COURT FILE NO.: 58669/19 (St. Catharines) DATE: 20190501

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

BEANTRENDS INC. O/A THE BEACH SPORTS BAR & GRILL Applicant – and – 1658277 ONTARIO LTD. Respondent

Counsel: Gordon McGuire, for the Applicant Brent K. Harasym, for the Respondent

HEARD: March 26, 2019

R. A. Lococo J.

REASONS FOR JUDGMENT

I. Introduction

[1] This application involves the interpretation of a commercial lease, following a fire. The landlord and the tenant each say that the other is responsible for repair of the fire and water damage to the leased premises. For the reasons that follow, I have decided that the landlord is required to repair the damage.

[2] The Applicant Beantrends Inc. operated a bar and restaurant in leased premises in a St. Catharines shopping plaza. The Respondent 1658277 Ontario Ltd. is the landlord and building owner (referred to as the “Landlord” in the lease and these Reasons). On September 3, 2018, unknown persons broke into the bar. Among other things, they lit two fires in the kitchen area (using an accelerant) and severed a natural gas line. The building’s sprinkler system put out the fire, averting an explosion or further fire damage.

[3] The leased premises were damaged as a result of the fire, including fire and water damage in the kitchen, and water damage in an adjacent pool room and an office. The required repairs included the removal of sections of drywall from the walls and ceiling, and the removal of laminate flooring in the pool room and the office.

[4] Beantrends says that the lease requires the Landlord to repair the damage to the walls, ceilings and flooring, and to abate the rent until the damage is remediated. Beantrends seeks a declaration to that effect. It relies on a lease provision that applies if the damage to the “Demised Premises” is such that the premises are “not fit for occupancy or impossible or unsafe to use or occupy” (article 9.03).

[5] The Landlord denies that it is obligated to repair the damage or abate the rent, on several bases. The Landlord says that the damage was minor and did not render the premises unfit for occupancy or unsafe to use or occupy. It also argues that to the extent it was required to make any repairs, it did so within a few days of the fire by (among other things) venting the premises, cleaning accelerant from affected areas and restoring the sprinkler system, limiting any rent abatement to that period. According to the Landlord, any further repairs were Beantrends’ responsibility. The Landlord also relies on an exclusion from the definition of “Demised Premises” that applies to “Tenants trade fixtures and equipment” (article 5.07). As well, the Landlord argues that Beantrends’ conduct after the fire supports the Landlord’s interpretation of the lease, also relying on the principle of estoppel by convention. After the fire, Beantrends itself undertook repairs and only later asserted it was the Landlord’s responsibility to do so. According to the Landlord, it would be unjust for Beantrends to resile from its earlier position.

[6] The issues to be determined are as follows:

1. Unfit or unsafe premises: Following the fire, were the leased premises “not fit for occupancy” or “unsafe to use or occupy”, thereby triggering article 9.03 of the lease?
2. Obligation to repair damage/abate rent: If so, does article 9.03 require the Landlord to repair the walls, ceilings and flooring impacted by the fire, and to abate the rent until it does so?

[7] In the balance of these Reasons, I will first set out further information about the parties and events involved in this litigation, including the relevant terms of the lease. I will then address the issues outlined above.

II. Factual background

A. Lease terms

[8] Since 2010, Beantrends has operated a bar and restaurant known as the Beach Bar & Grill in leased premises in a shopping plaza in St. Catharines. By agreement dated July 29, 2010, the Landlord leased those premises to Beantrends for a five year term. The leased premises (referred to in the lease as the “Demised Premises”) consists of approximately 5,102 square feet, forming part of the Landlord’s “Building” as shown on a schedule to the lease. Cathy Benevides (the principal of Beantrends) is also a party to the lease, covenanting to perform Beantrends’ lease obligations. By Extension of Lease dated September 1, 2015, the lease was extended for a further five years, ending August 31, 2020.

[9] Under Article III of the lease, Beantrends is required to pay rent on a monthly basis, including “Additional Rent” consisting of its proportionate share of certain expenses set out in a schedule to the lease. Beantrends is also responsible for paying utility charges for the leased premises. It is common ground that Beantrends last paid rent for the leased premises in September 2018, and did not pay utility charges after the fire. As noted further below, the Landlord paid the arrears of utilities in December 2018 at the time it took action to terminate the lease.

[10] Under Article V of the lease entitled “Maintenance and Repair”, Beantrends is required, among other things, to keep the Demised Premises (including all fixtures and equipment) in good repair, reasonable wear and tear excepted (article 5.01), and to maintain in good repair all services and equipment (article 5.02). Under article 5.07, the Demised Premises includes “all improvements, alterations, changes, repairs to, and remodeling of, the Demised Premises save and except for Tenants trade fixtures and equipment ” (emphasis added).

[11] The declaration that Beantrends seeks in this application relates to article 9.03 of the lease, contained in Article IX, entitled “Damage and Destruction”. Article IX addresses the respective responsibilities of the parties if the “Building” or the “Demised Premises” are damaged or destroyed. For context, article 9.01 addresses the consequences for the parties if the Building is “damaged or destroyed ” rendering a substantial part of the Building “ wholly unfit for occupancy or impossible or unsafe to use or occupy” (emphasis added). Article 9.02 addresses the situation in which the Demised Premises are “damaged or destroyed ” rendering the Demised Premises “ wholly unfit for occupancy or impossible or unsafe for use or occupancy” (emphasis added).

[12] With that context, article 9.03 provides as follows:

9.03 If the damage to the Demised Premises be such that the Demised Premises are not fit for occupancy or impossible or unsafe to use or occupy, and in the reasonable opinion of the Landlord…, such damage can be repaired with reasonable diligence within one hundred and twenty (120) days from the happening of such damage, then the Landlord shall repair the damage with all reasonable speed and the Lease shall be in full force and effect, except that rent shall abate from the date of the happening of such damage until the damage shall be remedied so that the Tenant may use and occupy the Demised Premises and carry on its business therefrom.

B. The fire and resulting damage

[13] On September 3, 2018, unknown persons broke into the bar. Among other things, they lit two fires in the kitchen area (using an accelerant) and severed the natural gas line to the water heater. An accelerant was also spread on the wall in an adjacent office and the bar area. The building’s sprinkler system put out the fire, averting an explosion or further fire damage.

[14] Representatives of both parties and their insurers and contractors were in the premises shortly after the fire, some of whom provided affidavits that were included in the parties’ application records. Those affidavits indicate some dispute as to the extent of the damage to the premises.

[15] The affidavit of Cathy Benevides was included in the original application record. She deposed that the premises following the fire was not fit for occupancy, citing the overpowering aroma of accelerant (gasoline), badly burned kitchen equipment, black soot over kitchen and bar equipment, and water damage from the sprinklers, requiring drywall and flooring to be ripped out. She also stated that the damage included the loss of electricity to part of the premises, melted PVC plumbing and other damaged contents.

[16] In his responding affidavit, the adjuster for the Landlord’s insurer Unica set out his observations of the premises within a day of the fire, as set out below. The Landlord’s president (Ryan Serravalle) also provided an affidavit covering some of the same information.

[17] According to Unica’s adjuster, there was a small minor fire in the kitchen area. The damage was contained to the kitchen area, with the exception of minor damage to a wall that separated the kitchen from the bar. Any smoke contamination was limited to the kitchen area and did not extend to the main bar area. Some surface accelerant was present on the wall in the office and one wall in the bar area. There was a sign on the side door that said “Closed for Renovations”. Molded-over food in the kitchen indicated that the bar had not been in operation for some period of time. Following his inspection, an initial clean up took place, which was completed within a few days of the fire. That clean up included (i) venting the entire space with air movers, (ii) installing scrubbing equipment, (iii) cleaning accelerant from affected areas, (iv) removing wet drywall in the kitchen ceiling, (v) replacing sprinkler heads, (vi) removing the bottom two feet of drywall on the kitchen side of the interior partition wall between the kitchen and the bar area, and (vii) removing a section of laminate flooring in the bar area adjacent to the kitchen wall, where water had seeped through from the kitchen (25 feet by 15 feet). The area where the flooring was removed represented a very small area of the bar, exposing concrete flooring found throughout the rest of the bar area. The main electrical panel was not impacted by the fire, but there was damage to an electrical sub-panel in the kitchen used to power trade fixtures in the kitchen, which did not appear to be professionally installed. Overall, the damage resulting from the fire was minimal and did not render the bar area unfit for occupancy. The seating in the bar area was not damaged and the coolers were running, with beer bottles in them. Some renovation work was going on unrelated to the fire.

[18] Affidavits filed in Beantrends’ supplementary application record took issue with several aspects of the Landlord’s affidavits. In her reply affidavit, Ms. Benevides disputed that damage was confined to the kitchen area, citing in particular the need to remove dry wall and laminate flooring in the pool room adjacent to the kitchen. She confirmed that this work was performed by contractors retained by Beantrends’ insurer, Intact. That work was performed in the period from September 8 to 21, as confirmed in affidavits from representatives of restoration companies that Intact retained. According to the affiant whose company removed the laminate flooring (Brandon Boyd), the flooring was removed at the direction of the Landlord and its insurance adjuster, even though they were advised that Beantrends’ insurer had not authorized them to do so. Ms. Benevides also deposed that the damaged electrical subpanel in the kitchen was in the premises at the commencement of the lease and was not installed by Beantrends. She also stated that the concrete floor under the laminate flooring in the pool room (unlike the concrete floor elsewhere in the bar) was unpainted, pitted, uneven, and not suitable to walk on. Mr. Boyd also indicated that the concrete floor elsewhere in the bar had a “textured/stamped concrete appearance.”

[19] By email exchange between Mr. Serravalle and Ms. Benevides on October 9, 2018, the Landlord provided notice that Beantrends was in default of its October rent obligation. Ms. Benevides replied that she would “find the money to get me through another month while I fight insurance.” In an email on October 10, she stated that “re-opening work … commences tomorrow and I will be forwarding all invoices to Intact Insurance. I expect to be open by October 19th.”

[20] In a letter to the Landlord dated October 11, 2018, Beantrends’ counsel took the position that the fire on September 3 triggered article 9.03 of the lease, with the result that the Landlord was required to repair the damage to the premises, return September’s rent and refrain from further demands for rent until the damage was repaired. It is common ground that this letter was the first time Beantrends provided explicit notice it was taking that position. The letter also indicated that despite the Landlord’s repair obligation, Beantrends planned to remediate the premises and resume operations as quickly as possible, even though it had not yet received any insurance payment.

[21] In a follow-up letter dated November 30, 2018, Beantrends’ counsel noted that the Landlord had not replied their previous letter, had not repaid the September rent payment, and had not provided Beantrends with assistance in its attempts to repair the premises, despite the Landlord’s repair obligation. The letter therefore indicated that Beantrends was no longer willing to fund and oversee the repairs, and insisted that the Landlord fulfil its repair obligation under the lease. The letter also threatened to commence Superior Court proceedings unless the Landlord repaid the September rent payment, and committed to repair the premises and reimburse Beantrends for repair costs it incurred.

[22] By email the same day, the adjuster for the Landlord’s insurer stated that the work the Landlord was required to perform (consisting of venting and cleaning the premises and reinstating sprinkler services) was completed following the fire, and that the remaining work relating to tenant improvements and tenant contents was Beantrends’ responsibility as the tenant. He suggested that Beantrends look to its own insurer to fund the repairs. He also disputed Beantrends’ position that it was entitled to a rent abatement. In a responding letter the same day, Beantrends’ counsel disputed the adjuster’s interpretation of the lease, stating that the Landlord was required to repair all the damage caused by the fire and that the rent abatement remained in effect until the damage was remediated.

[23] By letter to Beantrends’ counsel dated December 7, 2018, the Landlord’s counsel disputed Beantrends’ position that article 9.03 required the Landlord to repair the damage or abate the rent. The letter also alleged a number of breaches of the lease, including Beantrends’ obligation to repair the premises, pay rent, and maintain heat (by paying utilities). Based on Beantrends’ alleged defaults, the letter stated that the Landlord will be exercising its right to terminate the lease and re-enter the premises.

[24] By email dated January 10, 2019 (after further correspondence between counsel), Landlord’s counsel confirmed his client’s position that “the lease has been breached and is at an end”. The email also requested that Beantrends remove its chattels from the leased premises so that the Landlord could begin the re-letting process.

[25] On January 21, 2019, Beantrends brought its application for interpretation of the lease. At the application hearing, counsel advised that as of that time, the Landlord had not re-let the leased premises pending the outcome of the application.

III. Lease interpretation

[26] As set out in the Applicant’s Factum, Beantrends seeks a declaration that article 9.03 of the lease requires the Landlord to (i) effect the repairs necessary to return the walls, flooring and ceilings of the leased premises to a comparable state to that which existed before the fire, and (ii) abate Beantrends’ rent until such time as this work is complete. The declaration Beantrends requested in the application initially would have gone further, also covering the “electrical wiring, plumbing, and contents” of the leased premises. However, in light of disputed facts relating to those categories of damage, Beantrends narrowed the scope of the declaration it seeks with a view to bring the requested relief within the parameters appropriate for an application.

[27] In his submissions, Beantrends’ counsel broke down his argument into two principal parts. Did the damage from the fire trigger article 9.03 of the lease? If so, was the Landlord required to repair the damage to the walls, ceiling and flooring of the leased premises? I have generally followed that approach in my analysis of the parties’ respective positions, as set out below.

A. Unfit or unsafe premises

[28] Following the fire, were the leased premises “not fit for occupancy” or “unsafe to use or occupy”, thereby triggering article 9.03 of the lease?

[29] By its terms, article 9.03 is triggered if damage to the leased premises renders them “not fit for occupancy or impossible or unsafe to use or occupy, and … such damage can be repaired with reasonable diligence within one hundred and twenty (120) days from the happening of such damage.” In this case, there is no dispute that the damage could have been repaired within 120 days. As well, Beantrends is not arguing that it was “impossible” to use or occupy the premises after the fire. Therefore, the issue for determination is whether, following the fire, the leased premises was “not fit for occupancy” or “unsafe to use or occupy”.

[30] In support of its position that article 9.03 was triggered, Beantrends relied on four undisputed areas of damage following the fire: (i) the odour of accelerant and natural gas permeated the premises; (ii) the sprinkler system was inoperative: (iii) there was fire damage in the kitchen; and (iv) there was water damage to ceilings, walls and flooring in the kitchen, pool room and office.

[31] As previously noted, the Landlord says that the damage resulting from the fire was minor in nature, not rising to the level of rendering the premises “not fit” or “unsafe” to occupy. The Landlord also denied responsibility for the repair of damage in the kitchen area, relying on the exclusion in article 5.07 from the definition of “Demised Premises” for “Tenants trade fixtures and equipment”, arguing that the obligation to repair fell on Beantrends under article 5.01 or 5.02. The Landlord also argued that to the extent it was required to make any repairs, it did so within a few days of the fire by (among other things) venting the premises, cleaning accelerant from affected areas and restoring the sprinkler system.

[32] Based on the evidence in the application records, I have difficulty seeing how the Landlord can reasonably argue that article 9.03 was not triggered in this case. In my view, the real area of contention is the extent of the Landlord’s obligation to repair the damage and abate rent under article 9.03, rather than whether that provision was triggered at all.

[33] Whatever adjective is used to characterize the extent of the damage, I agree with Beantrends’ counsel that the premises would have been unsafe or unfit for occupation while the odour of natural gas or accelerant permeated the premises or while the sprinkler system was inoperative.

[34] As well, I do not see how the Landlord is assisted by the exclusion in article 5.07 from the definition of “Demised Premises” for “Tenants trade fixtures and equipment”. By narrowing the scope of the declaration Beantrends is seeking, the disputed issue of repair to kitchen equipment and other contents has been removed from contention in this application.

[35] In any case, article 5.07 (prior to the exclusionary words) specifically includes in Demised Premises “all improvements, alterations, changes, repairs to, and remodeling of, the Demised Premises”. Those words would clearly encompass drywall in the ceiling and walls as well as laminate flooring. As well, I cannot see how the Landlord can reasonably take the position that Beantrends’ maintenance obligations under article 5.01 or 5.02 would somehow trump the Landlord’s repair obligation under article 9.03, to the extent the latter applies.

[36] Accordingly, I agree with Beantrends that the Landlord’s obligations under article 9.03 of the lease were triggered in this case.

B. Obligation to repair damage/abate rent

[37] Does article 9.03 require the Landlord to repair the walls, ceilings and flooring impacted by the fire, and to abate the rent until it does so?

[38] Once it is determined that the damage to the leased premises renders the premises “not fit for occupancy” or “unsafe to use or occupy”, article 9.03 requires the Landlord to (i) “repair the damage with all reasonable speed”, and (ii) abate the rent “until the damage shall be remedied so that the Tenant may use and occupy the Demised Premises and carry on its business therefrom.”

[39] As previously noted, the Landlord argues that to the extent it was required to make any repairs to the premises, it did so within a few days of the fire by venting the premises, installing scrubbing equipment, cleaning accelerant from affected areas and restoring the sprinkler system. The evidence also indicates that during that period and extending later into September, sections of drywall were removed from the walls and ceiling in the kitchen and pool room, and laminate flooring was removed in the pool room and the office. According to the Landlord, its repair and rent abatement obligation ended at latest once those repairs were done.

[40] I do not agree. I have concluded that in the circumstances of this case, article 9.03 required the Landlord to carry out repairs to the walls, flooring and ceilings of the leased premises to return them to a comparable state to that which existed before the fire. The Landlord has not done so. Therefore, the rent for the premises abates until the damage is remedied.

[41] I agree with Beantrends that the correct interpretation of article 9.03 requires the Landlord to repair the damage to those areas, at a minimum. Based on the interpretation of article 5.07 referred to above, those areas are clearly part of the Demised Premises.

[42] As well, I do not consider it sufficient to draw a line under the Landlord’s obligations at some earlier stage when the fire and water damage was partially remediated, such as once the sprinklers were restored and the effects of the natural gas leak and accelerant use had been addressed (the initial position of the Landlord’s insurance adjuster). Even on a narrow interpretation of the Landlord’s obligations under article 9.03 (that is, where the Landlord’s obligations end once the leased premises are no longer “not fit for occupancy” or “unsafe to use or occupy”), taking that approach would address only the “unsafe to use or occupy” aspect of article 9.03. Taking into account the intended use of the leased premises as a restaurant and bar open to the public, I agree with Beantrends that the leased premises would be “not fit for occupancy” until the fire damage is remediated. That interpretation is consistent with the language of the rent abatement, which continues “until the damage shall be remedied so that the Tenant may use and occupy the Demised Premises and carry on its business therefrom .”

[43] In reaching that conclusion, I considered the Landlord’s submission that I should take into account the fact that Beantrends’ restaurant may have been closed for renovations at the time the fire, as suggested by the “Closed for Renovations” sign that the Landlord’s adjuster saw on the side door. While that concern was not addressed directly by Beantrends or its counsel, I did not consider that evidence to be a material consideration in determining the proper interpretation of the lease. In my view, the evidence was not sufficient to support the conclusion that the bar and restaurant were unable to reopen for some reason other than the damage caused by the fire.

[44] I also considered the Landlord’s argument that its interpretation of the lease is supported by Beantrends’ conduct after the fire, that is, the fact that Beantrends itself undertook repairs and only later asserted it was the Landlord’s responsibility to do so. In support of the Landlord’s position that it was appropriate to take subsequent conduct into account, Landlord’s counsel relied on Geoff R. Hall, Canadian Contractual Interpretation Law, 3rd ed. (Toronto: LexisNexis, 2016), at p. 102. In that text, the author indicates (based on previous case law) that such evidence is admissible for that purpose “only if it is first determined that the provision being interpreted is ambiguous. Even then, the evidence may be given little or no weight.”

[45] I do not consider the requirement for ambiguity to be met in this case. As well, as a factual matter, I do not agree that the fact that Beantrends (or someone on its behalf) undertook remedial tasks in the immediate aftermath of the fire constituted conduct that was inconsistent with the interpretation of the lease Beantrends is now advocating. The evidence indicated that the work Beantrends undertook was limited in nature. As well, it is common ground that as of October 11, 2011, Beantrends’ lawyer put the Landlord on formal notice that the Landlord was responsible for repairing the damage resulting from the fire. The Landlord’s position is that any remedial work it was required to perform had been completed prior to that time. In these circumstances, there is no evidence to suggest that the Landlord was prejudiced by any delay by Beantrends in communicating its position.

[46] To support the Landlord’s position relating the Beantrends’ subsequent conduct, Landlord’s counsel also relied on Ms. Benevides’ October 10 email to the Landlord, in which she stated that “re-opening work” would commence the next day, with the expectation that the restaurant would be “open by October 19th". That email came only one day after the Landlord’s email in which the Landlord notified Ms. Benevides that Beantrends was in default of its October rent obligation. Landlord’s counsel argued that the Landlord relied to its detriment on Ms. Benevides assurance by not pursuing its remedies for Beantrends’ failure to pay rent and other breaches of the lease until after being notified (in the November 30 letter from Beantree’s counsel) that Beantrends was not able to undertake any further remedial work because of lack of funds. Once again, however, by reason of Beantrends’ counsel’s letter of October 11 (one day after Ms. Benevides email), the Landlord was well aware of Beantrends’ position that the Landlord was responsible for repairing the fire damage. In these circumstances, I find no merit in the Landlord’s position that it was somehow led to believe that Beantrends would not pursue the Landlord for those repairs.

[47] Similarly, as indicated further below, I was not persuaded by the Landlord’s reliance on the principle of “estoppel by convention” to support its interpretation of article 9.03.

[48] In Ryan v. Moore, 2005 SCC 38, [2005] 2 S.C.R. 53, the Supreme Court of Canada indicated that the following criteria from the basis of the doctrine of estoppel by convention:

1. The parties' dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption. Nevertheless, estoppel can arise out of silence (impliedly).
2. A party must have conducted itself, i.e. acted, in reliance on such shared assumption, its actions resulting in a change of its legal position.
3. It must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption. The party seeking to establish estoppel therefore has to prove that detriment will be suffered if the other party is allowed to resile from the assumption since there has been a change from the presumed position.

[49] Landlord’s counsel argued that (i) Beantrends’ conduct in undertaking repairs subsequent to the fire created the mutual assumption that Beantrends would be responsible for repairs, (ii) the Landlord relied on that mutual assumption by deferring action against Beantrends for failing to pay its rent and other breaches of the lease, and (iii) it would be unjust for Beantrends to resile from that assumption. Consistent with my conclusions above, the evidence does not support any mutual assumption of that nature. On that basis alone, the principle of estoppel by convention would not apply, without considering the other criteria for application of the principle.

V. Disposition

[50] Accordingly, judgment will issue as follows:

1. A declaration will issue that article 9.03 of the Lease dated July 29, 2010 between the Landlord, Beantrends and Cathy Benevides (as extended by the Extension of Lease dated September 1, 2015) requires the Landlord to (i) effect the repairs necessary to return the walls, flooring and ceilings of the leased premises to a comparable state to that which existed before the fire on September 3, 2018, and (ii) abate Beantrends’ rent until such time as this work is complete.
2. Beantrends is awarded costs fixed at $5,000 including disbursements and tax, payable by the Landlord within 30 days.

[51] I am grateful to the parties for settling in advance the costs to be payable to the successful party.

The Honourable Mr. Justice R. A. Lococo

Released: May 1, 2019