Court File and Parties

COURT FILE NO.: CV-19-00631794

DATE: 20200113

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: JUNGLE LION MANAGEMENT INC., Plaintiff

– and –

LONDON LIFE INSURANCE COMPANY, 1213763 ONTARIO INC. and GWL REALTY ADVISORS INC., Defendants

BEFORE: E.M. Morgan J.

COUNSEL: Arnie Herschorn, for the Plaintiff Wolfgang Kaufmann and Michael Hochberg, for the Defendants

HEARD: January 9, 2020

RELIEF FROM FORFEITURE

[1] On November 18, 2019, the Defendants, London Life Insurance Company and 1213763 Ontario Inc. (the “Landlord”) terminated the Plaintiff’s lease dated August 4, 2004 (the “Lease”) for non-payment of the November 2019 rent. The Lease was for commercial premises located at 33 Yonge Street, suite 100, Toronto (the “Premises), in which the Plaintiff operates a sports bar.

[2] The Plaintiff now moves for an injunction stopping the Landlord from terminating the tenancy or, in the alternative, relief from forfeiture and an Order reinstating itself as tenant of the Premises.

[3] The Plaintiff has a history of missed and late rental payments. As a consequence, the parties have a history of legal disputes. Over the past year, since January 2019, the Plaintiff has failed to pay rent on time for 8 out of 11 months. This pattern culminated in November 2019, when the Plaintiff’s rent cheque, delivered late to the Landlord, was dishonoured by the Royal Bank of Canada. The Plaintiff explained that the freezing of its bank account had been at the instance of Canada Revenue Agency (“CRA”), but states that the problem has now been straightened out.

[4] The day after the bank rejected the Plaintiff’s cheque, the Plaintiff tendered on the Landlord a bank cheque for the November rent, but the Landlord rejected the bank cheque and stood by its Notice of Termination. The Plaintiff also offered to pay the November rent by bank transfer, but he Landlord refused to accept the rent in that manner as well.

[5] I will pause here to note that these introductory facts signal that there are no grounds for the injunction sought in the first instance by the Plaintiff. Under art. 14.2 of the Lease, the Landlord was entitled to terminate the tenancy for non-payment of rent as soon as the rent went unpaid on the first of each month. In fact, that article provides that the Landlord can terminate without notice in the event of non-payment of rent, although the Landlord did as a courtesy provide the Plaintiff with notice of termination.

[6] In any case, the Plaintiff delivered its rent cheque to the Landlord on November 11, 2019 and the cheque was returned by the bank. There is no prima facie case or issue to be tried with respect to the termination of the tenancy under the Lease. The Plaintiff concedes that at the time of termination it was in default of rent. The Landlord had the right to terminate, and there are no grounds on which to enjoin it from doing so: RJR-Macdonald Inc. v Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 SCR 311.

[7] The only argument realistically available to the Plaintiff is relief from forfeiture. In assessing this form of relief, I am to look at the entirety of the relationship between the parties. In Greenwin Construction Co. v Stone & Webster (2001), 2001 CanLII 27993 (ON SC), 55 OR (3d) 345, para 24, the Court set out the three specific criteria which must be considered before the discretionary remedy of relief from forfeiture is granted:

1. conduct of the applicant and gravity of the breaches;
2. whether the object of the right of forfeiture in the Lease was essentially to secure the payment of money; and
3. the disparity or disproportion between the value of the property forfeited and the damage caused by the breach.

[8] In the first place, the Landlord may be forgiven for stating that the Plaintiff’s explanation for the returned November 2019 rent cheque – that the account was frozen by CRA – inspires no confidence. It signals financial troubles, especially coming on the heels of a number of late rental payments over the course of the previous year. The Plaintiff was, in fact, cavalier in its approach to this non-payment. It knew that the CRA had moved to freeze its account, but nevertheless wrote a cheque against it and never did anything to cover it but rather let the bank notify the Landlord that it could not be cashed.

[9] Counsel for the Landlord points out that the Plaintiff is obliged under the Lease to deliver to the Landlord monthly sales reports. Those reports demonstrate a declining business for the Plaintiff. The Plaintiff is also apparently in default of loans from the Royal Bank, which has issued notices to enforce its security under the PPSA. This is an act of insolvency under the Lease.

[10] In addition to its financial problems, the Plaintiff’s lack of maintenance of the Premises resulted in a flood in the Premises in early November 2019. The flood effectively shut down the Plaintiff’s business during the very week that the Plaintiff’s cheque was returned by the Bank.

[11] The flood occurred despite the fact that the Plaintiff had advance warning from the Landlord that there was a leak from the HVAC system in its premises. In October/November 2019 the Plaintiff was given a series of written advisories from the Landlord that something had to be done to stop the leak. The Plaintiff took no action, and on Nov. 13, 2019 there was a burst pipe around the HVAC system and the unit was flooded.

[12] Interestingly, this is not the first flood in the Plaintiff’s leased premises. In January 2019, the Plaintiff moved in this court for a quia timet injunction to prevent Landlord from terminating the Lease and re-entering the premises. The Plaintiff’s business was shut down at that time due to a flood in the unit caused by a leaking drainage pipe. Carole Brown J. issued an endorsement dated January 30, 2019 in which she stated that she was unable to determine who was responsible for the flood.

[13] Brown J. ultimately ruled that the Landlord was barred from terminating the Plaintiff’s tenancy because it had already accepted payment of base rent (but not the entire rent) from the Plaintiff before delivering its Notice of Termination. She also found that the Plaintiff had invested $3 million in the restaurant when it bought out the previous tenant, and reasoned that the Plaintiff’s loss would be disproportionate to what it owed the Landlord were it to have its tenancy in the premises terminated.

[14] I must admit that while one flood might be understandable, two floods in the same premises during the same year is rather unusual. The Plaintiff was fortunate in having Justice Brown grant a discretionary equitable remedy to it the first time due to the indeterminate origin of and responsibility for the flood, thereby saving its tenancy. One would think that the Plaintiff would be careful about water leaks the second time around.

[15] Counsel for the Plaintiff argues that it is likewise not known what caused the flood this time. He concedes that if the source of the problem is the unit’s HVAC system, then the Plaintiff as tenant is responsible for all repairs. However, he also points out that if the source of the water problem is a leaky roof, then the responsibility for maintenance and repairs lies with the Landlord.

[16] Each party has submitted reports by professionals who have opined on the source of the water problem. Plaintiff’s report says it is possible that the problem flows from the roof, while Landlord’s report states that the problem is in the HVAC system. In my view, the Landlord’s explanation is the only plausible one. Landlord’s counsel has pointed out for me that the building in which the premises is situated is a 15-floor building, with the Plaintiff’s restaurant premises on the ground floor. None of the 14 floors above the Plaintiff’s unit experienced any water at all. It seems very unlikely under those circumstances that the leak was from the roof.

[17] Water does not leak directly from a 15th floor roof into a ground floor unit, bypassing all of the other floors and units en route. I find that the Plaintiff was negligent in failing to attend to the repair of the leakage that led to the flood, and that the flooding is effectively the Plaintiff’s responsibility. Under art. 8.4(a)(i) of the Lease, the Plaintiff has to continue to pay rent if the business is closed due to its damage as a result of its negligence.

[18] What makes me particularly suspicious is that the Plaintiff had advanced notice of the water problem and did nothing for weeks to even determine the severity of the problem. As it turns out, the Plaintiff not only has Premises repair insurance, but also has business abatement insurance. Both last time that there was a flood and this time around, the Plaintiff continued and continues to collect insurance payments as if it were running its ordinary business during the course of its closure for flood cleanup. It is starting to look like the Plaintiff would rather have a flood that is fully covered by insurance than spend money out of pocket in order to prevent a flood from taking place.

[19] The Landlord also complains that the Plaintiff uses gas heaters on its patio that are not up to Fire Code standards. The Plaintiff has been aware of this for many months, but has done nothing about it. The Landlord was, in fact, alerted to this by the Fire Marshall in September 2019. At that time, the Fire Department told the Plaintiff to disconnect the gas heaters and not to use them. However, the fire inspector found in November that the gas had been turned back on and the heaters were operational.

[20] Since mid-November, when the Landlord took possession of the Premises, it has disconnected the heaters and unhooked them from the gas service. The Plaintiff’s explanation for not having done so itself is that they would have disconnected the heaters but the flood intervened. That does not explain why they did nothing about this fire hazard from September to November 2019.

[21] In my view, the Plaintiff has done little to foster confidence in the Landlord or to prompt a court to invoke an equitable remedy on its behalf. That said, if Justice Brown was correct that the Plaintiff stands to lose a $300,000 investment in the Premises, a termination of the tenancy will certainly have a disproportionate impact on it. It will effectively lose its entire investment in the Premises.

[22] In Beaver Fuels Management Ltd v Baker’s Dozen Holdings Corp, [2006] OJ No 5743, Perell J. stated, at para 44:

Beaver Fuels points to a sad history of breaches of the covenant to pay rent. In my opinion, in the circumstances of the case at bar, Beaver Fuels chief complaint is about the payment of rent, and it can be protected by imposing strict conditions and terms in a grant of relief from forfeiture including the payment of all arrears and the payment of legal costs on a substantial indemnity basis.

[23] As an alternative to terminating the Plaintiff’s tenancy, the Landlord has proposed strict conditions for relief from forfeiture that are in line with the Beaver Fuels ruling. I am willing to grant relief from forfeiture on the conditions proposed by the Landlord. Those conditions provide that the Plaintiff must:

a. remedy all of its breaches of the Lease, including all unpaid amounts due under the Lease (which would comprise, if the Lease is reinstated, not only the $67,514.73 in unpaid rent for November 2019 but also the unpaid rent for December 2019 and January 2020 totaling $130,181.34 + 67,514.73 = $197,690.07);

b. make arrangements with the Royal Bank of Canada to have all monthly payments of rent for the balance of the term paid directly to such bank as the Landlord may require, when due on the first of every month (and not when the Plaintiff gets around to it or Sabah Nissan happens to be in town to sign cheques on the Plaintiff’s behalf) and supply the Landlord with evidence of such arrangements in accordance with Section 4.13 of the ;

c. put the Premises into, and keep and maintain the Premises in, good order and in a first-class condition and repair in accordance with Section 8.2 of the Lease;

d. use the Premises continuously and actively for the business of a first class, full service, sit-down restaurant [in accordance with Section 7(e) of the Amending Agreement]; and

e. pay the Landlord’s full indemnity costs and expenses incurred with respect to the termination.

[24] The expenses incurred by the Landlord include items such as having the locks changed, installing privacy film over windows, cleaning, disconnecting gas. They come to a total of $8,563.28.

[25] The Landlord deserves full indemnity costs. Relief from forfeiture is a remedy which invokes equity in order to override the Landlord’s legal rights. The Plaintiff may appear to be successful if it salvages its tenancy, but that does not mean that the Landlord was not actually ‘right’.

[26] The Landlord here seeks costs in the amount of $37,357.15 on a full indemnity basis. Its Bill of Costs establishes that it incurred a total of $22,595.96 when measured on a partial indemnity scale. This is along the same lines as the Plaintiff’s costs, which come to $22,164.78 on a partial indemnity scale.

[27] Costs are discretionary under section 131 of the Courts of Justice Act. That discretion is generally to be exercised with a view to the criteria set out in Rule 57.01 of the Rules of Civil Procedure.

[28] Of particular relevance here is Rule 57.01(1)(0.b), which provides that costs be fixed at an amount which will not take the opposing side by surprise. Since the Plaintiff’s costs and the Landlord’s costs are almost identical for this motion, I conclude that the Landlord’s costs request would not take the Plaintiff by surprise.

[29] The Plaintiff shall have relief from forfeiture and the Lease is reinstated, on the terms set out in paragraph 23(a) to (e) above. In addition, the Plaintiff shall pay the Landlord expenses in the amount of $8,563.28 and costs in the all-inclusive amount of $37,357.15.

[30] These payments of expenses and costs, along with the payments under the Lease as set out in para. 23(a) above, shall be made by the Plaintiff forthwith. If they are not paid within one week of the date of this endorsement, the Landlord may re-enter the Premises and re-take possession thereof without further notice to the Plaintiff.

[31] If and when the Plaintiff defaults and the Landlord’s exercises its right of re-entry, the Plaintiff’s tenancy and the Lease shall be at an end.

Morgan J.

Date: January 13, 2020