A. INTRODUCTION

[1] Pursuant to a lease dated August 1, 2012, the Plaintiff, 1127776 Ontario Limited (“the Landlord”) leased premises at 301-909 Queen Street East, Toronto, Ontario for a term expiring July 31, 2015. The tenant, Deciem Inc. vacated the premises, but the Landlord claims: (1) outstanding Additional Rent; and (2) damages caused by the removal of Deciem’s trade fixtures, the removal of fixtures, and the failure to leave the premises in a state of good repair.

[2] Deciem brings a motion for summary judgment to have the Landlord’s action dismissed and for repayment of its security deposit.

[3] For the reasons that follow, I grant Deciem a summary judgment of $10,163.32 plus interest in accordance with the Courts of Justice Act, R.S.O. 1990, c. C.34, to be agreed to or settled by me as part of the written costs submissions.

[4] I note at the outset that the case is appropriate for a summary judgment. Deciem relied on the affidavit evidence of Shamin Mohamed Jr., its Director of Operations, who was cross-examined, and the Landlord relied on the affidavit evidence of Oliver Griffel, the Landlord’s President, who was cross-examined. Both parties are to be taken as having put their best evidentiary foot forward. While there are contested issues, the main point that was argued was a matter of contractual interpretation for which I had ample evidence of the surrounding circumstances (the contractual nexus) and ample evidence of how the parties performed their obligations. There is no reason to think that a summary judgment motion would be unfair or not in the interests of justice.

B. FACTUAL BACKGROUND AND ANALYSIS

1. The Claim for Additional Rent

(a) Factual Background

[5] The first issue to determine is the Landlord’s claim for Additional Rent. I say at the outset that, in any event, Deciem is entitled to a return of its security deposit in the amount of $17,750.01, which it paid at the start of the lease.

[6] The factual background to the Landlord’s claim for Additional Rent is as follows.

[7] Oliver Griffel, the President of the Landlord and Brandon Truaxe, the President of Deciem, negotiated an offer to lease that was followed by a formal lease.

[8] On August 12, 2012, Deciem signed a three-year commercial lease with the Landlord to rent unit 311 at 909 Queen Street East, Toronto. The term of the lease commenced on August 1, 2012 and expired on July 31, 2015.

[9] Under sections 2(1) of the lease, Deciem agreed to pay a minimum rent of $50,000 for 2012-2013, $52,000 for 2013-2014, and $54,000 for 2014-2015. These sums were paid.

[10] Under sections 2(2) and (3) of the lease, Deciem agreed to pay “Additional Rent” as follows:

(2) The Tenant further covenants to pay all other sums required by this Lease to be paid by him and agrees that all amounts payable by the tenant to the Landlord or any other party pursuant to the provisions of this lease shall be deemed to be additional rent (hereinafter referred to as “Additional Rent”) whether or not specifically designated as such in this Lease.

(3) The Landlord and the Tenant agree that it is the mutual intention that this Lease shall be a completely carefree net lease for the Landlord and that the Landlord shall not, during the Term of this Lease, be required to make any payments in respect of the Premises other than charges of a kind personal to the Landlord (such as income, capital and/or estate taxes and mortgage payments) or as specifically provided herein.

(a) The Tenant covenants and agrees, as Additional Rent to promptly pay all utilities charges for water, sewer/storm, cable, gas, electricity, ….

(i) its proportionate share of the Landlord’s total cost of operating expense insuring, maintaining and managing the Building;

(ii) its proportionate share of all real property taxes, rates, duties and assessments including such portion of real property taxes formally known as business taxes; and …

Prior to the commencement of each lease year, the Landlord shall notify the Tenant of its reasonable and bona fide estimate of Additional Rent for that lease year. The Tenant shall pay such estimated amount in equally monthly instalments in advance on the same dates stipulated for payment of rent in Section 2. From time to time during a lease year the Landlord may, acting reasonably, re-estimate the amount of the Additional Rent and shall fix monthly installments for the remaining balance of the lease year so that the Landlord’s estimate, original or revised, of Additional Rent will have been entirely paid during that lease year. The Landlord shall provide the Tenant with a statement of the Additional Rent for the relevant lease year within 180 days of the Landlord’s financial year end. The Landlord and Tenant shall expeditiously make any necessary adjustments to payment; provided that the Tenant may not claim a re-adjustment based solely upon any error of estimation, determination or calculation unless claimed in writing within six months after the lease year to which the claim relates. The Landlord estimates that Additional Rent for the calendar year 2011 is at $5.00 per square foot.

[11] It is important to note that under the lease, Deciem was obliged to pay monthly and in advance estimated Additional Rent charges. Deciem made the required payments of Additional Rent.

[12] It is equally important to note that the Landlord did not take the opportunity provided to it under the lease to “re-estimate the amount of the Additional Rent and shall fix monthly installments for the remaining balance of the lease year so that the Landlord’s estimate, original or revised, of Additional Rent will have been entirely paid during that lease year.”

[13] On July 14, 2015, the Landlord sent Deciem a letter demanding $21,317.14 in outstanding Additional Rent with respect to realty taxes, operating expenses, and utilities costs. The demand was for $2,555.73 for 2012, $7,599.06 for 2013, and $11,162.35 for 2014.

[14] Deciem responded that it was not obliged to pay because the Landlord had not complied with the Additional Rent notice requirements of the lease.

[15] On July 29, 2016, the Landlord sent a further letter demanding the payment of Additional Rent of $7,587.19 for 2015.

(b) Discussion and Analysis

[16] With this factual background, I may now turn to analyzing the Landlord’s claim for Additional Rent.

[17] There is no dispute that but for the operation of the notice requirements under the lease that the Landlord has a claim of $28,904.33 for Additional Rent. Whether Deciem is liable for this outstanding Additional Rent is a matter of contractual interpretation. To be more precise, the interpretative issue is what is the operative significance of the provision in section 2(3) of the lease that “the Landlord shall provide the Tenant with a statement of the Additional Rent for the relevant lease year within 180 days of the Landlord’s financial year end.”

[18] Contractual interpretation is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 50. The goal of contractual interpretation is to determine the intent of the parties and the scope of their understanding giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract: Sattva Capital Corp. v. Creston Moly Corp., supra, at para. 47.

[19] The rules of contract interpretation direct a court to search for an interpretation from the whole of the contract that advances the intent of the parties at the time they signed the agreement: Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888; Unique Broadband Systems Inc. (Re), 2014 ONCA 538 at paras. 83-90. Provisions should not be read in isolation but in harmony with the agreement as a whole: McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada, 1981 CanLII 53 (SCC), [1981] 2 S.C.R. 6; Hillis Oil and Sales Limited v. Wynn's Canada, 1986 CanLII 44 (SCC), [1986] 1 S.C.R. 57.

[20] As a matter of contractual interpretation, Deciem makes what I will describe as a minor and a major interpretative point.

[21] The minor point, is that Deciem submits that the reference in the Additional Rent provision to “landlord’s financial year end” should be read as a reference to the calendar year end. This minor interpretative point affects only the July 29, 2016 demand for payment of $7,587.19 for 2015 which is not within 180 days of the calendar year end but is within 180 days of the Landlord’s year end, which was March 31. Deciem says that Landlord’s financial year end should be interpreted as the calendar year end because otherwise there are anomalous results to the operation of the Additional Rent provision.

[22] The Landlord’s position is that “Landlord’s financial year end,” which has a clear and unambiguous meaning, is what the lease says, and the lease should be interpreted in accordance with its plain meaning. I agree. It follows that subject to its setoff for the security deposit, Deciem owes the Landlord $7,587.19 for 2015’s Additional Rent.

[23] The major interpretative point submitted by Deciem applies to the Landlord’s outstanding Additional Rent claims for 2012, 2013, and 2014, all of which claims are more than 180 days after the Landlord’s year end. Deciem submits that it is not liable for the outstanding Additional Rent because the Landlord’s demands were made late.

[24] I agree with Deciem’s argument. The lease provides that the Landlord “shall provide the Tenant with a statement of the Additional Rent.” From a legal perspective, the verb “shall” denotes an obligation and a mandatory contractual obligation. Obliging the Landlord to provide a statement of the Additional Rent gives the Additional Rent provision business efficacy and allows the Landlord to obtain top-up payments if its estimates of the monthly payments were low and allows the tenant Deciem to obtain refunds if the estimates were high.

[25] The Landlord’s counterargument is that the predominant intent of the parties is found in the statement in the Additional Rent provision, which was carried forward from the Offer to Lease, that:

The Landlord and the Tenant agree that it is the mutual intention that this Lease shall be a completely carefree net lease for the Landlord and that the Landlord shall not, during the term of this lease, be required to make any payments in respect of the Premises other than charges of a kind personal to the Landlord (such as income, capital and/or estate taxes and mortgage payments) or as specifically provided herein.

[26] Further, the Landlord relied on the provision in the Offer to Lease and a complimentary provision in the Lease that stated:

In the event that there are any inconsistencies between the terms contained in the said Lease and the terms hereof, this Agreement shall take precedence.

[27] The Landlord further relies on paragraph 22 of the Lease, which stated:

Any condoning, excusing or overlooking by the Lessor or Lessee of any default, breach or non-observance by the Lessee or Lessor at any time or times in respect of any covenant, provisio or condition herein contained, shall not operate as a waiver of the Lessor’s or Lessee’s rights hereunder in respect of any subsequent default, breach or non-observance nor so as to defeat or affect in any way the rights of the Lessor or Lessee hereunder in respect of any subsequent default, breach or non-observance.

[28] The Landlord submitted that Deciem’s interpretation of the lease is inconsistent with the predominant intent of the parties and, therefore, the Additional Rent should be paid notwithstanding that the Landlord did not exercise its right to re-estimate the monthly in- advance-Additional Rent payments and notwithstanding that it did not give notice of its claims for Additional Rent within 180 days of its financial year end.

[29] On the major interpretative point, I agree with Deciem’s submission and I disagree with the Landlord’s submission, which gives no meaning or effect to the notice provisions in the lease, which prescribed a payment scheme and schedule that was fair and had advantages for both parties in managing their businesses and financial affairs. The parties bargained for this regime and its meaning is plain. I see no inconsistency and no unfairness to the Landlord, who could and ought to have done in 2012, 2013, and 2014 what it did in 2015, which was make a demand for Additional Rent within 180 days of its financial year end.

[30] Paragraph 22 of the lease is not applicable. Deciem did not condone, excuse, or overlook, the Landlord’s obligation to give notice of outstanding Additional Rent.

[31] I, thus, conclude that subject to setoff, Deciem owes the Landlord $7,587.19 for 2015’s Additional Rent.

2. The Repair Claim

[32] Turning now to what I shall describe as the repair claim, I begin by saying that the Landlord submitted that it was delayed in re-renting the premises because it was left in a state of disrepair. I shall conclude below that the premises was not left in a state of disrepair and this disposes of the Landlord’s claim for delayed rent. However, I add that had the premises been left in disrepair, there was no evidence to support the Landlord’s claim for lost rent for which the Landlord claimed between approximately $27,000 and $71,500 apart from Mr. Griffel’s self-serving and unsubstantiated view that it was entitled to make this claim.

[33] The background facts to the repair claim are as follows.

[34] The lease began in August 2012 and Deciem took possession.

[35] In October 2014, Deciem sublet the premises to TalentEgg, with the consent of the Landlord and Deciem vacated the premises but continued to pay rent.

[36] The sublease expired in June, 2015, and prior to the end of the term of the lease, Deciem hired contractors to clean, paint and repair the premises. It provided invoices with respect to this work totaling $4,821.56.

[37] On July 31, 2015, Deciem commenced a Small Claims action for a return of its Security Deposit. The Landlord counterclaimed for damages to the premises. The counterclaim exceeded the monetary value of the Small Claims Court, and on April 22, 2016, the Landlord commenced this action in the Superior Court, claiming Additional Rent and $200,000 in damages.

[38] On September 12, 2016, Deciem brought a motion for summary judgment.

[39] In the run up to the summary judgment motion, the Landlord produced invoices with respect to its repair claim. There were five invoices totaling $14,129.

[40] During his cross examination, Mr. Griffel admitted that the invoices included repair work on other premises but did not provide an allocation for the expenses incurred just for the leased premises.

[41] Three of the five invoices are dated after March 1, 2016, which is when the Landlord re-leased the premises. Deciem asks me to draw the inference that these invoices were incurred not to make repairs but were made as leasehold improvements for the new tenant. This is a reasonable inference, and I make it in the immediate case, especially because Deciem produced its own invoices for the expenses it incurred after its subtenant left the premises to restore the premises and because Mr. Mohamed Jr. deposed that the premises were left in good repair after being restored by Deciem before its departure.

[42] On the balance of probabilities, the Landlord did not prove that the premises were left in a state of disrepair or that the Landlord’s work on the premises was other than improvements for the new tenant.

C. CONCLUSION

[43] For the above reasons, I grant Deciem a summary judgment of $10,163.32 (the $17,750.51 security deposit less the Additional Rent of $7,587.19) plus interest in accordance with the Courts of Justice Act.

[44] If the parties cannot agree about costs or about the claim for interest, they may make submissions in writing beginning with Deciem’s submissions within 20 days of the release of these Reasons for Decision to be followed by the Landlord’s submissions within a further 20 days.

Perell, J.

Released: February 3, 2017

CITATION: 1127776 Ontario Limited v. Deciem Inc., 2017 ONSC 862

COURT FILE NO.: CV-16-551496

DATE: 20170203

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

1127776 ONTARIO LIMITED

Plaintiff

– and –

DECIEM INC.

Defendant

REASONS FOR DECISION

PERELL J.

Released: February 3, 2017

1127776 Ontario Limited v. Deciem Inc., 2017 ONSC 862

Case Summary

A. INTRODUCTION

B. FACTUAL BACKGROUND AND ANALYSIS

1. The Claim for Additional Rent

(a) Factual Background

(b) Discussion and Analysis

2. The Repair Claim

C. CONCLUSION

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Financial Outcomes

Issues

Statutory Provisions 1

Legal Tests 1

Legislation 1