Court File and Parties

COURT FILE NO.: CV-18-00606920 DATE: 2019-01-18 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: GABETHAN INC., Applicant/Defendant (Responding Party) AND: 5075 YONGE INC., Respondent/Plaintiff (Moving Party)

BEFORE: Justice S. Nakatsuru

COUNSEL: Darryl Singer and Nadia Condotta, for the Applicant/Defendant Brendan Clancy, for the Respondent/Plaintiff

HEARD: January 14, 2019

ENDORSEMENT

[1] 5075 Yonge Inc. is the landlord of office spaces that Gabethan Inc. leased to be used for a well-known law firm. That law firm moved out to larger premises. Gabethan Inc. tried to sub-let two of the units it leased from 5075 Yonge Inc. to a proposed sub-tenant, MacKenzie Academy, a private school and learning center. This consent was refused by 5075 Yonge Inc. A few months later, Gabethan Inc. stopped paying rent.

[2] There are three issues in this application brought by Gabethan Inc. and the motion brought by 5075 Yonge Inc. in their action for rental arrears: 1) Was 5075 Yonge Inc.’s decision to withhold consent to the proposed sublease unreasonable; 2) If unreasonable, was this a fundamental breach of the lease; 3) If 5075 Yonge Inc.’s decision was reasonable, is it entitled to the full rent arrears and interest since September 1, 2018, when Gabethan Inc. stopped paying rent.

[3] Given my decision, it is only necessary to deal with issues 1) and 3).

[4] First of all, I will find the facts. I find that the portion of Mr. Zisckind’s affidavit that Mackenzie Academy only intended to use the suites as administrative offices and not for classes to be of little weight. There is no source set out for that information. Mr. Zisckind is a lawyer for the law firm and not connected to MacKenzie Academy or its broker. The source could only be of a hearsay nature. Mr. Zisckind does not aver to his belief in the information. It is further inconsistent with the other evidence I accept.

[5] In any event, what is more material is what 5075 Yonge Inc. was told at the relevant time about the use to be made by Mackenzie Academy; not at a later time based upon some other unspecified information.

[6] I find what Mr. Rakowsky, the director of leasing of 5075 Yonge Inc., was told at the time from the leasing broker for the proposed sub-tenant was that although Mackenzie Academy was not going to use all of the space as a school, they were intending on using some of it for that purpose. I accept his evidence on this. This is confirmed by the email on June 6, 2018, from the broker to Mr. Rakowsky where the broker states that Mackenzie Academy had a main location elsewhere and that the premises of 5075 Yonge Inc. was going to be a “secondary satellite location” and the full square footage of the suites may not be used. He further advises that “much of the space” will be utilized as administration offices. The only reasonable interpretation of this email and one that 5075 Yonge Inc. came to was that some of that space was going to be used as a school.

[7] I find that the reason given at the material time for the refusal to consent to the sublease was that the sub-tenant was going to use the premises as a school. I find any assertions by Mr. Zisckind that the reason was otherwise to be speculative and unsupported by the evidence.

[8] On these facts, Gabethan Inc. has not discharged its onus that this refusal to consent was unreasonable. Indeed, I find that the refusal was entirely reasonable. Importantly, the use of the premises, even a part of the premises, as a school was expressly a prohibited use under the lease. Gabethan Inc., a sophisticated commercial party, had agreed to this clause. It could hardly be surprising or unreasonable in this circumstance that 5075 Yonge Inc. would object and withhold consent to a sub-tenant who would be violating a term in the lease. Under this term, it was of no moment that MacKenzie Academy would have used a significant portion of the space for administrative offices. Further, when the decision is assessed against the commercial concerns about over-burdening the building with another school when there are already two other schools present in the building and what comes with that and how that might affect the other tenants, the refusal to consent to this sub-tenant is something that a reasonable person would have done in the circumstances.

[9] I appreciate Gabethan Inc.’s argument about 5075 Yonge Inc.’s reasons being undermined by it leasing a different space to the TDSB later on. However, there are sufficient distinguishing factual circumstances that make this argument unpersuasive. It further does not materially impact on the reasons given by 5075 Yonge Inc. for withholding consent to Gabethan Inc. at the relevant time.

[10] Therefore, Gabethan Inc.’s application is dismissed. 5075 Yonge Inc. is entitled to the declaration that its refusal to consent to Gabethan Inc.’s proposed sublease was not unreasonable.

[11] Let me deal with the motion. 5075 Yonge Inc. has sued Gabethan Inc. for rental arrears and interest for the unpaid rent on suites 701 and 702. The parties obtained a consent judicial order on December 11, 2018, that the motion for summary judgment and the application be heard together.

[12] Given my finding above, there is no fundamental breach of the lease. Gabethan Inc. owes 5075 Yonge Inc. the rent arrears for the said suites and the interest as contracted for under the lease.

[13] The only issue argued by Gabethan Inc. is that 5075 Yonge Inc. has done nothing to re-rent the premises and thus has done nothing to mitigate its losses. However, I agree with 5075 Yonge Inc.’s position that the lease remains extant and the landlord is insisting on the performance of the terms of the lease. It has not terminated the lease nor taken re-possession. Given this, there is no obligation on its part to mitigate: Highway Properties Ltd. v. Kelly, Douglas & Co., 1971 CanLII 123 (SCC), [1971] S.C.R. 562; 607190 Ontario Inc. v. First Consolidated Holdings Corp, 1992 CarswellOnt 609 (Div. Ct.). Thus, in my opinion, Gabethan Inc. owes the rent and interest that is being claimed to date.

[14] Summary judgment is granted and 5075 Yonge Inc. is given judgment in the amount of the outstanding rent, $153,418.62, and the contractual rate of interest owed under the lease.

[15] If the issues of costs cannot be resolved between the parties, I will entertain written submissions, each one limited to two pages excluding any attachments (any Bill of Costs, Costs Outline, and authorities). 5075 Yonge Inc. shall file within 20 days of the release of these reasons. Gabethan Inc. shall file within 10 days thereafter. There will be no reply submissions without leave of the court.

Justice S. Nakatsuru

Released: January 18, 2019