COURT FILE NO.: CV-18-00602755-0000
DATE: 20190919
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
WEINS CANADA INC.
Plaintiff
- and -
ENSIL CORPORATION
Defendant
Doug Bourassa for the Plaintiff
Mauro Carabetta for the Defendant
HEARD: September 13, 2019
PERELL, J.
REASONS FOR DECISION
A. Introduction
[1] The Plaintiff, Weins Canada Inc., brings a summary judgment motion against its former Tenant, the Defendant, Ensil Corporation. Weins Canada claims $116,187.88 as damages for breach of Ensil Corp’s obligation to pay rent.
[2] Ensil Corp.’s defence is that the parties entered into a surrender agreement or there was a surrender by operation of law under which Ensil Corp. would vacate the leased premises by no later than June 30, 2018, and, in exchange, it would be released of its financial obligations under the lease.
[3] Ensil Corp.’s alternative defence - a partial defence - is that there was a surrender agreement or a surrender by operation of law and that Ensil Corp. is liable only to repay its arrears of rent, $56,636.92, less the security deposit of $9,573.75.
[4] Ensil Corp.’s partial defence would entitle Weins Canada to a judgment of $47,063.17 plus the costs of this motion. In this last regard, the parties have agreed that the successful party shall receive $10,000 costs for the summary judgment motion.
[5] For the reasons that follow, I grant Weins Canada a summary judgment of $106,614.13 ($116,187.88 - $9,573.75) plus costs of $10,000 all inclusive.
B. Factual Background
[6] The evidentiary record for the summary judgment motion was comprised of: (a) an affidavit from Elizabeth McKinlay, who is a Senior Property Manager with Avison Young, the property manager for Weins Canada; and (b) an affidavit from Farsad Kiani, who is the President of Ensil Corp. There were no cross-examinations.
[7] Weins Canada is the owner of a commercial property municipally known as 205 Torbay Road, in Markham, Ontario.
[8] In 2018, Ensil Corp. was the Tenant of units 13 and 14 of the Torbay Property pursuant to the terms of a written lease dated October 30, 2017. The 2017 Lease had a one-year term, expiring on October 31, 2018, with no option to renew.
[9] At the outset of the 2017 Lease, there was a credit balance of $2,129.36 owing to Ensil Corp. from its previous occupancy of the leased premises. The monthly rent under the 2017 Lease was $12,028.29 for November and December 2017. The rent increased to $15,001.04 beginning January 2018. The entire agreement clause of the 2017 Lease provided that: “no subsequent alteration, amendment, change, or addition to the lease shall be binding upon the Landlord or the Tenant unless reduced to writing and signed by them”.
[10] It is important to note that Ensil Corp. had been a tenant of the premises for two decades under a series of prior leases with Bruce N. Huntley Contracting Limited, the predecessor owner of the property. The relationship between Huntley Contracting and Ensil Corp. had been informal and without any difficulties.
[11] For two decades, the lease renewals were done without the formality of Ensil Corp. giving prior notice of its intention to renew.
[12] The informality changed after Weins Canada purchased the Torbay Property in 2016. Weins Canada was a strict and formal Landlord, and when Ensil Corp. did not formally trigger its right for a three-year renewal of the lease by giving proper notice, Weins Canada re-rented the property to a new Tenant, Toyota Canada, and then Weins Canada gave notice to Ensil Corp that it would have to vacate the premises.
[13] In May 2017, the opportunistic Weins Canada applied to the Town of Markham for the development permissions to reconstruct the premises, and it was not until October 23, 2017, just eight days before the end of the Huntley Contracting Lease, that Ensil Corp. received a letter from Ms. Elizabeth McKinlay, an employee of Avison Young, the representative for Weins Canada, stating that "Given that [Ensil had] failed to exercise its option to renew provision …the Landlord hereby notifies [Ensil] that said option to renew is null and void”.
[14] Ensil Corp. was taken by surprise. And under the gun, it negotiated the one-year lease for the premises. The one-year lease bought Ensil Corp. time to find new premises to relocate.
[15] Thus, when the parties signed the one-year lease, they both understood that the premises at the Torbay Property were already committed to a new tenant. These circumstances are part of the factual nexus associated with the alleged surrender of the one-year lease three-months before its termination date. And, these circumstances are relevant to whether or not Weins Canada would have been able to mitigate its damages for breach of the 2017 Lease.
[16] Returning to the narrative, under the one-year lease, Ensil Corp. remained in possession of the premises at the Torbay Property, but it began the process of trying to find itself a new location for its business, and, meanwhile, Weins Canada began to prepare for the arrival of Toyota Canada.
[17] In April 2018, Ms. McKinlay contacted Mr. Kiani, Ensil Corp.’s president, and advised him that Weins Canada wanted to take possession of the premises as soon as possible to allow Toyota Canada to renovate the premises. Accordingly, Ensil Corp. increased its efforts to find a new location to operate its business. Mr. Kiani understood that the 2017 Lease with Weins Canada would be surrendered if Ensil Corp was able to find a new location.
[18] On May 16, 2018, Ms. McKinlay sent the following email message to Louis Kokias, Mr. Kiani’s business partner, at Ensil Corp.
Hi Louis,
The owner has approved your early surrender. I will arrange to have a document prepared allowing you to surrender your premises as of June 30, 2018. It will take about 10 days to get the document ready for you.
[19] The surrender document was prepared, but a copy of it was not produced for the summary judgment motion. The surrender document was never signed, and in June 2018, the parties’ plans to surrender the lease were disrupted. On June 11, 2018, Ms. McKinlay sent the following email message to Messrs. Koikas and Kiani of Ensil Corp.:
It has just come to my attention, you have not been paying your rent? Please be advised, this is not acceptable, and we certainly cannot allow you an early surrender when you are in arrears. Please advise.
[20] The next day, on June 12, 2018, Ms. McKinlay sent the following email message:
Further to our conversation yesterday, I’ve reconfirmed, the last payment we received from you was on March 22, 2018 – cheque #18848 - $11,666. 58. … Your early Surrender has not been signed and it cannot be executed if you remain in arrears. It is imperative to catch up your April, May, and June rent immediately.
[21] Also, on June 12, 2018, on behalf of Weins Canada, Ms. McKinlay sent a demand letter to Ensil Corp. The letter demanded payment of the rental arrears. The letter sought payment of $46,460.70. The letter indicated that if the default was not remedied, the Landlord may exercise its remedies under the lease agreement without further notice.
[22] On June 13, 2018, Ms. McKinlay sent the following email message Ensil Corp.:
In speaking with Louis, I understand [Mr. Kiani] is out of town. That said, we need this matter resolved immediately. Especially if you wish to move forward free and clear with an early surrender of the legal obligations of your lease. Please find attached your default notice. [the letter of June 12, 2018] …
[23] On June 13, 2018, Ms. McKinlay sent the following additional email message to Ensil Corp.:
To recap our conversation, you indicated you don’t know how to pay your arrears because Farad is out of town, but you are unable to say when he will return. …. As discussed, your Surrender has not been executed and cannot be executed if you remain in arrears. This means you will be legally liable for your lease charges to the end of your natural expiry should you not pay your arrears. Should you elect not to cure your default as per the stated terms, we may take any all remedies available to us under your lease.
[24] Ensil Corp. vacated the premises sometime in June, but the email exchanges between Ms. McKinlay and the officers of Ensil Corp. continued. On July 11, 2018, Ms. McKinlay sent the following email message:
Morning Farsad,
We have no record of your vacating the premises on May 31, 2018, When I met Louis on June 10, 2018 to conduct your preliminary out-inspection, he indicated Ensil Corp. moved out over the weekend of June 16, 2018. This action came as a surprise, as we received no advance notification of your intentions.
During our walk through that day, the premises was found in poor condition and the premises was certainly not clean. We did not receive any keys or passcodes. We have no record the utilities were transferred. …
All that said, it is not our intention to make an issue of the condition of your unit. We will be demolishing the space as soon as we can get these legal matters addressed. I explained this to Louis during our walk through, so as to ensure him there would be no additional expense.
As per your legal lease agreement, the unit in question remains your responsibility until October 31, 2018, unless we can arrange for your early Surrender as of June 30, 2018 as originally intended. Your arrears must be addressed in order to accommodate the Surrender.
We look forward to receiving your replacement cheques, and any further response, including details substantiating your moving costs by Friday, July 13, 2018.
[25] By letter dated July 12, 2018, Weins Canada again demanded payment of the rental arrears then totaling $56,636.92. Once again, the demand letter indicated that if the default was not remedied, the Landlord may resort to exercising its remedies under the lease agreement without further notice.
[26] Ensil Corp. never fully paid the rent required under the one-year lease. It paid $11,666.68 for each of November and December 2017, and for January, February, and March 2018. It did not pay rent in April, May, or June 2018, when the lease was allegedly surrendered or for any month thereafter, through to the expiry of the term in October 2018.
[27] The rental arrears as on the end of June 2018 totaled $56,636.92. The amount due pursuant to the terms of the 2017 Lease through to the expiry of the term totals $116,187.88.
[28] In the evidentiary record for the summary judgment, there is no evidence that Weins Canada delivered a formal “Kelly Douglas Notice”, the significance of which, I shall discuss below.
[29] At the hearing of the motion, Weins Canada asked for an adjournment of the motion to allow it to deliver an additional affidavit, which would have explained that the Kelly Douglas Notice had in fact been delivered. The adjournment request was opposed, and I did not grant the adjournment.
C. Discussion and Analysis
1. Is the Case Appropriate for a Summary Judgment?
[30] Weins Canada submitted that the case at bar was an appropriate one for a summary judgment.
[31] For its part, on the one hand, Ensil Corp. submitted that there were genuine issues requiring a trial and that the case was inappropriate for the summary judgment, but on the other hand, Ensil Corp. submitted that the case was appropriate for a summary judgment - in its favour. During oral argument, without abandoning its argument that a trial was required, Ensil Corp.’s counsel conceded that the stronger argument was that the case was appropriate for a summary judgment.
[32] Having heard the arguments of the parties and having reviewed the evidentiary record, in my opinion, in the immediate case, there are no genuine issues requiring a trial, and further if there were genuine issues requiring a trial, then there is a more than adequate evidentiary record to decide the genuine issues and it would be in the interests of justice to do so.
[33] Remembering that both parties were content to put their cases before the court without cross-examining their opponent, I am in the position to resolve all evidentiary matters.
[34] Indeed, the critical facts are not in dispute and all the legal and factual issues can be determined based on the affidavit evidence and the documentary record.
2. Was there a Surrender of the 2017 Lease or was there a Termination with a Claim for Prospective Damages?
[35] When a tenant fundamentally breaches its obligations under a lease, the Landlord has four mutually exclusive remedial courses, three of which are rooted in property law and one of which is rooted in contract law.[^1]
[36] Until the case of Highway Properties Ltd. v. Kelly Douglas & Co. Ltd.,[^2] the property law aspects of a lease were the only remedies available to a landord, but in Highway Properties, the Supreme Court of Canada, in a famous judgment written by Justice Bora Laskin, stated that it did not make sense to deny contract law remedies merely because the contract was associated with an interest in land.
[37] Thus, where a tenant fundamentally breaches the lease, the landlord’s four remedies are: (1) keep the lease alive and sue or distrain for rent arrears; (2) keep the lease alive but re-rent (sublease) the premises on behalf of or for the account of the defaulting tenant; (3) terminate the lease and retake possession of the property, which remedy is known as a surrender of the lease by operation of law; and (4) terminate the lease but with notice to the defaulting tenant that prospective damages will be claimed for the for loss of the benefit of the lease bargain over its unexpired term.
[38] Where the landlord chooses to keep the lease alive by suing or distraining for rent arrears or where the landlord re-rents on the account of the tenant, the rented premises remained available for reoccupation by the tenant. Under these property law choices, there is no claim for damages by the landlord and no duty to mitigate but, rather, there is an ongoing demand for specific performance of the lease, i.e., that the tenant pay rent under the lease.
[39] If the landlord chooses to keep the lease alive and re-rent on behalf of or for the account of the defaulting tenant, the landlord should give notice to the tenant that the re-renting is on the tenant’s behalf. The notice prevents this choice of remedy by the landlord from being mistaken for the remaining choice of terminating the lease. By giving notice, the landlord is able to demonstrate that it is not terminating the lease but rather it is using the premises for rental income pursuant to the tenant’s lease, which remains alive.
[40] If the landlord chooses to terminate the lease and to reclaim possession of the lease premises, as a matter of property law, the termination is treated as a surrender of the lease. As a matter of property law, a surrender of the lease, which may also occur by agreement between the parties, ends a lease because the parties are taken to have agreed to end their landlord and tenant relationship.
[41] A surrender may occur by operation of law. A surrender by operation of law occurs when the parties’ conduct is inconsistent with the continued existence of the lease. Surrender is a form of estoppel. The landlord’s conduct precludes it from taking the position that the lease is still in existence.
[42] In Goldhar v. Universal Sections and Mouldings Ltd.,[^3] a tenant repudiated its lease by abandoning the premises and refusing to pay rent. The landlord re-rented the premises at a lower rent. The landlord sued the original tenant for damages to recover the deficiency in the rental income over the balance of the term of the lease. The Ontario Court of Appeal dismissed the landlord’s contract law claim under the then governing theory for landlord and tenant law. The theory was that a lease, despite the fact that it contained many contractual provisions, was essentially a conveyance of land and, accordingly, the landlord’s choice of remedies had to reflect real property law. Under property law theory, the payment of rent was tied to the tenant having an interest in land and if the landlord regained the land, property law would not permit the landlord to make a claim for prospective losses against the tenant. Property law did not include damages for breach of the lease contract.
[43] This legal situation in Goldhar was that if the landlord takes away the tenant’s real property interest and reclaims possession of the premises, then the landlord could only claim for arrears of rent and for damages to the premises, but there was no claim for the loss of the benefit of the bargain of the lease as a contract. At the time of Goldhar, the law was that surrender by operation of law did not depend upon the intention of the parties and indeed could occur even in spite of the intention of the parties.
[44] In Goldhar, the landlord re-rented the premises and this was not clearly done on the tenant’s behalf, and, therefore, the re-renting was treated as a surrender by operation of law. The landlord’s conduct in Goldhar was seen as a surrender ending the lease, and this precluded any claim other than for the arrears of rent up to the time that the lease was brought to an end. Forfeiture occurs when a landlord unilaterally re-enters and brings the lease to an end.
[45] The Highway Properties case overruled the Goldhar case to the extent that Goldhar precluded the possibility of any claim for prospective losses when the landlord retook possession of the lease premise with the intention to claim damages for the loss of the benefit of the lease bargain. Highway Properties, however, did not overrule the possibility of surrender; rather, Highway Properties added to the choices; it did not subtract. What Highway Properties did was to separate surrender by operation of law from termination and a claim for damages.
[46] In Highway Properties, the tenant repudiated its lease and abandoned the premises that it had agreed to continuously use for a grocery store and supermarket. In his famous judgment, Justice Laskin concluded that, in addition to the three property law remedies, the landlord had the remedy of forfeiture or termination with a contract law claim for damages. The landlord was entitled to end the lease and give notice that damages would be claimed for the loss of the benefit of the bargain over the balance of the term of the lease. Under this fourth alternative, the landlord is obliged to mitigate its damages in accordance with the normal law of contract.
[47] There are a number of famous passages from Highway Properties. One passage, set the stage for the change in the law; Justice Laskin stated:
The developed case law has recognized three mutually exclusive courses that a Landlord may take where a Tenant is in fundamental breach of the lease or has repudiated it entirely, as was the case here. He may do nothing to alter the relationship of Landlord and Tenant, but simply insist on performance of the terms and sue for rent or damages on the footing that the lease remains in force. Second, he may elect to terminate the lease, retaining of course, the right to sue for rent accrued due, or for damages to the date of the termination for previous breaches of the covenant. Third, he may advise the Tenant that he proposes to re-let the property on the Tenant’s account and enter into possession on the basis. Counsel for the appellant, in effect, suggests a fourth alternative, namely, that the Landlord may elect to terminate the lease but with notice to the defaulting Tenant that damages will be claimed on the footing of a present recovery for damages for losing the benefit of the lease over its unexpired term. One element of such damages would be, of course, the present value of the unpaid future rent for the unexpired period of the lease less the actual rental value of the premises for that period. Another element would be the loss, so far as provable, resulting from the repudiation of cl. 9 [a continuous operation covenant].
[48] In his judgment, Justice Laskin explained that this fourth alternative was historically not available because of the predominance of property law principles. He concluded that his predominance should not continue, and he said that the fourth alternative suggested by counsel for the landlord should become a part of the law. In another famous quote, Justice Laskin stated:
There are some general considerations that support the view that I would take. It is no longer sensible to pretend that a commercial lease, such as the one before this Court, is simply a conveyance and not also a contract. It is equally untenable to persist in denying resort to the full armory of remedies ordinarily available to redress repudiation of covenants, merely because the covenants may be associated with an estate in land. Finally, there is merit here as in other situations in avoiding multiplicity of actions that may otherwise be a concomitant of insistence that a Landlord engage in installment litigation against a repudiating Tenant.
[49] It is important here to note again the subtle point that, in Highway Properties, the Supreme Court did not do away with the concepts of surrender by agreement or surrender by operation of law. Rather, what the Court did was, to use Justice Bora Laskin’s words, to stop the “dogmatic application of surrender irrespective of intention”.
[50] After Highway Properties, through the mechanism of a notice advising the tenant of the claim for prospective damages, the landlord had a new fourth choice and a means of avoiding the legal effect of a surrender. The role of the notice should be emphasized. An aspect of the landlord’s right to claim damages for prospective losses is the requirement that the landlord give timely notice of the claim. Absent this notice, the conduct of the landlord in retaking the premises could constitute a surrender of the lease by operation of law.
[51] The requirement of giving notice has come to be known as giving a “Highway Properties” notice or giving a “Highway Properties Notice” or a “Kelly Douglas Notice”. It is not necessary to give the Kelly Douglas Notice claiming damages contemporaneously with the termination of the lease but, rather, within a reasonable time. Provided the notice is given within a reasonable time, it may even be given in the statement of claim in the action for damages.[^4]
[52] The landlord is subject to the normal rules of mitigation when it advances a damages claim for breach of contract.[^5] The principle of mitigation requires an innocent party to take reasonable steps to avoid loss. To the extent that loss is actually avoided or ought reasonably to have been avoided, it is not recoverable. The onus is on the defendant to prove that the plaintiff failed to mitigate. As a corollary to the duty to mitigate, if the plaintiff acts reasonably to mitigate, then he or she is entitled to recover for the costs of mitigation and to any additional damages that may result if the reasonable efforts to mitigate fail and actually increase the damages.
[53] Applying these legal principles to the facts of the immediate case, the parties never consummated an agreement to consensually surrender the 2017 Lease. The surrender agreement was never signed by the parties themselves, and the 2017 Lease provided that no subsequent alteration, amendment, change, or addition to the lease shall be binding upon the Landlord or the Tenant unless reduced to writing and signed by them. This never occurred.
[54] The strict and formalistic Weins Canada treated its tenant fairly, and even after Ensil Corp. had vacated the premises, it had the opportunity to pay the rent arrears, implement the surrender agreement, and avoid the damages claim.
[55] The demand letters and the conduct of Weins Canada made it very clear that if the rent arrears were not paid, then Weins Canada would be exercising its remedial choice of terminating the tenancy without effecting a surrender by operation of law.
[56] Rather, Ensil Corp. knew both before and after Weins Canada issued its Statement of Claim that the Landlord would be claiming the benefit of the bargain for the full term of the lease and not exercising its property law remedies. In the circumstances of the immediate case, within a reasonable time, Weins Canada gave notice that it would be making a contract claim for damages notwithstanding that there is no evidence that a formal Kelly Douglas Notice was given to Ensil Corp.
[57] Having elected to terminate the lease and to claim damages, Weins Canada was subject to the normal rules of contract law about mitigation, which entail that it cannot make a claim for losses that were avoidable.
[58] As noted above, the onus of proving a failure to mitigate is on the defendant. In the immediate case, there is no evidence of a failure to mitigate and, practically speaking, given the short period before the termination of the lease in July 2018 and the commencement of the lease with Toyota Canada, there was little that Weins Canada could have done with the premises other than preparing them for the new tenant. Weins’ conduct was reasonable and there was no failure to mitigate.
[59] Weins Canada is entitled to its damages claim for breach of the lease less the credit for the security deposit. Thus, I grant Weins Canada a summary judgment of $106,614.13 ($116,187.88 - $9,573.75) plus costs of $10,000, all inclusive.
Perell, J.
Released: September 19, 2019
COURT FILE NO.: CV-18-00602755-0000
DATE: 20190919
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
WEINS CANADA INC.
Plaintiff
- and -
ENSIL CORPORATION
Defendant
REASONS FOR DECISION
PERELL J.
Released: September 19, 2019
[^1]: Highway Properties Ltd v. Kelly Douglas & Co. Ltd., 1971 123 (SCC), [1971] S.C.R. 562; Goldhar v. Universal Sections and Mouldings Ltd., 1962 116 (ON CA), [1963] 1 O.R. 189 (C.A.).
[^2]: 1971 123 (SCC), [1971] S.C.R. 562.
[^3]: 1962 116 (ON CA), [1963] 1 O.R. 189 (C.A.)
[^4]: Falwyn Investors Group Ltd. v. GPM Real Property (6) Ltd., [1998] O.J. No. 5258 (Gen. Div.), aff’d [2000] O.J. No. 2877 (C.A.); Langley Crossing Shopping Centres Inc. v. North-West Produce Ltd. (1998), 20 R.P.R. (3d) 112 (B.C.S.C.) revd. on facts (2000), 2000 BCCA 107, 73 B.C.L.R. (3d) 55 (C.A.); Harvey v. Burger, [1994] O.J. No. 1175 (Gen. Div.); North Bay TV & Audio Ltd. v. Nova Electronics Ltd. (1983), 1984 2100 (ON CA), 44 O.R. (2d) 342 (H.C.J.), affd. (1984), 47 O.R. (2d) 588 (C.A.).
[^5]: Morrison Lamothe Inc. v. Bedok (1986), 1986 2831 (ON SC), 55 O.R. (2d) 129 (H.C.J.).