JCP Drugs Limited v. Daniels Leslieville Corporation

[Indexed as: JCP Drugs Ltd. v. Daniels Leslieville Corp.]

Ontario Reports

Ontario Superior Court of Justice

Faieta J.

September 25, 2019

148 O.R. (3d) 180 | 2019 ONSC 5295

Case Summary

Landlord and tenant — Agreement to lease — Applicant entering into agreement to lease premises on ground floor of respondent's residential condominium building for its pharmacy business — Agreement describing use of premises as "pharmacy and family medical clinic" — Respondent amending its standard form lease to impose egregious and onerous conditions on operation of applicant's business after discovering that applicant dispensed methadone — Agreement to lease being binding and enforceable — Amended lease containing terms that were inconsistent with agreement to lease — Respondent breaching agreement to lease by refusing to permit applicant to take possession of premises when applicant refused to accept lease.

The applicant operated a pharmacy. It entered into an agreement to lease premises on the ground floor of the respondent's new residential condominium building for its pharmacy business. The agreement to lease described the use of the premises as a "pharmacy and family medical clinic". Before the date when the applicant was to take possession, the respondent became aware that the premises would be used to dispense methadone. The respondent amended its standard form lease to impose onerous conditions on the operation of the applicant's business, and informed the applicant that the premises would not be turned over to it until the respondent received a signed copy of the lease. The applicant refused to sign the lease and brought an application for a declaration that the agreement was binding and enforceable, an order requiring the respondent to provide it with immediate possession of the premises, an order directing a reference on damages, and related relief.

Held, the application should be allowed in part.

The agreement was binding and enforceable. The parties reached an agreement on the use of the premises. Under the agreement, the applicant was permitted to use the premises as a "pharmacy and family medical clinic". The right to prescribe and dispense methadone came within that permitted use. The applicant was not required to disclose the fact, or the extent, of its methadone sales to the respondent prior to entering into the agreement. The respondent's dissatisfaction with the permitted use of the premises arose from its failure to exercise due diligence prior to signing the agreement, and not from the applicant's concealment of its "true intended use" of the premises.

The respondent breached the agreement by denying the applicant possession of the premises unless it accepted the amended lease. Some of the conditions imposed by the lease on the applicant's business were egregious. A tenant is under no obligation to sign a lease that contains terms that are inconsistent with an agreement to lease.

It would be premature to order a reference on damages. Rather, a trial on the issue of the applicant's damages should be directed pursuant to rule 38.10(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. [page181]

Cases referred to

365 Bay New Holdings Ltd. v. McQuillan Life Insurance Agencies Ltd., [2008] O.J. No. 472, 2008 ONCA 100, 64 R.P.R. (4th) 44, 233 O.A.C. 299, 164 A.C.W.S. (3d) 328; Canada Square Corp. v. VS Services Ltd. (1981), 1981 1893 (ON CA), 34 O.R. (2d) 250, [1981] O.J. No. 3125, 130 D.L.R. (3d) 205, 15 B.L.R. 89, 11 A.C.W.S. (2d) 443 (C.A.); Ossory Canada Inc. v. Wendy's Restaurants of Canada Inc. (1997), 1997 2212 (ON CA), 36 O.R. (3d) 483, [1997] O.J. No. 5168, 105 O.A.C. 321, 16 R.P.R. (3d) 204, 76 A.C.W.S. (3d) 420 (C.A.)

Statutes referred to

Human Rights Code, R.S.O. 1990, c. H.19, s. 1 [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 38.10(1) (b), (3), 54.02

Authorities referred to

Beatson, Jack, Andrew Burrows and John Cartwright, Anson's Law of Contract, 30th ed. (Oxford: Oxford University Press, 2016)

APPLICATION for a declaration that the agreement to lease was enforceable and for related relief.

Monica Peters, for applicant.

Gasper Galati, for respondent.

FAIETA J.: --

Introduction

[1] The central issue on this application is whether the respondent landlord breached an agreement to lease as a result of its refusal to permit the applicant tenant to take possession of the leased premises because the applicant refused to accept the respondent's "standard form" lease.

Background

[2] The applicant, JCP Drugs Limited ("JCP"), operates a pharmacy under the business name "Woodgreen Discount Pharmacy" at 909 Queen Street East, Toronto. Sameh Salib is a principal of JCP. The respondent, Daniels Leslieville Corporation ("Daniels"), is the owner of a new residential condominium building located at 899 Queen Street East, Toronto.

[3] In September 2019, Mr. Salib contacted Daniels' leasing representative, Joseph Khlaif, and expressed interest in moving JCP's pharmacy into retail space on the condominium's ground floor.

[4] Mr. Khlaif attended JCP's existing premises on October 4, 2019. He left with the impression that it operated as a "standard [page182] pharmacy business". He did not observe any customers seeking treatment for addiction.

[5] On October 5, 2018, Mr. Khlaif sent Mr. Salib an application that would permit him to conduct a credit check. The one-page application, which asks that the "type of business" be specified, was returned. A copy of the completed application is not in evidence.

[6] On October 17, 2018, Daniels delivered a draft Agreement to Lease ("Agreement"). On October 18, 2018, JCP returned the draft Agreement and changed the use of the premises from "a pharmacy and walk-in medical clinic" to "a pharmacy and medical clinic". On October 19, 2018, JCP further amended the draft Agreement to change the use of the premises to "a pharmacy and doctor's office, medical clinic".

[7] On October 23, 2018, Daniels revised the draft Agreement and changed the use to "a pharmacy and family medical clinic". Nicole Ferrari, the director of commercial leasing for Daniels, states that the word "family" was added to emphasize the family-friendly nature of the building.

[8] JCP signed the Agreement on October 24, 2018 and Daniels signed the Agreement on November 16, 2018. The Agreement estimates that the possession date would be on April 1, 2019.

[9] JCP delivered its first and last months' rent deposit by December 3, 2018 in accordance with the Agreement.

[10] Daniels provided architectural and mechanical drawings for the leased premises in January 2019.

[11] In February 2019, Daniels became aware that the premises would be used to dispense methadone. On February 15, 2019, counsel for Daniels notified JCP that the dispensation of methadone was not a permitted use under the Agreement. Her e-mail states:

Under the Agreement to Lease, the use to be made of your space is that of a pharmacy and family medical clinic. The Landlord has been advised that you intend on prescribing and filing medication to treat opioid addiction, such as methadone, from the Premises and may in fact operate a methadone clinic or other such drug replacement therapy from the Premises. We would like you to immediately know that the treatment of any opioid addiction (whether by the pharmacy or the medical clinic) is not permitted under your Agreement and will not be permitted by the Landlord. If you are found to be operating such a use, the Landlord will take all necessary steps to enforce its rights and remedies under the Agreement and at law to prevent the operation of this business from the Premises, including possible termination of your tenancy.

As you know, your Premises will be located on the ground floor of a new high-end residential condominium building. Any business other than a usual pharmacy and family medical clinic will be incongruous with the building residents' needs and desires and will not be accepted. [page183]

We would like confirmation from you that you will be operating a usual pharmacy and family medical clinic and that there will not be any opioid addiction treatment component to it whatsoever.

(Emphasis added)

[12] The assurance sought by Daniels was not provided by JCP.

[13] The parties held a meeting on April 2, 2019. Ms. Ferrari states that Daniels asked JCP to not ". . . specialize in methadone dispensation and the treatment of addiction but the Tenant refused". A few days after the meeting, Don Pugh, vice-president, Daniels, attended the existing pharmacy without notice to JCP and, according to Ms. Ferrari, he observed ". . . several concerning customers and clientele present and awaiting treatment".

[14] On April 11, 2019, Daniels notified JCP that its possession date of the premises would be June 17, 2019.

[15] Section 20 of the Agreement provides that JCP will sign the Landlord's standard form lease. On May 24, 2019, Daniels delivered a copy of their proposed form of Lease. It includes a Schedule "E" -- Additional Covenants, Agreements and Conditions which adds more than two pages of terms not addressed in the Agreement:

SCHEDULE "E" - ADDITIONAL COVENANTS, AGREEMENTS AND CONDITIONS

1. Drug Sale Specifics: -- Notwithstanding anything contained to the contrary in this Lease, the following provisions shall govern if there is a conflict between any of them and any other provisions of this Lease:

(a) Tenant Acknowledgement As To Building Character

The Tenant acknowledges that: (i) the majority of the Building will be a residential condominium where persons have purchased units therein at between $600,000.00 and $1,460,000.00; (ii) the Building is being marketed as an exclusive 59 residential unit building with several upscale amenities; (iii) the occupants of the residences will very likely expect neighbours, tenants and their respective invitees to be of similar socioeconomic backgrounds; and (iv) the Landlord is concerned with the image portrayed by its tenants and their invitees and therefore requires measures of control related to the operation of the Permitted Use.

(b) Monitoring of Common Elements/No Loitering

The Tenant shall not allow any part of the Common Elements for loitering or for the smoking, vaping, ingestion or consumption of drugs, including methadone and cannabis, and agrees to take all measures necessary to prevent any loitering or consumption of drugs in the Premises and the Common Elements by its employees, customers or other invitees. In this regard, the Tenant agrees to indemnify the Landlord from all losses arising from or in connection with (a) loitering or consumption of drugs in Premises and Common Elements, [page184] including losses arising from claims from other tenants or occupants of the Building and (b) any expenses relating to additional security and/or garbage disposal that the Landlord considers necessary in connection therewith.

(c) Permits

The Tenant shall, at its sole cost, be responsible for obtaining, from the appropriate governmental authority or other regulatory body having jurisdiction, all necessary permits, licenses or approvals required for the operation of its business.

(d) Conduct of Business

The Tenant shall: operate its business in a manner so as to project the image of a high-end pharmacy/medical clinic that is in keeping with the high-end character of the Building, and among other things shall ensure that the Premises are at all times clean, well lit and professional in aesthetic; keep any show windows brightly lit and professionally displayed with displays of a first-rate products; be responsible for the behavior of its customers and in this regard and without limitation, endeavor to promote standards of public safety and social responsibility, ensure that precautions are taken to prevent persons that are not old enough to purchase drugs from purchasing them, and monitor the Common Elements in accordance with Section 1(b) above; ensure that its business is at all times in compliance with all applicable laws, regulations, bylaws, orders, rules, requirements and directions of all federal, provincial, municipal and other governmental authorities having jurisdictions; and not carry on any activity which in the opinion of the Landlord, would tend to lower the character of the Building. Without limiting the generality of the foregoing, if the Landlord, acting reasonably, objects to any merchandise, display, sign, picture, advertisement, notice, lettering or decoration within the Premises that is visible from the exterior, The Tenant will immediately remove it, failing which the Landlord may enter upon the Premises, without notice, and remove it on the Tenants behalf, at the Tenant's sole costs and expense, without notice, and remove it on the Tenant's behalf, at the Tenant's sole cost and expense, without incurring any liability in respect thereof.

Without limiting the generality of the foregoing. The Tenant shall restrict the hours duringwhich it may supply methadone to the following: 11 am to 3 pm Monday to Friday -- and shall not permit any lineups into the Premises until 10:30 am on those days.

(e) Excess Utility/Service Utilization

If the Permitted Use causes any utilities or services to be used in excess of that reasonably expected for such business (including, without limitation, requirements outside of normal business hours), the Landlord may, in its sole discretion, designate a professional engineer or other consultant to review such excess utilization and determine the extent thereof and the Landlord may, if such consultant so indicates, increase the Tenant's payments on account of such component of Additional Rent by an amount equal to such excess utilization as long as such utilization shall continue. The Tenant shall pay to the Landlord, as long as such utilization shall continue, the amount determined by the Landlord, in its sole opinion and in accordance with the consultant's report, to be [page185] attributable to such excess utilization. The Tenant shall also pay to the Landlord, as Additional Rent, any extra insurance costs resulting from such excess utilization.

(f) Nuisance

The Tenant shall not use or permit any part of the Premises to be used for any illegal or unlawful purpose or any dangerous, noxious or offensive trade or business, and shall not cause or permit any nuisance in, at or on the Premises or the Common Elements.

Notwithstanding anything to the contrary contained in this Lease, if at any time during the Term (or any extension or renewal thereof); (a) the Landlord receives notice from any tenant or occupant of the Building that the Tenant's use of the Premises is causing a nuisance, or a material, adverse disturbance to the operation of such tenant business or occupant's residence or (b) the Landlord, acting reasonably, determines that the Tenant's use of the Premises is causing a nuisance or a material, adverse disturbance to the operation of the Building, or (c) the Landlord reasonably believes that the Tenant's conduct of business in the Premises has materially, adversely injured the reputation or character of the Building, then the Landlord shall have the right to terminate this Lease (without bonus or penalty) upon not less than sixty (60) days' prior written notice to the Tenant.

(g) Security

The Tenant shall, at its sole cost and expense, complete such work and take such other steps as the Landlord considers necessary or advisable, acting reasonably, to reduce the likelihood of loitering and any other conduct that is inconsistent with the image the other tenants or occupants of the Building are desirous of maintaining, including reducing the likelihood of criminal activity occurring at the Building as a result of its Permitted Use, including without limitation: (a) the installation and maintenance of a high quality security system, including video surveillance, actively monitored at all times by an offsite third party security company approved by the Landlord, (b) the installation of signage sufficient to make it obvious that the Premises are under closed-circuit video surveillance at all times, and (c) taking such other steps during the acceptance of shipments and other transportation of products to and from the Premises so as to minimize the likelihood of any such activity, such as by way of example, the presence of qualified security personnel. Without limiting the provisions of this Section 1(g), the Tenant shall indemnify the Landlord from all claims whatsoever arising from or relating to any theft, burglary, break-ins, or other criminal activity, whether attempted or successful, at or connected to the Tenant's use of the Premises, and all claims relating to the use of force or other resistance thereof by the Tenant and/or its security grate or other supplementary locking system at the Premises and shall provide the Landlord with such keys or other devices to enable the Landlord to access the Premises in accordance with this Lease.

Notwithstanding the foregoing, the Landlord's security personnel will be entitled to enter the Premises for the purpose of supplementing the Tenant's own security if the Landlord reasonably determines this to be necessary or if the Tenant has requested it to do so and in respect of all [page186] such entries the Tenant will pay to the Landlord, within thirty (30) days of its receipt of an invoice, the Landlord's costs of providing such additional security together with an administration fee of fifteen percent (15%) of such costs. Additionally, if the Landlord is required to increase the level of its security to the Common Elements or if any of the Building's routine security personnel is reasonably required to devote more attention than usual to certain Common Elements due to the conduct of the Tenant's patrons or the Permitted Use itself and the cost thereof is charged to the Landlord, then the Tenant will pay to the Landlord within thirty (30) days of its receipt of an invoice, such costs of so doing, together with an administration fee of fifteen percent (15%) of such costs.

(h) Disposal of Product

The Tenant shall ensure that the Premises contains proper, secure disposal facilities for its drug and medical products, in accordance with all applicable laws. The Tenant shall comply with all applicable industry guidelines, rules, regulations and laws pertaining to its safe disposal and destruction of such products, as well as the Landlord's rules and regulations relating thereto, which may include requiring the Tenant to arrange for its own dedicated waste disposal service, all at its sole cost and expense.

(Emphasis added)

[16] JCP submits that the draft Lease delivered on May 9, 2019 by Daniels was not its standard form lease. Ms. Ferrari states that the draft Lease reflects its standard form, however, with modifications in Schedule "E" that ". . . it would have required as part of the Agreement to Lease negotiations if the Tenant had been transparent with respect to the True Intended Use of the Premises from the outset".

[17] On June 14, 2019, Daniels notified JCP that the premises would not be turned over to JCP until it received a signed copy of the Lease from JCP.

[18] JCP refused to sign the Lease and commenced this application for the following relief:

(a) a mandatory order requiring Daniels to provide JCP with immediate possession of the premises;

(b) a declaration that the Agreement is binding and enforceable;

(c) a declaration that the use of the premises as "pharmacy and family medical clinic" includes the right to prescribe and dispense methadone and any other such medication lawfully used to treat chronic pain and opioid use disorder;

(d) a declaration that the form of lease provided by Daniels on May 9, 2019 is not its "Standard Form Lease" or alternatively, the restrictions found in Schedule "E" -- Additional Covenants, Agreements and Conditions, should be struck as void and unenforceable; [page187]

(e) a declaration that the form of Lease that the parties are required to execute is in the form annexed as Appendix B to the notice of application; and

(f) an order directing a reference to determine the quantum of damages incurred by JCP was a result of the increased construction costs and/or loss of business as a result of delayed possession.

[19] At the hearing of this application, JCP advised that it had found alternate leased premises and that it was no longer seeking the relief described above in para. (a). Further, Daniels confirmed that it no longer disputes that the permitted use of the premises under the Agreement includes the right to prescribe and dispense methadone. Consequently, JCP advised the court that it is not seeking the relief found in paras. (c) and (e).

Analysis

[20] This Application raises the following issues:

(1) Is the Agreement binding and enforceable?

(2) If so, did Daniels breach the Agreement by denying possession of the premises to JCP as a consequence of its refusal to accept the Standard Form Lease prepared by Daniels?

(3) If so, should a reference on damages be ordered?

[21] JCP also argued that the doctrines of waiver and promissory estoppel are applicable in the event I found for Daniels on either of the first two issues. Given my ruling on these issues, there is no need to address these additional arguments.

Issue #1: Is the Agreement binding and enforceable?

[22] An agreement to lease is binding when there is agreement on: (1) the parties; (2) the premises to be leased; (3) the commencement and; (4) duration of the term; (5) the rent; and (6) any other material term raised by one of the parties: Canada Square Corp. v. VS Services Ltd. (1981), 1981 1893 (ON CA), 34 O.R. (2d) 250, [1981] O.J. No. 3125 (C.A.), at paras. 21, 73, 74; Ossory Canada Inc. v. Wendy's Restaurants of Canada Inc. (1997), 1997 2212 (ON CA), 36 O.R. (3d) 483, [1997] O.J. No. 5168 (C.A.), at paras. 21-22.

[23] I reject Daniels' submission that the parties did not reach agreement on the use of the premises. Under the Agreement, JCP is permitted to use the premises as a "pharmacy and family medical clinic". Daniels admits that "the right to prescribe and dispense methadone and any other medication lawfully used to [page188] treat chronic pain and opioid use disorder" comes within this permitted use.

[24] Daniels further submits that the Agreement is not binding because JCP allegedly "concealed" the "true intended use of the premises" and that the sale of methadone constitutes about 35 per cent of its sales at its existing pharmacy, located about 30 metres away from the premises, and that as a result the Agreement is void.

[25] Daniels also submits that Mr. Khlaif was invited to view JCP's existing pharmacy at a time of the day when its use for dispensing methadone was not open and obvious. JCP's evidence is to the contrary. On cross-examination, Ms. Ferrari admitted that she did not know who proposed the time for Mr. Khlaif's visit. I am not satisfied that JCP concealed that the sale of methadone constituted a portion of its business.

[26] Prior to signing the Agreement, Daniels did not ask JCP whether it sold methadone or any other question related to the sale of methadone. There is no reasonable basis to assert that JCP misrepresented the extent to which methadone sales represent its overall sales.

[27] JCP was not obliged to disclose the fact, or the extent, of its methadone sales to Daniels. The dispensing of methadone was a permitted use under the Agreement and Daniels could have asked questions about the nature of the existing pharmacy's business and could have visited the nearby existing premises whenever and however often it wished. Its leasing agent visited the existing premises once before Daniels signed the Agreement and a vice-president of Daniels visited the existing premises, without notice, once after it had signed the Agreement.

[28] There is no general duty to disclose material facts relevant to another party's decision to enter into a contract before the contract is made except when (1) the contract is one of "utmost good faith" such as an insurance contract; or (2) the relationship between the parties is one of trust and confidence such as a fiduciary relationship. The common law position contemplates that a party to a contract, and particularly a sophisticated commercial entity, will undertake its own due diligence to ascertain information about matters that it views as material prior to entering a contract or risk the consequences of failing to do so: See Sir Jack Beatson, Andrew Burrows and John Cartwright, Anson's Law of Contract, 30th ed. (Oxford: Oxford University Press, 2016), pp. 358-60.

[29] Daniels' dissatisfaction with the permitted use of the premises arises from its failure to exercise due diligence prior to signing the Agreement and not from JCP's concealment of its [page189] "true intended use" of the premises. I find that the Agreement is binding and enforceable.

Issue #2: Did Daniels breach the Agreement by denying possession of the premises to JCP unless it accepted the "standard form" lease prepared by Daniels?

[30] As noted, JCP has the right to use the premises for a "pharmacy and walk-in medical clinic", which admittedly permits it to dispense methadone.

[31] Section 20 of the Agreement:

Prior to the Possession Date, the Tenant will execute the Landlord's standard form of net Lease for the Premises. The Tenant acknowledges that the provisions of the Agreement will be set out in greater detail in the Lease and that provisions of the Lease may add to, supplement and expand upon the rights and obligations provided for in the Agreement. The language pertaining to each of the clauses in this Agreement may be more detailed and comprehensive in the Lease.

(Emphasis added)

[32] Schedule "E", described above, is an attempt by Daniels to address its concerns regarding the proposed use of the premises that it discovered after the Agreement was signed. The terms and conditions found in Schedule "E" may be "detailed" and "comprehensive" but many of them do not pertain to the provisions, rights, or obligations set out in the Agreement, nor do they appear to be standard form provisions. This authority, and the authority to "add to, supplement and expand upon the rights and obligations provided for in the Agreement" does not provide Daniels with authority to re-write the Agreement and unilaterally impose terms and conditions which were not contemplated by the Agreement. The Agreement permits the use of the premises as "a pharmacy and family medical clinic" however Schedule "E" undermines and limits such use. One of the most egregious provisions of Schedule "E" is found in clause (d) -- "Conduct of Business" as it prohibits JCP from carrying on "any activity which in the opinion of the Landlord, would tend to lower the character of the Building". Another egregious provision is found in clause (f) -- "Nuisance" -- which permits Daniels to terminate the Lease if a tenant or occupant of the Building merely complains to Daniels that JCP's use of the premises is causing a nuisance.

[33] A tenant is under no obligation to sign a Lease that contains terms that are inconsistent with an Agreement to Lease: 365 Bay New Holdings Ltd. v. McQuillan Life Insurance Agencies Ltd., [2008] O.J. No. 472, 2008 ONCA 100, at paras. 11-12. It is clear in this case that Daniels contemplated that some of the terms of Schedule "E" may be inconsistent with the Agreement [page190] as it provides that the Lease is to prevail if there is a conflict between the Agreement and the Lease.

[34] I find that Daniels' refusal to deliver possession of the premises to JCP unless JCP accepted the Lease is a repudiation and breach of the Agreement given that many of the proposed terms and conditions in Schedule "E" are beyond the scope of s. 20 of the Agreement.

[35] JCP also submitted that Daniels' attempt to prohibit the dispensing of legally prescribed medications to patients seeking treatment for addictions constitutes discrimination under s. 1 of the Human Rights Code, R.S.O. 1990, c. H.19, as it prohibits discrimination in services against people with disabilities, including addictions. Given my decision, there is no need to address this further submission.

Issue #3: Should a reference on damages be ordered?

[36] JCP initially took the position that a reference on damages should be ordered. Rule 54.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides that a judge may direct a reference when a prolonged examination of documentation or an investigation is required that cannot conveniently be made at trial. JCP has not provided any evidence of its alleged damages. Counsel for JCP submits that such damages include a return of its deposit, its thrown away costs of preparing mechanical and other drawings for the premises, and any increased costs of outfitting its new premises.

[37] At the hearing of this motion, JCP accepted Daniels' position that given the lack of evidence regarding its damages claim, it is premature to order a reference on damages and that it would be more appropriate to direct a trial of on the issue of JCP's damages pursuant to rule 38.10(1)(b) of the Rules of Civil Procedure. I agree. Given that the damages claimed are modest, I direct that the parties make best efforts to agree on a simple process that will govern the trial of the damages issue. The agreed upon terms may then form directions for the trial of the issue pursuant to rule 38.10(3).

Conclusions

[38] Application granted in part.

[39] The parties are unable to agree on costs of this matter. The applicant shall deliver its costs submissions within three days. The respondent shall deliver its responding submissions within six days. The applicant shall deliver its reply submissions within nine days. Each submission shall be no longer than four pages exclusive of an outline of costs and any offers to settle.

Application allowed in part.

End of Document