Court File and Parties

COURT FILE NO.: CV-17-583319 DATE: 20171124 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

RONTI HOSEN Applicant

– and –

ANH TRAN AND KIET LAM Respondents

COUNSEL: Jayson Thomas, for the Applicant Evan Tingley, for the Respondents

HEARD: November 21, 2017

Endorsement

DIAMOND J.:

Overview

[1] On September 29, 2017, I heard an urgent motion seeking interim relief from forfeiture. Approximately 10 days earlier, the applicant was locked out of leased premises municipally known as 1074 Bloor Street West, Toronto, Ontario (“the property”) by the respondents.

[2] After hearing argument of that motion, I concluded that there was a lack of urgency to support the granting of interim relief forfeiture before the application was fully argued on its merits. As a term of adjourning the application to a further hearing before me, on a without prejudice basis I ordered, inter alia: (a) the applicant to remit payment of outstanding and current rent in accordance with a specific schedule, and (b) the respondents to maintain the status quo and not market or re-let the property pending further court order or agreement between the parties.

[3] Subsequent to my order of September 29, 2017, the affiants were cross-examined upon their respective affidavits. The application proceeded before me on November 21, 2017 and I took my decision under reserve.

The Lease

[4] On or about December 16, 2014, the parties entered into a written commercial lease (“the Lease”). The tenant agreed to lease the first floor (and part of the basement) of the property from the respondents for a 15 year term commencing on January 1, 2015. The basic rent of $3,666.67 per month was to remain in place for the first five years of the lease and increase on an annual basis thereafter.

[5] The property was not to be used for any purpose other than “conducting the business of a restaurant serving food and alcohol beverages, licensed under the Liquor License Board of Ontario.”

[6] The Lease provided the applicant with a four month, rent-free fixturing period which ended on April 30, 2015. The applicant subsequently requested a two month extension of that fixturing period, and that request was granted by the respondents. As a result, the applicant enjoyed a rent-free period until June 30, 2015.

[7] Article 11 of the Lease precluded the applicant from subletting or assigning the tenancy to a third party in the absence of the applicant making a detailed written request for the respondents’ consent and the respondents providing their consent in advance.

[8] Clause 5.2 of the Lease required the applicant to pay the landlord 70% of all reality taxes charged or assessed against the property as additional rent. Of note, the applicant’s obligation to pay 70% of those reality taxes does not commence until the applicant opens all or any part of the property for business to the public.

The Breaches

[9] The Lease requires the applicant to deliver 12 post-dated rent cheques every December 16, but he has never done so.

[10] There is no dispute that at times during the term of the Lease, the applicant failed to remit payment of basis rent to the respondents. The applicant’s rent cheques for April and July, 2017 were returned by his bank for insufficient funds. The parties both confirmed that as at the hearing date before me (November 21, 2017), the applicant’s basic rent obligations were up to date and no longer outstanding as he complied with my order of September 29, 2017 (although not necessarily in accordance with the deadlines set out therein).

[11] The respondents submit that from January-May 2015, the applicant sublet the premises to an individual known as Vikrem Handa (“Handa”, who sought the nomination as the liberal candidate for the riding of Davenport, Ontario). Apparently, Handa used the property as his interim campaign headquarters. While the applicant maintains that he never charged Handa any rent, Handa’s use of the property does amount to a “transfer” as that term is defined in the Lease, and the respondents never provided their consent to such a transfer. In addition, the specified use of the property under the Lease precludes it from being a campaign office.

[12] Apart from the applicant’s failure to pay rent, the respondents’ biggest complaint is that the applicant has never opened a restaurant business, which was the only specified use under the Lease. The applicant alleges that he has made significant improvements to the premises totaling approximately $90,000.00. The applicant gave evidence that he was waiting for building permits for an extended period of time from the City of Toronto, and only obtained those permits in July 2016. The record discloses that the applicant did not apply for a liquor licence until October 2016, likely waiting until he obtained the said building permits.

[13] Both parties knew that at the time the Lease was executed, the property was not zoned for restaurant establishment purposes. The applicant gave evidence that it took approximately 18 months to obtain the necessary zoning approvals to operate a restaurant at the property. However, there is no documentation whatsoever in the record before me to substantiate the applicant’s claims, other than some renovation invoices which commenced in June 2016 (approximately 18 months after the Lease was executed).

[14] The respondents argue that as a result of the applicant’s failure to open a restaurant, the respondents have been “footing the bill” for 100% of the reality taxes throughout the term of the Lease, and it was never the understanding or expectation of the parties that the reality taxes would remain the sole responsibility of the respondents.

Relief from Forfeiture

[15] The Court retains a power to protect a party against the loss of a right or interest due to a failure to perform an obligation or condition in an agreement. As held by Justice Doherty in Ontario (Attorney General) v. 844 Darlington Crescent, 2011 ONCA 363, relief from forfeiture is to be granted sparingly with the onus resting upon the party seeking relief from forfeiture to “make the case for it”.

[16] The applicant relies on both section 20 of the Commercial Tenancies Act, R.S.O. 1990, c. L7 and section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43 in support of his application. When dealing with commercial tenancies, the jurisprudence is well developed and not in dispute. The power to grant relief from forfeiture is an equitable, discretionary remedy. In Grand River Conservation Authority v. Hargreaves, Justice Fragomeni held that in exercising its discretion, the Court is to consider the moving party’s conduct, the gravity of the breach(es) and the disparity between the value of the property forfeited and the damage caused by the breach(es).

[17] In a situation where the breach is based upon non-payment of rent, the Court must consider the following criteria:

(a) whether the moving party comes to court with clean hands, (b) whether there has been an outright refusal by the moving party to pay rent, (c) whether the rent has been in arrears for a short or long time, and (d) whether the landlord has suffered a serious loss by reason of the moving party’s delay in paying rent.

[18] The respondents rely upon Justice Perell’s decision in Michele’s Italian Ristoriante Inc. v. 1272259 Ontario Ltd., 2016 ONSC 488, and in particular the following excerpt:

“The court in exercising its discretion can and should consider all the circumstances including: the history of the relationship; breaches of other covenants of the lease by the tenant; the gravity of the breaches; the tenant's conduct or misconduct; its good faith or bad faith or want of clean hands; whether the object of the right of forfeiture in the lease was essentially to secure the payment of money; and the disparity or disproportion between the value of the property forfeited and the damage caused by the breach. What should not be lost sight of is that a landlord undoubtedly is always going to be able to point to misconduct by the tenant, else there would be no grounds for forfeiture in the first place, but the ultimate question is whether the court should exercise its equitable jurisdiction to relieve against the forfeiture imposed by the common law because it is an excessive remedy in all the circumstances.”

[19] The respondents further submit that as the applicant acted deliberately in (a) failing to remedy his non-payment of basic rent, (b) subletting the property without advising the respondents or seeking their consent), and (c) failing to open the restaurant within a reasonable time, the applicant ought to be denied the equitable relief he seeks.

Decision

[20] There is no doubt that the applicant has been in occasional breach of his obligations to remit basic rent, but as stated above those breaches have now been cured, albeit through resort to litigation.

[21] I do not view the applicant’s failure to remit post-dated cheques, or payment of basic rent on the first of each month, as serious transgressions which would deny his right to seek relief from forfeiture. While the applicant has not tendered substantive evidence in support of his claim that he never formally sublet the Property to Handa, there is no doubt that the Lease prohibited Handa (or any other individual) from using the property as campaign headquarters. That said, the respondent Kiet Lam (“Lam”) and his family resided on the second floor of the property at the time Handa was using the premises, and on cross-examination Lam confirmed that when he learned of Handa using the property for a non-permitted purpose, he “let it slide”.

[22] As I expressed to counsel during the hearing of this application, in my view the most significant issue is the applicant’s failure to open the restaurant for nearly three years. While I am prepared to accept that it may have taken longer than the rent-free six months granted by the respondents to open the restaurant, the applicant has simply not led sufficient, documentary evidence to explain why the restaurant has yet to open to date. The respondents have given evidence that no renovation work has been carried out for the last several months. While the applicant has testified that he anticipates the restaurant opening “in two to three months”, the respondents contend that this is a familiar refrain.

[23] While the specific terms of the Lease do not compel the applicant to pay his 70% share of the reality taxes until he opens the restaurant, I find that it was within the reasonable expectations and contemplation of the parties that such an event was to occur much sooner than three years, and likely within the first calendar year barring unforeseen obstacles. While the applicant has raised the existence of such obstacles, he has not led sufficient evidence to prove them, especially in light of his obligations on an application for relief from forfeiture.

[24] There is no evidence from the respondents that they require possession of the property for any specific purpose at this time. The respondents have no secured an alternative tenant, nor are they planning on selling the property. I do agree with the applicant that any term imposed as a condition of relief from forfeiture should not be overly prohibitive as to render relief from forfeiture a hollow victory. That said, the applicant must come before me with clean hands in order to invoke this Court’s equitable jurisdiction, and while I find that his hands are not necessarily dirty, they remain unwashed.

[25] As a result, I grant the applicant relief from forfeiture upon the following terms:

1. Commencing on December 1, 2017, the applicant shall remit payment of basic rent on the first day of each and every month as per his obligations under the Lease;
2. Commencing on December 16, 2017 and every December 16 until the end of the Lease, the applicant shall provide the respondents with 12 post-dated monthly rent cheques for the following year;
3. On or before December 31, 2017, the applicant shall remit payment to the respondents of the additional sum of $12,500.00 on account of the respondents having paid the applicant’s 70% share of the reality taxes to date;
4. Commencing on January 1, 2018, the applicant shall remit payment of 70% of the monthly reality taxes on a monthly basis until the end of the Lease; and
5. In the event the applicant does not comply with the above terms, or any other obligation under the Lease, the respondents may terminate the Lease accordingly.

Costs

[26] I would urge the parties to try and resolve the issue of costs of this application. If such efforts prove unsuccessful, the respondents may serve and file written costs submissions (totaling no more than four pages including a Costs Outline) within 10 business days of the release of this Endorsement.

[27] The applicant shall thereafter serve and file his responding costs submissions (also totaling no more than four pages including a Costs Outline) within 10 business days of the receipt of the respondents’ costs submissions.

Diamond J. Released: November 24, 2017