COURT FILE NO.: CV-19-632487
DATE: 20191223
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
NARWHAL INTERNATIONAL LIMITED
Applicant
– and –
TEDA INTERNATIONAL REALTY INC.
Respondent
Mikalai Chapurny, for the Applicant
Ben Peel, for the Respondent
HEARD: December 20, 2019
M. D. FAIETA j.
REASONS FOR DECISION
[1] The Applicant commercial tenant brings this motion for an interlocutory injunction to restrain the Respondent landlord from evicting the Applicant from the Respondent’s premises on December 31, 2019 until this Application is heard on March 6, 2020. About ten months ago, the Applicant notified the Respondent that it wishes to exercise its right to renew the lease for a further five year. However, the parties have been unable to agree on the rent to be paid during the renewal period. The Applicant alleges that the Respondent has failed to act in good faith in exercising this renewal provision given that it has sought to increase the rent threefold and allegedly far beyond market rates. For the reasons described below, I have granted the requested interlocutory injunction.
BACKGROUND
[2] The Applicant, Narwhal International Limited, operates an automobile repair and tire sales business on premises that it occupies pursuant to a five-year and one month lease that commenced on September 1, 2014 and that ended on the last day of September, 2019.
[3] There are two signed versions of the lease for the premises.
[4] The Applicant relies on a lease that appears to have been signed by the former landlord on June 9, 2014 (“June 2014 Lease”). Paragraph 7 of Schedule “A” to the June 2014 Lease provides:
Provided the Tenant is not habitually in default, according to Lease, the Tenant shall have the right to renew the Lease for a further period of five (5) years upon the same terms and conditions, save and except, the right of further rights of renewal, allowances, inducements, and the net rental rate which shall be determined by reference to prevailing rental rates for similar space in similar area in which the premises is situated, provided the Tenant exercises such right by notice in writing delivered to the Landlord no later than six (6) months and not earlier than twelve (12) months prior to the expiration of the lease term. All additional rent shall continue to be paid on a net and carefree basis. *Net rental rate of the 5 year renewal should be discussed between the landlord and tenant, but not less than fifth year of first 5 years rental. [Underlined words are handwritten]
[5] The italicized words shown above in paragraph 7 appear to have a line through them.
[4] The Respondent, Teda International Realty Inc., relies on a lease that also appears to have been signed by the former landlord on July 22, 2014. Unlike the June 2014 Lease, the lease contains a statement from the broker that the agreement was accepted by all parties on July 22, 2014 (“July 2014 Lease”). In any event, paragraph 7 of Schedule “A” appears to be the same as paragraph 7 of the June 2014 Lease although the italicized words shown above appear to be more clearly struck out in the July 2014 Lease.
[6] The Respondent, Teda International Realty Inc., purchased the premises on December 28, 2018.
[7] On March 4, 2019, the Applicant’s principal, Gennady Tcherny, notified the Respondent’s principal, Joel Li, that the Applicant “does hereby exercise his option to extend the term of the Lease for a period commencing on October 1, 2019 and terminating on September 30, 2024 according to the Agreement to Lease, paragraph 7”.
[8] In response, on March 4, 2019, Mr. Li advised Mr. Tcherny by email that he “might not renew the leases”.
[9] On March 21, 2019, the Respondent’s principal, Joel Li, advised the Applicant’s principal, Gennady Tcherny, that the Applicant did have the option to renew the leased and that the rent during the five-year renewal period would “be around $10,000 per month”. In turn, Mr. Tcherny asked that Mr. Li provide the “detailed numbers” for the renewal period.
[10] Three months later, on June 18, 2019, Mr. Li advised Mr. Tcherny that:
…I’ve received the offer to lease or schedule B from my lawyer. I accept your offer for a 5 year lease renewal. … Your net rent for the first year starting October 1, 2019 will be $28 per sq ft + TMI + HST
[11] A few days later, on June 20, 2019, Mr. Tcherny responded to Mr. Li as follows:
… As you know from my rental agreement, my payment schedule for the first 5 year term was the following:
1st year: $7.25
2nd year: $7.50
3rd year: $7.75
4th year: $8.00
5th year + 3 months: $8.25
Taking into account the research of the similar commercial units in the area (attached), I believe that the reasonable payment schedule for the next five years should be the following:
6th year of lease: $8.25
7th year: $8.50
8th year: $8.75
9th year: $9.00
10th year + 3 months: $9.25 …
Taking into account all the above and if you are acting in good faith rather than trying to get rid of the tenants by [raising] the square footage price 3.5 times higher, I believe you can take my reasonable offer and we can sign the lease for the next term in the nearest future.
[12] On August 11, 2019, Mr. Li sent an email to Mr. Tcherny asking whether he had “… decided if you want to accept my offer to sign another Lease?”
[13] On August 12, 2019 Mr Tcherny responded “…The market price … is around $8 /sqft for the premises in the same asset class. If you are acting in good faith and want to renew the lease agreement with me on these terms, I am ready to proceed. If you insist on the exaggerated rental price, I will have to protect my business by taking corresponding legal steps.”
[14] On September 20, 2019, just before the expiry of the term of the lease, the Applicant commenced a Notice of Application (CV-19-627823) (the “September 2019 Application”) for a declaration that it is entitled to renew the lease for a further five year period upon the same terms and conditions except for the net rental rate which it asks be determined by the court by reference to prevailing rental rates for similar space in a similar area in which the premises is situated.
[15] On October 2, 2019, Justice Chalmers dismissed the Applicant’s action (CV-18-00610233) against the former landlord on the basis that it was an abuse of process given that they were defending prior actions involving the same subject matter. The court ordered that the Applicant pay costs of $30,000 to the former landlord and $15,000 to three other defendants.
[16] The Applicant did not serve the September 2019 Application on the Respondent until they met in person on November 5, 2019. At that time, Mr. Tcherny allegedly threatened to seek an injunction and asked for $50,000 in exchange for leaving the premises. He also allegedly stated that the Applicant had no assets against which the Respondent could satisfy a costs award.
[17] On November 5, 2019, following their meeting earlier that day, Mr. Li sent the following notice to Mr. Tcherny:
Originally I offered you $28 per sqft, and you didn’t agree with it.
My final offer is $18 per sqft. If you still do not agree with the final price I’m offering, I will need you to empty the unit before December 15, 2019, which is 40 days from now.
… As of right now, my offer is $18 per sqft + TMI.
I’m already offering $10 per sqft less than my original offer. This is an act of good faith.
[18] On November 11, 2019, Mr. Tcherny responded by email to Mr. Li:
… please accept my offer of $15/sq ft and lets start a new page …
[19] On November 18, 2019, the Respondent entered into a six year lease with Redline Recovery Ltd that commences on January 2, 2020 at a base rent of $24 per SF. Redline is a roadside assistance and towing service provider. It is currently based in Pickering and employs 11 people. Mr. Li states that he has been told that Redline’s business operations will be irreparably harmed if it cannot move into the premises on January 2, 2020 and that it will hold the Respondent accountable for any losses arising from an interlocutory injunction granted to the Applicant.
[20] On November 22, 2019, the Respondent delivered a Notice of Termination to the Applicant. It states:
TAKE NOTICE THAT:
…
Your Lease was ended, and was not able to reach an agreement with the landlord on this renewal;
This Notice of Termination serves as a notice of termination of your Lease.
Pursuant to your Lease and the said laws, you are required to vacate the Premises on or before 12 noon on the 30th day of December, 2019.
All terms and obligations in the Lease, including, but not limited to, the obligation to pay rent, remain in effect until the latter of the 30th day of December, 2019, and when you have returned possession of the premises to the Landlord or its agent.
[21] On November 28, 2019, the Applicant purported to accept the Respondent’s offer to renew the lease at a net rental rate of $18 per SF. The Notice signed by Mr. Tcherny states:
… Since the Property Owner does not agree to set the price for the new term lower than $18/sq ft and Tenant does not have a place to relocate its business to at this time, Tenant does hereby accept the Property Owner’s open offer of November 5, 2019, and agrees to re-new the Lease for the demised Premises for a further period of 5 (five) years at the rent of $18.00 net per square foot, beginning on January 1, 2 020 and ending on December 31, 2025. …
[22] On Saturday, November 30, 2019, Mr. Li sent the following email to Mr. Tcherny:
I can see some progress here, let’s meet up on Wednesday to meet up and discuss details. Can you meet at 1:00 pm?
[23] On Monday December 2, 2019, Mr. Tcherny responded that it was preferable to discuss details in writing.
[24] On December 4, 2019, Mr. Li sent the following email to Mr. Tcherny:
I don’t want to get you confused but the eviction notice still stands as of today. I hope you are still looking for other options. You sent me an email saying you could agree to a $18/ sq ft AFTER I served you my final eviction notice, which I gave it a lot of thoughts and consideration. Unfortunately, I will not withdraw my eviction notice and as it stands you need to leave by December 31, 2019. By that date all your belongings should be removed. Any and all permanent fixtures should remain with the unit for example, light fixtures, car hoists, etc. I except that you fix any and all damages to the unit that are not ware and tear. IF there are damages left behind I will get an estimate and charge you accordingly.
Sorry for any misunderstandings and confusions, if you have questions or concerns please feel free to email me and I will try to get back to you on a timely manner.
[25] On December 9, 2019, the within Notice of Application was issued.
[26] On December 13, 2019, the Notice of Application was left at the Respondent’s office along with a notice that this matter had been scheduled to be heard at Civil Practice Court on December 17, 2019.
[27] On December 17, 2019, the parties attended Civil Practice Court and a date for the hearing of this interlocutory injunction on an urgent basis was granted.
ANALYSIS
[28] The following considerations, outlined by the Privy Council in National Commercial Bank Jamaica Ltd. v. Olint Corpn Ltd., [2009] 1 W.L.R. 1405, at paras. 16-17, inform whether it is just to grant an interlocutory injunction:
It is often said that the purpose of an interlocutory injunction is to preserve the status quo, but it is of course impossible to stop the world pending trial. The court may order a defendant to do something or not to do something else, but such restrictions on the defendant's freedom of action will have consequences, for him and for others, which a court has to take into account. The purpose of such an injunction is to improve the chances of the court being able to do justice after a determination of the merits at the trial. At the interlocutory stage, the court must therefore assess whether granting or withholding an injunction is more likely to produce a just result. As the House of Lords pointed out in American Cyanamid Co v Ethicon Ltd 1975 CanLII 2598 (FC), [1975] AC 396, that means that if damages will be an adequate remedy for the plaintiff, there are no grounds for interference with the defendant's freedom of action by the grant of an injunction. Likewise, if there is a serious issue to be tried and the plaintiff could be prejudiced by the acts or omissions of the defendant pending trial and the cross-undertaking in damages would provide the defendant with an adequate remedy if it turns out that his freedom of action should not have been restrained, then an injunction should ordinarily be granted.
In practice, however, it is often hard to tell whether either damages or the cross-undertaking will be an adequate remedy and the court has to engage in trying to predict whether granting or withholding an injunction is more or less likely to cause irremediable prejudice (and to what extent) if it turns out that the injunction should not have been granted or withheld, as the case may be. The basic principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other. [Emphasis added.]
[29] In RJR – MacDonald v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, at pages 348-9, the Supreme Court of Canada stated that the following three-part test shall be applied in deciding whether an interlocutory injunction should be granted:
(1) Is there a serious issue to be tried?
(2) Will the moving party suffer irreparable harm if an interlocutory injunction is refused?
(3) Does the balance of convenience favour the granting of an interlocutory injunction?
Issue #1: Has the Applicant Established a Serious Issue to be Tried on the Merits?
[30] Whether there is a “serious issue to be tried” requires a preliminary assessment of the strength of the plaintiff’s case. It is low threshold that is satisfied if a court finds that the claim is not frivolous or vexatious. A prolonged examination of the merits is generally neither necessary nor desirable. A final determination of the issue(s) must be avoided: RJR, s. 49-50.
[31] The Respondent submits that the Applicant should demonstrate that its claim raises a “strong prima facie case” rather than the lower “serious issue to be tried” standard. However, there is no basis to engage in a more extensive review of the merits of the claim as the requested interlocutory relief will not effectively end the litigation: RJR, para. 56.
[32] The Respondent submits that the right of renewal is unenforceable as it fails to contain specific guidelines for the calculation of rent or a provision for arbitration. However, some guidance is provided by both the June 2014 Lease and the July 2014 Lease appear to provide in that the “... net rental rate which shall be determined by reference to prevailing rental rates for similar space in similar area in which the premises is situated …”. Each party has provided evidence regarding what the net rental rate should be having regarding to this formula. The Respondent submits that it has provided the Applicant with an opportunity to renew the lease at market rates. The Respondent further submits that the right of renewal for a further five year term has lapsed as the parties have been unable to come to agreement on the net rental rate.
[33] The Applicant submits that its claim raises the following serious issues to be tried: (1) whether the parties have agreed to a net rental rate for the renewal period given the Applicant’s purported acceptance of the Respondent’s offer dated November 5, 2019?; (2) alternatively, whether the Applicant is entitled to ask the court to determine the net rental rate for the renewal period where the parties have failed to agree on the rate.
[34] I find that the Applicant’s claim raises a serious issue to be tried.
Issue #2: Will Irreparable Harm Be Suffered If The Injunction Is Not Granted?
[35] In RJR, at para. 59, the Supreme Court of Canada explained “irreparable harm” as follows:
“Irreparable” refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court’s decision…where one party will suffer permanent market loss or irrevocable damages to its business reputation…or where a permanent loss of natural resources will be the result if a challenged activity is not enjoined. [Emphasis added.]
[36] Mr. Tcherny states that if the Applicant is evicted, then it will “suffer severe business losses, its reputation and competitive position will be destroyed, it will go out of business and it will suffer irreparable harm which cannot be compensated in damages”.
[37] The Respondent submits that the Applicant is the author of its own misfortune as it must have been alive to such an outcome when its lease expired in September 2019.
[38] In his treatise, Injunctions and Specific Performance (Thomson Reuters: Toronto, 2019), at para. 1.820, The Honourable Mr. Justice Robert J. Sharpe states, at para. 1.990:
To succeed the plaintiff must show a substantial risk of irreparable harm leading up to trial. The very fact of delay by the plaintiff, quite apart from any question of prejudice to the defendant, may often serve as evidence that the risk is not significant enough to warrant interlocutory relief.
[39] The initial term of the lease expired on September 30, 2019 and, as a result, the Applicant has arguably been an overholding tenant since October 1, 2019. The Applicant has not explained why it did not serve or proceed with its September 2019 Application in the months prior to the issuance of this Application particularly as there was no reason to believe that the Respondent’s position would change given that the Respondent’s offer of $28 per SF remained on the table from June 18, 2019 until November 5, 2019.
[40] While typically evidence that the failure to grant an interlocutory injunction will put a party out of business is sufficient to establish irreparable harm, the fact that the Applicant has waited until the very last minute to bring seek this interlocutory injunction demonstrates that the risk of irreparable harm is much less significant than stated by the Applicant.
[41] I find that the Applicant has established irreparable harm by the slimmest of margins.
Issue #3: Does The Balance Of Convenience Favour Granting An Injunction?
[42] The assessment of the balance of convenience requires the “…determination of which of the two parties will suffer the greater harm from the granting or refusal of an interlocutory decision, pending a decision on the merits.”: RJR, paras. 62-63
[43] If the interlocutory injunction is granted, then the Respondent states that it will face a damages claim from Redline. However, I have some doubt regarding whether the Redline lease is bona fide given that twelve days after the Redline lease was signed, Mr. Li told Mr. Tcherny that he could see progress in renewing the lease with the Applicant and asked to meet on Wednesday December 4, 2019 to discuss details. On the other hand, if the interlocutory injunction is not granted, then the Applicant will be evicted without having secured new premises even though it has not explained why it could not have done so much earlier.
[44] I find that the balance of convenience favours the Applicant.
CONCLUSIONS
[45] I grant the Applicant’s motion for an interlocutory injunction. During the term of this injunction, the Applicant shall comply with Section 13.04 of the lease and, thus pending the hearing of this Application, shall pay monthly rent based on $24.75 per SF until otherwise ordered by this court.
[46] Counsel for the Applicant is employed by the Applicant. He claims legal fees of $1,525.50 plus disbursements of $443.43 on a partial indemnity basis. I find that is fair and reasonable for the Respondent to pay to the Applicant’s costs of $1,500.00, inclusive of taxes and disbursements, within thirty days.
Mr. Justice M. D. Faieta
Released: December 23, 2019
COURT FILE NO.: CV-19-632487
DATE: 20191223
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
NARHWAL INTERNATIONAL LIMITED
Applicant
– and –
TEDA INTERNATIONAL REALTY INC.
Respondent
REASONS FOR DECISION
Mr. Justice M. D. Faieta
Released: December 23, 2019