Court File and Parties
Court File No.: CV-18-00608454-0000 Date: 2019-07-17 Superior Court of Justice - Ontario
Re: NORTHERN FABCO LTD. o/a T.J. O’SHEA’S IRISH SNUG and T.J. O’SHEA’S IRISH SNUG LTD, Applicants And: 2206709 ONTARIO INC., Respondent
Before: Justice S. Nakatsuru
Counsel: Dina Peat, for the Applicants Q. Ryan Hanna, for the Respondent
Heard: July 2, 2019
Application Record Endorsement
[1] These are two applications arising from a commercial tenancy. Essentially, the case is about whether a restaurant/pub, T.J. O’Shea’s Irish Snug, which is operated by Northern Fabco Ltd. (“Northern Fabco”) should be declared to be the tenant of 2206709 Ontario Inc. (“2206”), the landlord that owns the building at 3481 Lakeshore Blvd. West, Toronto.
[2] For the following reasons, I find that 2206 has unreasonably withheld consent to the assignment of the lease.
[3] As a preliminary matter, 2206 has objected to the admission of certain portions of the Colby Kriegl’s (“Colby”) affidavit and certain letters. It is claimed that they relate to settlement privilege. I agree. I have not considered this evidence. There is an exception. A letter attached to Mehran Beigi’s (“Beigi”) affidavit as Exhibit T should be considered by me as 2206 cannot rely on this privilege given it presented this evidence at these proceedings. 2206 does not really argue otherwise.
[4] The agreement that is subject to this application is a renewal of the original lease entered into by the landlord and the tenant. The Renewal Lease is between 2206 and Robert A. Costelloe, in trust, for Northern Fabco (Tenant) and Robert A. Costelloe (Guarantor).
[5] There are several preliminary arguments raised by 2206. First, 2206 relies on section 3 of the Renewal Lease and argues that no proper assignment has been made to Northern Fabco. It submits that Robert Costelloe (“Costelloe”) had to register and transfer the lease to a company with the tenant as the principal shareholder under the section. Since it did not the tenant, Costelloe in trust for Northern Fabco, could not assign the lease. I disagree. Such an interpretation is contrary to the plain wording of the agreement. The provision 2206 relies upon is a permissive section. It contemplated the potential that Costelloe could incorporate such a company and the provision allows for a transferal. It is not a pre-requisite to Costelloe assigning the lease. What Northern Fabco states occurred here was permitted under the lease; a purported assignment of the lease by the tenant to Northern Fabco, when Colby purchased Northern Fabco. Put another way, since Northern Fabco was not the named tenant under the Renewal Lease, the only way it could become such, once the sale was ultimately completed to Colby, was under the assignment clause.
[6] However, such an assignment depended upon the consent of 2206. That consent was not forthcoming.
[7] Secondly, I disagree that a collateral agreement was reached between Costelloe and 2206 that supplemented or varied the Renewal Lease. The email pointed to as an agreement by 2206 is ambiguous and does not amount to evidence of such an agreement. Indeed, the better interpretation is a rejection by Costelloe of Beigi’s proposal for a new tenancy. I find this is the proper interpretation of the email. I do not accept Beigi’s account of this. Furthermore, the plain wording of the Renewal Lease does not provide for termination of the lease upon a change in ownership. Indeed, the provisions found within it regarding the assignment provision would be contrary to any alleged collateral agreement.
[8] There are other technicalities and objections raised by 2206 in its application. For instance, that it was ambiguous whether 2206’s consent was ever asked. I find that it clearly was. I do not accept any of these objections raised by 2206. In my view, these objections are without foundation. They were merely presented to try and block any potential assignment of the lease.
[9] The real issues in this case are the ones raised by the Northern Fabco: (1) the reasonableness of 2206’s withholding of consent; and (2) equitable estoppel.
[10] I only need to deal with issue (1). Section 23(2) of the Commercial Tenancies Act permits Northern Fabco to come to court to determine whether 2206’s consent had been unreasonably withheld.
[11] The burden is on Northern Fabco to satisfy me that the refusal was unreasonable based on the information available to the landlord at the time and the reasons provided by it. The test was summarized in Suncor Energy Products Inc. v. 2054889 Ontario Ltd, 2010 ONSC 6159, [2010] OJ No 5129, 98 RPR (4th) 301, 2010 CarswellOnt 8954, 195 ACWS (3d) 664 to be:
(i) the burden is on the tenant to satisfy the court that the refusal to consent was unreasonable; (ii) in determining the reasonableness of a refusal to consent, it is the information available to - and the reasons given by - the Landlord at the time of the refusal - and not any additional, or different, facts or reasons provided subsequently to the court - that is material; (iii) the question must be considered in the light of the existing provisions of the lease that define and delimit the subject matter of the assignment as well as the right of the tenant to assign and that of the Landlord to withhold consent; (iv) a probability that the proposed assignee will default in its obligations under the lease may, depending upon the circumstances, be reasonable ground for withholding consent; (v) the financial position of the assignee may be a relevant consideration; (vi) the question of reasonableness is essentially one of fact that must be determined on the circumstances of the particular case, including the commercial realities of the market place and the economic impact of an assignment on the Landlord.
[12] In this case, the existing lease provision provides for the sublease and assignment of the lease upon written consent of the landlord which is not to be withheld unreasonably. There are no other provisions regarding this assignment or sublease. There are no restrictions. There are no explicit preconditions to its exercise.
[13] In this case, it is significant that 2206 knew who the lease was going to be assigned to. This knowledge was substantial and practically meaningful. It forms the factual context in which the withholding of consent must be assessed. Colby and Trevor Kriegl (“Kriegl”) were not strangers to 2206. The restaurant had been operating for several years. 2206 knew that the brothers had managed the business. They had paid rent cheques. There was early indication of an assignment of the lease when on December 7, 2017, Costelloe wrote to Beigi that he intended to sell the tenant to Colby and Kriegl. After this letter, Beigi was involved in and consented to renovations that were conducted and overseen by Colby. On June 13, 2018, Colby, Costelloe, and Beigi met to discuss the sale again. Any issues Beigi had, was with Costelloe as he confirmed in cross-examination, and not with Colby.
[14] There was no concern with any default. From nearly all perspectives, Northern Fabco, as run by the Kriegl, was a successful and responsible business that had just recently invested significant monies in renovations. They were taking over the business already operating in the leased space. It was not a new venture. I see no evidence of any negative impact upon 2206 from this assignment of the Renewal Lease.
[15] In this factual context, I further find that 2206 gave no reasons for the refusal. There is conflicting evidence whether Beigi asked for financial information about the proposed tenant. I prefer the evidence of Colby that no such requests were made. There is no written documentation supporting Beigi’s evidence. This despite his claims that he did so. I find it surprising that no such confirmatory evidence has been brought forward given what was happening and for the period of time it was happening. Further, if Beigi had wanted additional information, it was simple for him to have asked for it Kriegl himself as he was there on the premises. I, therefore, cannot accept that he wanted further information, and this was the reason for his refusal to consent. I thus find that no reasons were given at the time for the refusal.
[16] 2206 asks that I draw an adverse inference from the fact that Northern Fabco has not called Costelloe as a witness. I decline to do so. Aside from the fact that Costelloe has been having his own financial problems and inferentially his evidence may not have been easy to secure, there is no property in a witness. Costelloe was readily available as a witness to either side. Northern Fabco is not bringing this application on Costelloe’s behalf, but on its own behalf as an assignee.
[17] Finally, Northern Fabco argues that 2206 had a collateral purpose. Given its inability to rely on the inadmissible evidence regarding settlement discussions, this argument has less persuasive value. That being said, I do not totally discount it. The Renewal Lease specifically gave the tenant the right to sublease or assign the lease, including the renewal options. This depended on the consent of the landlord. However, it was not ever contractually intended that there could never be an assignment or sublease. Put another way, it was never intended that a change in ownership or other assignment would terminate the lease. The evidence before me supports the inference that 2206’s refusal to consent was due to their desire to enter into a new lease with the assigned tenant. Exhibit T and the email exchange of July 28, 2015, where Beigi states that he was opposing any change in ownership until he and his partners were satisfied with the buyers “since it would be a new tenancy” is evidence of this. In this sense, this is a collateral purpose to refusing consent. One that would deprive the assignment clause of any effect.
[18] For these reasons, I find that refusal to consent to be unreasonably withheld.
[19] I, therefore, declare that the Applicant, Northern Fabco, is the tenant pursuant to the Renewal Lease and such assignment is not in breach of the lease.
[20] I would encourage the issues of costs be resolved between the parties. If it cannot, I will entertain written submissions, each one limited to two pages excluding any attachments (any Bill of Costs, Costs Outline, and authorities). Northern Fabco shall file within 10 days of the release of these reasons. 2206 shall file within 7 days thereafter. There will be no reply submissions without leave of the court.