Court File and Parties

COURT FILE NO.: 20-72534 DATE: 20200416 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Felton Brushes Limited, Applicant AND: Atlantis Properties Hamilton Inc, Respondent

BEFORE: The Honourable Mr. Justice P. R. Sweeny

COUNSEL: Jameel Madhany, for the Applicant Sam Gebrael, for the Respondent

HEARD: April 9, 2020

Endorsement

Introduction

[1] This application was heard by teleconference on an urgent basis during the COVID-19 Suspension of regular court operations.

[2] The Applicant/Tenant, Felton Brushes Limited, is an industrial brush manufacturer based in Hamilton. The Respondent/Landlord, Atlantis Properties Hamilton Inc., is the owner of the property known municipally as 20 Myler Street, Hamilton, unit F1 (the premises).

Background

[3] After extensive negotiations, the Landlord and Tenant executed a lease on January 3, 2020. The lease included the following terms:

• The permitted and intended use of the premises were a manufacturing facility and general warehouse facility.
• The lease was for a five-year term commencing February 15, 2020;
• Gross rent was $17,599.16 plus HST monthly for the term of the lease;
• The Landlord acknowledged that the first month’s gross rent of $19,877.05 had been paid by Felton for the period covering February 15 to March 14, 2020;
• The Landlord was required to ensure that, on occupancy of the premises by Felton, the premises were free from debris and that all electrical, mechanical and plumbing systems were in good working order (article 19.07 of the lease);
• Any replacement of the HVAC was to be conducted by the Landlord (article 7.03 of the lease);
• Any failure of the Landlord to fulfill the requirements described above would result in a delay of possession (article 2.06 of the lease); and
• Subject to certain conditions (which were met) Felton would have access to the premises between January 1, 2020 and February 14, 2020 for the purpose of fixturing.

[4] There were issues with respect to lighting and heating the premises. These issues were raised by Felton prior to February 15, 2020. The lighting issue was specifically addressed in the lease. The lease provided that the Landlord had until March 31 to ensure all lighting was in place (article 19.09).

[5] The issue of heat is the main point of contention. The Tenant emailed the Landlord about the issue of heat on February 10. The Tenant asserted that the heat was not sufficient to operate the manufacturing facility. The Landlord took the position that there was no requirement to address the heat issue as the lease was “as is”. The Tenant took the position that the Landlord was required to have a heating system which could properly keep the premises to 18 ° C in accordance with Occupational Health and Safety Regulations.

[6] The Tenant removed equipment from the premises. On March 13, a bailiff attended. The Landlord took the position that there was an abandonment of the premises by the Tenant and the Landlord was entitled to acceleration of three month’s rent. The Landlord purported to levy distress on the equipment. The Tenant was unable to remove the equipment.

[7] On March 16, the bailiff posted a notice of distress by impound. This notice asserted “that you have not within (5) days from the date of this seizure, replevied the goods and chattels by paying the amount due, costs and disbursements, therefor, the said goods and chattels shall be appraised by two appraisers, in accordance with the provisions of the Commercial Tenancy Act and shall thereafter be sold …” The notice also clarified that the Landlord changed the locks for the protection of the goods but the rights of the Tenants to the premises continue to be recognized.

[8] The Tenant brought this application before me on an emergency basis. On March 20, 2020, I ordered that the Tenant pay $50,000 into a trust account of the applicant’s counsel, in exchange for the ability to remove the equipment. A timetable was set out for delivery of materials, cross examinations, and the hearing date was set for April 9.

[9] The Tenant submits that the Landlord improperly distrained the Tenant’s goods and chattels. The Tenant accepted the Landlord’s offer to terminate the lease without penalty. There were no rent arrears at the time that the Landlord purported exercise the right of distraint. The Tenant submits that the Landlord seized the Tenant’s assets as retribution for the Tenant exercising its right to terminate the lease as the Landlord refused to comply with its pre-occupancy obligations and after the Landlord made a clear offer to terminate the lease without penalty to the Tenant.

[10] The Landlord submits that the Tenant, having purchased alternate premises, wished to escape its lease obligations by raising issues of heat and lighting to assert a fundamental breach of the lease. In fact, the heat was the responsibility of the Tenant and not the Landlord. In exasperation, the Landlord’s representative had written an email that he was prepared to let the Tenant out of the lease with no penalty immediately. This was not a legal surrender of lease which could be accepted by the Tenant. In any event, the Landlord did not re-enter the premises after the statement was made. The Landlord asserts that the distraint was legal.

Issues

(1) Did the Landlord make a bona fide offer to terminate the lease without penalty which was accepted by the Tenant? (2) Did the Landlord’s failure to provide additional heat and lighting constitute a fundamental breach of the lease? (3) Was the Landlord obligated to provide additional heat and lighting to the premises prior to occupancy? (4) Was the Landlord purported exercise of the right of distress unlawful?

Analysis

(1) Did the Landlord make a bona fide offer to terminate the lease without penalty which was accepted by the tenant?

[11] The email communication between Mr. Ponikvar, the principal of the Tenant, and Mr. Khalifa, the principal of the Landlord, sets out the issues between the parties.

[12] On February 17, 2020 Mr. Ponikvar emailed Mr. Khalifa advising that “the HVAC guy is quoting $50,000 to put heating in there.” He acknowledged “this was big money.” He asserted his interpretation of the lease agreement that the Tenant “will maintain HVAC but it has to be working on day one.”

[13] In his response, Mr. Khalifa described the emails as condescending. With respect to the heat, he wrote that the premises “was rented as is. Adding HVAC is your responsibility not mine.” He indicated he would not spend anything other than on “the lights we have discussed.” He then wrote: "If this warehouse space doesn’t work for you I would be more than happy to let you immediately off the lease with no penalty and we can part ways."

[14] In response, Mr. Ponikvar did not accept the offer to be immediately let off the lease. Instead, he wrote: “email or text is not the best way to communicate.” He asserted “heat to me was a given, like a door. I understand your perspective. But let me assess your thoughts, and our position. For sure we will come up with a solution. Whatever that is. Are you in town this week?

[15] In response, Mr. Khalifa reasserted his position that the heat is the Tenant’s issue not his. There was enough heat.

[16] There is divergence in the evidence over what happened over the next two weeks. The Landlord asserts that things seem to be moving forward. On March 3 or 4 there was a meeting. In that meeting, the Landlord offered to install additional heating but that would be at the cost of the Tenant- to be added to the lease. The Landlord denies there was any acceptance of his prior offer to terminate the lease with no penalty.

[17] The Tenant asserts that in that meeting, the Landlord maintained it would not be responsible for ensuring the heat was in good working order nor would it provide more lighting. The Tenant says that it accepted the offer to terminate the lease with no penalty and part ways.

[18] The Landlord agrees that there was little activity after March 4 on the premises. The Tenant acknowledges that and says that the Tenant was making arrangements to vacate the property. Although there was communication with the Landlord, it had to do with determining the appropriate rent. The Landlord says that the communications were consistent with an ongoing lease.

[19] The Tenant made an offer to purchase another property. That offer was made February 14 and accepted on February 20. The offer contemplated this lease continuing.

[20] The Tenant says it was vacating the property in accordance with the offer of the Landlord to terminate the lease. The Landlord noticed the removal of equipment. The Landlord immediately took steps to prevent the removal of equipment by blocking the doorways.

[21] The Landlord’s offer to terminate the lease was not a bona fide offer. It was an expression of exasperation on the part of the Landlord. I accept that it may have been an attempt to get the Tenant to accept his interpretation of the lease, that is, that the Landlord had no obligation to provide more heat. It is not a real offer to terminate. In any event, the Tenant did not immediately accept any offer. On the Tenant’s evidence it was not until March 4 that the offer was accepted. This is not immediate. The Tenant’s behavior in response to the initial offer is consistent with it not being interpreted as a real offer.

[22] Further, the offer to surrender was not in writing. Article 1.17 of the Lease provides that termination of the lease must be “executed in writing by the party to be bound.” In this case, the Landlord is the party to be bound. The email does not constitute execution in writing by Atlantis of the agreement to terminate the lease. There is no electronic signature on the email in accordance with section 11 of the Electronic Commerce Act, 2000, S.O. 2000, c. 17. The point of the formality is to ensure that the true intention of a party is captured. In the circumstances of this case, an unsigned email is not sufficient.

[23] Therefore, there was no offer which could be accepted to terminate the lease. The lease was not terminated on that basis.

(2) Was the failure to provide Lighting and Heating a Fundamental Breach of the Lease?

[24] A fundamental breach is a breach which deprives the innocent party of substantially the whole benefit of the agreement. In Landlord/Tenant situations it has been described as the premises being uninhabitable (see Framlance Properties Ltd. v. Dahan’s Fashion Optical Ltd., [2000] O.J. No. 1746).

[25] The failure to provide the lighting is not a fundamental breach. The lighting was addressed specifically in the lease and there was a timeline for completion of lighting. There was not even a breach of the lease on the lighting issue.

[26] I am satisfied that the failure to provide heating is also not a fundamental breach of the lease. The Tenant refers to 1723718 Ontario Corp. v. MacLeod, 2010 ONSC 6665 in support of its position that the failure to provide heat is a fundamental breach. In that case, a medical doctor was faced with a situation where the furnace was not working in his office. The Landlord in that case had the obligation to repair and maintain the heating system. The court held that the absence of heat in the winter with a vulnerable patient population amounted to a fundamental breach of the lease. In that case, there was nothing that the tenant could do to remedy the problem.

[27] In this case, although the Landlord has the obligation to provide appropriate heating, the situation could have been remedied by the Tenant purchasing some heaters and suing for damages. In this case, there is no fundamental breach. The premises were not rendered uninhabitable for the term of the lease. Therefore, the lease is still in full force and effect.

(3) Was the Landlord obligated to provide additional light and heat to the premises prior to occupancy?

[28] The Landlord was not required to have all the lighting installed prior to occupancy. This was a matter that was specifically addressed in the lease. Although the Tenant asserted it may have been a mistake in the lease, the lease itself makes clear that the lighting was not obligated to be completed until March 31. Therefore, this was not a preoccupation obligation. However, the landlord is required to provide adequate lighting for the purpose of manufacturing.

[29] With respect to the heating, I find the Landlord was obligated to provide additional heating sufficient to maintain the premises at 18°C. The Landlord had failed to satisfactorily address the heating issue. The heating obligation of the Landlord is clear. The Tenant only has an obligation to maintain what is already in place. The property was intended to use for storage and manufacturing. The heat was necessary for appropriate manufacturing. This was an obligation that should have been met preoccupancy.

[30] In my view, the “as is” condition does not apply to heat. Article 2.05 reads as follows: "The Tenant agrees to accept the Leased Premises in an “as is, where is” condition, except as otherwise provided herein. The Tenant further agrees that, except as may be specifically set out herein, there is no promise, representation or undertaking binding upon the Landlord with respect to any alteration, remodeling or decoration of the leased premises or with respect to the installation of equipment or fixtures in the Leased Premises, or to prepare them or make them suitable for the Tenant’s occupancy and use."

[31] This provision really addresses the interior of the premises and equipment and fixtures that are in the premises and any obligation to make the premises suitable for the Tenant. The HVAC requirements are addressed separately in the lease.

[32] Clause 2.06 deals with delay in possession. It provides that, if there is a delay in possession as a result of the fault of the Landlord, the commencement date of the lease will be postponed for the duration of the delay. Given that adequate heating was not installed, there was a delay in taking possession as a result of the fault of the Landlord and the term is postponed for the same number of days attended to later in taking possession of the leased premises. The term is postponed until the heating is adequate.

(4) Was the Landlord’s distraint unlawful?

[33] I have held that the failure to provide heat is covered by the delay in possession clause. Therefore, the rent was not in fact due. The removal of the equipment is not necessarily abandonment of the premises. As I understand the evidence, there was some discussion of the premises being used as a warehouse alone. There were no arrears of rent so the distraint was unlawful.

[34] I find that the Landlord did not seek forfeiture of the lease. The notices were explicit with respect to the purpose of the locks to preserve the distrained property. The lease is in full force and effect.

Damages for Unlawful Distraint

[35] The Tenant has requested a trial of an issue to determine the damages which were incurred as a result of the unlawful distraint. I raised with counsel on the hearing whether I should remain seized as in Tosomba v. Base General Contracting Ltd., 2012 ONSC 1839, wherein B.P. O’Marra J. directed the trial of an issue related to damages to proceed before him. Counsel were content that I determine the issue of damages, if any.

[36] The damages arise from the distraint only, and not from the delay in the commencement of the lease as the lease provides in article 2.06 that the tenant acknowledges and agrees that such postponement [the delay in commencement date] shall be full settlement for any claims it might have against the Landlord for such delay.

[37] In the circumstances, I order that the trial of the issue of damages may proceed before me but not until after the COVID-19 Suspension is completely lifted. If the parties are unable to resolve the issue, counsel are to contact the Hamilton trial co-ordinator after September 14 to obtain a hearing date. If the parties are able to resolve this issue, the trial coordinator should be advised of the settlement.

Costs

[38] I have received costs outlines from both parties. However, I have not heard any submissions on offers to settle. If the parties are still unable to agree on costs, I will accept written submissions limited to 4 pages plus any offers to settle. As a result of the COVID-19 situation, the submissions are to be delivered to the generic email address for the Hamilton Court with “COSTS SUBMISSIONS” in the subject line and the short title of proceedings, file number and contact information in the body. The applicant shall have until April 20. The respondent shall have until April 24 to respond. If submissions are not received by April 21, the costs will be deemed settled.

Sweeny J. Date: April 16, 2020