Court File and Parties

COURT FILE NO.: CV-19-624905-00 DATE: 2019-11-06 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: J.E.M.S. INVESTMENTS INC., Applicant AND: HENRY CHASTEAU cob TRUST CONSTRUCTION, TRUST QUALITY CONSTRUCTION INC., JIWON KIM, and RICHARD HARRIS, Respondents

BEFORE: Justice S. Nakatsuru

COUNSEL: R. Christopher M. Belsito, for the Applicant Amrita Mann and Pathik Baxi, for the Respondents, Henry Chasteau cob Trust Construction and Trust Quality Construction Inc. Joseph Juda, for the Respondent, Richard Harris Rene Liebs-Benke, for the Respondent, Jiwon Kim

HEARD: November 4, 2019

ENDORSEMENT

[1] John and Anne Czemodan are elderly and not in good health. They are principals in J.E.M.S. Investments Inc. (“JEMS”). They have a commercial unit at 52 Airview Road, Unit 6, Toronto, that they have owned for a while. In May of 2019, they signed an agreement of purchase and sale of this unit to Ms. Jiwon Kim. Mr. Richard Harris was the agent on the deal. However, the deal has not closed. Trust Construction and Trust Construction Quality Inc. owned and operated by Mr. Henry Chasteau, (“Mr. Chasteau”) has been the tenant in the unit since July of 2012. Mr. Chasteau’s claim is that once Ms. Kim made a bona fide offer to purchase, he is entitled to exercise a First Right of Refusal (“FRR”) as found in the initial lease that they signed. The Applicant seeks a writ of possession and the removal of a caution placed on the property so that it can sell the unit to Ms. Kim. The closing date has been delayed a couple of times. The date for closing is now November 12, 2019.

[2] For ease of reference, I will refer to the Applicant as the “Czemodans” and the Respondents (except Ms. Kim and Mr. Harris) as “Mr. Chasteau” even though the original lease was between corporate entities and the cheques have been paid by and to different legal entities.[^1]

[3] Given the urgency of the matter, my reasons will be focused and brief.

[4] For the following reasons, I grant the application.

A. ASSESSMENT OF THE EVIDENCE

[5] Cross-examination on the affidavits on this application were conducted before me in court. As a result, I am in a good position to make findings of credibility and reliability.

[6] First, I find Richard Harris to be a credible and reliable witness. Though the Czemodans seek no relief against Mr. Harris, I appreciate that he may have an interest in ensuring that he is not found responsible in this predicament. However, whatever self-interest he may have, it did not impact upon his evidence. He was honest and straightforward. He was not contradicted in cross-examination. Neither his credibility nor reliability was impaired by it.

[7] I find that he has every reason to recall this event. This incident has stood out in his memory and he has good recollection of the details.

[8] The evidence he gives is plausible and one which makes sense to me.

[9] I accept his testimony and I prefer it over that of Mr. Chasteau.

[10] The situation is not so straightforward with the Czemodans. Ms. Czemodan had a health-related incident when she suffered a concussion before the swearing of the affidavit. I appreciate that the information for her affidavit was likely taken before the date where she swore it, but I do not know if the concussion preceded this or took place after. While her affidavit is both reasonable, detailed, and supported by documentation, given the nature of the cross-examination, if I had her evidence alone, I would not be able to put much, if any, weight in it. The cross-examination was short, but it highlighted how unreliable her present testimony is. She pretty much admitted it both in the substance and manner of her testimony.

[11] However, her evidence does not stand alone. Mr. Czemodan testified. I found no concerns about his honesty. He was honest. Initially, I had concerns about the reliability of his testimony. However, over the course of his cross-examination, I regained faith in it. He was able to recall good detail on some matters of significance. Dates he was not good on. But the overall state of his evidence permitted me to put weight in it. It made sense to me. The weight I could attribute to his evidence is heightened by the fact it was confirmed in substantial areas by the evidence of Mr. Harris.

[12] I did not find Mr. Chasteau to be credible. Indeed, despite the concerns I had with Mr. Czemodan’s evidence, overall where Mr. Chasteau’s evidence conflicts with Mr. Czemodan, I prefer Mr. Czemodan’s evidence.

[13] Mr. Chasteau had difficulty giving direct answers to questions. At times he was evasive. One example of this is when he was cross-examined about a series of cheques that he gave for March, April, and May 2019 rent. In his affidavit, he swore they were all dated May 3, 2019, and delivered to the Czemodans’ mailbox that day. Ms. Czemodan averred that they came on May 18, 2019, after the property was sold and the issue of default came up. The cheques were only cashed May 28, 2019. However, the April cheque was dated May 10th. Mr. Chasteau explained it was a typo. While this may have been such a typo, it was curious that this April cheque was not appended to his affidavit. It also makes no sense why it would be post-dated after the date of the purported delivery. Mr. Chasteau denied the suggestion that he made this mistake as he was in a rush once he found out about the Notice of Default. However, as he was cross-examined on this, I did not find his answers to be at all persuasive and this had an effect on his credibility.

[14] An important difference between the evidence of Mr. Chasteau and the Czemodans and Mr. Harris has to do with whether he was interested in buying the unit. The latter said he consistently said he was not. Mr. Chasteau said he was and was waiting for an appraisal from Mr. Czemodan to have continuing discussions about price. I do not accept that Mr. Chasteau advised the Czemodans that he was interested in buying the premises and wanted to get an appraisal of the premises before putting in an offer. It is not plausible. No such appraisal was obtained, and nothing was done about it when it was not forthcoming. Given the importance of it, the lack of action and concern by Mr. Chasteau is not believable. His testimony that he thought by permitting the sale process this would be a substitute for valuation makes no sense. A market listing or offers obtained through it is a complicated and time-consuming process. It makes no sense to do this as a substitute for an appraisal. It makes no sense that the Czemodans would resort to this unless they were interested in selling the property to someone else. It makes no sense for Mr. Chasteau to either agree to this or passively allow it as a substitute for an appraisal. To allow for such a process to take place would mean the inconvenience of the multiple showings etc., rather than a discrete appraisal by the Czemodans. It is further not plausible that all this would take place without any discussion about it with Mr. Harris or the Czemodans. I find that Mr. Chasteau’s evidence on this was simply put forward to try and explain this incongruous conduct of a sale taking place if he was truly interested in buying the unit. I do not accept it. This negatively affected Mr. Chasteau’s overall credibility significantly.

[15] Furthermore, when questioned about the steps he took to obtain the mortgage, he was inconsistent and evasive. Initially under cross-examination, he testified that he had been looking for a mortgage in April and that he had given his documentation to his counsel. However, when he was questioned that the only documentation for mortgage approval appended to his affidavit was dated May 15, 2019, he testified that he had not looked for a mortgage in April and he got the said letter only after his lawyer told him to get one. When pressed further about other steps he took, he merely pointed to his line of credit and some vague references to other things he did.

[16] Overall, I found Mr. Chasteau not to be a credible witness on several material points at issue.

[17] I wish to specifically point out that I do not accept that Ms. Czemodan assured Mr. Chasteau by telephone that he would be allowed to match any offers received in accordance with the FRR. While I have stated my concerns about Ms. Czemodan’s reliability, this factual finding is based upon my assessment of Mr. Chasteau’s overall credibility, the denial by the Czemodans, and the self-interested nature of this evidence.

[18] Thus, I make the following specific findings of fact:

• Due to serious age and health related issues, the Czemodans decided to sell the unit. In addition, they were fatigued with trying to obtain the rent cheques from Mr. Chasteau. On March 26, 2019, the Czemodans met with Mr. Chasteau and offered to sell him the unit for $300,000. Given Mr. Czemodan’s experience with selling other units that he had owned in the complex, he decided that this was a fair price. Mr. Chasteau told him it was too much, and he was not interested. I do not accept Mr. Chasteau’s evidence that he told the Czemodans that he was interested in buying the unit and was awaiting an appraisal.

• I find there was no verbal agreement between the Czemodans and Mr. Chasteau that he would be allowed to match any offers to purchase or that he could exercise the FRR.

• Mr. Harris spoke to Mr. Chasteau about buying the property on April 5, 2019. Mr. Chasteau advised he was not interested.

• On April 13, 2019, when having the photographer take pictures, Mr. Chasteau again told Mr. Harris he was not interested in buying the property.

• On May 8th and 9th, there were 12 showings of the property. Mr. Chasteau was present or knew about them. Three offers came in and Mr. Chasteau said he was not interested in buying the property when advised of the offers.

• On May 9, 2019, a conditional offer by Ms. Kim was made and accepted. Mr. Chasteau was told this and for the first time, Mr. Harris was told by Mr. Chasteau that he was interested in buying the unit. Mr. Chasteau said he made a big mistake and asked for Mr. Harris’ help. For the first time, Mr. Chasteau told him that John and Anne had made a verbal agreement which allowed him to match any offer.

B. ANALYSIS

[19] The Czemodans are supported by Mr. Harris and Ms. Kim in this proceeding. Although their factum raise a number of issues, at the hearing they have argued three main points: (1) There is no valid FRR as the lease expired in 2015; (2) Alternatively, if the lease did not expire, the lease was not validly renewed and/or the FRR could not be exercised as Mr. Chasteau was in default given his consistent late payment of rent; (3) In the further alternative, if Mr. Chasteau had any rights under the FRR, he should be estopped from exercising them as he expressly and by conduct lead the Applicant to believe he had no interest in purchasing the property and in reliance on this, the Applicant sold the unit to Ms. Kim.

[20] I find it only necessary to deal with issue (1).

[21] First, there is no other written lease other than the standard form OREA Agreement to Lease with attached Schedules. This lease was for three years commencing July 1, 2012. I find that the original lease expired on June 30, 2015. The renewal provision as found in the lease was for an additional one-year term on six months written notice to the Landlord at a rental rate to be negotiated. There was no other renewal provision. The lease was not renewed according to its terms.

[22] Second, I find that there was no verbal agreement as to the terms and conditions of the lease between the Czemodans and Mr. Chasteau extending beyond June 30, 2015. I also find that there was not a separate verbal agreement that Mr. Chasteau could match any future existing offer to purchase the unit. I accept the Czemodan’s position and evidence. I do not accept Mr. Chasteau’s position and evidence. This is based upon my assessment of the credibility and reliability of the witnesses. As well, there is no written agreement that Mr. Chasteau can point to evidencing this agreement: s. 4 Statute of Frauds, R.S.O. 1990, C. s.19.

[23] I find that there was quite an informal relationship between the Czemodans and Mr. Chasteau about his occupancy of the unit upon payment of rent; a relationship that was quite mutually acceptable until Mr. Chasteau became consistently late in paying rent due to cash flow issues and when the unit was sold.

[24] Third, I find that given the acceptance of the rent albeit paid late on occasion, Mr. Chasteau became an overholding tenant. I find that circumstances are such that a year to year tenancy was created at common law: Goodyear Canada Inc. v. Burnhamthorpe Square Inc., (1998), 1998 CanLII 6091 (ON CA), 41 O.R. (3d) 321 (C.A.); AIM Health Group Inc. v. 40 Finchgate Limited Partnership, 2012 ONCA 795. Here, the original term of the lease was for three years from July 1, 2012. While no doubt Mr. Czemodan honestly believes a month to month tenancy was created, his recollections on this may be unreliable. Further, the circumstances are such that it was unlikely that such a tenuous arrangement was created given that Mr. Chasteau did make repairs and improvements to the premises over the years at his own expense.

[25] Fourth, the FRR is independent of and not an incident of the landlord and tenant relationship. It will not be incorporated in the terms of a yearly tenancy created by an overholding tenant after the expiration of the original lease unless it is clearly shown that it was the intention that the FRR should continue throughout the extended period: Budget Car Rental Toronto Ltd. v. Petro-Canada et al. (1980), 1989 CanLII 4148 (ON CA), 69 O.R. (2d) 289 (C.A.); Three Seasons Homes Ltd. v. Faris, 2005 CanLII 41803 (ONCA) at para. 53.

[26] As a matter of contractual interpretation, I find that the parties did not intend the FRR would continue during the overholding period. While the FRR provision allows it to be exercised during the term of the lease and “any renewal” of the lease, I find it clear that it was intended to be exercised only for the one-year renewal period set out in the Schedule. The renewal provision is tightly restricted in terms of time and rigorous in terms of written notice. The renewal provision follows immediately after the FRR provision in the lease. It is reasonable that the parties would wish to restrict this unilateral option given to the tenant. It is not reasonable that the parties would agree that the tenant could exercise this for an undetermined period of time during an overholding period.

[27] Were it necessary for me to look at the other evidence, my conclusion would remain the same. Mr. Czemodan found the suggestion incredible that he would agree to Mr. Chasteau exercising the FRR beyond the expiry of the lease. He denied ever so agreeing. I accept his blunt and unvarnished evidence. I note that Mr. Czemodan never mentioned the FRR at all to Mr. Harris. He did not do so because it was a non-issue. Mr. Harris himself never raised it as he was told by Mr. Czemodan that the lease had long expired. More importantly, despite his significant dealings with Mr. Harris, including several showings of the unit and offers by Mr. Harris to help Mr. Chasteau find another unit, Mr. Chasteau never raised the existence of the FRR until the unit had been sold. When he did, he commented that he made a mistake and said he had a verbal agreement. If Mr. Chasteau had truly understood that the FRR was still viable, I have little doubt he would have taken at least one opportunity to remind someone that he still enjoyed this right before the unit was sold. In my view, Mr. Chasteau is the author of his misfortune. He has come to regret his decision to turn down the Czemodans’ initial offer which was $50,000 less than what the property sold for. In processing that regret, he has tried to resurrect the FRR that expired when the lease expired.

[28] The Notices written after the issue of the FRR were pointed to by Mr. Chasteau as evidence supporting his position. These could be construed as admissions by the Czemodans that the lease and the FRR were still valid and the Czemodans were trying to get out of it by pointing to defaults in the lease. However, I do not construe them that way. The Czemodans were sick and trusted Mr. Harris to look after things. Mr. Harris himself though experienced as a real estate agent, was dependent upon the Czemodans’ lawyer who practiced corporate law. The rushed and informal process whereby the Notices were issued are part of the circumstances in which I must assess and weigh this evidence. I do not consider these Notices significant. Furthermore, the fact that the Czemodans were trying to point to other reasons why the FRR was not valid does not impact upon my analysis of this particular issue. The FRR is not valid because it expired once the lease was not renewed according to the terms of the agreement.

[29] I therefore grant the Applicant a writ of possession and order that the caution be removed. The issue of damages was not seriously pursued. My decision does not impact upon the Applicant’s right to institute proceedings to claim this if appropriate.

[30] A final comment. Until this issue arose, the Czemodans and Mr. Chasteau had enjoyed a good and cordial relationship over the years. The Czemodans were most understanding of Mr. Chasteau’s circumstances. Ms. Kim and the potential tenant of the premises have also been very understanding in awaiting a resolution of this dispute. Mr. Chasteau obviously will need some time to deal with his affairs and in relocating his business. With some good-will by all parties, accommodation can be made for Mr. Chasteau to make the transition. I am confident it will be.

[31] If the issue of costs cannot be resolved between the parties, I will entertain written submissions, each one limited to two pages (not including attachments) about quantum and the nature of the costs award. The Applicant shall file within ten days of this decision. The Respondents shall file within seven days thereafter. There will be no reply submissions without leave of the court.

Justice S. Nakatsuru

Released: November 6, 2019

[^1]: I am well aware that the various legal documents have been made out to different entities. Although in the factum, the Applicant argues that this nullifies the FRR, this was not pursued in oral argument. In my view, any errors made regarding the proper legal entity involved at different points in time do not impact on the substantive issue that I have decided.