Parc Downsview Park Inc. v. Penguin Properties Inc., 2017 ONSC 7079

Court File No.: CV-16-566639

Date: 2017-11-29

Superior Court of Justice - Ontario

Re: Parc Downsview Park Inc., Applicant

And: Penguin Properties Inc., Respondent

Before: Lederer J.

Counsel: Jonathan C. Lisus, Zain Naqi, for the Applicant Anne Posno, for the Respondent

Heard: October 12, 2017

Endorsement

[1] This matter arose from the breach of a lease and the indemnity provided by the Respondent which was executed in favour of the Applicant (the landlord). The Application considered whether, in the face of the breach of the lease and subsequent bankruptcy of the tenant, the indemnity should be enforced. The Respondent argued that it had been misled and drawn into providing the indemnity through negligent misrepresentations made by the Applicant. In reasons released on July 28, 2017, I held that there had been no negligent misrepresentation. This being so the Respondent stood in breach of the indemnity and was required to comply with its terms.

[2] The reasons outline the value of what was to be paid, as follows:

The “proportionate share” of the outstanding rent up to June 12, 2017 is: $260,955.00

Less rent that has been received for the leased premises: $ 67,449.30

Proportionate share of the rent owing: $193,506.20

Restoration Costs: $272,856.34

Legal fees: $307,915.40

(Counsel were uncertain as to whether this included to costs awarded as a result of the application for relief from forfeiture. If they do and to the extent that they have been paid that should be accounted for.)

Other costs (bailiff): $ 14,060.51

TOTAL: $788,638.45

[3] The Applicant is not satisfied with this. In its view it is also entitled to the rent that it would have received through to the end of the term of the lease had no breach occurred. Needless to say, the Respondent does not agree. The Respondent has commenced an appeal. The parties are unable to agree as to the order that must be taken out before the appeal can proceed. The parties request that I settle the order. It is not clear to me that this is the correct characterization of what I am being asked to do. The need to settle an order generally arises when the endorsement or judgment requires clarification. It presumes that the issue in question was determined but that it is unclear as to what effect:

[T]he test to settle an order has a narrow purpose: “to ensure that the formal order accurately sets out the intention of the endorsement or reasons for decision”… The process of settling an order is not an opportunity for either party to re-argue issues already decided in an effort to change the result set out in the judge’s reasons.

(Chitsabesan v.Yuhendran 2016 ONCA 104 at para. 11)

[4] In this case the question of whether the continuation of rent was a remedy that applied and should be ordered was not raised at the time the Application was heard. Counsel for Applicant (the successful party) says the award of rent through to the end of the term of the lease is inherent in the findings that were made. The indemnity included the following:

Throughout the Term of the Lease (specifically excluding any extensions thereof) the Indemnifier will: (i) promptly pay all Rent for the area of the Premises comprising approximately 12,721 square feet only, whether to the Landlord or anyone else, and (ii) indemnify and protect the Landlord from any losses or costs incurred by the Landlord (including legal fees) if the Tenant fails to pay the Rent in respect of the 12,721 square feet.

[5] The decision and reasons delivered note that the indemnity was absolute and unconditional. The Applicant submitted that this is determinative of the issue. If the indemnity is “absolute” the Respondent is bound to pay. Although so far as I can recall no mention was made of it either during the argument of the application or in furtherance of “settling” the Order, this position is supported by the following provision found in the Indemnity Agreement:

Even if there is Early Termination, the Indemnifier will remain obligated under this Agreement throughout the Term as though the Early Termination had not occurred. An ‘Early Termination’ means a disaffirmance, disclaimer, repudiation, rejection or termination of the Lease (as a result of court proceedings or otherwise), or a surrender of the Lease which the Landlord did not accept in writing, which occurs prior to the originally specified expiry date of this Term.

[6] The Respondent observed that the issue was not raised and on this basis was not properly before the Court. The decision should be left as it is and no reference to this question should be made in the order that is to issue.

[7] On reflection, having heard the submissions of both sides I considered leaving the issue to be raised before the Court of Appeal. The issue is more complicated than simply settling the order. It was not raised at the initial appearance and argument of the application. Accordingly, I have not heard full submissions. Nonetheless, on the understanding that, in the absence of an order having been signed and issued, I am not functus and in the hope that it may be helpful I provide the following resolution to the question at hand.

[8] The answer begins with the seminal case of Highway Properties Ltd. v. Kelly, Douglas and Co., 1971 CanLII 123 (SCC), [1971] S.C.R. 562. The Supreme Court of Canada stepped away from the traditional understanding that a lease was to be treated as the granting of an estate and not as a commercial contract. With the former it was understood that with the repudiation of the lease by a tenant and the landlord having resumed possession the lease and its covenants ceased to exist. The landlord would be unable to claim any damage that occurred thereafter. The estate that had been demised was taken to have been returned. In Highway Properties the Court found that it was time to acknowledge the commercial aspect of a lease. In the right circumstances damages could be claimed even where the lease had ended and the property taken over or repossessed:

The developed case law has recognized three mutually exclusive courses that a landlord may take where a tenant is in fundamental breach of the lease or has repudiated it entirely, as was the case here. He may do nothing to alter the relationship of landlord and tenant, but simply insist on performance of the terms and sue for rent or damages on the footing that the lease remains in force. Second, he may elect to terminate the lease, retaining of course the right to sue for rent accrued due, or for damages to the date of termination for previous breaches of convenant. Third, he may advise the tenant that he proposes to re-let the property on the tenant’s account and enter into possession on that basis. Counsel for the appellant, in effect, suggests a fourth alternative, namely, that the landlord may elect to terminate the lease but with notice to the defaulting tenant that damages will be claimed on the footing of a present recovery of damages for losing the benefit of the lease over its unexpired term. One element of such damages would be, of course, the present value of the unpaid future rent for the unexpired period of the lease less the actual rental value of the premises for that period.

(Highway Properties Ltd. v. Kelly, Douglas and Co., supra at p. 570 repeated at 607190 Ontario Inc. v. First Consolidated Holdings Corp. [1992] O. J. No. 2074, 26 R.P.R. (2d) 298 at para. 8)

[9] The acceptance that a lease was a commercial contract comes with the understanding that a landlord can retake possession (retake the estate) and still, with proper notice, sue for damages. Highway Properties refers to mitigation. In that case the issue was whether notice to the tenant that the repossession of the property was undertaken with the intention of re-letting it was sufficient to protect the Landlord’s rights to assert a claim for damages. The notice given in that case was not sufficient for the purpose but the Court noted:

I agree that the letter is not sufficiently explicit to that end, but I would think that the recognition of such a modifying principle would suggest a readiness to imply that a re-letting was on the repudiating tenant’s behalf, thus protecting the landlord’s rights under the lease and at the same time mitigating the liability for unpaid rent. Some of the views expressed in Oastler v. Henderson point to a disposition to such an implication; and there is authority in the United States to that effect: see 11 Williston on Contracts, supra. I know that under the present case law the landlord is not under a duty of mitigation, but mitigation is in fact involved where there is a re-letting on the tenant’s account.

(Highway Properties Ltd. v. Kelly, Douglas and Co., supra at p. 572)

[10] A re-letting of the property subsequent to retaking possession may be to the benefit of the tenant and demonstrative of mitigation.

[11] In this case the Indemnity Agreement contains the following:

The indemnifier’s obligations will not be affected by any repossession of the Leased premises by the Landlord, except that if the Landlord re-lets the Leased Premises then the payments received by the Landlord (after deducting all costs and expenses of repossessing and re-letting the Leased Premises) will be credited by the Landlord against the Indemnifier’s obligations under this agreement.

[12] Taken on its own this does not demonstrate an obligation to mitigate. It suggests only that if the damage to the Landlord is mitigated by re-letting that benefit is to accrue to the tenant.

[13] The lease includes a provision requiring the tenant at the end of the term to remove all of the fixtures “including without limitation the squash courts” at its expense or to pay the Landlord its costs of doing so. The Landlord has removed the squash courts and returned the facility to a state where it can be leased for another purpose. The award made on the application includes those costs. This being the case the position of the Landlord is that having repossessed the property and having recovered the cost of returning it to a leasable state it is now able to re-lease the property to another tenant and at the same time collect the rent on the pre-existing lease from the Respondent. As noted above the intention of the Indemnification Agreement is to “indemnify and protect the Landlord for any losses or costs” incurred as a result of the Tenant’s failure to pay rent. There is nothing that suggests an intention that the Landlord is to gain from the default by being able to collect rent from two sources attributable to the same property. I return to the idea that is at the centre of the decision in Highway Properties: a lease is a commercial contract. In a commercial setting where a contract is breached there is an obligation to mitigate. In the circumstances of this Indemnity Agreement, where the Landlord is asserting a right to collect damages beyond the termination of the lease and beyond the repossession of the property (the return of the estate) it is appropriate and consistent with the Indemnity Agreement that the Landlord is obliged to mitigate. The Landlord cannot step away from the proposition that it seeks damages beyond the return of the estate. It has reduced the amount claimed for rent after the termination of the lease and the repossession of the property by the value of the rent it has received from new tenants. It has obtained an award of such damages being the cost of restoring the property. Those costs extended beyond the end of the lease:

Where the landlord terminates the lease, the landlord is obliged to mitigate its damages in accordance with the normal contract law principles: For example, in L.A. Furniture v 330061 Alta. Ltd., 1988 CanLII 3521 (AB KB), [1989] 1 W.W.R. 171 (Alta. Q.B.), the landlord did not make a reasonable effort to re-rent the premises, and it was awarded only nominal damages. See also Adanac Realty Ltd. v Humpty’s Egg Place Ltd. (1991), 1991 CanLII 5818 (AB KB), 15 R.P.R. (2d) 77 (Alta. Q.B.)

(7Marli Limited v Pet Valu Canada Inc., 2017 ONSC 1796 at para. 23)

[14] I point out that, generally, the onus of demonstrating a failure to mitigate rests with the defendant as the party that would have to pay the damage:

... If it is the defendant’s position that the plaintiff could reasonably have avoided some part of the loss claimed, it is for the defendant to carry the burden of that issue, subject to the defendant being content to allow the matter to be disposed of on the trial Judge’s assessment of the plaintiff’s evidence on avoidable consequences. [emphasis added] This is the way I read what is said on the matter in such leading text books on the subject as… Williston on Contracts (1968)... at pp. 30 and 312:

(Red Deer College v. Michaels, 1975 CanLII 15 (SCC), [1976] 2 S.C.R. 324 at para. 11 quoted in Bomhof v Eunoia Incorporated, 2013 CanLII 65859 (ON SC) at para. 23)

[15] In this case, in the absence of the Applicant having provided evidence that the loss of rent to the end of the term of the lease is unavoidable, it would be the Respondent that bears the onus of demonstrating that the Applicant could have avoided or avoid some part of the loss. There being no evidence other than the passage of time it is impossible for me to go further. It has been two years since the lease was terminated. That amount of time has been available to find another tenant. Some of the space has been leased why the rest has not or whether the efforts to do so sufficient would be a matter of conjecture.

[16] The order will not contain any reference to an award of the rent beyond June 12, 2017.

[17] In the absence of submissions but in the recognition that this was dealt with briefly and over the telephone it is not a matter for costs.

Lederer J.

Date: November 29, 2017```