Court File and Parties
COURT FILE NO.: 2403-18 DATE: 20190708 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
2601032 Ontario Ltd. Plaintiff – and – Richmond Medical Centre Inc. Defendant
COUNSEL: M. Theberge, for the plaintiff R. Refcio and J. Sharpe, for the defendant
HEARD: June 3, 2019
HOCKIN j.
The Parties
[1] The individual applicants are pharmacists. 2601032 Ontario Ltd. (“2601”) is the company which they incorporated to carry on the business aspects of their practice. Their pharmacy is located on part of the ground floor of a medical arts building at 1653 Richmond Street in this City.
[2] 1653 Richmond Street is owned by the respondent, Richmond Medical Centre (“RMC”). RMC is 2601’s landlord. RMC is owned by Elisabetta Jackson. She has a background in commercial real estate and is assisted in the management of her affairs by Paul DeBilis, her husband.
Background
[3] In October 2017, 2601 and RMC entered into a lease of part of the first floor of 1653 Richmond Street 2601 intended to occupy for the purpose of carrying on its pharmaceutical business. Their interest in 1653 Richmond Street was that most of the first floor was to be occupied by physicians who would generate prescriptions and business for the pharmacy.
[4] On November 1, 2017, the applicants were asked for a series of postdated cheques for rent in the amount of $6,591.66. This was based on an assumed occupied floor space of 1000 square feet, $50 per square foot plus $20 per square foot for “Additional Rent” or CAM plus HST. The equation was 50 + 20 = 70 x 1000 plus HST. This is $6,591.66.
[5] The applicants took possession November 24, 2017. The lease provided that the “exact area” occupied by the pharmacy would be determined or measured at some point and the rent then calculated in accordance with the lease. RMC did not determine 2601’s “Rentable Area” and in early 2018, 2601 asked RMC to measure the space it occupied and that it would then pay rent on an actual square foot occupied basis. The request was refused and RMC chose not to measure the space occupied by the pharmacy.
[6] In June 2018, the applicants retained a civil engineer to measure the area occupied by the pharmacy. His report and an AUTOCAD drawing of the ground floor of 1653 Richmond Street are part of the Application Record (Tab F). The actual square footage occupied by the pharmacy was 339.18 square feet or a third of the 1000 square feet referred to in the lease.
[7] In July 2018, RMC measured the square footage of the pharmacy to be only 257.50 square feet but suggested any re-calculation of rent should include 30 percent of the common areas of the first floor or another 1136.19 square feet.
[8] There were other problems. The applicant’s allege that they were charged over and above the rent directly for utility charges which should have been included in the Additional Rent or CAM. As well, there was no estimate of 2601’s share of the realty taxes and operating costs.
[9] 2601 in July, 2018 retained a solicitor who invited RMC to adjust the rent to agree with the measured space occupied by the pharmacy but RMC’s answer was to demand rent cheques in the amount of $9,188.78 on the basis of square footage plus a charge for the use of the common areas.
[10] There was an impasse at this point and on September 19, 2018, RMC locked out the pharmacy and that was followed by its notice to 2601 of its intention to evict 2601.
[11] On November 23, 2018, this application was commenced.
The Rule
[12] 2601’s application is brought under subrule 14.05 (3)(d) of the Rules of Civil Procedure. It reads as follows:
(3) A proceeding may be brought by application where these rules authorize the commencement of a proceeding by application or where the relief claimed is,
(d) the determination of rights that depend on the interpretation of a deed, will, contract or other instrument, or on the interpretation of a statute, order in council, regulation or municipal by-law or resolution;
Rent
[13] The principal question is the amount of rent. The question is whether the lease provides for rent based on a cost per square foot of space occupied or an annual amount without regard to the space occupied.
[14] The language of the lease and the surrounding circumstances at the time of its formation answer this question.
[15] I am instructed on the matter of contractual interpretation by the Supreme Court of Canada in Creston Moly Corp. v. Sattra Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 at paras. 47, 57, 59 and 60, per Rothstein J.:
47 Regarding the first development, the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744 (S.C.C), at para. 27 per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Minister of Transportation & Highways), 2010 SCC 4, [2010] 1 S.C.R. 69 (S.C.C.), at paras. 64-65 per Cromwell J.). To do so, a decision-maker must read the contract as a whole, 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. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:
No contracts are made in a vacuum: there is always a setting in which they have to be placed… In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.
(Reardon Smith Line, at p. 574, per Lord Wilberforce)
While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement (Gaswegian Enterprises Inc. v. BC Tel Mobility Cellular Inc. (1997), 101 B.C.A.C. 62 (B.C.C.A.)).
It is necessary to say a word about consideration of the surrounding circumstances and the parol evidence rule. The parol evidence rule precludes admission of evidence outside the words of the written contract that would and to, subtract from, vary, or contradict a contract that has been wholly reduced to writing (King, at para. 35; and Hall at p. 53). To this end, the rule precludes, among other things, evidence of the subjective intentions of the parties (Hall, at pp. 64-65; and Eli Liily & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129 (S.C.C.), at paras. 54-59, per Iacobucci J.). The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party’s ability to use fabricated or unreliable evidence to attack a written contract (C.J.A., Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316 (S.C.C.), at pp. 341-32, per Sopinska J.).
The parol evidence rules does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aide for determining the meaning of the written words chose by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.
[16] I take into account the following statements as set out in the affidavits of Nabil Maghari, for 2601 and Elisabetta Jackson for RMC as relevant to the interpretation of the lease.
[17] Nabil Maghari, para. 10, affidavit sworn December 10, 2018
- It was agreed by the parties that the square footage of the Premises would have to be determined after the construction of the building was complete.
[18] Elizabetta Jackson, para. 7, affidavit sworn March 19. 2019
- During the negotiation process, Richmond repeatedly advised the Applicants that as the building was newly built, the exact amount of the lease space would be approximately one thousand square feet, but that the exact amount of square footage would depend on how the Applicant would want to utilize the space. However, at all times, Richmond repeatedly advised the Applicants that the total quantum of rent was not being solely determined on a per square footage basis and that the leased premises had other value-added features which would assist the business operations of whatever pharmacy was located in the lease premises. Accordingly, regardless of what the final square footage space ending up being, the total quantum of rent due would remain the same.
[19] The lease was provided by RMC. The lease was signed October 12, 2017. 2601 did not take possession until November 24, 2017. There is no dispute that the first page of the lease was amended in longhand by the parties at the time of its execution.
[20] For the following reasons, my conclusion is that the base rent for 2601 is the application of the square footage charge stipulated in the lease, $50 applied against the measured Rentable Area occupied by the pharmacy.
[21] Article 5.1 sets out 2601’s covenant to pay rent. Its obligation is to pay Basic Rent in the amount set out in article 1.8 of the lease. Article 1.8 provides that the annual Basic Rent is based on the per square foot charge against the Rentable Area of the Premises. Premises means the space specified in Article 1.5. Article 1.5 was amended in longhand. The amendment was initialed. It reads as follows:
1.5 Premises
First floor of the building, shown on Schedule 2 and having a Rentable Area of approximately One Thousand (1000) square feet. The exact area TBD.
[22] There is no dispute that TBD means “to be determined”. It is the case that when the lease was signed the pharmacy had not been built. There was nothing to measure. This circumstance explains the simple text, the simple meaning of “approximately” and the agreement of 2601 and RMC that the area occupied by the pharmacy would have to be determined by measurement. This was the evidence of Nabil Maghari and the evidence of Elisabetta Jackson was that “the exact amount of square footage would depend on how the Applicant would want to utilize the space”.
[23] “Premises” is a defined term in the lease. Its definition is a prescription for the measurement of the space occupied by the tenant. 2601 retained an engineer for this purpose. He measured the space occupied to be 339.18 square feet. RMC measured the space to be 257.50 square feet. 2601 does not ask that RMC’s lower figure apply.
[24] It is clear that the stipulated cost per square foot is $50. That cost may be applied against 339.18 square feet, the “Rentable Area”. This figure will be the base figure for calculation of the Basic Rent.
[25] RMC’s position is set out in the last two sentences of para. 7 of the Jackson affidavit, a follows:
However, at all times, Richmond repeatedly advised the Applicants that the quantum of rent was not being solely determined on a per square footage basis and that the leased premises had other value-added features which would assist the business operations of whatever pharmacy was located in the lease premises. Accordingly, regardless of what the final square footage space ending up being, the total quantum of rent due would remain the same.
[26] It is the case, however, that the lease does not set out “the total quantum of rent due”. In longhand at the bottom of the first page of the lease there is only this:
$50 + $20 CAN = 70 x 1000 = 70 000 + HST
[27] The figure of 1000 is the figure set out in article 1.5 which required the “exact area” to be determined.
[28] The explicit reservation written into the lease at the behest of 2601 that the “exact area” required measurement, giving those words their ordinary meaning and consistent with the circumstances at the time of the formation or execution of the lease that the space occupied by the pharmacy was unknown, establishes that the contractual intention of 2601 and RMC was that stipulated cost per square foot would be applied against the “exact area” of the pharmacy, or 339.18 square feet. To give effect to the Jackson affidavit about discussions before the language of the lease was signed is to accept parol evidence to contradict or vary the lease. That, of course, is precluded by the parol evidence rule.
[29] One last observation on this aspect of the case. It is unreasonable to think that 2601 could ever have occupied 1000 square feet in the area of the entranceway to the ground floor. Schedule 2 to the lease is a drawing of the ground floor. 2601’s engineer’s drawing is in shape and measure the same. Even the uneducated eye can see that if 2601 was to occupy 1000 square feet, the space left for the waiting room of a walk-in clinic and medical offices for ten physicians would have been inadequate.
[30] Finally, if there is ambiguity, it should be resolved in favour of 2601. The lease was RMC’s document.
The arithmetic
[31] The Basic Rent is annually $16,959 ($50 x 339.18), or $1,413.25 monthly. The Additional Rent based on the RMC estimate of its operating costs and realty taxes is annually $6,783.60 or, each month, $565.30. The total monthly rent is $1,978.55.
[32] RMC is not entitled to add to the rent – Basic or Additional Rent any amount for common areas or facilities. Such areas are excluded from the rentable area of the premises by the definition of “Premises”.
[33] RMC has collected from 2601 $98,874.90 over the past 15 months. 2601 should have paid $39,571.00. The overpayment is $59,303.90. This figure may require adjustment after RMC accounts for its final realty taxes and operating costs under article 5.4.
[34] 2601 wrongly charged separately a utility cost charge. Article 6.2 makes it clear, however, that the cost of utilities is a cost which is to be included under operating costs and so is a part of the Additional Rent charge. For utilities, 2601 paid RMC $5,816.83.
[35] The sum of the overpayment of rent and the utility cost paid is $45,387.83. 2601 shall have judgment against RMC for that amount plus prejudgment interest at the Courts of Justice Act rate.
The deposit
[36] 2601 paid to RMC when the lease began as a deposit, $85,000 plus HST or $96,050. It is described in the lease at article 5.6 as a “Security Deposit”. Article 5.6 reads as follows:
Deposit…to be held by Landlord as a security for Tenant’s performance of its covenants under this lease. No interest shall secure or be payable to Tenant in respect of such deposits. If Tenant shall be in default hereunder, landlord may appropriate and apply such potion of the deposits, as Landlord considers necessary to compensate it for rent outstanding or loss or damage suffered by Landlord.
[37] 2601 asks for the return of the deposit on the ground that RMC has not secured the full 10 full-time physicians as tenants. This aspect of the claim of 2601 is dismissed. There is no evidence that this was a condition precedent and more importantly, there is no mention of this in the lease.
[38] Judgment may issue in 2601’s favour in accordance with these reasons. Costs to the applicant 2601. Required a bill of costs (form 57A) and a costs outline (form 57B).
Justice P.B. Hockin Released: July 8, 2019