COURT FILE NO.: CV-19-613179

COURT FILE NO.: CV-19-627263

DATE: 2020/03/25

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

285 SPADINA SPV INC.

Applicant

• and -

2356802 ONTARIO CORP.

Respondent

AND BETWEEN:

2356802 ONTARIO CORP.

Applicant

• and –

285 SPADINA SPV INC. and RONY HITTI

Respondents

Julian Binavince for 285 Spadina SPV Inc. (Tenant) and Rony Hitti

John Chapman for 2356802 ONTARIO Corp. (Landlord)

HEARD: February 13, 2020

PERELL, J.

REASONS FOR DECISION

A judge is a law student who marks his own examination papers. (H. L. Mencken)

A. Introduction to the Questions

[1] In 1921, a building was constructed at the corner of Dundas Street and Spadina Avenue. in Toronto. It was named The Standard Theatre, and it was a Yiddish language theatre. In 1935, the building was renamed the Strand, and it became a regular movie theatre. To celebrate the end of the Second World War, the name of the building was changed to the Victory, and it reopened as a burlesque stage, which lasted into the 1970s. In 1975, the building was purchased, renovated, and it was renamed the Golden Harvest Cinema. It became a Chinese language movie theatre. The Golden Harvest Cinema closed in 1994, and the building was converted into a commercial building. It had, among other tenancies, a pharmacy, a restaurant, and formerly a bank on the first floor. It is a heritage building under the Ontario Heritage Act.

[2] The current owner and landlord of the building is 2356802 Ontario Corp., which owns and manages commercial properties in the greater Toronto area. I will refer to 2356802 Ontario Corp as the Landlord. Yong Jo, who is an experienced property owner and manager, is the director and principal of the Landlord. The Landlord purchased the building in December 2015 for $9.8 million.

[3] The Landlord is in a dispute with 285 Spadina SPV Inc., which I will refer to as the Tenant. Ronald (Rony) Hitti, an experienced hospitality industry entrepreneur, controls the Tenant.[^1]

[4] Mr. Hitti has a plan to redevelop the major portion of the former theatre building as a banquet and concert hall event venue. His plan is to lease the second and third floor space of the building, where the long vacant theatre auditorium remains (the Theatre Premises) and also to lease the premises that were being occupied by a restaurant tenant on the first and the second floors (the Restaurant Premises). The second floor of the Restaurant Premises was the backstage of the former theatre.

[5] After a few months of negotiations between Mr. Hitti and Mr. Jo, in June 2018, the Landlord and the Tenant signed two agreements to lease. Using a standard form offer to lease contract, they signed the Theatre Agreement and the Restaurant Agreement.

[6] After the agreements were signed, the Landlord allowed the Tenant to enter the Theatre Premises in July 2018 and there followed two months of their working cooperatively together. Then a dispute began about whether the Landlord had breached its obligations to repair the roof and to provide a sprinkler system and a HVAC system (heating, venting, air conditioning system) as required by the Theatre Agreement and the Restaurant Agreement and described as “Landlord’s Work”.

[7] More disputes followed, and there are now disputes about whether the Tenant breached both Agreements in a variety of ways, including: (a) failing to sign a formal lease; (b) failing to pay the deposit for the Restaurant Agreement; (c) failing to pay rent; (d) failing to obtain insurance; (e) failing to obtain permission to build offices in the Theatre Premises; (f) denying the landlord access to the leased premises; and (g) delaying or obstructing the Landlord in completing its obligations under the Theatre Agreement with respect to the Landlord’s Work.

[8] Recently, the Landlord introduced a dispute about whether the Theatre Agreement and the Restaurant Agreement are binding contracts. The Landlord asserts that the agreements are too uncertain in their major terms to be enforceable. This is denied by the Tenant, which seeks to enforce both agreements.

[9] These disputes between the Landlord and the Tenant have spawned several Applications, two of which are now before the court.

[10] In one Application (the Tenant’s January 2019 Application), the Tenant sues the Landlord to enforce the agreements. In that application, the Tenant seeks a declaration that the two agreements are binding and, if necessary, relief from forfeiture. It also seeks a mandatory injunction to compel the Landlord to perform the Landlord's Work.

[11] However, on the argument of the Tenant’s January 2019 Application, the only relief it sought was declaratory relief. The Tenant asks that the court declare that: (a) the Theatre Agreement and the Restaurant Agreement are binding contracts; and (b) the Landlord is in breach of its obligations with respect to Landlord’s Work. The Tenant asks that the balance of its Application be adjourned.

[12] In the other Application (the Landlord’s September 2019 Application), the Landlord sues to evict the Tenant. The critical issue in this Application is whether the parties ever entered into binding and enforceable agreements. If the Landlord succeeds on its Application, the Tenant’s January 2019 Application is moot.

[13] For the reasons that follow, I grant the Tenant’s Application, in part, and dismiss the balance of it without costs. The dismissal is without prejudice to any further actions or applications the Tenant may bring in the future. In the Tenant’s Application, I declare that the Theatre Agreement and the Restaurant Agreement are binding agreements. In the Tenant’s January 2019 Application, I shall interpret the agreements and I shall determine the current legal situation under those agreements. This should allow the parties to govern their future affairs under the agreements.

[14] For the reasons that follow, I dismiss the Landlord’s September 2019 Application to evict the Tenant without costs. The dismissal is without prejudice to any further actions or applications the Landlord may bring in the future about the Theatre Agreement or the Restaurant Agreement.

B. Facts

1. The Parties and Principals

[15] The Landlord, 2356802 Ontario Corp., is one of several commercial property holding companies managed by Mr. Jo, who is an experienced business and property manager of numerous properties in the Greater Toronto Area.

[16] The Tenant, 285 Spadina SPV Inc., is a corporation used by Mr. Hitti to develop his project for the building on the corner of Spadina Avenue and Dundas Street in Toronto. Mr. Hitti is an MBA graduate of York University. He is a diploma graduate of Hospitality and Culinary Arts from the Culinary Arts Academy in Montreaux, Switzerland. He has over thirty years’ experience in the hospitality industry.

[17] Both sides have had real estate agents and legal representation from lawyers throughout the events described below.

[18] In the Landlord’s September 2019 Application, Mr. Jo, stated that after negotiating the agreements that are subject to the Applications before the Court, he learned that Mr. Hitti had a reputation as a bad commercial tenant and that he had difficulties with the AGCO (Alcohol and Gaming Commission of Ontario).[^2]

[19] Save with respect to the AGCO, there seemed to be no particular purpose in making these disparaging comments, which were denied by Mr. Hitti, other than to cast Mr. Hitti in a bad light. I have, therefore, save with respect to the matter of the AGCO, given Mr. Jo’s comments no weight, and I add that had I given the comments about Mr. Hitti’s character any weight, the comments would not have been of assistance in resolving the interpretative issues that are the crux of the Applications.

[20] In a similar vein, Mr. Hitti’s speculations in his affidavits about Mr. Jo’s motives are not helpful. Both parties should appreciate that mens rea is not an element of a breach of contract claim.

2. The Story of the Disputes

[21] As already noted in the Introduction, Mr. Hitti’s plan is to develop the former Theatre Premises as an event venue for banquets, concerts, etc. His plans involve the Theatre Premises which has been vacant for decades, and the Restaurant Premises, which had an existing restaurant tenancy. In the narrative that follows, it shall be helpful to note that the municipal address of the Theatre Premises is on Spadina Avenue and the address of the Restaurant Premises is on Dundas Street.

[22] In 2018, to acquire the leasehold, Mr. Hitti hired a real estate agent, Robin Lewis of Brad J. Lamb Realty Inc.

[23] In 2018, Mr. Hitti and Mr. Lewis met over dinner with Mr. Jo and the Landlord’s real estate agent, Yvonne Le Trac of Living Realty Inc. to discuss the event venue project. Mr. Hitti deposed that at the dinner, the parties discussed that the roof of the building needed repair and that the event venue project needed a robust and quiet HVAC system and a sprinkler system that would satisfy public authorities including the AGCO.

[24] Mr. Hitti said that they discussed his past history with the AGCO and that Mr. Jo’s response was to ask for a greater deposit.

[25] In their negotiations, Mr. Hitti and Mr. Jo both knew that there were signs of water damage through the roof of the building into the theatre auditorium. There was a significant amount of debris in the auditorium. Mr. Jo and Mr. Hitti discussed the need to remove the debris and to repair the roof They also discussed the Tenant’s need for a a robust and quiet HVAC system and a sprinkler system. Given the age of the building there was no sprinkler system for the theatre. What the parties did not know was precisely how much work would be required to repair the roof or how much the Landlord’s Work would cost.

[26] The parties decided to move forward toward an agreement. Mr. Jo and Mr. Hitti retained lawyers to negotiate formal lease agreements for the Theatre Premises and for the Restaurant Premises. The parties exchanged drafts. There were offers back and forth. By April 27, 2018 there had been three separate versions of an offer to lease submitted by the Tenant. These prior offers were not part of the Record for the two Applications, but the parties discussed and described these draft agreements.

[27] The Tenant’s form of offer was a detailed and lengthy contract, but the parties could not come to terms, so at the Landlord's suggestion, they decided to do something brief. Without the assistance of their lawyers and with the assistance of their respective real estate agents, the parties signed standard form OREA (Ontario Real Estate Association) offer to lease agreements. As will appear from the story told below, the parties were very sloppy in their use and draftsmanship of the OREA standard form contract.

[28] Both agreements are dated June 4, 2018 but they were signed on June 11, 2018. Mr. Hitti deposed that the final version of both agreements was based on earlier drafts of the Theatre Agreement with the idea that its terms were to be incorporated into the Restaurant Agreement.

[29] The Tenant paid the $150,000 deposit with respect to the Theatre Agreement, which was immediately available for occupancy subject to the terms of the Agreement.

[30] The Tenant did not pay the $100,000 deposit with respect to the Restaurant Agreement because the Restaurant Premises were still occupied by an existing tenant. As may be noted below, the Restaurant Agreement in a variety of ways addressed the contingency that possession of the Restaurant Agreement premises might be delayed until the end of the existing restaurant tenancy.

[31] The pertinent provisions of the Theatre Agreement and of the Restaurant Agreement are set out below:

Theatre Agreement

Restaurant Agreement

This Agreement to Lease (Agreement) dated the 4th day of June 2018

TENANT: 285 SPADINA SPV INC.

LANDLORD: 2356802 Ontario Inc.

The Tenant hereby offers to lease from the Landlord the premises as described herein on the terms and subject to the conditions as set out in this Agreement to lease “Tenant” includes lessee and “Landlord” includes lessor.

This Agreement to Lease (Agreement) dated the 4th day of June 2018

TENANT: 285 SPADINA SPV INC.

LANDLORD: 2356802 Ontario Inc.

The Tenant hereby offers to lease from the Landlord the premises as described herein on the terms and subject to the conditions as set out in this Agreement to lease “Tenant” includes lessee and “Landlord” includes lessor.

1. PREMISES: The “Premises” consisting of approximately 7,515+3,151 square feet more or less on the 2&3 floor Area E floor of the “Building” known municipally as #2F & 3F-285 SPADINA AVE. in the City of Toronto, Province of Ontario, as shown outlined on the as plan attached as Schedule B.

2. PREMISES: The “Premises” consisting of approximately 1847+1906 square fee more or less on the 1+2F Area E floor of the “Building” known municipally as 492 DUNDAS STREET WEST in the City of Toronto, Province of Ontario, as shown outlined on the plan attached as Schedule B.

3. USE: The Premises shall be used only for RESTAURANT/EVENT VENUE/PUBLIC HALL/CONCERT HALL/ BANQUET FACILITY/ ALL ANCILLIARY USES FOR LICENSED PREMISES UNDER AGCO [Alcohol and Gaming Commission of Ontario].

4. USE: The Premises shall be used only for RESTAURANT/EVENT VENUE.

5. TERM OF LEASE:

(a) The Lease shall be for a term of ONE HUNDRED AND EIGHTY-NINE (189) months commencing on the 1st day of July 2018 and terminating on the 31st day of March 2020.

(b) Provided the Tenant is not at any time in default of any covenants within the Lease, the Tenant shall be entitled to renew this lease for 1 (ONE) additional period of 60 months (each) on written notice to the Landlord given not less than 3 months prior to the expiry of the current term at a rental rate.

OPTION AT MARKET RENT/ARBITRATION Option One at rate in Schedule “A”

3. TERM OF LEASE:

(a) The Lease shall be for a term of One Hundred and Eighty-Nine months commencing on the 1st day of January 2019 and terminating on the 9th day of December 2028.

(b) Provided the Tenant is not at any time in default of any covenants within the Lease, the Tenant shall be entitled to renew the Lease of 1 (ONE) additional period(s) of 60 months (each) on written notice to the Landlord given not less than 3 months prior to the expiry of the current term at market rent or by arbitration.

4. RENTAL: Fixed minimum rent: The fixed minimum rent payable by the Tenant for each complete twelve-month period during the lease shall be

(Check one box only)

□ [checked] the FIRST day of each month commencing APRIL 1ST 2019

□ [checked] the ---- day of the first month immediately following completion of the Landlord’s Work.

4. RENTAL: Fixed minimum rent: The fixed minimum rent payable by the Tenant for each complete twelve-month period during the lease shall be

(Check one box only)

□ [checked] the FIRST day of each month commencing SEPTEMBER 1ST 2019

□ [checked] the ---- day of the first month immediately following completion of the Landlord’s Work.

7. ADDITIONAL RENT AND CHARGES:

THE REALTY TAXES, ASSESSMENTS, RATES, CHARGES AND DUTIES LEVIED OR ASSESSED AGAINST THE PROPERTY ESTIMATED AT THE TIME OF EXECUTED AGREEMENT AT $6 PER SQUARE FOOT

7. ADDITIONAL RENT AND CHARGES:

□ [checked] Check this box if Additional Rent as described below to be paid by Tenant

The Tenant shall additionally pay a proportionate share of all costs and expenses incurred by landlord in maintaining, operating, cleaning, insuring the property and without limiting the generality of the foregoing, such costs and expenses shall include the costs of:

(i) […]

(vi) THE REALTY TAXES, ASSESSMENTS, RATES, CHARGES AND DUTIES LEVIED OR ASSESSED AGAINST THE PROPERTY ESTIMATED AT THE TIME OF EXECUTED AGREEMENT AT $6 PER SQUARE FOOT

8. SCHEDULES: The Schedules attached hereto shall form an integral part of this Agreement to Lease and consist of Schedules A & B.

9. SCHEDULES: The Schedules attached hereto shall form an integral part of this Agreement to Lease and consist of Schedules A & B.

10. LANDLORD’S AND TENANT’S WORK: The Landlord agrees to complete the work described as the “Landlord’s Work” in Schedule A attached hereto. The Tenant agrees to complete any additional necessary work to prepare the Premises for the Tenant’s use, described as “Tenant’s Work” in Schedule A attached hereto. The Tenant shall not proceed with any work within or affecting the Premises without the Landlord’s prior written approval, which approval shall not be unreasonably withheld.

11. LANDLORD’S AND TENANT’S WORK: The Landlord agrees to complete the work described as the “Landlord’s Work” in Schedule A attached hereto. The Tenant agrees to complete any additional necessary work to prepare the Premises for the Tenant’s use, described as “Tenant’s Work” in Schedule A attached hereto. The Tenant shall not proceed with any work within or affecting the Premises without the Landlord’s prior written approval, which approval shall not be unreasonably withheld

12. Insurance: The Tenant agrees to insure the property and operations of the Tenant, including insurance for fire and such additional perils as are normally insured against, liability insurance and any other insurance as may be reasonably required by the Landlord.

13. Insurance: The Tenant agrees to insure the property and operations of the Tenant, including insurance for fire and such additional perils as are normally insured against, liability insurance and any other insurance as may be reasonably required by the Landlord.

14. Execution of Lease: The Lease shall be prepared by the Landlord at the Landlord’s expense, in accordance with the terms and conditions of this Agreement. The Lease shall be signed and executed by both parties hereto prior to the commencement of work on the premises by either party and prior to occupancy by the Tenant.

15. Execution of Lease: The Lease shall be prepared by the Landlord at the Landlord’s expense, in accordance with the terms and conditions of this Agreement. The Lease shall be signed and executed by both parties hereto prior to the commencement of work on the premises by either party and prior to occupancy by the Tenant.

16. Occupancy or Rent to Abate: In the event the premises arc not completed by the Landlord for occupancy by the Tenant on the date set out herein for commencement of the Term of the Lease, the rent under this agreement shall abate to the extent of such delay, and the Tenant hereby agrees to accept such abatement of rent in full settlement of all claims which the Tenant might otherwise make because the Premises were not ready for occupancy by the said date.

17. Occupancy or Rent to Abate: In the event the premises arc not completed by the Landlord for occupancy by the Tenant on the date set out herein for commencement of the Term of the Lease, the rent under this agreement shall abate to the extent of such delay, and the Tenant hereby agrees to accept such abatement of rent in full settlement of all claims which the Tenant might otherwise make because the Premises were not ready for occupancy by the said date.

18. AGREEMENT IN WRITING: If there is any conflict or discrepancy between any provision added to this Agreement(including any Schedule attached hereto) and any provision in the standard pre-set portion hereof, the added provision shall supersede the standard pre-set provision to extent of such conflict or discrepancy. This Agreement, including any Schedule attached hereto, shall constitute the entire Agreement between Landlord and Tenant. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein. This Agreement shall be read with all changes of gender or number required by the context.

19. AGREEMENT IN WRITING: If there is any conflict or discrepancy between any provision added to this Agreement(including any Schedule attached hereto) and any provision in the standard pre-set portion hereof, the added provision shall supersede the standard pre-set provision to extent of such conflict or discrepancy. This Agreement, including any Schedule attached hereto, shall constitute the entire Agreement between Landlord and Tenant. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein. This Agreement shall be read with all changes of gender or number required by the context.

20. BINDING AGREEMENT: This Agreement and the acceptance therefore shall constitute a binding agreement by the parties to enter into the Lease the Premises and to abide by the terms and conditions herein contained.

21. BINDING AGREEMENT: This Agreement and the acceptance therefore shall constitute a binding agreement by the parties to enter into the Lease the Premises and to abide by the terms and conditions herein contained.

SCHEDULE A

IT IS UNDERSTOOD AND AGREED THAT THE TOTAL SQUARE FOOTAGE OF THE PREMISES IS 10,666SQ/FT WITH 8,000 SQ/FT OF USABLE SPACE. IT IS AGREED THAT THE NET RENTAL SHALL BE AS FOLLOWS.

NET RENTAL:

The Annual Net and Carefree Rental payable to the Landlord by the Tenant for the said Premises during the Term shall be as follows:

From JULY 01, 2018 to MARCH 31, 2019 – NO NET RENT payable

FROM APRIL 01, 2019 to MARCH 31, 2021, payable $176,000 per annum and payable $13,334.00 monthly in advance, based on $22 per square foot, plus H.S.T.

FROM APRIL 01, 2021 TO MARCH 31, 2024, payable $200,000 per annum and payable $16,667.00 monthly in advance, based on $25 per square foot plus H.S.T.

FROM APRIL 01, 2024 TO MARCH 31, 2029, payable $240,000 per annum and payable $20,000.00 monthly in advance, based on $30 per square foot plus H.S.T.

FROM APRIL 01, 2029 TO MARCH 31, 2034, payable $280,000 per annum and payable $23,334.00 monthly in advance, based on $35 per square foot plus H.S.T.

EFFECTIVE OCTOBER 1, 2018 TENANT TO PAY ADDITIONAL RENT IN THE AMOUNT OF APPROXIMATELY $6 PER SQUARE FOOT BASED ON 10,666 SQ/FT.

SCHEDULE A

NET RENTAL:

The Annual Net and Carefree Rental payable to the Landlord by the Tenant for the said Premises during the Term shall be as follows:

From JANUARY 1, 2019 to AUGUST 31, 2019 – NO NET RENT payable.

From SEPTEMBER 01, 2019 to AUGUST 31, 2021, FIRST FLOOR payable $92,350 per annum and payable $7,695.83 monthly in advance, based on $50 per square foot, plus H.S.T. SECOND FLOOR payable $41,932 per annum and payable $3,494.33 monthly in advance based on $22 per square foot+ HST

FROM SEPTEMBER 01, 2021 TO AUGUST 31, 2024, FIRST FLOOR payable $101,585 per annum and payable $8,465 monthly in advance, based on $55 per square foot, plus H.S.T. 2ND FLOOR payable $47,650 per annum and payable $3,970.83 monthly in advance based on $25 per square foot+ HST.

FROM SEPTEMBER 2024 to AUGUST 31, 2029, FIRST FLOOR payable $110,820 per annum and payable $9,235 monthly in advance, based on $60 per square foot, plus H.S.T. SECOND FLOOR payable $57,180 per annum and payable $4,765 monthly in advance based on $30 per square foot+ HST.

FROM APRIL 1, 2029 – MARCH 31, 2034, FIRST FLOOR payable $120,055 per annum and payable $10,004.58 monthly in advance, based on $65 per square foot, plus H.S.T. SECOND FLOOR payable $66,710 per annum and payable $5,559.17. monthly in advance based on $35 per square foot+ HST.

EFFECTIVE APRIL 1, 2019 TENANT TO PAY ADDITIONAL RENT IN THE AMOUNT OF APPROX. $6 PER SQUARE FOOT BASED ON 1906 SQ. FT. ON SECOND FLOOR AND 1847 SQ. FT ON THE MAIN FLOOR. TMI [taxes, maintenance, insurance] APPROX $21.50 PER SQ.FT.

THE DEMISED PREMISES DESCRIBED HEREIN ARE CURRENTLY LEASED & OCCUPIED. THIS AGREEMENT SHALL BECOME EFFECTIVE AND THE DATES HEREIN ADJUSTED ACCORDINGLY AT THE EARLIER OF VACANCY OF THE PREMISES OR THE END OF THE TERM OF THE LEASE OF THE CURRENT TENANT, JUNE 15, 2019.

BOTH PARTIES ACKNOWLEDGE THAT THE EXISTING TENANT ALSO HAS AN OPTION FOR 5 YEARS AT MARKET RENT. THIS AGREEMENT WILL BECOME EFFECTIVE WHENEVER THE EXISTING TENANT HAS MOVED OUT AND THE SPACE BECOMES AVAILABLE.

LANDLORD’S WORK AT LANDLORD’S EXPENSE

(i) Removal of all existing waste

(ii) Landlord shall install a new HVAC system sufficient for Tenant’s intended uses.

(v) Landlord shall carry out any roof repairs currently necessary, and any damage resulting from same – and ensure that the roof membrane shall be trouble and leak free at all material times during the term of the lease

(vi) Landlord shall install a sprinkler system for the Tenant’s intended use.

Tenant will provide three (3) estimates for all Landlord’s Work. Tenant to manage execution of work and landlord will pay trades directly as invoiced in three payments: Deposit, One Progress Payment, and Final Payment upon completion of work.

LANDLORD’S WORK AT LANDLORD’S EXPENSE

(i) Landlord shall install a new HVAC system sufficient for Tenant’s intended uses.

(iii) Landlord shall install a sprinkler system for the Tenant’s intended use.

Tenant will provide three (3) estimates for all Landlord’s Work. Tenant to manage execution of work and landlord will pay trades directly as invoiced in three payments: Deposit, One Progress Payment, and Final Payment upon completion of work.

TENANT’S WORK AT THE TENANT’S EXPENSE

The Tenant shall complete all work (“Tenant’s Work”), other than the Landlord’s Work outlined above in a good and workmanlike manner as expeditiously as possible at Tenant’s own expense, and in accordance with the plans for such work as approved in advance by the Landlord, such approval not to be arbitrarily or unreasonably withheld or delayed. Upon presentation of the plans by the Tenant to the Landlord, the Landlord shall have FIVE (5) Business Days in which to advise the Tenant of such reasonable alterations to be made to the plans or else the Landlord shall be deemed to have approved the Tenant’s plans All Tenant’s Work shall be in compliance with building code and performed obtaining all relevant building permits from governing authority in advance of work commencing.

Tenant will take the property “as is” “where is” besides the Landlord’s Work.

TENANT’S WORK AT THE TENANT’S EXPENSE

The Tenant shall complete all work (“Tenant’s Work”), other than the Landlord’s Work outlined above in a good and workmanlike manner as expeditiously as possible at Tenant’s own expense, , and in accordance with the plans for such work as approved in advance by the Landlord, such approval not to be arbitrarily or unreasonably withheld or delayed. Upon presentation of the plans by the Tenant to the Landlord, the Landlord shall have FIVE (5) Business Days in which to advise the Tenant of such reasonable alterations to be made to the plans or else the Landlord shall be deemed to have approved the Tenant’s plans All Tenant’s Work shall be in compliance with building code and performed obtaining all relevant building permits from governing authority in advance of work commencing.

THE TENANT WILL PROVIDE A DEPOSIT OF $100,000 PAYABLE TO LIVING REALTY INC. WHENEVER THE SPACE BECOMES AVAILABLE. $80,000 TO BE APPLIED TO THE INTIAL MONTH’S RENT AND $20,000 TO BE HELD AS A SECURITY DEPOSIT

ROOF TOP PATIO

At any time during the term of the Lease the Tenant may at its own expense build a roof top patio with access thereto …. The rooftop patio shall be rent free to the tenant for the term of the herein. Landlord reserves the right to build out 3rd floor signage at landlord’s full and unfettered discretion.

RIGHT OF REFUSAL:

The Tenant shall have the right of refusal to Lease any space that shall come available within the building at 285 Spadina Avenue during the term of the herein Lease, including but not limited to the space currently occupied by the Dollar store located in the basement of the building. The Tenant shall have Seven (7) full business days following notification of the avails [sic] of any such space to Lease within the building to submit an offer to Lease said space at market rate which shall be accepted by the Landlord; and if dispute between the Tenant and Landlord, the Market rate shall be determined by accredited Arbitration.

Schedule B – Second Floor

Schedule B

Schedule B – Third Floor

[32] For what follows, it may be helpful to have a cross-sectional view of the building as it fronts Dundas Street.

[33] And, it shall later be helpful to keep in mind that: (a) the Restaurant Premises are comprised of 1847 sq. ft. of the first floor and 1,906 sq. ft. on the second floor; (b) the Theatre Premises are comprised of 7,515 sq. ft. on the second floor and 3,151 sq. ft on the third floor; and (c) thus, the square footage of the second floor, i.e., 9,421 sq. ft., is comprised of 1,906 sq. ft. of the Restaurant Premises and 7,515 sq. ft. of the Theatre Premises.

[34] The Theatre Agreement and the Restaurant Agreement specified that the Tenant was to execute a formal lease before occupancy. I shall discuss below, whether the execution of a formal lease was a pre-condition to the formation of a binding contract, and to foreshadow, my conclusion is that the execution of the formal lease was simply to memorialize the enforceable agreement already reached by the parties.

[35] On July 6, 2018, notwithstanding that a formal lease had not been signed, the Landlord allowed the Tenant to enter and take occupancy of the Theatre Premises. Mr. Jo deposed that this was a curtesy. Mr. Hitti’s evidence, however, was that Mr. Jo allowed the early entry because the Tenant agreed to remove the debris from the theatre auditorium, which it did at its own expense. Thus, the Tenant submitted that the Landlord had waived the requirement that a formal lease be signed.

[36] After taking possession of the Theatre Premises, the Tenant began to use those premises for business purposes. The Tenant fixtured a boardroom, offices, and some washrooms. To foreshadow one of the disputes discussed below, subsequently, the Landlord said that these renovations were a breach of contract, because the Tenant did not obtain the Landlord’s permission before doing the work. Mr. Hitti, however, said that the Tenant’s contractor was in constant communication with the Landlord’s property manager, Chris Baek, about the construction of the office and the Landlord raised no complaint about this work being done. The Tenant submitted that it did not breach the Theatre Agreement by its use of the Theatre Premises for offices or by renovating the office space.

[37] After the signing of the Theatre Agreement and the Restaurant Agreement, the parties worked together cooperatively for a short period of time (about two months), and then they didn’t.

[38] Under the Theatre Agreement, the Tenant was to provide estimates for the Landlord’s Work and then to manage the execution of that work with the Landlord paying the contractors directly as invoiced in three staged payments to be made to the contractors. Thus, under the Theatre Agreement – as it was written – the Tenant could manage and coordinate the Landlord’s Work and the Tenant’s Work.

[39] In accordance with this approach, the Tenant retained Axion Construction to obtain advise about the Landlord’s Work. On July 24, 2018, Axion provided the Tenant with three quotes about the costs of the roof work. The Axion Construction report with its three quotes was forwarded to the Landlord. The lowest quote for the Landlord’s Work was approximately $450,000. The highest quote was approximately $500,000.

[40] In late July, the Tenant hired George Younes of Modern Upgrades, another general contractor, to quote on the Landlord’s Work. Modern Upgrade’s quote for the roof was $428,000 plus HST. It quoted $147,700 plus HST for what it described as a “Band Aid Fix” for the roof. Modern Upgrades quoted a price of $12,850 plus HST for a sprinkler system. It provided two quotes for the HVAC system; i.e., option one, $169,500, all inclusive, and option two, $149,160, all inclusive. Thus, Modern Upgrade’s quote for the Landlord’s Work was approximately $600,000.

[41] On August 16, 2018, there was a meeting of Mr. Jo, Mr. Hitti, and Mr. Younes at the Theatre Agreement premises to discuss the quotes for the roof work and for the sprinkler and HVAC systems. The Tenant’s quotes for the Landlord’s Work obviously required very extensive work to be done on the roof amounting to a total replacement of the roof. Mr. Baek, the Landlord’s property manager, found the quotes vague, lacking specifics, from unfamiliar contractors, and overreaching in respect of what was required of the Landlord. The Landlord’s position that it was sufficient to satisfy its contractual obligation if it just added additional membrane to the roof structure to make the roof watertight. This fix was much cheaper than the Tenant’s submitted quotes. Thus, the parties did not agree about what was required for the roof, the Landlord seeking repair and the Tenant seeking further investigations and probably replacement of the existing roof.

[42] On September 17 or 19, 2018 there was another meeting. The parties referred to both dates in their affidavits, but nothing turns on the date of the meeting. What is important is that this meeting is ground zero for the misadventures and misfortunes that were to follow. In attendance at the meeting was Mr. Jo, Mr. Baek, Ms. Trac, Mr. Hitti, Mr. Lewis, and Beth O’Donoghue (a colleague of Mr. Lewis).

[43] At this meeting, the Landlord told the Tenant that it wanted to coordinate the Landlord's Work with the Tenant’s Work and it wanted to manage the Landlord’ Work itself. As already noted, the Landlord found the Tenant’s quotes vague, beyond the scope of the Theatre Agreement and from unacceptable contractors. Mr. Baek deposed that he informed the Tenant that the Landlord did not want to use the contractors who had made the quotes. The Landlord wished to employ Stethan Contracting, a contractor that was familiar with the building because it had previously done work at the building for the pharmacy tenant.

[44] The Landlord says that the Tenant agreed to this change to the approach to Landlord’s Work specified by the Theatre Agreement and in the Restaurant Agreement. But the meeting was otherwise unsuccessful in addressing the co-ordination of the Landlord’s Work and the Tenant’s Work. The scope of the Landlord’s Work was not resolved.

[45] I pause to say that with the benefit of hindsight, it was: (a) the Landlord’s decision to depart from the approach set out in the Theatre Agreement and Restaurant Agreement and instead to manage the Landlord’s Work itself; and, (b) the Tenant’s acceptance of this decision without the parties having a agreement about the scope of the Landlord’s Work that can now be seen to be decision to make a train wreck of both agreements. Both parties are to blame for what followed.

[46] Mr. Hitti also deposed that Mr. Jo waived the requirement of a formal lease at a meeting in September 2018. This is denied by Mr. Jo, who says that he anticipated that the parties would in good faith negotiate a formal agreement.

[47] There was another meeting on September 27, 2018. In attendance were Mr. Jo, Mr. Baek, Mr. Hitti, Mr. Lewis, and Ms. Le Trac and Ms. O’Donoghue. At this meeting, Mr. Jo introduced Kevin Li of Letus Ltd., which had been retained by the Landlord for the Landlord’s Work.

[48] In September and October 2018, there were email communications between Mr. Li and Mr. Hitti and between Mr. Hitti and Mr. Baek about the Landlord’s Work.

[49] On October 17, 2018, Mr. Baek sent an email message to Mr. Hitti advising that the Landlord had now retained Jonathan Augusto of Stethan Contracting Inc. to complete the Landlord’s Work. (Letus Ltd. was no longer involved.) Construction plans were being prepared, and in this correspondence, the Landlord demanded that the Tenant begin to pay the additional rent portion of its rent obligation for the Theatre Premises.

[50] The Tenant was provided with Stethan Contracting’s construction plans to review. The Tenant, however, was not satisfied with the proposal for the HVAC system and with respect to the repair of the roof. It did not begin to pay additional rent.

[51] The Landlord attempted to proceed nevertheless without the Tenant’s concurrence about the plans for Landlord’s Work. The result was some theatre of the absurd that led to the first of the several court proceedings about the Theatre Premises.

[52] In November 2018, the Tenant, to control and secure the Theatre Premises, changed the locks. It did this without the Landlord’s permission, and the Landlord did not have keys to enter its own building, and it could only access the roof, where it rented space for the equipment of a telecommunications service provider, by climbing a ladder on the outside of the building.

[53] Stethan Contracting attempted without success to gain entry to the premises, but Mr. Hitti was imposing conditions to granting access, including payment of a security guard. Strathan went ahead without Mr. Hitti’s permission and gained entry to the premises by breaching a rear door, which Mr. Hitti regarded as a criminal break and enter and a civil trespass. An apparently enraged, Mr. Hitti ordered Stethan Contractor’s employees off the roof and out of the building.

[54] The parties continued to squabble, but Mr. Hitti would not allow the Landlord access to its own building. This absurd situation persisted until early December, when the Landlord brought the Application that is the predecessor of the two Applications now before the court. The Application record was part of the evidentiary record for the immediate case.

[55] Meanwhile, the Tenant asked Barry Tessler of Thermaco Engineering Services (1986) Ltd. to inspect the roof and to provide another report. In a report dated November 15, 2018, which was provided to the Landlord, Mr. Tessler reported that leaks were occurring at various locations. The conclusion of his report stated:

The owner needs to spend at least $500,000 to repair the structure and replace all roofs in the system to provide a safe and waterproofed area for the new building operations. A detailed structural investigation is required including additional core cut tests to determine if the original deck system on all roofs are structurally sound.

[56] Mr. Tessler costed immediate repairs at $155,000, and he costed the recommended roof replacement at a total budget of $550,000 plus H.S.T.

[57] Also, around this time, the Tenant retained Ian Ho P. Eng., of Sysconverge to provide the specifications for an HVAC and sprinkler system suitable for the Tenant’s plans for an event venue. The Tenant agreed to pay any increased costs above any reasonable systems proposed by the Landlord.

[58] On November 26, 2018, the Tenant provided the Landlord with Mr. Ho’s report about the HVAC and sprinkler systems.

[59] With some shrill correspondence between the parties, the access to the roof dispute remained unresolved, and on December 7, 2018, the Landlord brought its Application to resolve the matter of its gaining access to the roof. The Application and a motion for interlocutory relief was supported by Mr. Baek’s affidavit dated December 7, 2018 and an affidavit from Parisa Babadi dated December 7, 2018. Ms. Babadi was a legal assistant for the Landlord’s lawyer of record.

[60] For the present purposes of the two Applications now before the court, one significant point to note in the December 2018 Application material is that Mr. Baek swore that at the September meeting there was a verbal agreement between the Landlord and the Tenant that the Landlord would perform the Landlord’s work with its own contractor at its own expense.

[61] Also, notable and significant is that the Notice of Application for the December 2018 Application asserts that the Landlord’s position is that the Tenant is estopped from relying on the written terms of the Lease Agreement with respect to the Landlord’s Work. The contractual performance disaster was well underway.

[62] On December 12, 2018, the motion for interlocutory relief in the December 2018 Application was heard, and, on consent, Justice Nakatsuru granted an Order resolving the terms upon which the Landlord could obtain access to the roof of the building. This truce was, however, not a prelude to a cease-fire.

[63] On January 24, 2019, the Tenant brought an Application (the January 2019 Application) for declarations and for injunctive relief. The January 29, 2019 Application was supported by Mr. Hitti’s affidavit dated February 10, 2019.

[64] The Tenant sought a determination of the rights of the parties under the Theatre Agreement and the Restaurant Agreement. It sought a declaration that the Landlord had breached its obligations under the Theatre Agreement. It sought an Order for possession of the Restaurant Premises. It sought an Order requiring the Landlord to perform the Landlord’s Work or an Order permitting the Tenant as agent of the Landlord to perform the Landlord’s Work. It sought an Order permitting the Tenant to oversee and manage the Landlord’s Work. It sought damages by way of an abatement of rent with respect to the Theatre Agreement and the Restaurant Agreement.

[65] Pausing here in the narrative, it may be noted that the Tenant by its January 2019 Application, in effect, is no longer agreeing to the departure from the Theatre Agreement about Landlord’s Work and that it blames the delay in following the approach of the Theatre Agreement to Landlord’s Work onto the Landlord for not resolving the issue of the scope of that work.

[66] The parties, however, did not prosecute the January 2019 Application forthwith, and instead a new theatre (pardon the pun) of war opened up in January 2019 about the Theatre Agreement.

[67] On January 25, 2019, more than six months after the Landlord gave the Tenant occupancy of the Theatre Premises, and months after the Landlord and Tenant were engagement in their dispute about the scope of the Landlord's Work, the Landlord's lawyer provided the Tenant's lawyer with a draft of a formal lease for the Theatre Premises and the parties began to negotiate to settle the terms of the formal lease agreement.

[68] Mr. Hitti evidence was that although Mr. Jo had told him that a formal lease would not be required, he was prepared to negotiate and execute a formal lease provided it was within the scope of the Theatre Agreement. So, while the various disputes were still raging and the Tenant’s January 2019 Application about the Landlord’s Work and the Tenant’s Work was still pending, the parties tried to negotiate a formal lease for the Theatre Premises. In the months that followed, while the parties continued to wrangle about the Landlord’s Work and the Tenant’s Work, the parties nevertheless exchanged drafts of the formal lease.

[69] Alas, they could not come to terms and they could not settle the terms of a formal lease for the Theatre Premises. Mr. Hitti deposed that he felt that the Landlord was attempting to rewrite the agreement to get a better bargain than the parties had already reached. Mr. Hitti was particularly upset that the Landlord had deleted altogether the Landlord’s Work obligations in a draft lease.

[70] Meanwhile, Mr. Jo gave Mr. Augusto of Stethan Construction instructions to prepare plans and specifications based on reasonable assumptions as to the Tenant’s requirements and to address the roof issues.

[71] The plans were forwarded to the Tenant in March 2019, and there was an exchange of correspondence on March 28, 2019 and April 2, 2019, but no agreement was reached because the Tenant persisted in its position that more needed to be done to address the deterioration of the roof of the building. Nevertheless, the Landlord applied for and received a building permit from the City of Toronto to proceed with its Landlord’s Work.

[72] The Tenant, however, refused to allow the Landlord access to the premises to begin construction because of its objections to the scope of the Landlord’s Work as proposed by the Landlord.

[73] By email correspondence on May 8, 2019 in response to the Landlord’s correspondence of the same date, the Tenant’s counsel wrote:

Thank your for your letter of today […] and which I will respond to using the same numbering scheme:

1 and 2. My client’s position is that the requirement that a lease be signed prior to possession was waived and that your client waived the requirement that a lease be executed. That said, my client remains prepared to negotiate the terms of a lease agreement as part of an overall settlement of all outstanding issues between the landlord and tenant.

4 You have misunderstood my advice. My client has not accepted that the scope of work set out in the approved landlord drawing encompasses all the Landlord’s Work as set out in the offer to lease, nor has my client waived its rights to provide quotes for the Landlord’s Work or to “manage” such work. My client will provide all drawings, estimates, etc. related to the required Landlord’s Work in due course. In this regard, my client has obtained drawings submitted by your client to the applicable statutory authorities with respect to roof repairs that were contemplated years ago. It seems obvious that, at the very least these roof repairs should be undertaken. Please speak to your client about these drawings and the related work.

5 and 6 Your client is required to carry out roof repairs, install a sprinkler system and repair any damage caused by the roof repair. The state of the stucco ceiling must be considered when this work is being carried out and accordingly, “due diligence” with respect to the ceiling work must be carried out before any roof repairs and sprinkler installation. Since your client is avoiding this due diligence, my client will undertake same and we can argue about the costs later.

7 and 8. My client acknowledges that “ball is in its court” with respect to having plans/estimates produced. That said, my client was unable to do anything prior to having some certainty with respect to the Landlord’s Work (although there is now some certainty, the scope of the scope of the Landlord’s Work has not been finally determined.) My client will now produce plans/drawings/estimates with which further negotiations can be conducted or the Court can adjudicate on. I will not address the issue of delay any further. This issue can be dealt with by the Court if required.

[74] Some explanation is required to understand this email message, particularly, the reference to the Tenant having obtained drawings submitted by “[the Landlord] to the applicable statutory authorities with respect to roof repairs that were contemplated years ago.” While the Tenant had obtained construction drawings for a roof repair that had been submitted to the City of Toronto, those drawings had been prepared for and submitted by the Landlord’s predecessor owner of the building. The Landlord denies having known about these old construction drawings.

[75] What is known is that May 2019, the Tenant discovered that in 2014, the previous owner of the building had obtained a building permit to renovate the building for the bank tenant. The previous owner did not proceed with the project and instead sold the building in December 2015 to the Landlord. The bank vacated the building.

[76] In any event, the Tenant provided the Landlord’s lawyer with the building permit drawings submitted by the building’s former owner.

[77] On May 29, 2019, a third theatre of war began. Still not having resolved the matter of the Landlord’s Work and still not having settled on the terms of a formal lease for the Theatre premises, the Landlord sent the Tenant a draft lease for the Restaurant Premises. The parties were now going to fight about the Restaurant premises.

[78] On June 14, 2019, the former tenant of the Restaurant Premises vacated the premises, and on that day, the Tenant attended at the premises and demanded possession. The Tenant did not provide the $100,000 deposit required with respect to the Restaurant Agreement, and the Landlord refused to provide possession insisting that a formal lease was a precondition to obtaining possession.

[79] The hostilities with respect to the Theatre premises were also continuing. Around this time, the Tenant hired Marco Mazzulla, P. Eng. of Mazzulla Structural Engineering Inc. to inspect the roof and to make a report. Mr. Mazzulla was also instructed to review the reports, quotations, and design documents that were provided to him by Mr. Hitti.

[80] Meanwhile, having heard no response to its draft of a formal lease for the Restaurant Agreement, on June 18, 2019, the Landlord delivered a notice of default to the Tenant with respect to the Restaurant Agreement. The Notice of Default stated:

This confirms that the previous tenant of the Restaurant Premises vacated same on June 15, 2019 and that they are “available” as referenced in and subject to the terms of the Offer. […]

This further confirms that pursuant to the Offer (particularly Section 14 thereof) occupancy and possession of the Restaurant Premises shall not be available to the Tenant until such time as each of the following requirements have been satisfied and defaults rectified.

1. a formal lease is settled and executed by the parties. We provided the Tenant’s counsel with a form of lease on May 29, 2019 and have yet to receive any response in this regard, which reflects the Tenant’s continuing unwillingness to negotiate a lease. This requirement has not been waived by the Landlord. A material outstanding issue in the context of the theatre tenancy remains the scope of the Landlord’s Work and the Tenant’s Work, for which the Landlord has yet to receive appropriate comments, details, plans and specifications (as applicable from the Tenant.) Given that settlement of the Landlord’s and Tenant’s Work in respect of each of the Theatre Premises and Restaurant Premises are interconnected, it is imperative that the Tenant immediate cease delaying the process and quickly move forward to complete its contractual arrangements to facilitate such works. Accordingly, the Tenant is in default of its obligations in the Offer in this regard, including for certainty, pursuant to Section 14;

2. the Landlord receives a satisfactory insurance certificate evidencing compliance by the Tenant with the insurance requirements under Section 13 of the Offer. […]

3. confirmation from Living Realty Inc. that it has received the $100,000 deposit referred to on page seven (7) of the Offer. The Tenant is in default of its obligation to deliver this deposit pursuant to Schedule A of the Offer.

The above items must be satisfied by no later than 5:00 pm on June 30, 2019. Failure by the Tenant to cure such default within the above period will result in the Landlord exercising all remedies available to it pursuant to the Offer or otherwise at law.

[81] Pausing here in the narrative of the facts, it is worth noting that the Notice of Default with respect to the Restaurant Premises appears to be a negotiating cri de coeur, and it anticipates the counterarguments of the Tenant, but it does not assert that the Theater Agreement was too uncertain to be a binding contract. The Notice of Default reveals, once again, that the Landlord and the Tenant have departed from the approach of the Restaurant Agreement and the Theatre Agreement, which are said to be interconnected, to the Landlord’s Work.

[82] On June 26, 2019, Mr. Mazzulla visited the building to inspect the roof structure

[83] On July 8, 2019, Mr. Mazzulla delivered his report of his inspection of the building and its roof to the Tenant. A copy of the report was provided to the Landlord on July 10, 2019.

[84] Mr. Mazzulla reported corrosion of the roof beams and the steel framing that supported the theatres plaster ceiling and that roof panels were bowing or showing signs of deterioration. He opined that it was likely that other locations of the roof were the source of water leaks and the other locations would have corrosion or deterioration. He opined that the roof panels were being loaded beyond their original design loads and that the panels were deteriorating.

[85] On July 16, 2019, the Landlord purported to terminate the Restaurant Agreement, and the Landlord issued a Notice of Termination.

[86] Also, on July 16, 2019, the Landlord delivered a Notice of Default to the Tenant with respect to the Theatre Premises. The notice described the outstanding issues and defaults and demanded that the defects be rectified:

a. The Notice asserted that the Tenant had failed to pay: (a) additional rent for the period October 1, 2018 on 10,666 sq. ft. of rentable area at $6.66 per sq. ft. for arrears of $66,891 and (b) monthly rent for the period April 1, 2019 based on 8,000 sq. ft. of rentable area for arrears of $66,293.32. The total arrears as of July 1, 2019 totaled $133,185.12 to which $100,000 from the deposit had been applied resulting in an outstanding rent claim of $33,185.12.

b. The Notice asserted that because of its actions in delaying the Landlord’s Work, the Tenant could not rely on the set-off or withholding provisions of s. 15 of the Theatre Agreement.

c. The Notice alleged that the Tenant had breached its obligations with respect to the Tenant’s Work by not providing proper, plans, and specifications.

d. The Notice alleged that the Tenant was responsible for the delay in the completion of the Landlord’s Work. The notice stated:

The quotations/estimates submitted by Tenant as to the scope of Landlord’s Work were (i) vague, unclear and uncertain as to the breakdown or pricing and costing; (ii) reflect a scope of works which is not commercially reasonable given the age and nature of the building and the business terms of this proposed tenancy. In particular, Tenant has proposed works that would require very significant work to the roof, structure and heritage elements of the building which would be prohibitive expensive, commercially unreasonable and inconsistent with the rent and business terms. It remains that the parties are not and have never been ad item as the fundamental business point of the scope of the Landlord’s Work.

Landlord maintains that any delays in the commencement and completion of the Landlord’s Work are attributable to the acts and omissions of Tenant, including its unreasonable positions as to the scope of the Landlord’s Work and significantly impeding the Landlord’s access to the Premises. Accordingly, Tenant is not entitled to the benefit of Section 15 of the Agreement to Lease, given it is responsibility for the delay in the completion of Landlord’s Work.

e. The Notice alleged that the Tenant had been making an unauthorized use of the premises in breach of the Agreement to Lease.

f. The Notice alleged that the Tenant had failed to provide an insurance certificate in breach of the Agreement to Lease.

g. The Notice alleged that the Tenant had failed to sign a formal lease. The Notice stated:

Tenant has been unwilling to negotiate and enter into a final form of lease in violation of Section 14 of the Agreement to Lease and further to which Landlord has no obligation to commence any Landlord’s Work until said lease is executed by Tenant. It is unreasonable and incorrect to suggest that Landlord waived the requirement that a lease be executed.

[87] Pausing here in the narrative of the facts, it is worth noting that this Notice of Default like the earlier Notice of Default for the Restaurant Premises appears to be a negotiating cri de coeur, it anticipates the counterarguments of the Tenant, but it does not assert that the Theater Agreement was too uncertain to be binding contract. It argues many of the issues that the court must resolve on the Tenant’s January 2019 Application, and it anticipates the Landlord’s September 2019 Application.

[88] In the Applications before the Court, with respect to the Notices of Default, Mr. Hitti deposed that the Tenant has always been prepared and will provide plans for the Tenant’s Work, but he said that the Tenant could not design the HVAC and other aspects of its project until it knows the specifications of the Landlord’s Work. He denied that the Tenant had breached any of the agreements. He disputed whether a formal lease was necessary. He denied that the Tenant’s renovation of offices was a breach of the Theatre Agreement. He deposed that the Tenant had obtained appropriate insurance for the Theatre Premises but not for the Restaurant Premises, for which it never took possession. He said that the $100,000 deposit for the Restaurant Premises was not due to be paid. He denied that there was a breach of the Tenant’s obligations to pay rent.

[89] Returning to the narrative, on July 31, 2019, the Landlord suggested an interim arrangement pending litigation whereby an independent roofing expert would be appointed to assess the need for repairs or possible replacement of the roof. As part of this arrangement, the Tenant would pay $23,500 monthly as rent and the Tenant would remain in the Theatre Premises. The Tenant preferred that each party retain their own expert. Mr. Jo said that the Tenant promised to pay $23,500 per month commencing Sept. 1, 2019 as rent, but it never did. In any event, the parties remained intransigent and were unable to negotiate their way out of the stalled plans to develop the Landlord’s building. It seems that the Tenant preferred to ramp up its January 2019 Application.

[90] On August 13, 2019, the Landlord purported to terminate the Theatre Agreement and it issued a Notice of Termination. The Tenant ignored or rejected the Termination Notices and remained in possession of the Theatre Premises.

[91] Meanwhile, in September 2019, a building inspector from the City of Toronto inspected the building. Mr. Hitti gave the inspector a copy of a draft report from Read Jones Cluistofferscn Ltd., which the Tenant had recently learned about.

[92] From its due diligence inquiries, the Tenant had obtained a draft report of Read Jones Cluistofferscn Ltd., which was dated November 5, 2015; i.e., the report was four years old. Read Jones Cluistofferscn had been retained by the Royal Bank of Canada, the former bank tenant in the building. This report stated:

The roofing system has exceeded its useful service life and requires replacement. Based on our review, structural repairs to the existing roof structure panels arc required and the roof structure is no longer in a serviceable condition. In order to restore the load carrying capacity of the roof, repairs/replacement to the roof structure should be undertaken as soon as possible and prior to winter and potential snow loading. Until repairs to the roof structure can be undertaken, we recommend that access to the roof and occupied spaces directly below the roof be restricted.

The deterioration, at present, appears to be affecting the structural integrity and serviceability of the roof structure. In our opinion, the deterioration and distress appears to be limited to the roof decking and the beans/trusses do not appear to be showing any signs of deflection at this time. In our opinion, the distress has progressed to a point where the structural integrity of the roof decking materials is questionable, requiring substantial repair or replacement.

[93] On September 12, 2019, the Landlord brought its Application (the September 2019 Application) for a declaration that it properly terminated the Theatre Agreement and the Restaurant Agreement or in the alternative that the agreements were null and void. In the Landlord’s September 2019 Application, the Landlord sought an Order that the Tenant vacate the Theatre Premises. The September 12, 2019 Application is supported by an affidavit from Mr. Jo dated September 12, 2019.

[94] After the commencement of its Application, the Landlord leased out the Restaurant Premises to a new tenant operating a restaurant. The agreement with that new tenant provides that the Landlord may terminate this lease if the Court holds that the Tenant is entitled to occupy the Restaurant Premises.

[95] On September 27, 2019, the Tenant provided the Landlord with a copy of Read Jones Cluistofferscn Ltd.’s report.

[96] Around the same time, the Tenant delivered an amended Notice of Application, amending the Tenant’s January 2019 Application. The amended Application was supported by an affidavit from Mr. Hitti dated September 30, 2019.

[97] Both applications were now before the court.

[98] On October 15, 2019, Mr. Hitti proffered an affidavit in the response to Mr. Jo’s September 12, 2019 affidavit.

[99] The Landlord proffered an affidavit dated October 16, 2019 from Mr. Baek.

[100] The Landlord proffered an affidavit dated October 17, 2019 from Mr. Augusto.

[101] The Tenant proffered an affidavit dated November 6, 2019 from Jeremy Horst, the principal of Read Jones Christoffersen Ltd. attaching his firm’s 2015 report assessing the roof of the building.

[102] On November 7, 2019, Mr. Baek was cross-examined.

[103] On November 17, 2019, Mr. Augusto was cross-examined

[104] The Landlord proffered an affidavit dated December 17, 2019 from Mr. Jo and he was cross-examined that day.

[105] On December 18, 2019, Mr. Hitti was cross-examined.

[106] The Applications were argued on February 13, 2020.

[107] As noted above, save with respect to its requests for declaratory relief, the Tenant asked that its Application be adjourned to be returned to the court later once it had prepared plans and drawings adequate enough for the court to make mandatory injunctive orders. The Landlord asked that the Tenant be evicted from the building and the Theatre Agreement and the Restaurant Agreement be declared to be too uncertain to be enforced.

C. Discussion and Analysis

Introduction

[108] There is no doubt that after investing likely enormous amounts of money to advance a multi-million project development project for their mutual benefit, the parties have gotten themselves into a horrible legal mess that has produced a swarm of legal issues that would delight only a contract law professor pressed to set an exam question and desiring to inflict as much pain as possible on his or her law students.

[109] To foreshadow and outline the analysis of these legal issues that follows, it involves answering twelve questions. The first set of eight questions concern matters of contract formation and contract interpretation. The first set of questions is:

1. What are the Requirements for the Formation of a Lease Agreement?

2. What are the Applicable Principles of Contract Interpretation?

3. In the Immediate Case, is a Formal Lease Agreement Required?

4. What is the Duration of the Theatre Agreement?

5. What is the Duration of the Restaurant Agreement?

6. What is the Description of the Theatre Agreement Premises?

7. What is the Additional Rent for the Theatre Agreement?

8. What is the Rent for the Restaurant Agreement?

[110] With respect to these eight questions, both the Landlord and the Tenant agree that there are problems with respect to the meaning of various terms of the two agreements. Where the parties part company is that the Landlord submits that the problems are insurmountable, while the Tenant submits that the problems can be solved by properly interpreting the agreements and resorting to the equitable remedy of rectification, if necessary.

[111] In my opinion, and to foreshadow the answers and explanations below, it is not necessary to resort to rectification and the Tenant is correct in asserting that the impugned terms of the Theatre Agreement and the Restaurant Agreement can be interpreted and given binding meaning. My general answer to the first set of questions is that both the Theatre Agreement and the Restaurant Agreement are binding and enforceable agreements.

[112] There being binding agreements, which reflects how the parties acted until the Landlord recently raised the issue of unenforceability, the next set of questions concerns whether one, the other, or both parties have breached the agreements.

[113] The parties accuse each other of having breached the Theatre Agreement and the Restaurant Agreement in various ways. The second set of questions has the purpose of resolving the competing allegations. The questions of the second set are:

9. Is the Tenant Required to Pay the Deposit for the Restaurant Agreement?

10. Has the Tenant Breached the Theatre Agreement or the Restaurant Agreement?

11. Has the Landlord Breached the Theatre Agreement or the Restaurant Agreement?

[114] To foreshadow the discussion and analysis below, generally speaking, the answers to questions 9, 10, and 11 are that both parties have breached the agreements and both parties are respectively not in a position to enforce the Theatre Agreement or the Restaurant Agreement.

[115] As I shall explain the parties’ conduct has produced a sort of contractual stalemate. The parties have each departed from the terms of the Theatre Agreement and the Restaurant Agreement. Paradoxically, both parties have simultaneously acquiesced and opposed the departures from the approach to Landlord’s Work and Tenant’s Work mandated by the agreements.

[116] The conclusions to questions 1 to 11 leads to the last question. Question 12 is: What’s next?

[117] As I shall explain below, the answer to question 12 is that the parties respectively need to comply with the terms of the Theatre Agreement and the Restaurant Agreement as they have been be interpreted by the answers to questions 1 to 11.

[118] The ultimate outcome of questions 1 to 12 is that: (a) the Tenant’s Application is granted in part and otherwise dismissed without costs; and (b) the Landlord’s Application is dismissed without costs.

[119] The dismissals of the Applications are without prejudice to the rights of the parties to bring such further and other actions or applications in the future should either party fail to perform the Theatre Agreement or the Restaurant Agreement in accordance with the terms of those agreements.

1. What are the Requirements for the Formation of a Lease Agreement?

[120] The first question is: what are the requirements for the formation of a lease agreement?

[121] The answer is that the fundamental elements to create an effective lease or offer to lease and to satisfy the Statute of Frauds[^3] are: (1) the identification of the parties; (2) the description of the premises; (3) the specification of a point of commencement; (4) the specification of the duration of the term; (5) the rent, if any; and (6) all the material terms of the contract not being matters incidental to the relation of landlord and tenant, including any covenants or conditions, exceptions or reservations.[^4]

[122] There is little doubt that the parties intended to enter into binding contracts for the Theatre premises and the Restaurant premises, and the recount of the facts set out above reveals that from June 2018 until June 2019, they acted as if they were bound by the terms of the Theatre Agreement and the Restaurant Agreement.

[123] That up until the fall of 2019 the Landlord thought that these agreements were binding is evidenced by the fact that it gave Notices of Default and then purported to terminate the Agreements. It was as late as its factum delivered in 2020 that the Landlord took the position that the Theatre Agreement and the Restaurant Agreement were too uncertainty to be enforceable.

[124] With respect to the Theatre Agreement, the Landlord submits that there is no enforceable agreement because there is uncertainty about: (1) the duration of the term of the lease: (2) the description of the premises; and (3) the rent for the premises.

[125] With respect to the Restaurant Agreement, the Landlord submits that there is no enforceable agreement because there is uncertainty about (a) the duration or the lease or (b) if there is certainty about the duration of the term, then there is uncertainty about the rent to be paid.

[126] The Tenant’s position is that the Theatre Agreement and the Restaurant Agreement are binding and enforceable agreements, and it seeks declarations to that effect. It also seeks declarations that the Landlord has breached the agreements. As noted above, the Tenant, however, has abandoned as premature, its request for mandatory injunctive relief requiring the Landlord to perform its obligations with respect to the Landlord’s Work.

[127] In the immediate case, there are, thus disputes about all of the essential elements except the identification of the parties.

2. What are the Applicable Principles of Contract Interpretation?

[128] The parties are in accord about what are the principles of contract interpretation, but they differ in how those principles should be applied in the circumstances of the immediate case. As noted above, the Landlord submits that the problems with respect of the fundamentals of lease formation are insurmountable, while the Tenant submits that the problems can be solved by properly interpreting the agreements and resorting to the equitable remedy of rectification, if necessary. The dispute between the parties leads to the second question which is: what are the applicable principles of contract interpretation?

[129] The answer to the second question is that contractual interpretation is an exercise in which certain principles or maxims are applied to the words of the written contract, considered in light of the factual matrix.[^5] In searching for the intent of the parties at the time when they negotiated their contract, the court should give particular consideration to the words used by the parties, the context in which they are used and the purpose sought by the parties in using those words.[^6]

[130] The goal of contractual interpretation is to determine the intent of the parties and the scope of their understanding giving the words the parties used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.[^7]

[131] The factual nexus is objective evidence of the background facts at the time of the execution of the contract; i.e., knowledge that was or that reasonably ought to have been within the knowledge of the parties at or before the date of contracting, including anything that would have affected the way in which the language of the document would have been understood by a reasonable person.[^8]

[132] In interpreting the contract, the court must have regard to the objective evidence of the factual matrix, the context underlying the negotiation of the contract, but the court must not have regard to the subjective evidence of the intention of the contracting parties about the negotiations and what was intended by them.[^9]

[133] While evidence of the parties’ subjective intent is not admissible by the parol evidence rule, in interpreting a commercial contract, the court may have regard to the surrounding circumstances; that is, the factual background and the commercial purpose of the contract.[^10]

[134] The rules of contract interpretation direct a court to search for an interpretation from the whole of the contract that advances the intent of the parties at the time they signed the agreement.[^11]

[135] Provisions should not be read in isolation but in harmony with the agreement as a whole.[^12]

[136] The court should interpret the contract fairly and broadly without being too astute in finding defects and rather to give effect to the intention of the parties by looking at substance and not form.[^13]

[137] Where there are apparent inconsistencies between different terms of a contract, the court should attempt to find an interpretation which can reasonably give meaning to each of the terms in question and only if a consistent meaning cannot be found will the court rule one clause or the other ineffective. If reasonably possible, the meaning of inconsistent provisions may be reconciled by construing one term as a qualification of the other term and where there is apparent conflict between a general term and a specific term, the terms may be reconciled by taking the parties to have intended the scope of the general term to not extend to the subject-matter of the specific term.[^14]

3. In the Immediate Case is a Formal Lease Agreement Required?

[138] The next question is: In the immediate case is a formal lease agreement required?

[139] The question of whether a contractual agreement is conditional on the signing of a formal contract is another matter of contract interpretation. The test is set out in Von Hatzfeldt-Wildenburg v. Alexander:[^15]

...if the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored.

The key is whether the parties have agreed on all essential terms, or whether it is their intent to defer their legal obligations until a final agreement has been reached.

[140] In the Court of Appeal’s judgment in Bawitko Investments Ltd. v. Kernels Popcorn Ltd.,[^16] Justice Robins explained the test in as follows:

However, when the original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal contract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannot constitute an enforceable contract. In other words, in such circumstances the "contract to make a contract" is not a contract at all. The execution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and binding contract but is essential to the formation of the contract itself.[^17]

[141] In the immediate case, two provisions in the OREA standard form contract are particularly relevant to the question of whether a formal lease agreement is required; namely, paragraphs 14 and 20, which state:

14. Execution of Lease: The Lease shall be prepared by the Landlord at the Landlord’s expense, in accordance with the terms and conditions of this Agreement. The Lease shall be signed and executed by both parties hereto prior to the commencement of work on the premises by either party and prior to occupancy by the Tenant.

15. BINDING AGREEMENT: This Agreement and the acceptance therefore shall constitute a binding agreement by the parties to enter into the Lease the Premises and to abide by the terms and conditions herein contained.

[142] Whether these provisions contemplate a formal document being signed before a binding agreement has been formed is a matter of contract interpretation, which, in turn, means that this determination is a fact-based determination that depends in part on the circumstances of the contract’s formation, the so-called factual nexus. In other words, it is not a given that the standard form OREA contract will invariably be interpreted the same way in every case.

[143] In the immediate case, the factual nexus and the parties’ conduct both before and after the Theatre Agreement and the Restaurant Agreement were signed strongly suggest that the parties intended immediately to make a binding agreement and that the parties intended to have the document contemplated by paragraph 14 of the standard form as only a solemn record or memorial of an already complete and binding contract.

[144] This interpretation that the parties had entered into a binding agreement without a precondition of a formal agreement is consistent with the language of paragraphs 14 and 20. In this regard, it may be noted that paragraph 14 is connected to the to the commencement of work on the premises by either party and to the occupancy by the Tenant.

[145] In the immediate case, the Tenant occupied the Theatre Premises and both parties attempted to get the Landlord’s Work and the Tenant’s Work underway, which again suggests that they intended the formal lease agreement to memorialize not create a binding agreement.

[146] In the immediate case, while engaged in a heated dispute about how to perform the Theatre Agreement, the Landlord waited from June 2018 until late January 2019 before its lawyer circulated a draft for the Theatre Agreement and June until the end of May 2019 before preparing a draft of the Restaurant Agreement. This circumstances also supports the conclusion that the parties intended the Theatre Agreement and the Restaurant to be binding agreement. How the parties act after the signing of an agreement provides some insight as to what they intended when they signed the agreement.

[147] In my opinion, to use the language from Von Hatzfeldt-Wildenburg v. Alexander, as a matter of construction, the Theatre Agreement and the Restaurant Agreement contemplated a formal expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through, and the Theatre Agreement and the Restaurant did not contemplate the necessary execution of a formal contract between the parties. The signing of formal lease documents were not pre-conditions to the formation of a binding contract.

[148] Moreover, in the immediate case, as I shall explain in the answers to the questions below, the essential terms of the contract were settled by the time that the parties signed the Theatre Agreement and the Restaurant Agreement. The real estate agents were inept at expressing what the parties intended to be a binding agreement, but what the parties intended is ascertainable and could have been memorialized in a formal contract.

[149] To be clear, in the immediate case, it is not a matter of the Landlord waiving a term of the agreements requiring a formal agreement, as was suggested by the Tenant and as was disputed by the Landlord, in the immediate case, I find as matter of contract interpretation that a signed formal was not and is not a pre-condition to the formation of a binding Theatre Agreement and a binding Restaurant Agreement.

4. What is the Duration of the Theatre Agreement?

[150] In the Theatre Agreement, the term of the Lease is first described as being one-hundred- and-eighty-nine (189) months. However, the Lease Agreement goes on to indicate that the Lease commences on July 1, 2018 and continues until March 31, 2029, which is a period of 129 months, i.e. 60 months less than 189 months. For a 189-month term, the termination date should have been March 31, 2034.

[151] However, the, the Theatre Agreement then indicates that the Tenant has an option to renew for an additional term of 60 months, which would make for a 189-month term ending on March 31, 2034.

[152] The Theatre Agreement apparently provides two provisions as to what should be the rental for the 60-month period. One provision indicates the 60-month option is at market rate/arbitration. The other provision refers to Schedule A and indicates: “Option One at rate in Schedule A”.

[153] Schedule "A" set base rents for 189 months.

[154] From these provisions, the apparent duration of the Theatre Agreement is one of the following:

a. potentially 189 months (129+60), with 129 months of rentals set out in Schedule A and 60 months set out at market rents;

b. potentially 189 months (129+60), with 189 months of rentals set out in Schedule A; or,

c. 189 months, with 189 months of rentals set out in Schedule A.

[155] Having regard to the factual nexus and the language used by the parties, it is clear that the reference to the 60 months being an option and the rental for the 60 months period being at market rents were provisions that had been inserted in earlier drafts of the Theatre Agreement. It is apparent that the real estate agents mistakenly left these provisions in and that the provisions should have been deleted when the parties signed the Theatre Agreement in June 2018. By this time, they had settled on a fixed 189-month term, which makes sound commercial sense having regard to the investment each party would be making in the old building. It is apparent from the language used by the parties that the intent of the parties was to have a 189-month term governed by the rental rates of Schedule A.

[156] This interpretation is not as the Landlord would have it to flip an interpretative coin with no guidance as to how the coin should land. It certainly is a fair and commercially sensible interpretation of the Theatre Agreement from the Landlord’s point of view. In this regard, it is, at least, interesting to observe that this interpretation is the interpretation that the Landlord put on the provision when it drafted its formal version of the Theatre Agreement.

[157] This interpretation that the parties intended a 189-month term governed by the rental rates of Schedule A is an interpretation from the whole of the contract that advances the intent of the parties at the time they signed the agreement and gives harmony to the whole agreement. This interpretation interprets the Theatre Agreement fairly and broadly without being too astute in finding defects and rather gives effect to the intention of the parties by looking at substance and not form.

[158] The answer to the question of what is the duration of the Theatre Agreement is that the agreement had a 189-month term governed by the rental rates of Schedule A.

5. What is the Duration of the Restaurant Agreement?

[159] There are similar problems with the duration of the Restaurant Agreement with the added complexity that Schedule A of the Restaurant Agreement provides that the dates of the Restaurant Agreement are to be adjusted at the earlier of the vacancy by the current tenant or the end of its lease, June 15, 2019, which is what occurred. Thus, the Restaurant start date of the term would be changed to June 15, 2019 from January 1, 2019.

[160] Ignoring for the moment this adjustment to the start date, in the Restaurant Agreement, the term of the lease is defined as a term of One Hundred and Eighty-Nine months commencing on the 1st day of January 2019 and terminating on the 9th day of December 2028. However, the Restaurant Agreement goes on to indicate that the Lease commences on January 1, 2019 and continues until December 9, 2018, which is a period of 22 days less than 129 months, i.e., 22 days and 60 months less than 189 months. Then, the Restaurant Agreement indicates that the Tenant has an option to renew for an additional term of 60 months. at market rent or by arbitration.

[161] Still ignoring for the moment the adjustment to the start date, the situation is that the duration of the Restaurant Agreement, which it may be recalled was intended to complement and be a drafting clone of the Theatre Agreement, replicates the problems of the Theatre Agreement with the addition of a patent mistake of a 22-day short 60 month period.

[162] In my opinion, as a matter of contract interpretation, a patent mistake, which can easily be fixed should be ignored and for the same reasons as set out above, the answer to the question of what is the duration of the Restaurant Agreement is that it is a 189-month term governed by the rental rates of Schedule A and an adjustment of the start date in accordance with the provisions of the Restaurant Agreement.

6. What is the Description of Theatre Agreement Premises?

[163] The next question is what is the description of the Theatre Agreement Premises?

[164] The Landlord submits that there is uncertainty as to the description of the Theatre Premises because the Tenant is claiming as part of the Theatre premises, which occupy the second and third floors of the building, an area on the first floor that is improved by a staircase that has always been used to obtain access to the second floor of the building.

[165] Thus, on the first floor of the building, below the Theatre Premises, there is an area of approximately 300-400 square with a frontage of about 14 or 15 feet on Spadina Avenue. The Tenant claims this area as part of the Theatre premises. Historically, this area on the first floor provided the main entrance to the theatre lobby and auditorium. The Tenant says that it always planned to use this first floor area for access to the Theatre Premises.

[166] It is true that that Theatre Agreement does not expressly refer to the tenant leasing first-floor space. It is also true the first-floor area is not part of the 9,421 sq. ft. floor space of the second floor that is leased in part under the Restaurant Agreement and in part under the Theatre Agreement. Notwithstanding these truths, as I shall explain momentarily, the Tenant has a strong and successful argument that the first-floor area is part of the Theatre Premises under the Theatre Agreement.

[167] Before addressing that argument, it is necessary to point out that if the Tenant were to fail in this argument, notwithstanding the Landlord’s arguments, it would not make the Theatre Agreement uncertain and unenforceable. If the Tenant’s argument failed, it would simply mean that the first-floor area is not a part of the Theatre premises. There is another stairway providing access to the second floor, and the Restaurant premises can also be used as access to the second floor.

[168] Turning then to the Tenant’s argument, in staking a claim to the space on the first floor as part of the Theatre Premises, the Tenant relies on Schedule B attached to the Theatre Agreement. Schedule B shows a staircase going down to the first floor and the staircase area is within the demarcated Area E that is part of Schedule B.

[169] In staking its claim, the Tenant also relies on photographs depicting the area on the first floor area. These photographs show how that area connects to the second floor of what formerly was the lobby of the Theatre premises.

[170] From those photocopies and from the demarcation of Schedule B and from the factual nexus of the negotiating parties of what they objectively knew or ought to have none, it becomes quite apparent that this area on the first floor is part of the space that was part of the Theatre premises.

[171] Thus the answer to the question of what is the description of the Theatre Agreement Premises is that it consists of approximately 7,515+3,151 sq. ft. more or less on the 2&3 floor Area E floor of the “Building” known municipally as #2F & 3F-285 SPADINA AVE. in the City of Toronto, Province of Ontario, as shown outlined on the plan attached as Schedule B, which includes approximately 400 sq. ft. on the first floor Area within Area E of Schedule B.

[172] To avoid future disputes, I add that to this answer that while the area on the first floor is part of the premises demised for the Theatre Agreement it does change the change the calculations of rent or additional rent set out in Schedule A of the Theatre Agreement. The first floor space falls within the “more or less” language mentioned below.

7. What is the Additional Rent for the Theatre Agreement?

[173] The next question is what is the additional rent for the Theatre Agreement?

[174] On its first page, the Theatre Agreement defines the premises as being 7151 + 3151 sq. ft. feet more or less on the second and third floor having a total of 10,666 sq. ft. The initial base rent provided in Schedule A is based on an agreed "usable area" of 8,000 sq. ft. The additional rent is estimated at $6 per sq. ft. and the Landlord submits that there is uncertainty as to whether the additional rent is to be based on the actual square footage or the useable square footage.

[175] The Landlord's submits that the additional rent should be based on 10,666 sq. ft.. However, since since the Tenant says that the additional rent was only to be charged on 8,000 sq. ft., the Landlord submits that the Theatre Agreement is too uncertain to be enforceable.

[176] I disagree with the Landlord insofar as it submits that the Theatre Agreement is unenforceable.

[177] The situation here is another matter of contract interpretation, and the court should interpret the contract fairly and broadly without being too astute in finding defects and rather should give effect to the intention of the parties by looking at substance and not the form of the agreement.

[178] The parties put to their minds to specifying that the monthly rent should be based on an “agreed usable area" of 8,000 sq. ft. The parties did not come to a similar agreement to use an “agreed usable area” for the additional rent. Thus, the additional rent is based on the premises having a total of 10,666 sq. ft., being 7151 + 3151 sq. ft. more or less on the second and third floor.

[179] Thus, while I disagree with the Landlord’s uncertainty argument, I agree with its interpretation of the additional rent provision in the Theatre Agreement. The answer to question 7 is that the Theatre Agreement is not uncertain and that the additional rent is based on a square footage of 10,666 sq. ft.

8. What is the Rent for the Restaurant Agreement?

[180] The next question of interpretation is what is the rent for the Restaurant Agreement?

[181] There are several problems with the rent under the Restaurant Agreement that the Tenant says are just obvious errors that should be corrected or formally rectified, if necessary.

[182] There is no dispute between the parties that their intent was that there be a nine-month period where no net rent was payable. Schedule A of the Restaurant Agreement, however, specifies the rent-free period is from January 1, 2019 to August 31, 2019 which is only eight months. Since there is no dispute between the parties about the intended duration of the rent-free period, the language in Schedule A is just a mistake this mistake should be fixed.

[183] This fix will ripple through Schedule A with complementary adjustments. In any event, the parties envisioned that Schedule A would have to be adjusted depending upon the start date of the tenancy and this fix is just another mechanical adjustment.

[184] The next problems with Schedule A is that if one graphs the rental rates of Schedule A: (a) no rent is charged for the period March 31, 2034 to Sept. 30, 2034; and, (b) there are two different rents for the 5-month period April 1, 2029 to August 31. 2029 which finds itself within two different spans of the duration of the lease.

[185] These problems are fixable by making appropriate mechanical adjustments so that the 189 months of the duration of the lease are congruent to the pattern of the Theatre Agreement with adjustments to the start date.

[186] Thus, the answer to the question of what is the rent for the Restaurant Agreement is that the parties should undertake the mechanical exercise of adjusting the rental schedule set out in Schedule A, which they would have had to do in any event because of the variable start time for the Restaurant Agreement.

9. Is the Tenant Required to Pay the Deposit for the Restaurant Agreement

[187] This brings the discussion to the second set of questions of which question 9 is: Is the Tenant Required to pay the deposit for the Restaurant Agreement?

[188] The Restaurant Agreement to Lease required the Tenant to provide a $100,000 deposit when the Restaurant Premises became available. Schedule A of the Restaurant Agreement provides that the agreement will become effective whenever the existing tenant has moved out. Schedule A provides that the Tenant will provide a deposit of $100,000 whenever the space becomes available.

[189] As noted in the facts section of these Reasons for Decision, the Landlord sent the Tenant a Notice of Default dated June 18, 201921. The Notice mentions that that the former tenant had vacated and that the Tenant had not paid the required $100,000 deposit. It gave the Tenant 12 days to correct this default. The Tenant did not do so. The Landlord then proceeded to terminate the Restaurant Agreement on July 16, 2019. Thus, the Landlord submits that even if there is a binding agreement for the Restaurant premises, then the agreement was repudiated and terminated when the Tenant failed to pay the $100,000 deposit.

[190] At first blush, the Landlord’s argument seems neat and convincing. However, given other provisions of the Restaurant Agreement and the conduct of the parties, further analysis reveals that the bloom is off this peach of an argument.

[191] The first blemish on the argument is that this was a peculiar deposit. Normally, a deposit is paid at the outset as an earnest for entering into an agreement. The deposit is normally a part of the process of offer and acceptance and the creation of the contract. In the immediate case, however, the deposit was to become operational at some time in the future after a binding agreement had come into existence.

[192] Another blemish on the argument is that the so-called coming into effect of the Restaurant Agreement was intertwined with the several disputes involving the Theatre Agreement and it was intertwined with several disputes emerging from the Restaurant Agreement itself, including disputes about the draft of the formal agreement, the payment of the deposit, and obtaining possession of the Restaurant premises.

[193] The intertwining of the deposit with the other disputes can be demonstrating by recalling that: (a) on May 29, 2019, the Landlord for the first time offered a draft of a formal lease for the Restaurant for the Tenant to review; (b) on June 14, 2019, the Tenant was denied entry to the Restaurant premises because a formal lease had not been signed; (c) on June 18, 2019, the Landlord delivered a Notice of Default with respect to the Restaurant Agreement noting that the formal lease had not been signed; and (d) on July 16, 2019, the Landlord terminated the Restaurant Agreement and gave a Notice of Default under the Theatre Agreement.

[194] In all these circumstances, it is my opinion that both parties were in breach of their promises of performance under the Theatre Agreement and the Restaurant Agreement.

[195] As I noted in the facts section of these Reasons for Decision, the Landlord’s decision to depart from the approach set out in the Theatre Agreement and Restaurant Agreement and instead to manage the Landlord’s Work itself and the Tenant’s acceptance of this decision without the parties having a agreement about the scope of the Landlord’s made a train wreck of both agreements. Both parties are to blame for what followed. Their mutual decision and course of conduct which began in September 2018 meant that both parties were not performing the contract in accordance with the bargain and the contract promises as they had been written and agreed to. Both parties breached the Theatre Agreement, which was interconnected with the Restaurant Agreement.

[196] It is a principle of contract law that a guilty contracting party or a party that causes the other party to breach the contract cannot enforce the terms of the contract and cannot terminate the contract or sue for specific performance.[^18] This principle is an aspect of the doctrine of good faith in the performance of contract obligations. It is an aspect of the doctrine that existed long before the recent attention given to the doctrine by the Supreme Court in Bhasin v. Hrynew.[^19]

[197] Thus, in the circumstances of the immediate case, in my opinion, the answer to the question of whether the Tenant is required to pay the deposit for the Restaurant Agreement cannot be answered with a simple yes or no answer. The answer is more complex than a yes/no answer. It is a complex yes/but answer.

[198] In my opinion, the answer is that the deposit is payable and should be paid if the Tenant wishes to keep the Restaurant Agreement alive, which it does. However, the Tenant’s failure to pay the deposit to date is not a basis for the Landlord to treat the Agreement at an end, because the Landlord is not at present in a position to terminate the Restaurant Agreement.

[199] Putting the answer about the deposit somewhat differently, the Landlord’s Notice of Default was ineffective but may be reissued assuming that the Tenant does not pay the $100,000 deposit forthwith and assuming that the Landlord is no longer offside the terms of the Restaurant Agreement.

10. Has the Tenant Breached the Theatre Agreement or the Restaurant Agreement?

[200] The Landlord served Notices of Default followed by Notices of Termination with respect to both the Restaurant Agreement and the Theatre Agreement. The next question is: Has the Tenant breached these agreements? In the section immediately above, I have dealt with the Tenant’s alleged failure to pay the deposit. In this section, I will deal with the other alleged defaults.

[201] The first point to note is that for the reasons expressed in the section above, the Landlord is not at the moment in a position to use any defaults to terminate the agreements.

[202] Addressing the particular alleged defaults:

a. It is not a default for the Tenant to have failed to sign the draft formal lease because for the reasons expressed above, a formal lease is not a pre-condition of the Restaurant Agreement or the Theatre Agreement.

b. I believe Mr. Hitti’s evidence and I am not convinced that the Tenant breached the insurance requirements of section 13 of the Restaurant Agreement or of the Theatre Agreement.

c. It was a default for the Tenant to fail to pay additional rent for the Theatre Agreement for the period for October 1, 2018 on 10,666 sq. ft, but this default has been set-off by the deposit paid for the Theatre Agreement.

d. It was not a default for the Tenant to fail to pay monthly rent because both parties are in breach of their respective obligations with respect to Landlord’s Work and Tenant’s Work.

e. The Tenant has breached its obligations with respect to the Landlord’s Work and the Tenant’s Work, but this breach has been matched by the Landlord’s breach with respect to the Landlord’s Work. Both parties are responsible for the delay in the completion of the Landlord’s Work. There is a contractual enforcement stalemate.

f. The Tenant did not breach the lease by making an unauthorized use of the Theatre premises. Some office space would be an expected use in premises for an event venue, public hall, and banquet facility. Further, the Landlord was at all times aware of this Tenant’s use and renovation of the premises and permitted it.

[203] The above conclusions provide the answer to question 10.

11. Has the Landlord Breached the Theatre Agreement or the Restaurant Agreement?

[204] The penultimate question is: Has the Landlord Breached the Theatre Agreement or the Restaurant Agreement.

[205] The complex answer to this question has already been provided above. The answer is a “yes/but” answer.

[206] More precisely, but still succinctly, the answer is that the Landlord has breached its obligations with respect to the Landlord’s Work, but this breach has been matched by the Tenant’s breach with respect to the Landlord’s Work and the Tenant’s Work. Both parties are responsible for the delay in the completion of the Landlord’s Work. There is a contractual enforcement stalemate.

12. What Next?

[207] So, what next? In my opinion, the parties have three choices:

a. One, they can negotiate themselves out of the mess that they both have created.

b. Two, they can perform the Theatre Agreement and the Restaurant Agreement in accordance with the terms of these agreements.

c. Three, they can litigate and continue their disputes about the Theatre Agreement and the Restaurant Agreement.

[208] The contract logjam to date has been the parties’ departure from the provisions of the agreement that are to govern the management of the Landlord’s Work. It should have been the case and it still should be the case that the specifications for the sprinkler system and the HVAC system can be settled. As for the roof – which has been the predominant problem – there is ample evidence that “in order to ensure that the roof membrane shall be trouble and leak free at all material times during the term of the lease,” the roof should be replaced.

[209] In other words, I interpret the Landlord’s Work provisions as requiring a new roof at the Landlord’s expense. This is a binding finding in both Applications now before the court.

[210] The building is almost 100 years old. It should have come as no surprise to the Landlord that the roof would need to be replaced in order to provide a safe space for an event venue operation and for the other tenants in the building for that matter. This reality is part of the factual nexus for the interpretation of the language used by the parties in the Theatre Agreement and the Restaurant Agreement.

[211] The Tenant’s Work will add millions of dollars of value to the old building. The Landlord will receive millions of dollars of rent over the 189 months of the duration of the agreements. It is not for me to say whether it is a good or a bad bargain for the Landlord if the scope of the Landlord’s Work includes a new roof for this century old heritage building. What I can say is that I interpret the Theatre Agreement to require a new roof as part of the Landlord’s Work.

[212] For the moment, the result of the answers to these dozen questions is that the Tenant’s Application is granted in part and otherwise dismissed, and the Landlord’s Application is dismissed.

[213] As for what’s next, the Theatre Agreement and the Restaurant Agreement are still alive to be performed or breached for that matter. It is for this reason that the dismissals of the Applications are without prejudice to what actions or applications the parties may wish to bring in the future.

D. Conclusion

[214] For the above reasons, the Tenant’s Application is granted in part and otherwise dismissed, and the Landlord’s Application is dismissed. Given the divided success, I order that each party should bear their own costs in both Applications.

[215] In the circumstances of the Covid-19 emergency, these Reasons for Decision are deemed to be an Order of the court that is operative and enforceable without any need for a signed or entered, formal, typed order.

[216] The parties may submit formal orders for signing and entry once the court re-opens; however, these Reasons for Decision are an effective and binding Order from the time of release.

Perell, J.

Released: March 25, 2020

[^1]: Mr. Hitti’s 78-year old mother is the sole director of the Tenant. [^2]: Hitti v. Ontario (Alcohol and Gaming Commission of Ontario), 2011 ONSC 6854. [^3]: R.S.O. 1990, c. S.19. [^4]: Canada Square Corp. v. VS Services Ltd. (1981), 1981 CanLII 1893 (ON CA), 34 O.R. (2d) 250 (C.A.); Ossory Canada Inc. v. Wendy’s Restaurants of Canada Inc. (1997), 1997 CanLII 2212 (ON CA), 36 O.R. (3d) 483 (C.A.). [^5]: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 50. [^6]: Frenette v. Metropolitan Life Insurance Co., [1992] 1 S.C.R. 64. [^7]: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 47; Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 at paras. 64-65; Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21 at para. 27. [^8]: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 58. [^9]: GoodLife Fitness Centres Inc. v. Rock Developments Inc., 2019 ONCA 58; The Canada Trust Company v. Browne, 2012 ONCA 862 at para. 71; Salah v. Timothy's Coffees of the World Inc., 2010 ONCA 673 at para. 16. [^10]: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at paras. 58-61; Canada Square Corp. v. VS Services Ltd. (1981), 1981 CanLII 1893 (ON CA), 34 O.R. (2d) 250 (C.A.); Reardon Smith Line v. Hansen-Tangen, [1976] 3 All E.R. 570 (H.L.); Prenn v. Simmonds, [1971] 3 All E.R. 240 (H.L.). [^11]: Unique Broadband Systems Inc. (Re), 2014 ONCA 538 at paras.83-90; Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888. [^12]: Scanlon v. Castlepoint Dev. Corp. (1993), 1992 CanLII 7745 (ON CA), 11 O.R. (3d) 744 (C.A.); Hillis Oil and Sales Limited v. Wynn's Canada, 1986 CanLII 44 (SCC), [1986] 1 S.C.R. 57; McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada, 1981 CanLII 53 (SCC), [1981] 2 S.C.R. 6. [^13]: Canada Square Corp. v. VS Services Ltd. (1981), 1981 CanLII 1893 (ON CA), 34 O.R. (2d) 250 (C.A.); Hillas & Co. Ltd. v. Arcos (1932), 147 L.T. 503 (H.L). [^14]: British Columbia Hydro and Power Authority v. BG Checo International Ltd., (1993), 1993 CanLII 145 (SCC), 99 D.L.R. (4th) 577 at pp. 581-2 (S.C.C.). [^15]: [1912] 1 Ch. 284 at pp. 288-289. A.L. Sott Financial (FIR) Inc. v. PDF Training Inc., 2004 BCSC 1646 [^16]: 1991 CanLII 2734 (ON CA), [1991] O.J. No. 495 (C.A.). [^17]: Justice Robins cited: Canada Square Corp. Ltd. v. Versafood Services Ltd. (1980), 1979 CanLII 2042 (ON SC), 25 O.R. (2d) 591 (H.C.), aff'd., (1981), 1981 CanLII 1893 (ON CA), 34 O.R. (2d) 250 (C.A.); Bahamaconsult Ltd. v. Kellogg Salad Canada Ltd. (1976), 1975 CanLII 379 (ON SC), 9 O.R. (2d) 630 (H.C.), rev'd, (1977), 1976 CanLII 554 (ON CA), 15 O.R. (2d) 276 (C.A.); Von Hatzfeld Wildenburg v. Alexander, [1912] 1 Ch. 284. See also: Select Restaurant Plaza Corp. v. Pavilion Royale Inc., [2004] O.J. No. 4996 (S.C.J.); Winfull Supplies (Canada) Ltd. v. Goritsas, [2003] O.J. No. 5402 (S.C.J.); Ossory Canada Inc. v. Wendy’s Restaurants of Canada Inc. (1976), 15 O.R. (2d) 276 (C.A.). [^18]: LeMesurier v. Andrus (1985), 1986 CanLII 2688 (ON CA), 56 O.R. (2d) 1 (C.A.), leave to appeal to S.C.C. ref’d December 18, 1986; Morgan v. Lucky Dog Ltd. (1980), 45 R.P.R. 263 (Ont. H.C.J.); Dynamic Transport Ltd. v. O.K. Detailing Ltd., (1978), 1978 CanLII 215 (SCC), 85 D.L.R. (3d) 19 (S.C.C.); King v. Urban & Country Transport Ltd. (1973), 1973 CanLII 740 (ON CA), 1 O.R. (2d) 449 (C.A.); Hurley v. Roy (1921), 1921 CanLII 522 (ON CA), 50 O.L.R. 281. [^19]: 2014 SCC 71.