Court File and Parties

Court File No.: CV-15-535726 Date: 2020-03-31 Ontario Superior Court of Justice

Between: T & C HOLDINGS LIMITED Plaintiff – and – BOOSTER JUICE INC Defendant

Counsel: Stephen Jackson, for the Plaintiff Stuart R. Mackay, for the Defendant

Heard at Toronto: January 20, 22 and 24, 2020

Reasons for Judgment

Stinson J.

[1] This case involves a claim for damages for the breach of a commercial lease of retail space in a shopping plaza. The facts are largely undisputed. The parties disagree about the legal effect of some of the events. They also disagree about the proper calculation of the damages payable by the defendant tenant, if any.

Facts

[2] Up until March 8, 2016, the plaintiff, T & C Holdings Limited, was the owner and landlord of a retail shopping plaza known as Town & Country Plaza, located on Portage Road, in Niagara Falls, Ontario. On that date it sold the plaza to an arm’s length purchaser, CJ Global Investment Ltd.

[3] The plaza contains approximately 23 retail store premises of varying sizes, plus two larger “anchor tenant” premises, as well as a small adjacent office complex. The defendant, Booster Juice Inc., was the tenant of Unit 11 in the plaza (the "Booster Juice Premises") pursuant to a lease dated October 11, 2009 (the "Booster Juice Lease").

[4] The Booster Juice Lease included the following provisions:

a) a term of ten years expiring on January 31, 2020;

b) the exclusive use of the plaza by defendant for the sale of "fresh juices" and "wheatgrass, smoothies and other yogurt-based beverages" such that plaintiff was prohibited from entering into a lease with another tenant that had 10% or more of its gross sales attributable to the sale at retail of such products on a combined basis;

c) payment by defendant of net net rent throughout the term, including payment of its share of realty taxes and operating costs;

d) an obligation on defendant to continuously and actively conduct its business from the leased premises throughout the term;

e) if defendant was in default in respect of its payment of rent for a period of five days or if defendant abandoned the leased premises, plaintiff had a right to terminate the lease and to obtain damages from defendant including, without limitation, "all deficiencies between all amounts which would have been payable by [defendant] for what would have been the balance of the term, but for such termination, and all net amounts actually received by [plaintiff] for such period"; and

f) plaintiff agreed to pay defendant a tenant's allowance for the improvements undertaken by it equal to $20 per square foot of rentable area, a total of $16,107.

[5] On January 20, 2015, defendant abandoned the Booster Juice Premises. It paid rent to January 31, 2015. In addition, plaintiff held a last month's rent deposit in the amount of $1,150.50. Plaintiff acknowledges that it has not paid the tenant's allowance to defendant. The parties agree that any award of damages up to March 2016, would be subject to a deduction for an abatement on account of the last month’s rent ($1,150.50) and the tenant improvement allowance ($16,107.00), for a total of $17,257.50.

[6] On March 26, 2015, plaintiff delivered a notice to defendant affirming the Booster Juice Lease and reminding defendant of its continuing obligations under the lease.

[7] Following defendant’s departure from the Booster Juice Premises in January 2015, plaintiff took some steps to secure a replacement tenant. It did so as it customarily did where vacancies arose, by way of signage in the vacant store and on the Portage Road street frontage of the plaza. It also posted notice of the vacancy on an online directory used by participants in the shopping plaza leasing community to share information about leasing opportunities. Plaintiff did not, however, retain a broker to list the space or advertise in local newspapers, approaches that plaintiff had found to be unproductive in the past. At the time the CJ Global Agreement of Purchase and Sale was signed in November 2015, and when the sale closed three months later, the Booster Juice Premises were still vacant.

[8] On May 28, 2015, plaintiff signed a lease with FroYo Treat Inc. (the "FroYo Lease") for Unit 28 in the plaza (the "FroYo Premises"). The FroYo Lease included the following provisions:

a) a term of three years commencing on July 1, 2015 and expiring on June 30, 2018; and

b) the use of the FroYo Premises for a restaurant serving food consisting primarily of the sale of "self-serve frozen yogurt and other frozen treats and desserts, ice cream, juices, hot beverages, pretzels, cake, cookies and for no other purpose."

[9] On June 30, 2015, plaintiff delivered to defendant a formal Notice of Termination of the Booster Juice Lease.

[10] On July 1, 2015, Froyo took possession of the FroYo Premises. It vacated them on November 30, 2015. Thereafter, and prior to the closing of the sale to CJ Global, plaintiff succeeded in re-letting them to a subsequent tenant who operated a burger restaurant there.

Sale of the Plaza

[11] In or about mid-2015 (and for reasons not specifically related to the Booster Juice vacancy), plaintiff decided it wished to sell the plaza. It consulted two large commercial real estate firms, CBRE and JLL, seeking their input and proposals for marketing and selling the plaza. Plaintiff supplied each firm with information regarding the plaza’s rent roll and financial status at that time and in turn, each firm prepared a marketing proposal for consideration by plaintiff. These marketing proposals were prepared in August/September 2015, and each contained an opinion or estimate of the range of value that plaintiff might expect to receive on a sale. These estimates of value (which were not formal appraisals) were based upon net operating income from 2014 and capitalization rates (“cap rates”) ranging from 6.5% to 7.25%. The estimates ranged between $15.2 to $16.5 million (excluding the office space, which was vacant at the time).

[12] Plaintiff chose JLL as its advisor and broker to market the plaza. As part of its marketing efforts, JLL prepared a Confidential Information Memorandum to provide to prospective purchasers. Among other information, this document contained financial results and projections and rent roll summaries and expectations, in order to provide would-be purchasers with some bases to conduct their own analysis and estimate of the value of the plaza.

[13] JLL’s marketing efforts produced multiple expressions of interest and yielded a number of “Letters of Intent” from six potential purchasers. These documents were non-binding purchase proposals that included a proposed price and other terms for consideration by the seller. The prices proposed ranged from $14.5 million to $16.1 million. Following consultations with plaintiff, JLL requested “best price” proposals from some of the would-be purchasers, eventually receiving three final proposals, at $16 million, $16.15 million and $16.6 million.

[14] With the advice of JLL, plaintiff decided to pursue negotiations with the party that had proposed a price of $16.15 million (CJ Global) despite the fact that it was not the highest proposal. The JLL representative who testified at trial explained that the net value of the $16.6 million proposal was $16.3 million because it provided for the payment of an additional $300,000 commission; thus the true net difference between the two proposals was only $150,000. He also explained that part of JLL’s function is to advise sellers regarding the likelihood that a would-be purchaser would be able to raise financing and successfully close the transaction as planned. Based on this information, plaintiff chose the CJ Global proposal. Negotiations ultimately lead to the agreement signed on November 30, 2015.

[15] Following that date, CJ Global conducted a due diligence review of, among other things, the financial records and leases for the plaza. It is not disputed that CJ Global would have been aware of the status of both the Booster Juice Premises (vacant since January 2015) or the FroYo Premises (which were vacated on November 30, 2015 and re-let soon after). Despite a price adjustment clause contained in the agreement, CJ Global did not seek a change in the purchase price based on any information it learned during the due diligence process. The sale transaction was completed on March 8, 2016 and on that date plaintiff was paid the agreed price of $16.15 million (subject to the usual closing adjustments). Thereafter, plaintiff ceased to receive rent from, or be liable for any ongoing expenses for taxes or maintenance of, the plaza.

Expert Evidence

[16] One of the main issues in this case is whether the vacancy in the Booster Juice Premises from January 2015 forward resulted in plaintiff receiving a lower purchase price when it sold the plaza. No evidence was led by either side from anyone who was involved in the purchase and sale transaction on behalf of CJ Global, the successful buyer, whether as a decision maker for the company or as an expert advisor to the buyer. Thus, there was no direct evidence regarding the basis upon which CJ Global decided initially to propose a purchase price of $15.9 million and then to increase its proposal by $250,000, to $16.15 million. In particular, there was no evidence from CJ Global whether the absence or presence of a rent-paying tenant in the Booster Juice Premises had any impact on the price that it initially proposed or ultimately agreed to pay.

[17] Instead, each side presented opinion evidence from an expert appraiser in relation to this subject. The parties each conceded that the expertise of the other side’s witness was sufficient to qualify him to provide opinion evidence to the court. Helpfully, the expert witnesses conferred prior to trial (as contemplated by rule 20.05(2)(k)) and reached agreement on the following points:

a) The sale of the property in March 2016 (at $16.15 million) was reflective of Fair Market Value. The property was widely marketed by a reputable national brokerage firm, over a reasonable period of time.

b) Moreover, the transaction can in no way be considered a distressed sale. The owner was under no duress to sell, from either a timing or financial perspective.

c) Both experts consider the Income Approach to be the most relevant approach to value for the subject property.

d) The comparable sales presented in the associated broker listing pitches and by both experts were considered as good and relevant benchmarks for the subject property.

e) The capitalization rate (“cap rate”) ranges indicated by the comparable sales and in broker listing pitches were considered to be reasonable.

[18] The main point on which two experts disagreed was in relation to the significance of the existing income in-place at the time of sale. Plaintiff’s expert considered the existing income in-place to be a key driver of value in the transaction, whereas defendant’s expert was of the opinion that there were several other factors involved, all of which had a bearing on the sale price.

[19] The written reports of both experts were admitted as evidence and each testified at trial. In particular, they explained how and why they reached their respective conclusions regarding the impact, if any, of the absence of the Booster Juice tenancy on the price realized on the sale of the plaza.

[20] Plaintiff’s expert, Colin Johnston, explained that, in his view, the correct approach to valuing the plaza (and hence the sale price it should have realized) was the Direct Capitalization Approach. This approach measures the relationship of value to the Net Operating Income, by converting a single year’s income expectancy into an indication of value, by using a suitable cap rate. As he explained in his report, the typical purchaser of an asset of this size and scale is likely a private entity versus a public one, and thus more interested in a short term rather than longer term return. He noted that private buyers are not typically overly sophisticated in their financial analysis and tend to merely ascribe a cap rate to a single year’s income, a factor that has been heightened in recent years for retail investments.

[21] Mr. Johnston explained that dividing the actual net income at the time the agreement of purchase and sale was signed, ($1,082,429) by the agreed-upon sale price ($16,150,000) produced a cap rate of 6.7%. He considered that cap rate to be within a reasonable range for a purchase such as this, as compared to similar sales. (In his report, Mr. Johnston reviewed 9 comparable sales, which had cap rates ranging from 5.74% to 8.08%.) He observed that the absence of the Booster Juice tenancy meant that the net income was reduced by $16,107. In the conclusion to his report he stated: “Applying [the 6.7% cap rate] to the lost annual contractual net rental income associated with the Booster Juice lease equates to a diminution in value of approximately $240,000.”

[22] Defendant’s expert, Matt Van Huizen, prepared two reports for use in the litigation. One was a retrospective appraisal and valuation of the plaza as at June 1, 2015; the second was a critique of Mr. Johnston’s analysis of the diminution in value due to the vacancy of the Booster Juice Premises. In his valuation report, Mr. Van Huizen valued the plaza using two methods. Using an income approach and a cap rate of 6.5%, he arrived at a value of $16.2 million; using a direct comparison approach, he arrived at a value of $15.57 million. His final estimate of value was $16 million (slightly lower than the ultimate sale price of $16.15 million).

[23] In his second report, Mr. Van Huizen set out a critique of Mr. Johnston’s analysis of the alleged diminution in value and disagreed with Mr. Johnston’s conclusion. Although he agreed that the correct approach to valuing the plaza was the Direct Capitalization Approach, he explained that the process Mr. Johnston undertook was incomplete, because he considered the vacant Booster Juice unit in the absence a consideration of the plaza in its entirety. In his critique, Mr. Van Huizen explained that this this was not an appropriate way to consider the impact of a single vacancy in the total operation of the plaza because it ignored other factors typically associated with an income approach to value. These include such factors as the rental rate, existing contract amounts and vacancy, adjusting for current rental rates and expenses.

[24] In the opinion of Mr. Van Huizen, simply capitalizing the lost revenue ignores every other factor involved in the decision-making process that goes into determining a purchase price for the total retail plaza. In his view, the valuation of a plaza should include all aspects of income and expenses to reach a conclusion, without singling out a single, small vacancy. In view of the other relevant considerations, in Mr. Van Huizen’s opinion, the absence of the Booster Juice tenancy had no impact on the purchase price.

[25] I am therefore faced with two widely-differing opinions regarding the price the plaza would have realized had the Booster Juice lease continued in place. Both are theoretical and speculative.

[26] Although both experts have very respectable credentials and undoubted expertise, I am not persuaded by the approach adopted by either. The principle reason is that only the actual purchaser would have been able to explain whether such a modest increase in the current year’s rental income would have persuaded the purchaser to alter its offering price. As noted, neither side called a representative of the purchaser. I therefore have no evidence (apart from the two Letters of Intent and the Agreement of Purchase and Sale) from which I can develop any reliable insight into the decision-making process of the purchaser. There is no solid background information about the purchaser or its approach to this type of investment, what its priorities or budget might have been, and why it decided to increase its initial offer as much or as little as it did. I cannot reliably assume or find that the purchaser would have rigorously applied or adhered to the notional 6.7% cap rate based on a single year’s rent.

[27] It is a fact of life that rental tenants come and go from retail plazas such as this one, as occurred in relation to Booster Juice and Froyo. Thus, it can be assumed that the parties were aware that some change in the rental profile might occur in the ordinary course of business between the date the Agreement was signed and the closing date. Although the vendor was obliged to continue to operate the plaza in the ordinary course of business up to the closing date, it had no obligation to reduce the purchase price in the event another tenant departed; nor was the buyer obliged to pay more if a new tenant replaced Booster Juice or leased one of the other vacant units. The Agreement of Purchase and Sale did not provide for any adjustment to the purchase price – one way or the other – based on a change in the net rental income of the plaza. It may therefore be inferred that the parties did not tie the purchase price to a specific rental income level. This is another reason why I am unprepared to apply a mathematical calculation of a diminution in the purchase price keyed upon a notional cap rate applied to the net income stream, to arrive a so-called “loss of value” as suggested by plaintiff’s expert.

[28] There is an additional reason why I am also not persuaded by the specific approach proffered by plaintiff’s expert. He calculated the alleged diminution in price merely by applying the calculated notional cap rate of 6.7% to the Booster Juice rent. Thus, his projection of a decrease in value is a mere arithmetical calculation, using a cap rate that he considered reasonable. However, if net income had been increased by adding the Booster Juice rent and the cap rate re-calculated utilizing the same purchase price, the result would have been a cap rate of 6.6%. (Adding the Booster Juice rent of $16,107 increases the annual net income to $1,098,536, which, divided by the sale price of $16,150,000, produces a cap rate of 6.6%.) A cap rate of 6.6% is well within the range for a transaction of this sort. Put another way, with a slightly higher net income, the same price actually paid by the buyer could have been arrived at using a slightly lower cap rate, but one that is still within the range deemed appropriate by plaintiff’s expert. Since cap rates vary from deal to deal and are not fixed in stone, I am unwilling to impute a loss in the value of the plaza utilizing the approach proposed by plaintiff’s expert.

[29] I am therefore not prepared to find that the absence of the Booster Juice tenancy had any measurable impact on the price paid for the plaza. Put another way, plaintiff has failed to persuade me that it suffered damages by way of a reduced purchase price on the sale as a result of this vacancy.

Legal Issues and Analysis

[30] Counsel helpfully prepared a logic diagram setting out the various issues presented by these facts, with a series of questions, possible responses and their respective positions. The questions may be summarized as follows:

Q1: Did plaintiff accept Booster Juice’s repudiation of the lease prior to the formal termination on June 30, 2015?

Q2: Did plaintiff mitigate its damages by leasing to Froyo Treats Inc.?

Q3: Did plaintiff take reasonable steps to mitigate its damages from date of repudiation to August 2015?

Q4: Did plaintiff take reasonable steps to mitigate its damages after taking steps to sell, from August 2015 to March 2016?

Q5: Did the sale of the plaza on March 7, 2016 end plaintiff’s right to claim damages under the lease?

General Principles of Recovery

[31] I will deal with each of the questions posed by the parties in turn. Before doing so it is useful to set out the general principles applicable to the rights of a landlord when a tenant repudiates a commercial lease. These are set out in Highway Properties Ltd. v. Kelly, Douglas and Co. Ltd., [1971] S.C.R. 562 (at pp. 575-576) as follows:

The developed case law has recognized three mutually exclusive courses that a landlord may take where a tenant is in fundamental breach of the lease or has repudiated it entirely, as was the case here. He may do nothing to alter the relationship of landlord and tenant, but simply insist on performance of the terms and sue for rent or damages on the footing that the lease remains in force. Second, he may elect to terminate the lease, retaining of course the right to sue for rent accrued due, or for damages to the date of termination for previous breaches of covenant. Third, he may advise the tenant that he proposes to re-let the property on the tenant's account and enter into possession on that basis. Counsel for the appellant, in effect, suggests a fourth alternative, namely that the landlord may elect to terminate the lease but with notice to the defaulting tenant that damages will be claimed on the footing of a present recovery of damages for losing the benefit of the lease over its unexpired term. One element of such damages would be, of course, the present value of the unpaid future rent for the unexpired period of the lease less the actual rental value of the premises for that period.

[32] The availability of the fourth alternative was recently reaffirmed by the Ontario Court of Appeal in Saramia Crescent General Partner Inc. v. Delco Wire and Cable Ltd., 2018 ONCA 519.

Q1: Did plaintiff accept Booster Juice’s repudiation of the lease prior to the formal termination on June 30, 2015?

[33] In relation to this question, defendant submits that plaintiff accepted the repudiation and that plaintiff’s claim for damages ends at the date of acceptance of the repudiation. Plaintiff disagrees and asserts that it is entitled to claim for lost rent, subject to its duty to mitigate.

[34] This question requires consideration of the actions of the parties between January 20, 2015, when defendant abandoned the Booster Juice Premises by sending formal notice to that effect, and June 30, 2015, the date when plaintiff served a formal Notice of Termination. The key events are as follows:

January 20, 2015 - defendant abandons the Booster Juice Premises by vacating them and sending a letter to plaintiff advising of its actions.

January 22, 2015 - plaintiff responds, formally requiring defendant to adhere to its lease obligations to pay rent and continuously conduct its business in the premises.

March 26, 2015 – in response to a without prejudice proposal from defendant, plaintiff’s lawyer reaffirms plaintiff’s position that defendant “will be held responsible for all [its] obligations under the Lease unless and until our client or we notify you in writing to the contrary.”

May 2015 – plaintiff negotiates with FroYo for the potential lease of Unit 28 in the plaza, a fully-fixtured self-serve frozen yogurt store previously occupied by CC Swirls.

May 28, 2015, plaintiff signs the FroYo Lease, with a commencement date of July 1, 2015.

June 24, 2015 – plaintiff's lawyer writes to defendant confirming that the Booster Juice Lease has not been terminated and that plaintiff “will not accept surrender or termination of the Lease other than pursuant to notice from or written agreement with” plaintiff. He further advises that he has received instructions to commence legal proceedings.

June 30, 2015 – plaintiff serves formal Notice of Termination of the Booster Juice Lease as a result of default in payment of rent.

July 1, 2015 – FroYo lease commences and FroYo enters into possession and begins operations.

July 2015 – FroYo posts sign on plaza signboard announcing “FroYo Treat Now Open – Frozen Yogurt & Smoothie”.

September 5, 2015 – plaintiff issues statement of claim commencing this action.

[35] In essence, defendant argues that by choosing to negotiate and enter into the FroYo Lease without regard to its ongoing obligations to defendant under the Booster Juice Lease, plaintiff evinced an intention not to be bound by those obligations and thus accepted the repudiation.

[36] In Brown v. Belleville (City), 2013 ONCA 148, 114 O.R. (3d) 561 (at para 45) Cronk J.A. summarized the law on repudiatory breach as follows:

It appears to be settled law in Canada that where the innocent party to a repudiatory breach or an anticipatory repudiation wishes to be discharged from the contract, the election to disaffirm the contract must be clearly and unequivocally communicated to the repudiating party within a reasonable time. Communication of the election to disaffirm or terminate the contract may be accomplished directly, by either oral or written words, or may be inferred from the conduct of the innocent party in the particular circumstances of the case: McCamus, [The Law of Contracts (Toronto: Irwin Law, 2005), John D. McCamus] at pp. 659-61

[37] Cronk J.A. went on to review earlier cases in which the subject of repudiation by inference was discussed (at paras 46-48):

[46] In American National Red Cross v. Geddes Bros. (1920), 61 S.C.R. 143, [1920] S.C.J. No. 57, revg (1920), 47 O.L.R. 163, [1920] O.J. No. 122 (S.C. (A.D.)), the Supreme Court of Canada addressed the means by which the adoption of a repudiation may be effectively communicated. Sir Louis Davies said, at p. 145 S.C.R.:

The question then, it seems to me, in every such case must be whether under the proved facts adoption of one party to a contract of its repudiation by the other party may be inferred from the proved facts, or whether an actual notice of acceptance or adoption must be given by the party receiving notice of the repudiation to the party repudiating.

It seems to me from reading the authorities that such an actual notice of acceptance or adoption is not necessary but that adoption may be reasonably inferred from all the circumstances as proved.

[47] In American National, Davies C.J.C. concluded, at p. 147 S.C.R., that a direct communication to the repudiating party of the election to disaffirm the repudiated contract is not essential "where facts proved allow of a fair inference of acceptance of renunciation [repudiation in this context] being drawn". This view was endorsed by a majority of the Supreme Court in Kamlee Construction Ltd. v. Oakville (Town), [1960] S.C.J. No. 1, 26 D.L.R. (2d) 166, at p. 182 D.L.R.

[48] More recently, in White v. E.B.F. Manufacturing Ltd., [2005] N.S.J. No. 518, 2005 NSCA 167, 239 N.S.R. (2d) 270, at para. 91, Saunders J.A. of the Nova Scotia Court of Appeal accepted the following description of what constitutes "acceptance" of repudiation, set out in Chitty on Contracts, 28th ed., Vol. 1 (London: Sweet & Maxwell, 1999), at p. 25-012:

Where there is an anticipatory breach, or the breach of an executory contract, and the innocent party wishes to treat himself as discharged, he must "accept the repudiation." It is usually done by communicating the decision to terminate [to] the party in default although it may be sufficient to lead evidence of an "unequivocal overt act which is inconsistent with the subsistence of the contract ... without any concurrent manifestation of intent directed to the other party" ... Acceptance of a repudiation must be clear and unequivocal and mere inactivity or acquiescence will generally not be [page573] regarded as acceptance for this purpose. But there may be circumstances in which a continuing failure to perform will be sufficiently unequivocal to constitute acceptance of a repudiation. It all depends on "the particular contractual relationship and the particular circumstances of the case."

[38] The question to address, therefore, is whether plaintiff, prior to June 30, 2015, communicated its decision to terminate to defendant or committed an unequivocal overt act inconsistent with its obligations to defendant. As noted above, plaintiff made it clear throughout the period to the date upon which it formally terminated the Booster Juice Lease (June 30, 2015) that it would not accept surrender or termination of the lease other than pursuant to a formal notice or written agreement. That position was communicated to defendant as late as June 24, 2015.

[39] It is readily apparent that, when it served the Notice of Termination on June 30, 2015, plaintiff communicated its decision to terminate. Defendant contends, however, that plaintiff’s conduct prior to that date evinced an intention not to be bound by the parties’ contract. At the heart of defendant’s submission is that the rights conferred by plaintiff to FroYo under the FroYo Lease relating to use of the FroYo Premises, were inconsistent with the exclusive use provisions contained in the Booster Juice Lease. By negotiating with FroYo and agreeing to such terms, without regard to its obligations under the Booster Juice Lease, the argument goes, it may be inferred that plaintiff accepted defendant’s repudiation before it served the formal Notice of Termination.

[40] The Booster Juice Use of Premises clause reads as follows.

The Tenant shall have the right to use the Premises for a retail store for the sale of fresh juices and smoothies and the sale of sandwiches, Italian paninis, quesadillas, wraps, wheatgrass, yogurt and yogurt products, muffins, fruit and vegetable salads, nutritional snacks and supplements, herbal and organic products, as well as other ancillary food products to be added to the menu from time to time … .

[41] The Booster Juice Exclusive Use clause reads as follows:

The Landlord covenants and agrees during the Term of the Lease or any subsequent renewals, not to lease any other premises in the shopping centre to be used by any tenant for the sale of fresh juices as a principal use and for the sale of wheatgrass, smoothies and other yogurt-based beverages as a principal or non-principal use.

[42] The FroYo Use of Premises clause reads as follows:

The Tenant shall use the Premises for a restaurant for on and off premises consumption of food, consisting primarily of the sale of self-serve frozen yogurt and other frozen treats and desserts, ice cream, juices, hot beverages, pretzels, cake, cookies, and for no other purpose. ...

[43] The FroYo Exclusive Use clause reads as follows:

The Landlord covenants and agrees during the Term of the Lease or any subsequent renewals not to lease any other premises in the shopping centre to be used by any tenant for the sale of self-serve frozen yogurt and other frozen treats, fresh juices, cake and desserts as a principal use.

[44] In relation to potential conflicts between the above provisions, I find no inconsistency between the Booster Juice Exclusive Use clause and the FroYo Use of Premises clause. Plainly, the principal use contemplated by the FroYo Lease was for the sale of self-serve frozen yogurt and other frozen treats and desserts. While juices were mentioned, they were an ancillary product and there was no reference to fresh juices. Importantly, the FroYo Premises were already fixtured as a more-or-less “turn key” soft-serve yogurt store, formerly operated as a CC Swirls frozen yogurt franchise. There is no suggestion that the former CC Swirls use was a violation of the Booster Juice Exclusive Use clause. In any event, the FroYo Lease did not provide “for the sale of fresh juices as a principal use”, which was the main product protected by the Booster Juice Exclusive Use clause.

[45] I acknowledge that the Booster Juice Exclusive Use clause prohibited plaintiff from leasing other premises for “the sale of wheatgrass, smoothies and other yogurt-based beverages as a principal or non-principal use.” However, nothing in the FroYo Use of Premises clause mentions these products, Defendant points to the sign posted by FroYo soon after it opened as evidence that FroYo was selling smoothies. While that activity may have been contrary to the exclusivity provisions contained in the (by-then terminated) Booster Juice Lease, it was not one that was contemplated by the FroYo lease itself.

[46] It follows that none of the rights conferred by plaintiff to FroYo under the FroYo Lease relating to use of the FroYo Premises, were inconsistent with the exclusive use provisions contained in the Booster Juice Lease.

[47] That said, I agree with defendant’s submission that the landlord’s commitment in the FroYo Exclusive Use clause not to lease other premises in the plaza to any tenant “for the sale of … fresh juices, … as a principal use” would be incompatible with the Booster Juice Lease Use of Premises clause. Plainly, the principal use of the Booster Juice Premises was “for the sale of fresh juices”. Thus, once the FroYo Lease came into effect, plaintiff would be unable to enter into a lease conferring the same usage rights contained in the original Booster Juice Lease.

[48] However, the obligations of plaintiff under the FroYo Exclusive Use clause arose during the term of the FroYo Lease, and thus they came into effect on July 1, 2015 and not before. It was open to plaintiff to conduct itself in such a fashion as to not offend its obligations to either Booster Juice or FroYo. I find that it did. It terminated the Booster Juice Lease before the term of the FroYo Lease commenced. Since the obligations of plaintiff to each of these tenants did not exist at the same time, there was no possibility for conflict between the exclusivity obligations under the two leases. Simply put, because the two tenancies did not overlap, plaintiff’s obligations to the two tenants did not overlap.

[49] I therefore conclude that there was no unequivocal act by plaintiff that was inconsistent with its obligations to defendant, and hence no basis for the inference that plaintiff had repudiated its obligations to defendant. I find that plaintiff did not accept Booster Juice’s repudiation of the lease prior to the formal termination on June 30, 2015.

Q2: Did plaintiff mitigate its damages by leasing to Froyo Treats Inc.?

[50] In relation to this question, defendant asserts that by leasing to Froyo, plaintiff mitigated its damages and thus defendant is entitled to credit for the revenue generated by the FroYo Lease. Plaintiff disagrees and submits that the Froyo Lease does not offset defendant’s rent obligations.

[51] In Shapiro (cob ISR Ent in Trust) v 1086891 Ontario Inc, 2006 ONSC 2050, [2006] O.J. No. 302 (at paras. 139-141), Perell J. summarized the law relating to the duty to mitigate as follows:

[139] The general principles associated with the mitigation of damages are set out in British Westinghouse Electric & Mfg. Co. Ltd. v. Underground Electric R. Co. of London Ltd., [1912] A.C. 673 (H.L.); Red Deer College v. Michaels, [1976] 2 S.C.R. 324; and Asamera Oil Corp. v Seal Oil & General Corp., [1979] 1 S.C.R. 633. Those cases establish that a wronged plaintiff cannot recover for loses he or she could reasonably have avoided, and from this idea emerges the associated idea that a plaintiff has a duty to take reasonable steps to avoid loss. Thus, it is said that the plaintiff has a responsibility to mitigate his or her losses. It follows further from these authorities that a defendant may succeed in reducing the plaintiff's recovery by proving that the plaintiff missed an opportunity to mitigate or by proving that the plaintiff did in fact mitigate his or her losses. The onus of proving that the plaintiff mitigated or ought to have mitigated rests on the defendant.

[140] Where the plaintiff mitigates his or her losses then the plaintiff must give credit for the recovery. Thus, in the leading case of British Westinghouse Electric & Mfg. Co. Ltd. v. Underground Electric R. Co. of London Ltd., supra, the plaintiff recovered only nominal damages because the machines it purchased to replace the defendant's defective machines were so superior to the defendant's defective machines that the replacement machines more than made up the plaintiff's losses with enhanced productivity. See also Toronto Housing Co. Ltd. v. Postal Promotions Ltd. (1982), 1982 ONCA 1982, 39 O.R. (2d) 627 (C.A.), where a landlord mitigated its losses by re-renting the premises.

[141] The principle that the plaintiff must give credit for subsequent transactions is subject, however, to the qualification that the subsequent transaction must be one arising out of the consequences of the breach and in the ordinary course of business. The plaintiff does not have to give credit for a collateral transaction. The case of Apeco of Canada Ltd. v. Windmill Place, [1978] 2 S.C.R. 385, which followed the leading case of Karas v. Rowlett, [1944] S.C.R. 1, provides an illustration of this qualification.

[52] The question to address, therefore, is whether the lease of the former CC Swirls premises (Unit 28) to FroYo was a transaction that arose out of the consequences of defendant’s breach. If it did not, defendant is not entitled to claim any credit against its liability. In my opinion, the FroYo Lease did not arise due to the abandonment of the Booster Juice Premises by defendant.

[53] To begin with, the vacancy of the FroYo Premises by CC Swirls either preceded or coincided with the vacancy of the Booster Juice Premises. (Mr. Elek testified that CC Swirls closed in December 2014 or January 2015.) The two vacancies were otherwise unconnected. The availability of the CC Swirls premises and the opportunity to re-let them did not flow from the vacancy of the Booster Juice Premises.

[54] As owner of the plaza, at the end of January 2015, plaintiff was faced with two vacant stores (in addition to others that were already empty) for which it wished to secure replacement tenants. As it turned out, a prospective tenant who wanted to operate a self-serve frozen yogurt store came on the scene. That tenant was a natural fit for the CC Swirls unit, because it was already equipped for such an operation. That circumstance had nothing to do with defendant or its abandonment of the Booster Juice Premises.

[55] I am alert to defendant’s submission that plaintiff could not have granted the same rights of exclusivity to FroYo that it did, if the Booster Juice Lease had still been in force. (See the discussion above regarding the landlord’s commitment in the FroYo Exclusive Use clause not to lease other premises in the plaza to any tenant “for the sale of … fresh juices, … as a principal use”.) Defendant argues that “but for” defendant’s abandonment of the Booster Juice Lease and the plaintiff’s acceptance of that repudiation, plaintiff could not have made the deal it did with FroYo and thus income from the FroYo Lease should be treated as mitigation of plaintiff’s damages.

[56] In my view that fact falls well short of establishing that the FroYo Lease arose out of the consequences of the breach. The FroYo Lease exclusivity clause covered the sale of “self-serve frozen yogurt and other frozen treats, fresh juices, cake and desserts as a principal use”. Fresh juices were just one (and a minor one, at that) of the exclusivity rights included in the FroYo exclusivity clause, which was principally concerned with protecting FroYo’s frozen treats operation. In my view, it would be a stretch to conclude that the fresh juice exclusivity provision was a lynch pin of the FroYo Lease such that the lease only came into being because of defendant’s repudiation of the Booster Juice Lease and plaintiff’s acceptance, thus enabling plaintiff to make the deal it did with FroYo. At best, the FroYo Lease was a collateral transaction.

[57] I therefore conclude that defendant is not entitled to credit for the revenue generated by the FroYo Lease, since it was not an act of mitigation by plaintiff.

Q3: Did plaintiff take reasonable steps to mitigate its damages from date of repudiation to August 2015?

[58] Defendant submits that plaintiff is not entitled to claim for lost rent for the period where it failed to take reasonable steps to mitigate. Plaintiff asserts that, despite acting reasonably, it was unable to acquire a new tenant and therefore defendant remained liable for lost rent from the Booster Juice Premises.

[59] I have previously summarized the principles applicable to the concept of the duty to mitigate. For present purposes, the question becomes whether plaintiff could reasonably have avoided the rental loss that it claims to have suffered once defendant abandoned the Booster Juice Premises and stopped paying rent. Put another way, on the evidence in this case has defendant proved that plaintiff missed an opportunity to mitigate? The onus of proof on this point is on defendant.

[60] These are largely fact driven questions and there is limited evidence bearing on them. Defendant called no evidence of its own to establish that plaintiff missed an opportunity to mitigate by failing to come to terms with a tenant who might have been willing to take over the Booster Juice Premises.

[61] Plaintiff's president, Mr. Elek, has considerable experience in commercial real estate and leasing. He owned and operated the plaza for 17 years and he is familiar with leasing and finding tenants. He testified that his normal practice where a store became vacant was to advertise its availability by placing signage in the window of the store as well as at the roadside, where the sign would be visible to passing traffic. As well, he would place appropriate notices in in an online directory that is used by participants in the shopping plaza leasing community to share information regarding leasing opportunities. He conceded that he did not retain a broker to list the space or advertise in local newspapers, explaining that he found those approaches to be unproductive.

[62] Defendant argues that plaintiff expended very little effort in attempting to re-let the Booster Juice Premises. It submits that there is ample evidence to support the conclusion that plaintiff did not take reasonable steps to try and reduce its claim for damages of lost rent.

[63] I do not accept defendant’s submission. As I have noted, Mr. Elek had operated the plaza for 17 years and he was familiar with what worked and did not work for purposes of finding new tenants. There were other vacant stores in the plaza, apart from the Booster Juice Premises, some of which had been vacant for considerable periods of time. It is logical that plaintiff would have wanted to lease those vacant stores as well, to increase its revenue, yet it followed its usual approach to locating new tenants for those. In the case of the vacant CC Swirls space, this approach worked. In the same fashion, plaintiff managed to find a replacement tenant once FroYo departed those premises. Once again, the approach followed by Mr. Elek worked.

[64] I am therefore not persuaded on the evidence that the steps taken by plaintiff to find a replacement tenant for the Booster Juice Premises were unreasonable. Additionally, defendant has failed to persuade me that plaintiff missed an opportunity to mitigate.

[65] I therefore answer “Yes" to Question 3.

Q4: Did plaintiff take reasonable steps to mitigate its damages after taking steps to sell, from August 2015 to March 2016?

[66] Defendant submits that plaintiff is not entitled to claim for lost rent from August 2015 to March 2016 because it was pursuing a sale of the plaza instead of trying to re-let the Booster Juice Premises. Plaintiff asserts that, despite the sale process, it is entitled to continue to claim for lost rent from August 2015 to March 2016.

[67] The relevant legal principles are those discussed in relation to Question 3. Once again, these are fact driven questions and the evidence bearing on them is limited.

[68] In the summer of 2015, plaintiff retained real estate advisors JLL and CBRE to advise it in relation to the potential sale of the plaza. Mr. Elek testified that he decided to sell when he did, because the retail landscape had begun to favour big retailers, while smaller retailers were falling by the wayside. As he explained it, properties like the plaza had their charm due to a sprinkling of “Mom and Pop” tenants and local chains but it was becoming more and more difficult to attract such tenants. He was also concerned about the prospective loss of a major hardware store tenant, which had only one year left on its lease. All these factors contributed to his decision to sell.

[69] There is no evidence, however, that the decision to sell was specifically motivated by or a consequence of the repudiation of the Booster Juice Lease. Since the listing for sale and the actual sale did not arise from the tenant's breach of lease, they do not constitute efforts to mitigate. This was not a situation which the landlord was unable to continue to own the property without the rental income from the tenant, a situation that may be considered to be an act of mitigation from which a loss may arise. See Canadian Medical Laboratories v. Stabile, 1997 ONCA 1651, [1997] O.J. 684 (at para. 34).

[70] In relation to plaintiff's efforts to find a substitute tenant for the Booster Juice Premises over the period from August 2015 to March 2016, my analysis in relation to Question 3, above, is equally applicable over this period of time. As I have noted, plaintiff successfully located a replacement tenant when FroYo vacated its premises at the end of November 2015. As well, under the CJ Global Agreement of Purchase and Sale, plaintiff had an ongoing obligation to continue to manage the operation of the plaza in the ordinary course of business. On the evidence, I am satisfied that it continued to do so and tried to find new tenants. This is demonstrated by the fact that plaintiff found a new restaurant tenant for the FroYo space. Viewed from another perspective, the defendant has failed to persuade me that the efforts of the plaintiff to mitigate its loss over this period were unreasonable.

[71] I therefore answer “Yes" to Question 4.

Q5: Did the sale of the plaza on March 7, 2016 end plaintiff’s right to claim damages under the lease?

[72] Defendant argues that the sale ended any right to claim damages and plaintiff is only entitled to lost rent up until March 7, 2016. Plaintiff asserts that it is entitled to claim damages arising from the diminution in the sale price arising from the repudiation of the Booster Juice Lease.

[73] In relation to plaintiff's claim for the alleged diminution in the sale price arising from the repudiation of the Booster Juice Lease, I have earlier set out my analysis of the expert testimony in relation to this issue. I explained that plaintiff has failed to persuade me that it lost money on the sale as a result of the vacancy in the Booster Juice Premises. For that reason, I would award plaintiff nothing on that account.

[74] The real question to address is: what was the impact of the sale of the plaza on plaintiff's claim for unpaid rent under the Booster Juice Lease? Is plaintiff's right of recovery limited to unpaid rent through to the date of the sale or is it entitled to an award based on the then-present value of the rent that would have been payable over the remainder of the term? The answer to these questions requires me to revisit the principles applicable to the rights of a landlord upon a tenant’s repudiation of a commercial lease.

[75] Perell J. summarized the applicable principles in 365 Bay New Holdings Ltd. v. McQuillan Life Insurance Agencies Ltd., [2007] O.J. No. 521 (rev’d on other grounds, 2008 ONCA 100) at para. 56:

The damages are to be determined using the normal principles of contract law. The Highways Properties case, however, remains relevant because in that case, Laskin, J. articulated the formula for calculating the loss of the benefit of a lease when a tenant breaches a lease. Laskin, J. said that the measure of the loss was the present value of the unpaid future rent for the unexpired period of the lease less the actual rental value of the premises for that period.

As noted above, these principles were recently reaffirmed by the Court of Appeal in Saramia.

[76] The application of these principles to the present case is straightforward. The basic purpose of contract damages is to place the wronged party in the same economic position it would have been, had the contract not been breached. Independent of the repudiation by Booster Juice, plaintiff decided to sell the plaza. Once the sale of the plaza was completed, plaintiff would have had no right to, or expectation of, income from the Booster Juice Lease. To place plaintiff in the position it would have been but for the breach, merely requires a monetary award equal to the rental income loss up to the date of the sale. There is no need to engage in any predictions about the potential future income stream from the vacant space subsequent to the sale, or to somehow present-value those sums, because plaintiff had no expectation to receive any rent post-sale. Moreover, all these facts occurred prior to the trial, so there is no uncertainty as to what may happen in the future.

[77] I therefore answer “Yes” to Question 5.

Conclusion and Disposition

[78] For the above reasons, I answer the questions posed by the parties as follows:

Q1: Did plaintiff accept Booster Juice’s repudiation of the lease prior to the formal termination on June 30, 2015? Answer: “No”, because there was no unequivocal act by plaintiff inconsistent with its obligations to defendant.

Q2: Did plaintiff mitigate its damages by leasing to Froyo Treats Inc.? Answer: “No”, since the signing of the FroYo Lease was not an act of mitigation.

Q3: Did plaintiff take reasonable steps to mitigate its damages from date of repudiation to August 2015? Answer: “Yes.”

Q4: Did plaintiff take reasonable steps to mitigate its damages after taking steps to sell, from August 2015 to March 2016? Answer: Yes.”

Q5: Did the sale of the plaza on March 7, 2016 end plaintiff’s right to claim damages under the lease? Answer: “Yes.”

[79] Based on the above answers to the issues raised and my finding that plaintiff has failed to persuade me that it suffered damages by way of a reduced purchase price on the sale as a result of the Booster Juice vacancy, plaintiff is entitled to a monetary award for its rental losses to the date of the sale. The sum due is therefore equal to the total amount of rent defendant should have paid pursuant to the terms of the Booster Juice Lease between February 1, 2015 and March 7, 2016 (including defendant’s share of realty taxes and operating costs), less the sum of $17,257.50 on account of the prepaid last month’s rent and the unpaid tenant improvement allowance.

[80] The monthly rent under the Booster Juice Lease (including realty tax and operating expenses, but excluding HST) was $1,737.25. The amount of unpaid rent over the period from February 1, 2015 through March 7, 2016 was 13.226 months X $1,737.25 = $22,976.87. Subtracting the $17,257.50 credit due to defendant, leaves a net sum owing to plaintiff of $5,719.37.

[81] Plaintiff is also entitled to an award of pre-judgment interest on the sum awarded to it. The balance of plaintiff’s claims are dismissed.

Costs

[82] In relation to costs, I encourage the parties to reach agreement. Should they be unable to do so, I direct as follows:

(a) Plaintiff shall serve its Bill of Costs on defendant, accompanied by written submissions, within 30 days of the release of these reasons.

(b) Defendant shall serve its response on plaintiff within 20 days thereafter. I expressly invite defendant to submit the Bill of Costs it would have presented had it been successful at trial.

(c) Plaintiff may, but is not obliged to, serve a reply within 10 days thereafter.

(d) In all cases, the written submissions shall be limited to three double-spaced pages, plus Bills of Costs.

(e) I direct counsel for the plaintiff to collect copies of all parties' submissions and to deliver that package to me in care of Judges' Administration, Room 140 at 361 University Avenue, Toronto, as soon as the final exchange of materials has been completed. An electronic copy of all materials should also be submitted to me by counsel for the plaintiff in care of my Judicial Assistant, Daisy Ng, at Daisy.Ng@ontario.ca. To be clear, no costs submissions should be filed individually: rather, counsel for the plaintiff will assemble a single package for delivery as described above.

[83] In light of the current Covid-19 issues, if the parties require additional time to complete their submissions they may request it by sending an email to that effect to my assistant.

[84] In the event no materials are received by me in accordance with the above directions by June 30, 2020 (or such later date as I may direct in response to a request received pursuant to the preceding paragraph), the issue of costs shall be deemed to have been resolved by the parties.

"D. G. Stinson J."

Stinson J.

(Original signed by D. G. Stinson J. on March 31, 2020) Released: March 31, 2020