Court File and Parties
COURT FILE NO.: CV-15-293 DATE: 20190405 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN: THE CORPORATION OF LOYALIST TOWNSHIP Applicant (respondent by counter-application) – and – THE FAIRFIELD-GUTZEIT SOCIETY Respondent (applicant by counter-application)
Counsel: David M. Adams, for the applicant (respondent by counter-application) Roberto D. Aburto and Jacob A. Polowin, for the respondent (applicant by counter-application)
HEARD at Kingston: 21 December 2018
MEW J.
Reasons for Decision
[1] The Village of Bath in Lennox & Addington County traces its origins back to its first European settlers, United Empire Loyalists, who settled there in 1784. It boasts a number of fine historic buildings, including the two properties which are the subject of this proceeding.
[2] Layer Cake Hall is a one-and-a-half-storey board and batten building, designed in the Carpenter's Gothic style and constructed in 1859.
[3] The Old Town Hall was completed in 1861 as a court house. It was designed in the Tuscan Portico style, patterned after Roman buildings that had civic or judicial functions. It is presently the home of the Bath Museum.
[4] On 11 December 1997, ownership of the properties was transferred from the Village of Bath, which at the time was a local authority, to The Fairfield-Gutzheit Society, for nominal consideration of two dollars each.
[5] These transactions were prompted by the then-pending amalgamation of the Village of Bath with two other local authorities to form Loyalist Township. Elected officials in Bath were concerned that they would have little influence in the new Township, and that it would not adequately protect Bath’s historical buildings.
[6] The Fairfield-Gutzeit Society had been established earlier in 1997 as a not-for-profit corporation, and the properties were transferred to the Society to ensure their preservation and protection.
[7] The Township has leased Layer Cake Hall from the Society since amalgamation on 1 January 1998. The Township began leasing Old Town Hall from the Society on 1 May 2009.
[8] The last agreed-upon lease terms have now expired, although the Township remains in possession. Unable to find alternative tenants, the Society listed the properties for sale. The Township claims that by doing so the Society breached the terms of a covenant which, it says, gives it a right of first refusal to repurchase the properties for two dollars each, a right which it has purported to exercise.
[9] The Society challenges both the validity and (if valid), the effect of the covenant and, hence, the Township’s exercise of its right of first refusal. It also alleges various breaches by the Township of its lease obligations and seeks orders that the Township vacate the premises.
[10] The properties have not been sold pending the outcome of this proceeding.
Issues
[11] The Township’s application seeks to enforce what it characterises as its right of first refusal. By counter-application, the Society seeks declarations that the covenant containing the so-called right of first refusal is invalid and unenforceable, and that the leases between the Society and the Township are terminated, and an order that the Township vacate the properties within 90 days.
[12] I would summarise the issues presented as follows:
a) Are the covenants (rights of first refusal) valid and enforceable? b) If the answer to (a) is “yes”, were the rights triggered by the actions of the Society when it listed the properties for sale? c) If the answer to (b) is “no”, did the Society nevertheless breach its good faith obligations of contractual performance? d) Is the Township in default, or has it otherwise breached its obligations under the leases of the property? e) What are the appropriate remedies arising from the determination of these issues?
The Covenants
[13] The agreements to transfer the properties from the Village of Bath to the Society contained what the Township describes as a right of first refusal in favour of the Township. The Society disputes this characterisation, maintaining that the provision is a restrictive covenant creating an interest in land which is null and void because
a) it does not meet the statutory requirements of a covenant under s. 19(4) of the Land Titles Act, R.S.O. 1990, c.L.5 and, accordingly, was not properly registered on title, may not be enforced and should now be deleted; and b) it is an option to purchase which violates the rules against perpetuities.
[14] It is necessary to go back to 1997 in order to put the parties’ dispute in a proper context.
[15] At that time, William Hineman was the Reeve of the Village. Under a plan of local government reorganisation that was due to come into effect on 1 January 1998, the Village would cease to exist as a local authority. Mr. Hineman’s evidence is that the Council of the Village was concerned that the new local authority, Loyalist Township, would not protect its historic buildings, and would, perhaps “sell them off” or “dispose of them into the public sector”.
[16] In 1997, there was already in existence a semi-independent committee in the Village known as the “Bath Bicentennial Committee”. According to Mr. Hineman, this semi-independent committee was incorporated as the Fairfield-Gutzeit Society on 28 August 1997. It is a registered charity administered by volunteers who manage and maintain certain heritage properties, including the subject properties, in the former Village of Bath.
[17] Mr. Hineman was a founding director of the Fairfield-Gutzeit Society although he has testified that he did not take an active role in the Society until after he was no longer Reeve.
[18] On 27 October 1997, evidently in anticipation of an agreement between the Village and the Society, the Village passed a by-law to authorise agreements to convey the Layer Cake Hall and the Old Town Hall to the Society. The wording of the resolution included this narrative:
WHEREAS the Corporation of the Village of Bath desires to convey to two distinctively historic buildings to the Fairfield Gutzeit Society;
AND WHEREAS an agreement has been established whereby in the event that the Fairfield Gutzeit Society is dissolved, the Village will have first option to have these buildings re-conveyed to it and this agreement is attached to and forms Schedule “A”.
[19] The agreement subsequently entered into on 31 October 1997 provides for title of the properties to be transferred from the Village to the Society. The Society acknowledges in the agreement that the properties and title are being transferred to it subject to certain terms and conditions including that:
…the Society may transfer the Properties…to an organization having objects similar to the Society’s on such terms as the Society is its sole discretion deems appropriate. In the event the Society wishes to dispose of its interest in either of the Properties, other than to an organization having similar objects, it shall give written notice of such intention to the Village, which notice shall include an offer to the Village to purchase the Property as a purchase price of Two Dollars ($2.00)…the Village shall have a period of sixty (60) days following receipt of notice to either accept or reject the offer. If the Village fails to accept the offer in writing within a period of sixty (60) days, it shall be deemed to have refused the offer, and the Society shall be free to dispose of the Property to the third party on such terms and conditions as the Society, in its sole discretion may determine. In the event that the Village notifies the Society of its acceptance of such offer within the period of sixty (60) days, following receipt of notice from the Society, transfer of the Society’s title to the Property or Properties shall be completed within a further period of sixty (60) days following acceptance of the offer by the Village.
[20] Following a public consultation, the Village declared the properties surplus on 24 November 1997 and passed a resolution which stated:
WHEREAS the Council of the Village of Bath is of the opinion that the historic properties known as the Old Town Hall and the Layer Cake Hall will be better served if kept within an organization dedicated to the preservation of the historical integrity of the Village of Bath;
WHEREAS the Fairfield Gutzeit Society has expressed its interest in obtaining and caring for both of these properties;
AND WHEREAS By-law 929/97 was approved at a Regular Meeting of the Council of the Corporation of the Village of Bath held October 27, 1997 to authorize the Reeve and Chief Administrative Officer to execute any and all documents for the conveyance of these properties from the Village of Bath to the Fairfield Gutzeit Society;
[21] The Village transferred the properties to the Society on 11 December 1997. “Schedule A” of the Transfer/Deed contain the following provisions:
In the event the Transferee wishes to dispose of its interest in the property other than to an organization having similar objects as the Transferee, the Transferee shall give written notice of such intention to the Transferor. This notice shall include an offer to sell the properly to the Transferor at a purchase price of two ($2.00) dollars, plus the assumption of any charge, mortgage or encumbrance then registered against title to the properly that was given with the consent of the Transferor as set out above.
The Transferor shall have a period of 60 days following receipt of notice to either accept or reject the offer. If the Transferor fails to accept the offer in writing within the period of 60 days, it shall be deemed to have refused the offer and the Transferee shall be free to dispose of the properly to a third party on such terms and conditions as the Transferee, in its sole discretion may determine. In the event the Transferor notifies the Transferee of its acceptance of such offer within the said period of 60 days, the transfer of the property to the Transferor shall be completed within a further period of 60 days following acceptance of the offer by the Transferor.
[22] Schedule A to the Transfer/Deed is described in the evidence of the Society as a restrictive covenant. It was signed by the chairman and secretary of the Society.
[23] When, on 27 March 2006, the properties were converted into the Land Titles system, the covenant was carried over and appears on the parcel register.
[24] The Township takes the position that the agreement between the Society and the Village to transfer the properties gives it valid and enforceable contractual rights of first refusal in the event that the Society wishes to dispose of one or both of the properties to anything other than an organisation having similar objects to its own.
[25] There is no dispute that, as the legal successor to the Village of Bath, the Township stands in the same position as the Village would have in terms of rights and obligations conferred by the agreement.
[26] The Society’s position is that the covenant never met the applicable legal requirements for a restrictive covenant, and was, therefore, invalid and unenforceable from the outset. The Society argues that the covenant does not identify the benefiting lands, seeks to impose a positive covenant, and seeks to restrict transfer or assignment rights as opposed to use.
[27] A concise summary of the distinction between options to purchase and rights of first refusal is provided by Laskin J.A. in 2123201 Ontario Inc. v. Israel Estate, 2016 ONCA 409, at para. 24:
… the jurisprudence establishes that options to purchase create immediate interests in land; rights of first refusal do not. Options to purchase are specifically enforceable; rights of first refusal are not. And options to purchase are subject to the rule against perpetuities; rights of first refusal are not. Finally … options to purchase give the option holder control over the decision to effect a conveyance. Rights of first refusal give the land owner control over the decision to convey. But … in some circumstances control over the exercise of the option is not determinative.
[28] In Israel Estate, the question posed by the Court of Appeal for determination was as follows:
A sells land to B. At the same time, A and B enter into an agreement that A can repurchase the land if a condition under B’s control is met. Does the agreement give A an interest in land, or only a personal contractual right?
[29] The situation in the present case is somewhat similar. A (the Village of Bath, now Loyalist Township) sold the properties to B (the Fairfield-Gutzeit Society). In Israel Estate, the land in question contained a gravel pit, and the purchasers bought the land to obtain the gravel but, contemporaneously with the conveyance, signed an agreement giving A the “first option to purchase” the land for $1.00 once the gravel had been removed from it. The agreement gave B the “discretion” and “authority” to state when all of the gravel had been removed.
[30] In the present case, the Society - B - has an unfettered ability to transfer the properties to a third party organisation having objects similar to the Society’s on such terms as the Society deems appropriate. It is only in the event that the Society “wishes to dispose” of its interest in either of the properties other than to an organisation having similar objects, that the Society is obliged to notify Loyalist, such notice to include an offer to Loyalist to purchase the property.
[31] It can be seen that the event triggering Loyalist’s ability to exercise what it describes as its right of first refusal is not within its control. Loyalist’s right only becomes exercisable in the event that the Society wishes to dispose of its interest in the properties other than to an organisation having similar objects to the Society.
[32] As was the situation in Israel Estate, the right given to Loyalist amounts to a “first option to purchase” the land, but it is a right that “does not fit precisely into either the definition of an option to purchase or a definition of a right of first refusal established in the jurisprudence”: Israel Estate, at para. 25. In such situations, it is appropriate to focus on what the parties intended by their agreement: Israel Estate, at para. 38.
[33] I would observe that the transfer of these hitherto two publicly owned properties by the Village of Bath to the Society was effected so that the properties would be preserved for the benefit of the community. It made sense, given the notional consideration received by the Village, that if the rationale for the transfer could no longer be assured, there would be an opportunity for the properties to revert to the Township (as successor to the Village). This was a provident condition of what might otherwise have been seen as an improvident transaction.
[34] In Israel Estate, the Court of Appeal determined that the purpose of the agreement, the context in which it was made, its terms, and the conduct of the parties under it, showed an intention to the give the original owner (“A”) an option to repurchase the land, which gave rise to an immediate, equitable interest in the land.
[35] A distinguishing feature between the present case and the circumstances in Israel Estate, is that, setting aside any issues relating to the rule against perpetuities, there was in that case an expectation that the option to repurchase would crystallise at some point. This would happen once the owner of the land (“B”) had removed the gravel. By contrast, the Township’s option to repurchase the properties would only arise in the event that the Society wished to dispose of its interest in the properties other than to an organisation having similar objects to the Society. It might never have happened at all.
[36] Looking at the nature of the transaction, the intention of the parties and all of the circumstances, I conclude that the Township’s option to repurchase the properties was not intended to, and did not, give rise to an immediate, equitable interest in the properties. The Township’s interest in the properties would not have prevented the sale by the Society to a similar organisation with similar purposes. Neither the agreement nor the schedule to the Transfer/Deed purported to impose rights that would attach to the land and, hence, to a party purchasing the properties from the Society.
[37] It follows logically from this analysis that had the Society sold either of the properties to a similar organisation with similar purposes, it would not have had to notify the Township and the purchaser would have obtained title unencumbered by any restrictive covenant.
[38] It would also follow that had the Society sold the properties to a bona fide purchaser without notice that was not an organisation with similar objectives, the Township would not be able to assert any interest in the properties.
[39] In the event that I am wrong about the characterisation of what is essentially an option to purchase, I make two observations.
[40] First, although the rule against perpetuities would apply if there was an otherwise valid covenant, the Township purported to exercise its option within 21 years of the Transfer/Deed transaction.
[41] The second observation relates to the transfer of the properties into Land Titles. Sections 119(3) and (4) of the Land Titles Act, R.S.O. 1990, c.L.5, provide as follows:
Registration of covenants, on application
(3) Upon the application of the owner of land that is being registered or of the registered owner of land, the land registrar may register as annexed to the land a covenant that the land or a specified part thereof is not to be built upon, or is to be or is not to be used in a particular manner, or any other covenant running with or capable of being legally annexed to land.
Idem
(4) A covenant shall not be registered under subsection (3) unless,
(a) the covenantor is the owner of the land to be burdened by the covenant; (b) the covenantee is a person other than the covenantor; (c) the covenantee owns land to be benefitted by the covenant and that land is mentioned in the covenant; and (d) the covenantor signs the application to assume the burden of the covenant.
[42] The Society argues that Schedule “A” to the Transfer/Deed of Land does not identify the land to be benefited (i.e. the dominant tenement) and, as such, the covenant should have been struck from title at the time of conversion into Land Titles.
[43] A not dissimilar scenario occurred in Mississippi Mills (Town) v. 1278502 Ontario Inc. (2006) 28 MPLR (4th) 102, 49 RPR (4th) 283 (Ont SCJ). There a municipality purported to exercise an option contained in a covenant to repurchase five parcels of land that had been sold to a developer. The covenant provided that the grantee would commence construction of one or more buildings on the properties within one year of the date of the closing of the purchase of the lands and to substantially complete the construction within one year of the date of issuance of a building permit. Failing which, the covenant provided that the grantor (the Municipality) had the right to repurchase the lands at the original purchase price. When the municipality purported to exercise this right, both the purchasers of the land and a mortgagee of three of the five properties objected. Pedlar J. held that covenants that had been registered did not comply with s. 119(4) of the Land Titles Act. In particular, the covenants did not describe the land to be benefited and the covenantee and the covenantor were the same entity.
[44] Notably, one of the submissions that was made to Pedlar J. was that the covenants must be enforceable either in contract or in equity, and as there was no privity of contract (the covenant being the product of a by-law rather than an agreement), the enforcement, or otherwise, of the covenants must be a matter of equity.
[45] In the present case, while I would agree that the covenant annexed to the Transfer/Deed of Land was not registerable under the Land Titles system, it nevertheless remains enforceable by the Township, given its privity of contract with the Society.
Was the Township’s Option Triggered?
[46] The Township’s right which I would describe as an option to purchase, turns on the following words:
In the event that the Transferee [the Society] wishes to dispose of its interest in the property other than to an organisation having similar objects as the Transferee, the Transferee shall give written notice of such intention to the Transferor [the Township]. This notice shall include an offer to sell the property to the Transferor at a purchase price of two ($2.00) dollars.
[47] In May 2015, the Society listed the subject properties for sale to the general public on the multiple listing service (MLS) through Smith & Hineman, a firm of real estate agents (the Hineman of Smith & Hineman is the same Mr. William Hineman who was the Reeve of the Village of Bath and a founding director of the Society).
[48] The listing for Layer Cake Hall stated that the Society was seeking $279,000 for it and specified that this was a “first time offering to the public… Attached lot has possibility of severance”.
[49] The listing for Old Town Hall stated that the Society was seeking $229,000 for the property, and provided that the building “is being offered to the public for the first time in over 150 years”.
[50] Neither listing made mention of the buyer having to be an organisation having similar objects as the Society.
[51] The Township argues that by listing the properties for sale, the Society was trying to do with the properties exactly what the Village of Bath had worried the new Township might do: “sell them off” or “dispose of them into the public sector”.
[52] The parties dispute whether the listing of the properties by the Society amounted to a “wish to dispose” which would trigger the Township’s option to repurchase.
[53] The Society’s position is that regardless of how the option contained in the agreement or covenant is characterised, the option was not, in fact, triggered. The Society never received an offer for sale. It argues that a mere listing for sale, absent some other step, such as the receipt of an offer or the transfer of the assets, would not trigger an option.
[54] The Township, by contrast, relies on this court’s decision in St. Andrew Goldfields Ltd. v. Teddy Bear Valley Mines Ltd., 2014 ONSC 1843 to support its assertion that by listing the properties for sale to the public and not providing notice to the Township, the Society evinced a wish to sell the properties to the public.
[55] In the St. Andrew Goldfields case, contracts concerning the entitlement to mining royalties provided that if a party “wishes or seeks to transfer directly or indirectly” all or a portion of royalties to which it may have become entitled, the other participating parties would be entitled to a right of first refusal. An issue arose as to whether, when the party with the entitlement to royalties was dissolved, and its royalty interests were subsequently assigned to its largest shareholder, the rights of first refusal contained in the agreements were triggered. The court rejected an argument that the right of first refusal would only be triggered upon receipt of an offer from a third party to purchase the royalties that it was willing to accept, conditions which were never met since the dissolution did not result in an offer being made with respect to the royalties. McEwen J. stated, at para. 22:
… based on the wording of the Agreements, it was not when an offer to purchase was made, but rather when Teddy Bear sought to dispose of the royalties, that the obligation to provide SAS with a right of first refusal under both Agreements was triggered. Interpreting the clauses otherwise would artificially avoid the parties' intentions, as derived from the Agreements' wording.
[56] The Township further notes that the Concise Canadian Oxford Dictionary (2005) defines the verb “wish” in part, as: “have a desire or aspiration (esp. something that cannot or is unlikely to occur)” or “have as an intention or hope”.
[57] The Society, relying on the Court of Appeal’s decisions in Harris v. McNeely (2000), 47 OR (3d) 161 and Benzie v. Kunin, 2012 ONCA 766 argues that a grantee’s right of first refusal is only converted into an option to purchase when the grantor of the right receives an offer to purchase the grantor’s interest which the grantor is prepared to accept.
[58] In Harris v. McNeely, the parties had entered into a right-of-way agreement which contained a mutual right of first refusal by each over the lands of the other in the event that “one wishes to sell their property and has received an offer which they are willing to accept” [emphasis added]. Benzie involved a right of first refusal that would be triggered if a party “shall desire to sell” the subject property. But the case did not consider when that right was triggered but, rather, whether the right of first refusal would bind non-parties and be registrable under the Land Titles Act.
[59] In St. Andrew Goldfields Ltd. v. Teddy Bear Valley Mines Ltd., McEwen J. concluded that the construction that promoted the true intent of the parties in what he described as “the broadly worded Agreements” is that the party entitled to receive royalties could not divest itself of those royalties without giving the other party the right of first refusal.
[60] When one considers that the rationale for the original transfer of the properties from the Village of Bath to the Society was to protect its historic buildings and prevent them from being sold off or disposed of other than to an organisation with similar objectives to the Society’s, the most reasonable interpretation of the agreement between the Village and the Society is that if the Society were to subsequently wish to dispose of the properties other than to an organisation having similar objects to its own, the Township would have a right to re-acquire the properties. The by-law passed by the Village on 27 October 1997 reinforces this:
In the event that the … Society is dissolved, the Village will have first option to have these buildings re-conveyed to it…
[61] There is no basis to read into a straightforward agreement that evinces the intentions of the parties at the time the agreement was entered into what would amount to a condition precedent that the Township’s rights would only be triggered in the event of receipt of an offer to purchase the properties that the Society is prepared to accept.
[62] The question, then, is whether listing the properties on MLS was sufficient to evince a wish or intent on the part of the Society to dispose of the properties.
[63] An affidavit sworn by Mr. Hineman sets out, from his and the Society’s perspective, negotiations that were taking place between the Township and the Society concerning the renewal of the Township’s leases on the properties and the Society’s efforts to find new tenants who would lease the properties on more commercially viable terms. Mr. Hineman states that when the Society was unable to find a suitable tenant, it decided to list the properties for sale at the end of May 2015. His business partner, Gary Smith, listed the properties for sale and Mr. Hineman says that Mr. Smith was “actively seeking a purchaser or organisation having similar objects as the Society”.
[64] Mr. Hineman continues, at paragraph 51 of his affidavit sworn on 29 April 2016:
Listing properties for sale is a method of testing the market for properties. At no time did the Society ‘intend to dispose of its interests in the property other than to an organization having similar objects as the Society’.
[65] A minute of a 24 June 2015 Board meeting of the Society provides further context. It notes that the Society decided to “push” the lease issues with the Township “by offering the buildings for sale”. Upon receipt by a letter from the Township’s lawyers stating that the Society could not sell the buildings due to the “covenant” and threatening legal action, the Society instructed the real estate agent to remove the two properties from the “Active for Sale” market and to put them on the “Active for Lease” market.
[66] The difficulty with Mr. Hineman’s evidence that it was never the intention of the Society to sell the properties, other than to a similar organisation, is that the listing states that the properties are “being offered to the public”. The listing for Layer Cake Hall also notes the possibility of a severance. This is at odds with his evidence.
[67] If listing the properties for sale to the public was a ploy to get the Township to adopt a more reasonable (from the Society’s perspective) attitude towards the lease renewal discussions, it failed to achieve that objective.
[68] Regardless of the reason for listing the properties for sale, I find that the listing of the properties for sale on MLS is evidence of the Society’s wish, at that time, to dispose of its interest in the properties. The agreement of 31 October 1997 provided that in the event that the Society wished to dispose of its interest in the properties (other than to an organisation having similar objects), it was required to give notice of such intention to the Township. No such notice was given. As a result, I find that the Society breached its agreement with the Township.
[69] The Society agrees that if the Township’s option to repurchase is enforceable and if it was triggered, the appropriate remedy is specific performance. However, it argues that in its eagerness to re-acquire the properties, the Township “jumped the gun”. In that regard, the Society points to clause 5 of the 31 October 1997 agreement between the Society and the Village which provides:
In the event of a breach of any term or condition of this Agreement by either or both parties hereto, the parties hereto agree to negotiate for a reasonable period of time in good faith to attempt to remedy the breach in a manner mutually satisfactory to the parties hereto before exercising their strict legal rights by action or otherwise.
[70] In seeking to force the transfer of the properties just three days after the Township became aware that the properties had been listed, the Society argues that the Township has failed to comply with clause 5 of the agreement.
[71] It may well be that the Township viewed the listing of the properties on the MLS “to the public” as an opportunity to exercise its option to repurchase. Such an opportunistic move, if that is what it was, was nevertheless a consequence of the Society’s breach of its obligation to provide the Township with notice of its wish to dispose of the properties to the public.
[72] After the Township notified the Society of its position that the Society was required to offer the properties to the Township for repurchase, there were exchanges of lawyers’ correspondence. But the Township started its application on 26 June 2015 without any meaningful negotiations having taken place.
[73] The Township’s argues, in relation to clause 5 of the agreement, that good faith negotiation was not required in view of the conduct of the Society, which amounted to repudiation, misrepresentation and/or bad faith conduct.
[74] I do not agree.
[75] Rather, in my view, the spirit, if not the letter, of clause 5 of the 31 October 1997 agreement was not adhered to by either party.
[76] However, clause 5 is in any event essentially aspirational. It is not cast in the language of a condition precedent to the right of either party to exercise their strict legal rights by action or otherwise.
[77] I find that the Township’s rights were triggered by the actions of the Society when it listed the properties for sale. It is entitled to seek a remedy from this court as a result of the Society’s failure to provide it with the required notice.
[78] Given my finding on the triggering of the option to purchase, it is not necessary for me to consider whether the Society otherwise breached its good faith obligations of contractual performance.
Is the Township in default or has it otherwise breached its obligations under the leases of the property?
[79] The Society points to what it alleges to be numerous breaches of the leases and acts of default.
[80] The leases on each of the properties expired on 31 August 2014.
[81] Prior to the expiry of the leases, the Township did not provide notice of its intention to renew the leases as required by the notice provisions contained in the leases.
[82] On 21 August 2014, however, the Township purported to notify the Society via email that the Council had passed a resolution to extend the current leases of the Layer Cake Hall and the Old Town Hall to 31 December 2014. Mr. Hineman describes this as a unilateral extension of the leases.
[83] The Township did not vacate at the end of 2014 and stayed on despite the expired leases. It was in this context that, in May 2015, with the Township “overholding” (as Mr. Hineman put it) and the Society unable to locate a new suitable tenant, that the properties were listed for sale on MLS.
[84] On 30 July 2016, in order to facilitate negotiations, the parties consented to an order of Tranmer J. which (according to Mr. Hineman) was intended to preserve the status quo for a short time. That order remains in place pending further order of this court.
[85] The Society asserts, and one of the Township’s representatives who was cross-examined (Robert Maddocks) appears to have conceded, that the Township has committed numerous breaches of the leases including:
a) Failing to deliver a notice to extend its leases prior to 1 May 2014; b) Failing to perform maintenance of the properties as would a prudent owner; c) Failing to surrender the premises upon expiry of the term of the leases; d) Overloading the second floor of the Old Town Hall; and e) Leaving the Old Town Hall vacant and/or not open for business for more than 30 days in any twelve month period.
[86] In addition, the Society alleges that the Township has repeatedly paid rent late.
[87] The parties agree that in the event that I find that the Township is in breach of its lease obligations, with the result that it is ordered to vacate the properties, the Order of Tranmer J. dated 30 July 2015 should be vacated 90 days following my decision.
[88] Regardless of what breaches of the leases may have occurred in the past, the fact is that the leases expired in 2014 (either at the end of August or at the end of December). The Society commenced a counter-application seeking vacant possession of the properties, following which the consent order of Tranmer J. was entered into.
[89] The Township has overstayed. There can be no doubt about that. It was obliged to vacate the premises at the end of the lease and did not. Accordingly, the Township is in breach. This may, however, be of limited consequence given my determination of the option to purchase issue.
Remedies
[90] The Township’s option to purchase the properties for two dollars ($2.00) each has, for the reasons given by me, been triggered.
[91] The Township is entitled to specific performance of the agreement of 31 October 1997. Specifically, the Township was, prior to the Society listing the properties for sale on MLS, entitled to receive a notice including an offer to the Township to purchase the properties at a purchase price of two dollars ($2.00) each.
[92] The parties have agreed that in the event of such a determination by the court, if the Township is unable to immediately purchase the properties for two dollars ($2.00) each, the Township must vacate the properties within 90 days following the release of this decision.
[93] The parties are not, of course, precluded from negotiating new lease terms in the event that the Township elects not to purchase the properties. But they agree that in any event, the order of Tranmer J. dated 30 July 2015 shall be vacated in 90 days following the release of this decision.
Final Comments
[94] I was greatly assisted by the five volume joint application record. I would encourage similar cooperation and collaboration between the parties to be deployed in an effort to agree on the appropriate disposition of costs.
[95] It was clear to me as I reviewed the material and listened to the arguments of counsel that both parties are concerned to preserve these historic buildings. While the Society will be no doubt disappointed at the outcome of this proceeding, I am confident that if the properties revert to the ownership of the local authority, the Society and other people in the community will be vigilant to ensure the preservation and continued benefit to the community of these buildings.
[96] If the parties are unable to agree on costs, I direct as follows. If either of the parties seek costs, they should serve a bill of costs on the opposite party, accompanied by a written submission of not more than four pages in length, within fourteen days of the release of these reasons; any party against which costs is sought may, within fourteen days of receiving the submission of the party seeking costs, serve a written submission in response, again not to exceed four pages in length; if a party is not seeking costs, it is invited to (at its option) submit the bill of costs it would have presented to the court if it was seeking costs.
[97] I would ask counsel for the Township to collect copies of all of the parties’ submissions and arrange to have the package delivered to me at the Court House, 5 Court Street, Kingston, Ontario, K7L 2N4 as soon as the final exchange of materials has been completed. For the avoidance of doubt, no material should be filed individually; rather, counsel for the Township should assemble a single package for delivery as described above.
[98] I can be spoken to if there are any issues regarding the implementation of this decision or the wording of the formal judgment.
Graeme Mew J.