BARRIE COURT FILE NO.: CV-19-370

DATE: 20190610

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

911 Priority Corporation and Caleb Kalenuik

Applicants

– and –

Ernest Murray and Sandra Murray

Respondents

Jennifer Vrancic, for the Applicants

Spencer Toole, for the Respondents

HEARD: May 29, 2019

REASONS FOR DECISION

VALLEE J.:

Introduction

[1] This matter concerns a commercial lease. The applicant, 911 Priority Corporation, of which the co-applicant, Caleb Kalenuik, is the principal (both referred to as the Tenant) bring this application against the respondents (both referred to as the Landlord) for:

(a) a declaration that the Notice of Termination dated January 6, 2019 is null and void;

(b) an order for an accounting of all assets wrongfully distrained;

(c) an order requiring the Landlord to release all of the Tenant’s assets, chattels and personal property (referred to as the Tenant’s property) seized from the subject premises within three days; and,

(d) in the alternative, relief from forfeiture.

[2] The Tenant also requests a trial of an issue, namely damages.

[3] The Landlord states that it lawfully terminated the tenancy. It did not distrain the tenant’s property. The Tenant could have and still can retrieve its property by paying only the Landlord’s cost to move and store the items. They are not being held to pay the outstanding rent. The Landlord states that there is no evidence that Tenant has suffered damages.

Issues to be Determined

[4] Was the Landlord’s re-entry into the premises on January 16, 2019 lawful?

[5] If so, is the Tenant entitled to relief from forfeiture?

[6] Did the Landlord unlawfully distrain the Tenant’s property?

[7] Does the Landlord have a storer’s lien?

[8] Should the trial of an issue be ordered to determine the Tenant’s damages?

Chronology

[9] October 3, 2017 – The parties signed a lease for premises for the period of October 1, 2017 to September 30, 2020. The rent was $11,300 including HST payable on first day of each month, and the tenant to pay utilities.

[10] The lease states that the Landlord has the right to re-enter when, “the tenant shall be in default in the payment of any Rent whether lawfully demanded or not and such default shall continue for a period of Seven (7) consecutive days following written notice…” Then, the current rent and rent for next 3 months (accelerated rent) is immediately due and payable at which time the Landlord may re-enter the premises without any further notice and re-possess the premises. On termination or forfeiture,

(1) the Tenant shall within 10 days after written notice requiring it to do so remove all of its property from the Leased Premises or

(2) the Landlord may at any time remove all or part of the property from the Leased premises and store it in a public warehouse or elsewhere at the cost of the Tenant.

[11] August 31, 2018 – The Landlord issued Notice of Default, and demanded rent arrears of $17,700.

[12] September, 2018 – According to the Landlord, the Tenant owed $29,000.

[13] October 9, 2018 – According to the Tenant, the arrears set out in the August Notice were completely paid by this date. According to the Landlord, the rent was then in arrears for September and October.

[14] October 2018 – After payment of the October rent, the Tenant’s arrears were $25,300.

[15] November 2018 – After payment of the November rent, the Tenant’s arrears were $22,764.48.

[16] November 30, 2018 – The Landlord sent an email to the Tenant entitled “Re: Notice of Default” stating that the Tenant owed $28,414.48 and that the Tenant was to be “out by the end of December if the rent is not paid”.

[17] December 2018 – After payment of the December rent, the Tenant’s arrears were $23,414.48.

[18] January 2019 – The Landlord states that after payment of the January rent, the Tenant’s arrears were $34,849.57. The Tenant agrees with this amount subject to a deduction of $319.05 because it paid the utilities bills, the amounts of which were included in the $34,849.57.

[19] January 11, 2019 – The Landlord issued another Notice of Default that demanded payment of arrears of $34,550 by January 14, 2019.

[20] January 14, 2019 – The Tenant’s lawyer, Mr. M. Adams, sent letter to the Landlord alleging that the Landlord had made certain representations which were not honoured and had withheld certain information from the Tenant.

[21] January 16, 2019 – Five days after the Notice, with the assistance of a bailiff, Napier, the Landlord re-entered the premises and by doing so purported to terminate lease. The Landlord states that the heat had been turned off. The temperature was only -6 degrees Celcius in the premises. The Tenant states that Napier distrained against its property in premises which included expensive cars. The Landlord states that Napier did not distrain. The Tenant could have picked up its property.

[22] January 23, 2019 – According to the Landlord, pipes burst. The premises flooded. The bailiff and its employees removed the Tenant’s property.

[23] January 25, 2019 – According to the Landlord, it retained Davis Solutions to clean up the mess.

[24] January 28, 2019 – According to the Landlord, the Tenant’s property was packed and moved into trailers.

[25] January 28, 2019 – According to the Landlord, Davis made arrangements with the Tenant to collect its property upon paying $4,213.77 for moving and storage costs. Both parties agreed to a mutual release. The Tenant disagrees that the Landlord was entitled to a release.

[26] January 29, 2019 – According to the Landlord, the Tenant cancelled. The Tenant states that it was unable to secure trailers and help to remove its property on that date.

[27] January 30, 2019 – According to the Landlord, Mr. Adams made arrangements with Davis that the Tenant would remove its property on January 31, 2019 before 8:00 a.m. The Tenant was to pay $6,000. Davis was to provide trailers.

[28] January 31, 2019 – According to the Landlord, the Tenant arrived at 10:30 a.m. with a cheque but refused to provide information regarding owners of vehicles. The Tenant left at 11:30 a.m. The Tenant did not remove anything nor did it make other arrangements. The Tenant states that it had made arrangements with bailiff to retrieve the items but Landlord ultimately denied access. The Landlord contacted owners of vehicles and required payment for their release.

[29] February 1 – 5, 2019 – According to the Landlord, Davis removed the trailers containing Tenant’s property, three vehicles and a boat, to a secure storage site[^1].

[30] February 13, 2019 – According to the Landlord, it retained Napier again to deal with the goods that it considered to be abandoned.

[31] February 22, 2019 – According to the Landlord, Napier sent a Notice of Intention to Sell by registered mail. A redemption value was listed for each item. No rent amount was set out. The Tenant could have redeemed the property without paying rent arrears.

[32] February 22, 2019 – The Landlord issued this Notice of Application.

Applicable Law

Re-entry/Termination

[33] If rent remains unpaid for over 15 days, unless otherwise agreed, a landlord may lawfully re-enter and take possession without any formal demand for payment. (See: Commercial Tenancies Act, R.S.O. 1990, c. L.7. s. 18(1) - (the Act))

[34] “Otherwise agreed” means the landlord and tenant agreed to a termination provision in the lease that is different from the statutory provision, such as written notice and a period to cure the default. (See: 772067 Ontario Ltd. v. Victoria Strong Manufacturing Corp., [2017] O.J. No. 2719, aff’d on other grounds 2018 ONCA 36)

[35] A landlord who re-enters premises before the expiration of a notice period prescribed by a lease agreement enters the premises unlawfully and wrongfully terminates the lease. (See: Buck or Two Properties Inc. v. 1281632 Ontario Limited, 2007 CanLII 54077 at para 9)

[36] A landlord and tenant can contract out of the waiver provisions of the Act. If they do so, a landlord’s acceptance of rent after notice to a tenant of breach does not constitute a waiver. (See: Kiryat Developments Inc. v. O’Brien’s Restaurants Inc., 1987 CarswellOnt 2243 at paras. 21 to 22)

Distraint

[37] Distress is defined as “the seizure of another’s property to secure the performance of a duty, such as the payment of overdue rent”[^2].

[38] A landlord who terminates a lease is not entitled to distrain goods. When a tenant defaults, the landlord has two mutually exclusive options: re-enter the premises and distrain the goods to satisfy the debt with a view to continuing the lease or retake possession of premises and terminate the lease. (See: Pita Royale Inc. v. Buckingham Properties Inc., 2017 ONSC 5976 at para. 129, quoting in para. 130 Malka v. Vasiliadis, 2011 ONSC 5884, para. 133 and quoting in para. 131 Mundell v. 796586 Ontario Ltd., [1996] O.M. No. 2532 (Gen. Div.) 131)

[39] Where distress is taken excessively or wrongfully, the distrainor is liable in damages to the owner of the goods or chattels distrained, (See: s. 55(1) of the Act)

Storage Lien

[40] A storer has a lien against an article that it has stored for the fair value of the storage. (See: Repair and Storage Lien Act, R.S.O. 1990, c.R.25 s. 4(1) – (the RSLA)

[41] A storer is defined in the RSLA as “a person who receives an article for storage…on the understanding that the person will be paid for the storage.”

[42] Where a landlord properly terminated a lease that stated the landlord could claim for charges, the landlord was entitled to storage costs of a tenant’s goods. (See: Globe Convestra Ltd. v. Vucetic, 1990 CarswellOnt 582 para 28)

Was the Landlord’s re-entry into the premises on January 16, 2019 lawful?

The Landlord’s Position

[43] The Landlord states that it had a lawful right of re-entry, without notice, after rent was unpaid for 15 days pursuant to s. 18(1) of the Act. The Landlord was entitled to re-enter because the rent had been outstanding for more than 15 days. In fact, the rent had been outstanding for several months.

[44] Although the Act states that if a Landlord accepts on-going rent, it waives its entitlement to terminate for arrears of rent, the parties contracted out of this statutory provision.

[45] Paragraph 21.1 of the lease, states,

The subsequent acceptance of Rent hereunder by the Landlord shall not be deemed to be a waiver of any preceding breach by the Tenant…No covenant, term or condition of this Lease shall be deemed to have been waived by the Landlord unless such waiver be in writing by the Landlord.

[46] The parties contracted out of the waiver provisions in the Act. Therefore, the Landlord’s acceptance of the Tenant’s sporadic rent payments toward the cumulative arrears owing does not amount to the Landlord’s waiver of its right to re-enter.

Analysis

[47] According to 772067, section 18(1) of the Act does allow a landlord to terminate a lease without written notice after 15 days of non-payment of rent but not if the parties otherwise agreed. The parties did otherwise agree to a specific termination provision. The lease sets out the provisions that apply in the event of the tenant’s default. The landlord must provide written notice. If the default continues for seven consecutive days after the notice, then the landlord has the right to re-enter.

[48] In Buck or Two, the landlord sent a Notice of Termination to the tenant. The lease stated that the landlord was required to provide 10 days written notice of the tenant’s failure to pay rent. Despite the 10-day requirement, the landlord re-entered four days after providing the notice. The court stated,

The Landlord can re-enter the leased premises under statute after 15 days of non-payment of rent, and, under the terms of the head-lease, 10 days after providing written notice of a breach. In this case, [the landlord] re-entered the leased premises four days after providing written notice. In my view, such a re-entry was unlawful.

[49] The statute envisions that parties may agree to other termination provisions in a lease. The terms of the statute apply where there is no termination provision in a lease that has different terms. Where the parties specifically agree on a termination provision that is different from the statute, the terms of the parties’ agreement apply.

[50] Here, even though the rent had been in arrears for months, there was no evidence that the Tenant was making financial arrangements to pay it nor that an additional two days would have made any difference and the Landlord re-entered only two days early, I agree with Brown J.’s reasoning in Buck or Two. The Landlord sent a Notice of Default and therefore was bound by its. The Landlord breached the lease by re-entering the premises prior to the expiry of the notice period. A tenant justifiably expects that the terms of a lease will govern the parties’ rights.

[51] Because the Landlord unlawfully terminated the lease, the steps that it subsequently took to lock the Tenant out, put the Tenant’s property into trailers, store it and request that the Tenant pay the costs of doing so as a condition of obtaining the property was also unlawful. Accordingly, the Tenant does not require relief from forfeiture. The Tenant is not required to pay the Landlord’s associated costs.

Did the Landlord unlawfully distrain the Tenant’s goods?

[52] If I had found that the Landlord lawfully terminated the lease, I would have determined that the Landlord did not distrain the Tenant’s goods for the reasons set out below.

[53] As noted above, distress is defined as “the seizure of another’s property to secure the performance of a duty, such as the payment of overdue rent”.

The Tenant’s Position

[54] A landlord cannot terminate a lease and distrain. According to Pita Royale, a landlord has to choose between re-entry/termination/forfeiture and distraint. When a landlord does both, it is liable to the tenant for damages. Distraint presumes that the lease will continue.

[55] The Tenant made several attempts to obtain its property. On January 18, 2019, before the flood, the Tenant made an arrangement with the bailiff’s office that it would pick up its property on January 30 and 31, 2019. On January 24, 2019, the premises flooded. The Landlord retained Davis Solutions. Davis sent a text to the Tenant on January 28, 2019 at 8:03 p.m. regarding the pick-up. He stated that there would be a new arrangement. The Landlord required that paperwork be signed and that the Tenant pay $2,000.

[56] The next day, Davis sent another text to the Tenant. Davis stated that it would not have labour or equipment available to move the property out of storage. The Tenant would have only two hours to remove everything. The Landlord required payment of $7,000. The Landlord stated, “Any customer vehicles that belong to you will not leave the premises. They’re being held by the landlord for non payment.” On cross-examination, Davis did not provide any explanation for the increase in payment. He stated, “That’s just how it went.”

[57] The Tenant then requested that the date be changed to Thursday because he could not get trucks and helpers until then.

[58] On January 29, Davis sent an email to the Tenant stating, “Any customers [sic] vehicles that belong to you will not leave the premises. They’re being held by the landlord for non-payment.” The Tenant states that this means non-payment of rent.

[59] Subsequently, the Tenant’s lawyer became involved. He sent an email to Davis on January 30, 2019. He confirmed that the Landlord agreed to accept $6,000 and allow the Tenant to pick up its property on January 31, 2019. The Tenant attended with a cheque; however, Davis would not allow him to move anything until he signed a release. The Landlord’s assertion that the Tenant agreed in advance to the release is not supported by the evidence. The Tenant’s efforts show that it did not abandon its property.

[60] The Tenant states that the Landlord had no right to a release upon the Tenant’s picking up its property. The Landlord unilaterally changed terms of the deal and then accused the Tenant of abandonment.

[61] The object of the distraint was to secure payment of the rent.

Analysis

[62] The evidence shows that Landlord did not distrain the Tenant’s property to satisfy rent arrears. The property was not being held to pay rent. The Notices of Sale request payment of only storage and other related costs, for example, $23,407.95 with respect to the property, not including a boat and three vehicles. The Notices with respect to them request payment of $4,281.70 for the boat and $2,356.05 for each vehicle. Payment of rent is not listed nor required. If the Landlord was holding the property for payment of rent, the Landlord would have requested payment of approximately $34,850 which was the amount of the arrears as of January 11, 2019[^3].

Does the Landlord have a storer’s lien?

[63] The Landlord states that it has a storer’s lien against the property for the fair value of the storage pursuant to the RSLA.

Analysis

[64] As noted above, a storer is a person who receives an article for storage…on the understanding that the person will be paid for the storage. The Landlord obviously did not receive the Tenant’s property from the Tenant for storage. This is not a situation, for example, where a party decides to store property in a rental unit for that purpose. Accordingly, the Landlord does not have a storer’s lien.

Should the trial of an issue be ordered to determine the Tenant’s damages?

[65] Rule 38.01(1)(b) of the Rules of Civil Procedure states, “On the hearing of an application, the presiding judge may…(b) order that the whole application or any issue proceed to trial and give such directions as are just.”

The Landlord’s Position

[66] The Landlord states that this request is not properly before the court. It is not set out in the Notice of Application nor is it requested as relief sought in either of the Tenant’s Factums. The Tenant could have commenced an action regarding this matter. There is no need to shift the proceedings.

Analysis

[67] In the Notice of Application, the Tenant claims, “damages in the amount of $1,000,000 for illegal distraint and improper termination of the lease”. Counsel for the Tenant states that the wrongful termination of the lease has irreparably harmed the Tenant’s business and its relationship with its customers.

[68] Within the application, the Tenant could have quantified a business loss based on financial statements; however, those types of losses can be caused by a number of variables. No doubt the Landlord will take issue with the Tenant’s quantifications. An application is not the correct procedure for proving the value of a loss caused by relationships with customers that have been harmed. Accordingly, I order that a trial of an issue be held regarding the Tenant’s alleged losses[^4].

Conclusion

[69] The Landlord improperly terminated the lease.

[70] The Landlord shall account for and release the Tenant’s property to the Tenant within 5 days of the release date of these Reasons.

[71] A trial of an issue regarding the Tenant’s damages is ordered.

Costs

[72] Four people were cross-examined in this proceeding. The parties filed significant materials. The costs requested by both parties, on a partial indemnity basis, on a win or lose result were relatively close, being $30,000 all-inclusive for the Tenant and $25,000 all-inclusive for the Landlord.

[73] Ultimately, in fixing an amount for costs, the overriding principles are fairness and reasonableness. See Boucher v. Public Accountants, 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291.

[74] In my view, a fair, reasonable and proportionate costs award for this motion is $27,000 all inclusive, which the Landlord shall pay to the Tenant within 30 days.

Madam Justice M.E. Vallee

Released: June 10, 2019

[^1]: The Landlord states that all vehicles have now been returned to their owners.

[^2]: See Brian A. Garner, ed, Black's Law Dictionary, 10th ed (St. Paul, MN: Thomson Reuters, 2014) sub verbo “distress”.

[^3]: I note that when added, the requested payments total $34,757.30, more than the rent arrears; however, the various amounts are itemized on the Notices.

[^4]: If the parties require directions, they may contact my judicial assistant at barriejudsec@ontario.ca.