to the Plaintiff’s tenant ledger);

70,497.07 – pre-mitigation rental loss (July 2013 to Jan. 2013);

107,497.51 – rental shortfall (Feb. 1, 2013 to trial date comparing rents under each lease);

38,185.66 – interest on rental loss to trial date (applying security deposit up front);

11,606.84 – present value of rental loss from trial date to end of Lease term on Aug. 31, 2018;

599.92 – bailiff’s fee;

10,071.01 – leasing agent fee (mitigation expense);

1,808.00 – cleaning charge (mitigation expense).

$244,580.90 – Subtotal

-30,000.00 – security deposit

$214,580.90 – Total

[24] The parties have made written submissions on costs. Counsel for the Plaintiff seeks $23,461.23 on a partial indemnity basis or $34,373.64 on a substantial indemnity basis. He submits that the Lease contains a clause obliging the tenant (and, by extension, the indemnifier) to pay the landlord’s costs on a substantial indemnity basis.

[25] Plaintiff’s counsel further points out that the Court of Appeal in Bosse v. Mastercraft Group Inc., 1995 CarswellOnt 469 has encouraged courts to enforce contractual provisions that specifically address costs. He also concedes, however, that the Court of Appeal has confirmed that costs always remains in the discretion of the trial judge.

[26] In my view, Plaintiff’s counsel’s costs requests are relatively modest, whether taken on a partial or a substantial indemnity basis. This was a two-day trial with two Plaintiff’s witnesses and one Defendants’ witness. Although it was not especially paper-heavy and did not give rise to complex legal issues, Plaintiff’s counsel was well prepared and obviously invested enough hours in the file to ensure a successful result.

[27] That said, Mr. Goldenshtein was also well prepared and surprisingly adept at conducting a trial considering that he has no legal training. He did not waste any time on superfluous motions or arguments, and conducted his cross-examinations efficiently. I commend his efforts.

[28] Rule 57.01(1)(e) of the Rules of Civil Procedure mandates me to take into account “the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding”. Having regard to this policy, I am inclined to exercise my discretion to award costs on a partial rather than a substantial indemnity scale. Costs are generally to be awarded with a view to reasonableness, Boucher v. Public Accountants Council, (2002), 2002 CanLII 22268 (ON SCDC), 166 OAC 281 (Div Ct), aff’d 2004 CanLII 14579 (ON CA), [2004] OJ No 2634 (CA), and a partial indemnity scale seems most reasonable and appropriate to the way the trial was conducted.

[29] Mideastro and/or Mr. Goldenshtein shall pay the Plaintiff a total of $214,580.90 in damages. They shall also pay the Plaintiff costs in an all-inclusive amount of $23,461.23.

[30] Both heads of liability are joint and several as between Mideastro and Mr. Goldenshtein.

[31] The Counterclaim is dismissed. To the extent that it included a claim for Mideastro’s $30,000 security deposit, that was conceded by the Plaintiff and has been accounted for in the calculation of damages payable to the Plaintiff.

Morgan J.

Date: November 20, 2017