Cogan v. Stella Restaurant Inc., 2020 ONSC 199

Court File and Parties

COURT FILE NO.: 17-74179 DATE: 2020/02/03 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: J. ARTHUR COGAN, Plaintiff AND STELLA RESTAURANT INC., TODD BROWN, DAVID MORPHY, STELLA BREW INC., SAM FIRESTONE and PHIL FIRESTONE, Defendants

BEFORE: Justice Marc R. Labrosse

COUNSEL: William V. Sasso, Counsel for the Plaintiff Patricia Lawson, Counsel, for the Defendants, Todd Brown, David Morphy and Stella Brew Inc.

HEARD: October 8, 2019

Endorsement

Overview

1The Plaintiff, Arthur Cogan, moves for summary judgment in his claim for lost rental revenue against the Defendants Todd Brown, David Morphy and Stella Brew Inc (“these Defendants”). He states that these Defendants breached the commercial lease for the premises at 81 Clarence Street in the City of Ottawa by failing to pay rent to term and by failing to proceed with the timely reinstatement of a demising wall between the premises at 81A and 81 Clarence Street.

2These Defendants state that the Plaintiff breached an oral agreement allowing these Defendants to assign or sublease the leased premises to a third party and that the Plaintiff failed to act as a reasonable landlord concerning the sublease and those actions had the effect of terminating the lease six months before the end of the term.

3The parties appear to agree that this motion is a suitable venue to finally dispose of the issues before the Court and that a trial is not warranted. The Plaintiff seeks summary judgment in the amount of $53,145.18 as of July 31, 2019. These Defendants seek the dismissal of the summary judgment motion as well as a judgment in favour of these Defendants dismissing the action and allowing their counterclaim in the amount $10,088.70.

4For the following reasons, I agree with the Plaintiff that there is no genuine issue requiring a trial with respect to the Plaintiff’s claim. The Plaintiff is entitled to damages for lost rent but the period of the award should be reduced to account for post-termination actions of the parties, the wording of the Lease and the Plaintiff’s failure to properly mitigate his damages. In addition, I also allow these Defendants’ counterclaim for overpayment of rent. The Plaintiff has admitted to the $9,853.85 but that amount is also subject to interest.

Background Facts

5In December of 2005, Stella Restaurant Inc. (“Stella”) was leasing the premises at 81A Clarence Street, adjacent and to the west of the premises at 81 Clarence Street owned by the Plaintiff (the “Leased Premises”). Stella operated a restaurant on the ground floor of 81A Clarence Street.

6Stella wished to expand the restaurant into the Leased Premises. To accomplish this, Stella had to remove the common exterior wall (“Party Wall”) between 81A and 81 Clarence Street. The Party Wall was located wholly within the Leased Premises.

7On December 1, 2005, the Plaintiff entered into a lease with Stella for the rental of the Leased Premises. Phil and Sam Finestone covenanted to be jointly and severally liable with Stella for the reinstatement of the Party Wall upon the expiration or earlier termination of the Lease. After signing the Lease, Stella hired John Bassi and his company to remove the Party Wall. Rob Nevin was hired as the engineer to supervise this removal.

8By way of Lease Amending and Renewal Agreement dated January 25, 2014, the Lease was renewed for the period of January 1, 2013 to December 31, 2017.

9On June 10, 2014, by way of Assignment, Assumption and Amended Lease, Stella, Sam Firestone and Phil Firestone assigned the Lease and Amended Lease to Stella Brew Inc. with Todd Brown and David Morphy as Guarantors.

10The Lease, Amended Lease and Assignment included the following relevant terms:

a. The Firestones personally guaranteed reconstruction of the Party Wall; b. Todd Brown and David Morphy jointly and severally agreed to assume all of the obligations of Stella Brew, including payment of rent and the obligation to reconstruct the Party Wall; c. Mr. Brown and Mr. Morphy agreed to assume all of the obligations of the Firestones as if they were the original guarantors; d. Pursuant to s. 3.03 of the Lease, Stella Brew had the right to renew the Lease, which otherwise would have ended on December 31, 2017: “not less than nine (9) months and not more than twelve (12) months prior to the end of the Term or applicable Renewal Term.”

11The Lease also provided that Stella Brew and the guarantors had an obligation under s. 7.07(a) of the Lease:

upon the expiration or earlier termination of this Lease, it shall immediately thereafter commence to restore the Party Wall… The Tenant covenants and agrees to proceed with diligence to complete such repairs as soon as possible after such expiration or earlier termination. [Emphasis added]

12The Plaintiff was assisted by his brother Jerry Cogan in the leasing and management of the Leased Premises. In December 2016, a representative of Stella Brew contacted Jerry to discuss a possible subtenant for the Leased Premises who wished to operate a Harley Davidson accessories store and open its business before July 1, 2017.

13Although there is some dispute as to the exact communications that took place between the parties, it is clear that by the end of March 2017, the Plaintiff deemed Lynn Norton or his company (“Lynn Norton”) to be a suitable tenant and that Jerry Cogan understood that the parties had to make the sublet happen to allow Lynn Norton to open its business in time.

14These Defendants state that by March 2017, there was an oral agreement for the transfer of the Lease to Lynn Norton, that they relied on the Plaintiff to act in a reasonable manner, to deal in good faith and to proceed to finalize the assignment or sublease to Lynn Norton so that the Harley Davidson store could open by July 1, 2017.

15While Todd Brown believed that there was an oral agreement in place to transfer the Lease to Lynn Norton, Stella Brew did not exercise the option to renew the Lease at 81 Clarence Street by March 31, 2017. That renewal date was later extended to September 2017. Thus, in the absence of an agreement to the contrary, the term of the Lease would end on December 31, 2017 and Lynn Norton needed to arrange for a Lease extension with the Plaintiff beyond that date.

16The evidence from both parties during the period from April 1, 2017 to July 31, 2017 includes numerous communications that establish that the parties worked at different levels to complete an agreement for the assignment or sublease of the Leased Premises. Lynn Norton retained counsel who worked on a draft sublease agreement. The Plaintiff’s standard form lease was sent to Lynn Norton by the Plaintiff for review but it was not personalized to reflect the terms of these specific circumstances. There was also an acknowledgement from Todd Brown’s lawyer that the engineer had been retained for the reconstruction of the Party Wall but that the work had not begun given the absence of a signed deal. Mr. Brown’s lawyer also stated in correspondence that Mr. Brown was in the process of completing the Party Wall reinstatement.

17Effectively, there are bits and pieces of communications and some draft agreements that demonstrate that the parties were working on putting a deal together for the sublease of the Leased Premises until December 31, 2017 and then for a new 5-year lease between Lynn Norton and the Plaintiff.

18In or about June 2017, Todd Brown closed off the area of the Party Wall with a partition wall. There is no dispute that this did not comply with these Defendants’ obligations to reconstruct the Party Wall. There is also no opinion evidence that this partition wall would or would not have been sufficient to allow for a new tenant at 81 Clarence Street to occupy the Leased Premises, even on a temporary basis pending the reinstatement of the Party Wall. It was the Plaintiff’s evidence that the premises at 81 Clarence Street could not be rented to a third party until the Party Wall was reconstructed. No other witness opined on this issue.

19By July 1, 2017, when Stella Brew stopped paying rent, the reconstruction of the Party Wall had not commenced, there was no signed sublease or Lease extension and Stella Brew continued to be in possession of the Leased Premises despite the partition wall.

20In October 2017, the Plaintiff and Lynn Norton exchanged communications about the possibility of a 2-year lease, but no agreement was reached. A draft lease had been prepared by the Plaintiff with Lynn Norton dated December 2017 that provided for base rent at $70.00 per square foot. That draft lease was never signed.

21The Plaintiff terminated the Lease on September 13, 2017.

22These Defendants’ counsel wrote to the Plaintiff on September 26, 2017 to confirm the termination and that Todd Brown was prepared to fund the cost of the Party Wall reinstatement.

23The Plaintiff’s counsel provided drawings for the Party Wall in a letter dated October 26, 2017. There was delay by the Plaintiff to provide the plans for the Party Wall dated September 8, 2017 that showed a brick-block-brick construction. The building permit for the reconstruction of the Party Wall was obtained on December 8, 2017.

24The evidence demonstrates that the Plaintiff wanted the work done by Bassi Construction and obtained its own quote from Bassi for the reconstruction of the Party Wall. The plans for the reconstruction of the Party Wall were accepted by the Plaintiff on November 22, 2017.

25The new tenant signed a lease commencing April 1, 2018 that provided for base rent of $55.00 per square foot. Letters of compliance for the Party Wall were signed on May 18, 2018 and May 23, 2018.

26The parties have agreed that these Defendants were overcharged for rent. The Plaintiff states that the overpaid amount is $9,853.85. These Defendants state that interest must be added and that the amount should be $10,088.70 plus interest to the date of the award and that Stella Brew is entitled to set that amount off against any balance owing to the Plaintiff.

Issues

27The issues to be decided are summarized as follows:

i. Are there issues requiring a trial with respect to the Plaintiff’s claim that these Defendants must pay rent from July 1, 2017 to March 31, 2018? ii. Are there issues requiring a trial with respect to these Defendants’ entitlement to damages for the overpayment of rent in the amount of $10,088.70?

The Law

28Rule 20.04(2)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”), provides that summary judgment shall be granted where there is no genuine issue requiring a trial. In determining whether there is a genuine issue requiring a trial, r. 20.04(2.1) grants certain fact‑finding powers and r. 20.04(2.2) allows for a mini‑trial to be held to receive oral evidence from one or more parties.

29On a motion for summary judgment, the Court must first determine if there is a genuine issue requiring a trial based only on the evidence before the Court. If there appears to be a genuine issue requiring a trial, the Court should then determine if the need for a trial can be avoided by using the fact‑finding powers under r.20.04(2.1) and 20.04(2.2) of the Rules.

30The leading case on the use of summary judgment is Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 49, where the Supreme Court of Canada stated:

There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

31As set out in Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, at para. 33, “if the court cannot grant judgment on the motion, the court should decide those issues that can be decided, … identify the additional steps that will be required to complete the record… seize itself of the further steps required to bring the matter to a conclusion.”

32Also relevant to these proceedings is s. 1 of the Statute of Frauds, R.S.O. 1990, c. S.19, (“Statute of Fraud”), that requires that any agreement creating an interest in land for more than three years be in writing. Furthermore, a writing is necessary to transfer an interest in land as per s. 2 of the Statute of Frauds.

33And finally, these Defendants rely on the fact that a landlord is not entitled to require amendments to a lease that will provide it with more advantageous terms: see Royal Bank of Canada v. Oxford Medical Imaging Inc., 2019 ONSC 1020, at para. 49.

Analysis

34When considering the Plaintiff’s claim for rental arrears of three months plus accelerated rent of three months and damages until March 31, 2018, I conclude that there are no genuine issues requiring a trial and that all the evidence has been provided to allow the Court to make the following findings:

a. There was no binding oral agreement for the assignment of the remaining term of the Lease to Lynn Norton. The communications between Todd Brown, Jerry Cogan and/or Arthur Cogan, Lynn Norton and their respective solicitors were insufficient to create a binding agreement between any of the parties. According to its terms, any amendment to the Lease would have had to be in writing as per s. 19.06 of the Lease. There is no merit to the suggestion that the initial discussions in March 2017 would have somehow precluded the Plaintiff from requiring that the Party Wall be reinstated. Those initial discussions provided some framework for what the Plaintiff would be seeking on a sublet/assignment but the clear obligations flowing from the Lease to reconstruct the Party Wall were certainly not removed as a result of those discussions. It was reasonable for the Plaintiff to have required the reinstatement of the Party Wall once the Leased Premises were to be occupied by a third party in the absence of clear indication that it was not necessary. On this point, the evidence is unclear either way. The Plaintiff has stated that an occupancy permit could not be obtained without the Party Wall being reconstructed but there is no opinion evidence on this question or even correspondence from the municipal authority. At the same time, these Defendants have not presented evidence to allow for a finding that the Leased Premises were available for lease in the absence of the Party Wall. b. The alleged oral agreements between the Plaintiff and these Defendants to amend the Lease or create a new lease with Lynn Norton would not have been compliant with the Statute of Frauds. c. It is clear from the evidence that these Defendants did not properly pursue the terms of the sublease with Lynn Norton and did not arrive at a meeting of the minds with Lynn Norton for the terms of the sublease. The correspondence between counsel for the parties in April and May of 2017 demonstrates that these Defendants did not present the Plaintiff with reasonably acceptable terms for a sublease that were to a minimum agreeable to these Defendants and Lynn Norton. The correspondence between solicitors shows that the parties needed to reach an agreement on all fronts before these Defendants would proceed with the reconstruction of the Party Wall. d. Except as further detailed on the issue of mitigation, these Defendants have failed to demonstrate that the Plaintiff acted unreasonably in the negotiations for the sublease or in negotiating directly with Lynn Norton for a Lease extension. These Defendants were fully aware of those discussions and they did not act in a proactive manner to ensure that suitable terms for the sublease were brought to the Plaintiff or to follow up with the Plaintiff and Lynn Norton to see if the terms of a new lease were agreeable. It was not sufficient for these Defendants to simply introduce Lynn Norton to the Plaintiff and then wash their hands of the rest. e. There is limited evidence as to proactive steps taken by either the Plaintiff or these Defendants to proceed with the construction of the Party Wall. As of July 1, 2017, these Defendants stopped paying rent but the evidence does not demonstrate they took reasonable steps to respect the terms of the Lease and proceed with the restoration of the Party Wall with diligence. These Defendants knew that they were not continuing to operate in the Leased Premises after June 30, 2017, as they erected the partition wall. As of that date, they knew that the Party Wall would be required and seem to have waited in the hope of getting out of their obligation or delaying it. I conclude that these Defendants failed to comply with the terms of s. 7.07(a) of the Lease in that they did not immediately commence the restoration process and did not pursue it with diligence. f. While there is no doubt that the obligation to proceed with diligence lied firstly at the feet of these Defendants, I am of the view that as part of the Plaintiff’s obligation to mitigate his damages, he also had an obligation to take steps to get the process for the reconstruction of the Party Wall to move along as quickly as possible to allow for a new tenant to lease the Leased Premises. Specifically, I note the following:

1. The Plaintiff did not take steps to terminate the lease for almost 2.5 months and did not actively market the property in a timely manner;
2. The Plaintiff had plans for the Party Wall with the September 8, 2017 quote from Bassi but did not send those plans to these Defendants until October 26, 2017;
3. There is an absence of evidence that the Plaintiff was making efforts to move the restoration forward in a timely manner. There are few communications between the Plaintiff and these Defendants to show that the Plaintiff was conscious of his obligation to mitigate and get the Leased Premises ready for occupation by a new tenant.
4. While it would not have been expected at the outset, the Plaintiff cannot sit back and simply wait through a tenant’s delays and not arrange for the premises to be ready for a new tenant and still expect to be fully compensated for lost rent. It would not have been unreasonable for the Plaintiff to have taken on the reconstruction of the Party Wall and then seek reimbursement from these Defendants. This would have allowed for the Leased Premises to be rented by a new tenant much earlier, but I am aware that this imposes on the Plaintiff the obligation to shoulder the cost in the hope of being reimbursed.
5. Finally, the wording of s. 7.07(a) of the Lease does not entitle the Plaintiff to compensation for lost rent during the reconstruction period. The wording contemplates that the restoration will be done as soon as possible after the expiration or earlier termination of the Lease and that the tenant will proceed with diligence. As such, the Lease contemplates that there would be a period of time when the Party Wall would be reconstructed with diligence without a provision for the Plaintiff to be compensated for lost rent during the reconstruction. As this issue was not addressed at the motion, the parties were invited to make additional written submissions on the reconstruction period and if rent was payable during that period. In the end, neither party persuaded me with their submissions. I conclude that there was no rent payable during the Party Wall reconstruction period provided that these Defendants proceed with diligence. Clearly, they did not. Steps for the planning of the reconstruction began in April-May 2017 but were not pursued by these Defendants. Both parties contributed to the delay in finalizing the construction plans leading to the issuance of the building permit on December 8, 2017 but most of the delay is attributable to these Defendants.

35These findings are clear on the record and do not require a trial to explore any further evidence. While each party criticized the other for not presenting evidence from Lynn Norton or counsel for these Defendants, that evidence would not change the outcome. The bottom line is that there was no meeting of the minds between the Plaintiff, these Defendants and Lynn Norton for the sublease of the Leased Premises or for a Lease extension beyond December 31, 2017. I specifically find that the Plaintiff acted reasonably in stating that Lynn Norton was a suitable tenant, in setting out the requirements for the sublease and that these could evolve beyond the initial discussions in March-April of 2017. Although the evidence of the new lease negotiations is limited, I cannot find that the Plaintiff acted unreasonably in negotiating the terms of a new lease with Lynn Norton. The Plaintiff was entitled to seek market rent for the Leased Premises as he could have done had these Defendants exercised their right of renewal. Further, the Plaintiff also agreed to extend the renewal period of the Lease to September 2017 in order to facilitate a deal being concluded with Lynn Norton. I conclude that the evidence does not support a finding that the Plaintiff was seeking more advantageous terms such as in Royal Bank of Canada v. Oxford Medical Imaging Inc.

36However, the Plaintiff is not entitled to be compensated for the lost rent for the entire period from July 1, 2017 to March 31, 2018. As stated above, the Plaintiff did not sufficiently push for the reconstruction of the Party Wall to be completed promptly, failed to actively market the property for some time and the Lease contemplates a period where the tenant may reconstruct if it proceeds with diligence without an obligation to pay rent during this period. However, it cannot be ignored that the Plaintiff’s failure to market the Leased Premises was caused in large part by these Defendants’ breach of s. 7.07(a) of the Lease. In the end, these Defendants failed to pursue the reconstruction of the Party Wall with diligence following their default and clear intention to vacate the Leased Premises and the Plaintiff failed properly mitigate his damages.

37When balancing all these factors, I conclude that the obligation of these Defendants to pay rent for the Leased Premises should be limited to five month’s rent. This leaves four months for these Defendants to have completed the reconstruction of the Party Wall had they acted with diligence. I have also considered that the Landlord cannot be compensated for the entire period claimed as a result of his failure to mitigate his damages and the fact that rent was not payable during the reasonable reconstruction period. I will remain seized of the actual calculation of lost rent, but the applicable figures appear to be $3,624.00 per month in basic rent plus HST, plus $1,100.00 per month for taxes. I agree with these Defendants that the partition wall was raised as of June 30, 2017 and that these Defendants should not pay electrical or plumbing after that date, but they are still liable for taxes. In written submissions following the motion, these Defendants sought additional reductions to occupancy costs. These items were not properly pursued at the motion when these Defendants only sought $10,088.70. Those other claims were not before the Court.

38Subject to necessary corrections, the Plaintiff’s damages are set at $5,195.12 per month for five months for a total of $25,975.60 plus applicable interest.

39With respect to these Defendants’ claim for overpayment of rent, the Plaintiff acknowledged the amount of $9,853.85 and there is no issue requiring a trial on this point. I agree with these Defendants that they are entitled to interest. If the parties are unable to agree on the appropriate amount, they may write to me.

Costs

40The parties are encouraged to resolve the issue of costs. If they are unable to do so, the Plaintiff will have 14 days from the day of this Endorsement to submit costs submissions. These Defendants will have 14 days thereafter to respond. Each written costs submission will be no longer than three pages in length, excluding the attachments.