Court File and Parties

COURT FILE NO.: CV-17-580809

DATE: 2019-02-15

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: PPF Investments Inc. / Plaintiff

AND:

Mackenzie Susan F. Goodall and Robert Goodall / Defendants

BEFORE: Justice Edward P. Belobaba

COUNSEL: Adam Ezer for the Plaintiff (Defendant by Counter-claim)

Paul Pape and Cristina Senese for the Defendants (Plaintiffs by Counter-claim)

HEARD: February 1, 2019

cross-Motions for Summary judgment

[1] The landlord’s termination of a commercial lease resulted in claims and counter-claims under the simplified procedure set out in Rule 76 and this motion and cross-motion for summary judgment.

[2] The plaintiff PPF and its principal Tony Ferraro say they were right to terminate the lease and now seek summary judgment for $66,496 in damages. The defendant tenant, Mackenzie Goodall, and her father, Robert Goodall, who signed as her guarantor, allege improper termination, counter-sue for $100,000 plus punitive damages and bring a cross-motion for summary judgment.

[3] For ease of reference, I will refer to the two protagonists by their first names, Tony and Kenzie.

Background

[4] The dispute involves a small basement unit on Lakeshore Avenue East in Oakville, Ontario. The parties entered into a three-year lease on May 4, 2017. Kenzie intended to use the space for a custom cake and pastry shop, operating as Sugar Suite. In order to allow time for certain plumbing and related improvements, the lease provided that the commencement date would be July 1, 2017.

[5] Unfortunately, as a result of a disagreement over the nature and extent of the plumbing alterations, Kenzie’s retail bake shop never opened. Tony terminated the lease on August 3, 2017. Kenzie found new premises and eventually opened Sugar Suite a few blocks away. Each side now accuses the other of breaching the lease agreement and sues for damages.

Summary judgment is appropriate

[6] Counsel on both sides agree that summary judgment is available and appropriate, both for the liability determination and the damages assessment. If I find that only liability can be decided summarily and that the damages claim should proceed to trial, counsel on both sides are also content with that outcome as well. I agree with counsel that the court will be able to determine at least the liability issue based on the uncontroverted documentary record and the affidavit and transcript evidence that has been filed by the parties. And, if I direct that damages should proceed to trial, I further agree with counsel that the determination of the damages portion will not require little to no review of the liability evidence and will not result in inconsistent findings.

[7] I draw this distinction between liability and damages because, as I explain below, I can readily determine liability but must refer the successful party’s damages claim to trial.

Analysis

[8] I begin the analysis by noting that much of the evidence about the plumbing issues that disrupted parties’ relationship and allegedly led to the landlord’s decision to terminate the lease can be put to one side. It is enough for backdrop purposes to simply note the following: (i) shortly after the lease was signed, Kenzie discovered that the health authorities required a hand-sink in the front part of the leased space so that employees who handled the bakery products could easily and often wash their hands; (ii) Tony was not pleased with the fact that the plumbing for the hand-sink was being run through the wall damaging his drywall and possibly endangering structural integrity; and (iii) there is some dispute about whether or not at the meeting on June 21, 2017 Tony acquiesced to the installation of the hand-sink in the front room with in-wall plumbing or only agreed to the hand-sink’s location on the condition that the plumbing would be run through the ceiling and not through the wall.

[9] In any event, in my view the case turns on what happened next – in particular, on the exchange of emails that began on June 27 and ended when the lease was terminated on August 3, 2017. On the basis of this uncontroverted correspondence, I am satisfied that Kenzie was reasonably attempting to deal with Tony’s concerns and by doing so was complying with the provisions in the lease when the lease was unjustifiably terminated by the landlord.

[10] Let me explain.

The applicable lease provisions

[11] Section 12.01 defines what constitutes an “event of default” under the lease. Sub-section (a) deals with the non-payment of rent (not applicable here). Sub-section (b), which applies on the facts herein, defines an “event of default” as follows:

(b) the Tenant fails to observe or perform any other of the terms, covenants or conditions of the Lease to be observed or performed by the Tenant (provided the Landlord first gives the Tenant 15 days written notice … of any such failure to perform) and the Tenant within such period of 15 days fails to cure or take reasonable steps to cure any such failure to perform.

[12] Note that the event of default requires a 15-day notice period and crystallizes as a “default” only when the tenant fails to cure or take reasonable steps to cure the failure to perform within the 15-day notice period. If the tenant is taking reasonable steps to cure the complaint that is set out in the landlord’s notice within the 15-day notice period, then on a plain reading of s. 12.01(b) there is no default under the lease.

[13] Section 13.01 is labelled “Cure Default” and provides as follows:

In the event of a default by the Tenant, such as can be cured only by the performance of work or the furnishing of materials, and if such work cannot reasonably be completed or such materials reasonably obtained and/or utilized within fifteen (15) days, such default shall not be deemed to continue if the Tenant proceeds promptly with such work as may to be necessary to cure the default and diligently completes the same.

[14] Section 13.01 applies if an “event of default” has been established. If the event of default relates to the performance of work or the furnishing of material, and such work cannot be reasonably completed within the 15-day notice period, s. 13.01 provides that the default shall not be deemed to continue “if the tenant proceeds promptly with such work as may to (sic) be necessary to cure the default and diligently completes the same”.

[15] At the core of ss. 12.01(b) and 13.01 is the landlord’s reasonable assurance, that one, the tenant will not be in “default” if she is taking reasonable steps within the 15-day notice period to cure the complaints set out in the notice; and secondly, even where a “default” has materialized and it relates to work or materials and such work cannot reasonably be completed within 15 days, the “default” will not continue if the tenant is proceeding promptly to do what is necessary to cure the default.

[16] Both sections of the lease apply on the facts herein.

The uncontroverted correspondence

[17] On June 27, 2017 Tony emailed Kenzie a copy of his lawyer’s letter noting that Kenzie had breached the lease. The letter stated Kenzie breached the lease in the following ways:

a. You have made the following alterations to the Premises without first submitting plans and specifications (including materials to be used) thereof to the Landlord and without first obtaining the approval in writing thereof of the Landlord:

(i) removal of large parts of the drywall of the hallway;

(ii) installation of water shut off and other unauthorized plumbing alterations;

(iii) removal of or damage to various items of Landlord’s Work completed by Landlord;

(iv) removal of large parts of the drywall in the kitchen area; and

(v) removal of large parts of the drywall in the bathroom;

b. The alterations referred to in (a) to the premises may not conform to all building and zoning bylaws insofar as the extensive plumbing alterations appear to have been done without the proper permits; and

c. Your alterations to the Premises may be of a kind that reduces the value of the Building insofar as portions of the frame of these walls have been cut leaving the drywall unsupported and the other portions of the drywall have been cut out apparently to accommodate unauthorized plumbing alterations.

[18] The letter further advised that Kenzie had 15 days to:

a. provide plans and specification pursuant to section 5.22 of the Lease setting out plans for rectifying the damage described above;

b. provide plans and specifications pursuant to section 5.22 of the Lease for all proposed work to the premises including the tenant’s work described in Schedule A to the Lease;

c. provide a written and detailed explanation/plans of what type of access panels will be used with respect to the newly installed water shut off; and

d. provide a written and detailed explanation/plans for rectifying the connection of the wall to the T-bar.

[19] The essence of the landlord’s complaint related to the removal of dry-wall for the installation of the in-wall plumbing that would service the hand-sink that was being installed in the front room of the leased premises. Kenzie could “cure” this complaint by providing Tony with “plans and specifications” for his approval. The phrase “plans and specification” is not defined in the lease but obviously contemplates the submission of a reasonably detailed outline of work that the landlord would review and hopefully approve.

[20] On June 28, Kenzie responded through former counsel by letter stating that she was not in breach but:

[I]n the spirit of cooperation and a long-lasting landlord-tenant relationship, the Tenant will work with the Landlord to address points a) to d) contained on page 2 of the letter and will have the contractors correspond directly with the Landlord as to the work that’s being done as well as plans for any repairs.

[21] On July 5, Kenzie’s mother Susan (who had met with Tony on June 21 and was helping her daughter) emailed a “Scope of Work” document to Tony (copying Kenzie) setting out the details (including photos and diagrams) describing how the plumbing and drywall concerns would be remedied.

[22] On July 6, Tony responded to Susan and Kenzie’s Scope of Work with questions about the plumbing, the drywall repair and nuanced suggestions such as the need for “grommets” to protect the “new plumbing.” Tony also noted that he would require a “clearance letter” stating that “all plumbing work was completed to code and should any issues arise it will be [Kenzie’s] responsibility.”

[23] The suggestion that Kenzie had to assume responsibility for all plumbing-related issues was problematic because Kenzie had already complained about the fact that the toilet in the main-floor restaurant was leaking into her basement unit and noted that the plumber that Tony had recommended, and Kenzie was using, had also been retained by Tony to fix the upstairs leak. The latter was not Kenzie’s responsibility and hence her reluctance to assume responsibility for “all plumbing work” which included this main-floor toilet repair.

[24] Thus, on July 10, Kenzie responded that she had forwarded Tony’s remaining questions to her contractors “to fill out the remaining details.” Kenzie also stated that she was “completely in agreement with [Tony] that all plumbing work, including repairs of the [main-floor] leaks, need to be inspected and cleared.” Kenzie requested that Tony provide access to her leased unit so that all of the plumbing work, including the upstairs toilet leak, could indeed be inspected and cleared.

[25] Tony responded on July 11 that he would not provide access to anyone before the concerns in his response to the Scope of Work document were addressed. He did so even though Kenzie’s proposed plumbing inspection was an answer to his clearance concerns as plainly outlined in the Scope of Work document.

[26] On July 13, Kenzie provided Tony with an updated Scope of Work document, which again addressed each of his concerns in reasonable detail. Tony did not respond to the July 13 email. Instead, his lawyer sent Kenzie two letters. The first, dated July 19, requested the payment of a $10,000 security deposit (contrary to the lease agreement) to continue the lease and Kenzie’s commitment to restore the leased premises to their “original condition” – in essence, ignoring the previous two weeks of correspondence between the parties. The July 19 “offer” said this:

Given that the proposed renovations differ from those initially proposed, including for example a sink on the wall in the middle of what is otherwise a showroom, my client requires as part of this agreement that the Tenant or the guarantor, Robert Goodall, deposit security of $10,000 by July 28, 2017 (“the Security”). The Security will only be used towards bringing the leased space back to its original condition, prior to any work being done by the Tenant, in the event this is not done by the Tenant at the end of the lease […].

[27] The offer contained in this July 19 letter expired, without acceptance, two days later on July 21.

[28] The second letter dated August 3 advised Kenzie that the lease was being terminated “effective immediately.” The letter stated that the breaches outlined by Tony’s counsel in the “notice of breach” had not been remedied and the tenant had therefore repudiated the lease. The letter listed the following examples of “repudiation”:

(i) The Tenant has insisted on installing a sink outside of the “sink area” specified in the lease, insisting that a sink be installed in what is otherwise (not to the tenant) a showroom, refusing to provide a standard security deposit for this additional work, which was never approved by the Landlord, and which conflicts with the clear terms of the lease;

(ii) The Tenant has refused to take responsibility for the plumbing work done in violation of the terms of the lease, or the work required to repair the damage caused; and

(iii) The Tenant has unilaterally added a pre-condition to the lease concerning the leaks from the restaurant above, requiring the lease to be “subject to (the tenant’s) obtaining confirmation from the appropriate health and building departments that the Landlord’s proposal is in compliance with all health and safety regulations with which the tenant must comply and that the proposal constitutes a satisfactory long term solution to the current problem.

[29] In my view, the August 3 letter of termination was premature and improper given the good faith exchange of emails containing detailed plans for addressing the landlord’s concerns. Kenzie and her contractors were, in good faith, proposing a reasonably detailed plan to address Tony’s concerns and Tony, in turn, also demonstrating good faith, was asking pertinent questions that would help resolve the plumbing and dry-wall dispute. I cannot read this exchange of emails without concluding that Tony was in general agreeing to Kenzie’s Scope of Work, subject only to some nuanced details.

[30] Tracking the language in s. 12.01(b) of the lease, Kenzie was taking reasonable steps within the 15-day notice period to cure the suggested failure to perform - therefore she was not yet in “default” under the lease. If I am wrong in my interpretation of s. 12.01(b), I am satisfied on the uncontroverted evidence of the Scope of Work correspondence as set out above that Kenzie’s good faith efforts fell within the intended protection of s. 13.01 in that Kenzie proceeded promptly to provide a Scope of Work that, if it could not be reasonably completed within the 15-day notice period, would not amount to an event of default.

[31] The August 3, 2017 termination letter ignored the parties’ good faith discussions over the preceding two weeks, ignored the fact that Kenzie’s reluctance to accept responsibility for the main-floor toilet leak repairs was fully and reasonably explained in the Scope of Work correspondence, and ignored the fact that the tenant’s concern about the landlord’s responsibility to repair the leaking toilet in the main-floor restaurant was genuine and legitimate.

[32] In short, I find for the reasons set out above that the termination letter was premature and unjustified. I find on the uncontroverted evidence before me that that it was Tony (that is PPF Investments) who breached the lease agreement, not Kenzie. Tony (that is PPF Investments) is liable to Kenzie for any provable losses.

[33] PPF’s motion for summary judgment and PPF’s action are therefore dismissed in their entirety.

[34] Kenzie’s cross-motion for summary judgment is granted on the liability portion. I am unable to decide Kenzie’s damages claim on the evidence before me. The damages claim raises genuine issues requiring a trial - for example, (i) the timing and foreseeability of the so-called ‘marketing and advertising’ costs; (ii) the portion of the “new rent” losses that are properly attributable to PPF, given that Kenzie relocated to new premises that are larger by about 600 square feet and are above-ground; and (iii) the recoverability of any “lost income” sustained by Kenzie personally, given that any lost income was probably sustained by her operating company, Sugar Suites, an entity that is not a party to this litigation.

[35] The damages claim must proceed to trial. If the parties cannot agree on the mode of trial under Rule 76.12 – that is, ordinary trial or summary trial – they may re-attend before me for the appropriate direction under Rule 76.10 (6).

Disposition

[36] PPF’s motion for summary judgment is dismissed. PPF’s action is dismissed.

[37] Kenzie’s cross-motion for summary judgment on her counter-claim on liability is granted but the cross-motion for summary judgment on her counter-claim for damages is dismissed and shall proceed to trial.

[38] I encourage the parties to agree on costs. If no such agreement can be achieved, please forward brief written submissions to my attention - within 14 days from Kenzie and within 14 days thereafter from Tony/PPF.

Justice Edward P. Belobaba

Date: February 15, 2019