Court File and Parties

COURT FILE NO.: CV-19-00630311-00CL DATE: 20200123 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: Baketree Inc. Plaintiff (Moving Party) – and – 315-345 Flint Road Inc. Defendant (Responding Party)

COUNSEL: Eli D. Mogil, for the Plaintiff Ellad Gersh, for the Defendant

HEARD: January 21, 2020

BEFORE: C. Gilmore, J.

Overview

[1] This is the Plaintiff’s (“Baketree”) motion for an order for relief from forfeiture preventing the Defendant (“Flint”) from seizing property at 315 Flint Avenue (“the Leased Premises”), Toronto and removing Baketree as a tenant. Baketree seeks an order requiring Flint to comply with Baketree’s agreement with the original landlord by providing Baketree with a reasonable extension to the lease agreement.

[2] It is common ground that Baketree wants to remain in the Leased Premises until October 2020 as it needs that much time to find new premises, renovate them and move all of their equipment. Flint opposes this. Out of courtesy, it will allow Baketree to stay until the end of February 2020. It does not want Baketree to continue as a tenant for various reasons which will be set out below. Baketree’s response is that forcing them to leave at the end of February 2020 will mean that their 100 employees will be without a job and their bakery business will lose most if not all of its customers.

Background Facts

[3] Baketree entered into its first lease with Harry Rich, 547649 Ontario Ltd. and 547238 Ontario Ltd. (collectively the “Original Landlord”) with respect to the Leased Premises in 1999. Baketree entered into three five year-lease extensions with the Original Landlord on May 25, 2004, May 25, 2009 and July 25, 2014. Despite the 2009 lease stipulating that it was Baketree’s final right to extend, a further five-year lease until 2014 was entered into by the Original Landlord and Baketree. The expiry date for the 2014 lease was August 31, 2019. Baketree was paying $5.50 per square foot in rent.

[4] Baketree is a successful commercial bakery which has operated out of the Leased Premises since it started in business in 1999. Baketree employs 100 people and operates 24 hours a day in order to fulfil its orders with its large supermarket clients throughout North America.

[5] When Harry Rich died, he transferred his interest in the Leased Premises to his sons Gary and Garnet Rich (“Gary”, “Garnet” or “the Rich brothers”). Baketree dealt with Gary and Garnet as its Landlord from 2013 until August 29, 2019.

[6] Some key dates with respect to the chronology of this matter are set out below:

a. Traditionally, Baketree began negotiations for an extension of its lease in the spring of Year Five. However, as early as February 2017 Baketree approached Garnet requesting a lease extension and a request for more space for expansion. Garnet asked some questions in response about how much space Baketree needed and the requested length of the lease extension. Gary denied that any discussions of this nature took place in 2017. b. Between September and December 2018, the Rich brothers entered into negotiations to sell the Leased Premises and in February 2019 the Rich brothers entered into an Agreement of Purchase and Sale. The Rich brothers did not tell Baketree about these negotiations or possible sale because it was not yet firm. c. On March 13, 2019 Garnet sent an email to Mr. Eric Shtapler (“Eric”, the principal of Baketree) indicating he had asked his brother Gary to send Eric a proposal for a 5+5 lease option and indicated he was “excited” to hear that Baketree was staying on. d. On May 23, 2019 Eric sent Gary a proposal for lease rates for the next five years starting with $4.88 per square foot and increasing to $5.93 in Year 5. Gary did not respond to Eric. Instead, he forwarded this proposal to Flint giving his view of what he would charge if the sale were not taking place; $5.50 in Year 1 and increasing to $6.25 in Year 5. The Original Landlord responded to Eric on May 28, 2019 advising that they were not prepared to enter into lease negotiations until certain sprinkler repairs were completed. Those repairs were completed in July 2019. e. Eric’s evidence was that he discussed the renewal of the Leased Premises many times with the Rich brothers during the spring and summer of 2019 and made his wish to renew very clear. Gary denies that any such conversations took place. f. On July 7, 2019 Gary wrote to Eric advising that the building would be sold in 60 days and that the lease would be negotiated with the new owner, or with the new owner and Gary jointly. Eric was advised he would be contacted within the next few weeks or after closing. g. Eric signed an Estoppel Certificate on behalf of Baketree in July 2019. His evidence was that he was told by Gary that the document was needed to complete the sale and that if he signed it, Gary would return the following week to complete the lease negotiations. This was not denied by Gary in his affidavit sworn November 18, 2019. The Estoppel Certificate set out (among other provisions) as follows: 4. The term of the Lease sill expire on the 31st day of August 2019, and the Lease contains no further renewal options. The Tenant has exercised old renewal options. The Tenant has no option to terminate the Lease prior to the date of expiration of the term. The Tenant has advised that it wishes to further extend its tenancy after its current Lease expires. h. The purchase agreement closed on August 29, 2019. The Rich brothers had no discussions about this with Baketree. Baketree did not take steps to renew its lease. i. On September 9, 2019 Flint made its first contact with Baketree. By way of an email from Mr. Nathan Bierbrier (“Nathan”), President of Shelborne Capital (“Shelborne”). Nathan advised that Shelborne would be managing the Leased Premises on behalf of the new owners. He asked Eric to contact him about a new lease term. Nathan sent an email to Eric on September 13, 2019 requesting rent starting at $8.50 per square foot in Year 1 and increasing to $9.75 per square foot in Year 5. According to Eric, Nathan was uninterested in reviewing his market comparables and made it clear that if the new lease rates were not accepted, then Baketree would need to vacate. Given the dispute in this matter, Baketree has been paying rent of $8.25 per square foot since September 1, 2019. j. As no new lease had been entered into, representatives of Flint entered the Leased Premises on the evening of October 31, 2019 and advised the staff working the night shift that a gas leak had occurred. Employees of Baketree left immediately. Subsequently, Flint admitted that in fact no gas leak had occurred. They told the employees this so they would vacate, and Flint could lock out Baketree. k. On November 1, 2019 Baketree brought an emergency motion for an injunction. Flint was required to re-open the Leased Premises to Baketree to allow it to continue its operations.

Baketree’s Arguments

[7] Baketree seeks a prohibitory injunction preventing Flint from acting on their eviction notice. They are not seeking to renew the lease or extend it. In requesting a prohibitory as opposed to a mandatory injunction, Baketree argues that the threshold is lower. That is, the test is based on a “real and frivolous” threshold as opposed to the threshold of “high probability of success” in mandatory injunctions.

[8] Baketree argues that its case against Flint is not frivolous. It relied on representations from the Original Landlord that their lease would be renewed, and the terms negotiated in good faith. Baketree relies on email exchanges from the summer of 2019 in which the Original Landlord discussed a 5+5 lease option and representations that if Baketree signed the Estoppel Certificate, lease negotiations would follow.

[9] Baketree relied on those representations with respect to both the Leased Premises and by leasing a neighbouring facility at 301 Flint in order to expand its operations.

[10] Baketree’s expectations reflected the conduct of the tenancy relationship over the previous twenty years. Further, while Flint was aware of the imminent expiration of the lease, it instructed the Original Landlord not to renew it. Flint remained silent as to its intentions.

[11] Baketree takes the position that as per Quality Pallets and Recycling Inc. v. Canadian Pacific Railway Company, 2007 ONSC 1567 the injunction should be granted based on the Original Landlord’s promise and representations to renew.

[12] In terms of irreparable harm, Baketree submits that there is a risk that they may be put out of business. Such harm would flow from the loss of contracts, the likely termination of the business and the dismissal of its 100 employees.

[13] Baketree’s operations run 24 hours a day. It has significant on-site infrastructure including industrial machinery, freezers, coolers, ovens and silos. While Baketree continues to search for a new location, that location must be modified in advance of any move. Baketree estimates that such a move would take up to seven months to complete. If Baketree cannot bake 24 hours a day, it cannot fulfill its contracts and the business would shut down.

[14] In terms of the balance of convenience, Baketree argues that it is paying 150% of its old rent. This is much more than the Original Landlord said it wanted in its email of May 2019. Baketree is currently paying $8.25 per square foot. Flint wanted $8.50 per square foot. Based on the 14,000 square foot facility, Flint would lose $3,500 per year. According to Baketree this is a financial “blip” for Flint but catastrophic for Baketree if they are required to vacate by the end of February 2020.

Flint’s Arguments

[15] Flint argues that it does not matter if the court uses the test for either a mandatory or a prohibitive injunction. The case fails the first prong of the test either way.

[16] Baketree confirmed in the Estoppel Certificate the fact that it had no right to renew after the expiration of the lease. There are no rights that arise apart from the lease and the Estoppel Certificate is binding.

[17] Any misfortune experienced by Baketree is of its own doing. First, Baketree failed to proactively ensure that the lease was extended. Second, Baketree does not come to court with clean hands. It failed to make full disclosure at the ex-parte motion and failed to raise any contractual defences such as the Estoppel Certificate and the Entire Agreement clause in the lease. Finally, Eric’s behaviour towards Nathan was inexcusable. He is a bully who threw tantrums and is undeserving of the relief sought. Nathan has no interest in having such a tenant at his premises.

[18] Flint is prepared to allow Baketree to remain until February 29, 2020. Baketree has been overholding since September 1, 2019 (already over five months). Flint is being generous in allowing such an extension.

[19] Flint relies on the Entire Agreement clause and the Limitation of Liability clause in the Lease. The Entire Agreement clause is clear that no rights arise in favour of Baketree outside of the lease. Further, it is a complete defence to any verbal agreement or promise. The Limited Liability clause sets out that anything that Gary may have told Eric is not binding on him because he is no longer the owner. The Estoppel Certificate also confirms that Baketree knew that it had no further renewal options.

[20] Flint argues that if there is no right of renewal in the lease, the court cannot create new rights. All of the cases cited by Baketree can be distinguished on the basis that none of them were situations in which there was an Estoppel Certificate, Entire Agreement clauses or Limited Liability clauses. These contractual defences must be given effect.

[21] Baketree is the author of its own misfortune. After signing the Estoppel Certificate, Eric took no steps to try to negotiate with either the old or new landlord. He never made any counter offers after meeting with Nathan on September 13, 2019.

Analysis

[22] I find that Baketree has met the test for an injunction. The injunction would be limited to the necessary time for it to move. Based on the evidence, it is clear that Baketree’s occupancy of the Leased Premises must come to end.

[23] Dealing first with Flint’s contractual defences, I agree with counsel for Baketree that it is not relying on the lease or seeking to extend it. It is seeking to prohibit Flint from acting on its eviction notice. Any reference to the Entire Agreement clause or the Limited Liability clause does not apply. It would be different if Baketree was arguing that it was relying on the Original Landlord’s promises to extend and sought the 5+5 arrangement originally proffered. It is not. It is simply seeking a short-term arrangement to allow it to move in order to prevent financial devastation to its business.

[24] The same argument applies to the Estoppel Certificate. Interestingly, the Estoppel Certificate recites that Baketree wants to extend. However, I agree with Flint that this wish is insufficient to create any rights with respect a lease extension for Baketree.

[25] As such, I find that Baketree is seeking a prohibitive injunction. As per the analysis in Quality Pallets and Recycling Inc. v. Canadian Pacific Railway Company, 2007 ONSC 1567, I find that the threshold is low and the court is not required to enter into a detailed review of the merits so long as the claim is real and not frivolous (para 14). In Quality Pallets there was no right to renew, and the landlord told the tenant that it would renew so long its lease payments were current as of the expiry date. CPR then gave the tenant one month’s notice to vacate notwithstanding that the lease payments were current. Similar to this case, the tenant required 10 to 12 months to transition its manufacturing equipment to a new location.

[26] While there is a dispute as to what exactly was promised to Baketree in terms of renewal, that is not of consequence for this motion. Baketree is not asking for renewal. It seeks an order to restrain Flint from eviction until it can reasonably move out. The issue of the alleged promises or assurances that were relied upon by Baketree and what damages may flow from that, can be determined at trial.

[27] As for irreparable harm, it is clear that Baketree needs time to move its business. Flint’s insistence that it leave almost immediately would undoubtedly result in a failure of the business and dismissal of its employees. As per Church & Dwight Ltd./Ltée v. Sifto Canada Inc., [1994] O.J. No. 2139 (Ont. Gen. Div.), irreparable harm includes the loss of actual and potential customers and goodwill and the diminution of the plaintiff’s reputation.

[28] The case law is clear that in determining irreparable harm, the court must consider whether the harm can be quantified in damages. I find that in this case it cannot given the possibility that Baketree will be put out of business.

[29] Arguments were raised about each party’s behaviour and whether Baketree “deserved” to stay on due to Eric’s alleged bullying behaviour and his admission to making highly inappropriate comments. Baketree raises the gas leak ruse and the upset caused to its employees in having to vacate for a false emergency. I find that both parties behaved badly, but that should not be the reason for the possible failure of a viable business which employs 100 people.

[30] As for the balance of convenience, Flint should be receiving market rent. Currently, it is experiencing a small loss due to the difference between the rent volunteered by Baketree and what Flint was requesting for Year One in a new lease. That can be rectified with the order resulting from this motion.

[31] The test for a prohibitive injunction is met. Baketree should be permitted to stay for the sole purpose of allowing it time to move its business within a reasonable period of time.

Orders and Costs

[32] Given all of the above, I make the following orders:

a. The Defendant is restrained from acting on its eviction notice. b. The Plaintiff shall completely vacate the Leased Premises as soon as possible and in any event by October 31, 2020. c. The Plaintiff shall forthwith pay the Defendant a lump sum representing the difference between rent of $8.25 and $8.50 per square foot, plus HST, for the period of September 1, 2019 to January 1, 2020. d. Commencing February 1, 2020, the Plaintiff shall pay rent based on $8.50 per square foot plus HST until August 1, 2020 or the date they vacate the Leased Premises if it is before August 1, 2020. e. In the event the Plaintiff is still occupying the Leased Premises during September and October 2020, it shall pay the Defendant rent of $9.00 per square foot, plus HST, for those two months. f. If the Plaintiff defaults on its obligation to pay rent at the rate set out above, the Defendant is entitled to immediate possession of the Leased Premises without notice or court order.

[33] Baketree was clear from the beginning of this motion that it was not asking for a new lease and that it would agree to vacate by October 31, 2020. If successful, Baketree sought $30,000 in costs.

[34] Flint sought $50,000 in costs if successful. Flint offered to allow Baketree to stay until February 29, 2020.

[35] Baketree has had complete success on this motion, but some adjustment to the rental rates were made. Flint shall pay Baketree’s all inclusive partial indemnity costs of $25,000.

C. Gilmore, J. Released: January 23, 2020