COURT FILE NO.: CV-20-645689
DATE: 20201130
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2692223 Ontario Inc.
Applicant
– and –
Harbour Inn Resort Inc.
Respondent
Yonatan Lipetz, for the Applicant
Kevin D. Sherkin and Allison J. Farley, for the Respondent
HEARD: October 28, 2020
REASONS FOR DECISION
J.E. FERGUSON J.
[1] This is an application brought by the applicant/tenant, 2692223 Ontario Inc. (“269” or “the applicant”) for:
(a) the court to interpret the lease agreement (“the lease”) and make a determination as to who is responsible for the payment of property tax under the lease entered into for the property located at 1 Poplar Crescent, Brechin, Ontario (“the property”);
(b) an order requiring the respondent/landlord, Harbour Inn Resort Inc. (“HIRI or the respondent”) to reimburse the applicant for utility arrears paid by the applicant in the amount of $38,087.35;
(c) an order requiring the respondent to reimburse the applicant for renovations totalling $17,786.15;
(d) an assessment of the legal fees claimed by the respondent in relation to the enforcement of the previous default of the applicant under the lease;
(e) an order declaring that the applicant does not owe the respondent any management fees as claimed by the respondent pursuant to the lease; or in the alternative, an assessment of the management fees claimed by the respondent.
[2] The respondent opposes the application and takes the position that property taxes are the responsibility of the applicant, that the legal and management fees requested are appropriate, and that no reimbursements are owing from the respondent to the applicant. The respondent takes the position that the lease is a “net net” lease and as such the applicant is responsible for the property taxes.
[3] On June 1, 2019, the parties entered into a 10‑year lease for the property. The property is a hotel and resort in the heart of cottage country. There is a 43‑room hotel, swimming pool, restaurant and banquet facility. At the time the lease was entered into, the property required some renovations before it could be made available to paying guests.
[4] The lease defines rent as base rent and additional rent. Base rent for the first year was $72,000 payable in monthly installments of $6,000.00 plus HST. Additional rent is defined in the lease as including operating costs and taxes. Taxes are also defined in the lease as including any taxes, levies, duties, charges or fees levied by municipal, regional, provincial or federal governmental agency. The lease has an escalation clause increasing the annual base rent by a small amount each year.
[5] The parties were represented by counsel while negotiating the lease, however, counsel were not involved in the final negotiations which took place directly between representatives of the parties. The landlord was represented by counsel Gary Shapiro (“Mr. Shapiro”) during the lease negotiations however, his retainer ended before the execution of the lease. Mr Shapiro has provided an affidavit which confirms that he compared the executed lease to his last draft and confirms that the executed lease is different than the last draft.
[6] Mr. Shapiro’s evidence about what the parties intended during the negotiations is not helpful. The court has an executed lease which I find is not ambiguous with respect to certain of the disputed items. Similarly subsequent conduct of the parties is not helpful nor clear (“it muddies the waters”) and does not help with respect to the interpretation of the lease.
THE LEASE SECTIONS AT PLAY
(a) 4.1 Rent. For greater certainty, the Tenant is solely responsible for the payment of the Tenant's Tax, business insurance/Tenant insurance. The Landlord is solely responsible for the payment of the property tax and the commercial property insurance.
(b) 4.2 Net Lease. The Tenant acknowledges that it is intended and agreed that, save as expressed out herein, this Lease is a completely carefree net lease in favour of the Landlord and that the Landlord shall not be responsible during the Term of this Lease, or any renewal thereof for any costs, charges, taxes expenses (including costs of replacement of HVAC and other capital costs) or outlays of any nature whatsoever arising from or relating to the Leased Premises, or the use and occupancy thereof and the Tenant shall pay all charges, taxes, impositions, costs and expenses of every nature and kind relating to the Leased Premises, excepting only the Landlord's income tax and mortgage payments in favour of any mortgagee in respect of income received from leasing the Leased Premises.
(c) 5.3 Property Taxes. The Landlord shall be responsible for payment of all of the property taxes.
(d) 9.1(e) Tenants’ Obligations - Maintenance:
To maintain the Leased Premises and all equipment, improvements therein in proper working condition, keep the Leased Premises in a clean condition and remove from the Leased Premises at its expense all debris and garbage; to be responsible for garbage collection for the Leased Premises, grass mowing and bush cutting of the whole property.
The Tenant shall at all times during the Term at its own cost and expense replace repair, maintain and keep the Leased Premises, all equipment and fixtures including, without limitation, the storefront, heating, ventilating, air conditioning, plumbing and electrical equipment that exclusively service the Leased Premises, doors and hardware attached thereto, plate glass and fixtures within the Leased Premises or elsewhere if provided exclusively for the use or benefit of the Leased Premises and all improvements on or in the Leased Premises or for the exclusive benefit thereof, in such good order as a careful owner would do and the Tenant covenants to perform such maintenance, and to effect such repairs and replacements and to decorate at its own cost and expense as and when necessary or reasonably required so to by the Landlord. Without derogating from any other provisions hereof, the Tenant agrees that all repairs to the facade will require the written approval of the Landlord. Notwithstanding anything else contained herein, the Landlord shall perform or cause repairs, maintenance or replacements to be undertaken to the HVAC system serving the Leased Premises, at the Tenant's sole costs recoverable as Additional Rent. Should the Landlord undertake any repairs or to do anything which is required to be undertaken or done by the Tenant under the Lease (or at the Tenant's cost) then the Tenant shall pay to the Landlord as a fee for supervision for carrying out the Tenant's obligation an amount equal to fifteen percent (15%) of the monies expended or of the cost of repairs or other work carried out by or under the supervision of the Landlord which amount shall in addition to the cost of such work or monies expended be deemed Additional Rent and payable by the Tenant.
(e) 12.1 Interest and Costs. Except as otherwise provided in this Lease, the Tenant shall pay monthly to the Landlord interest at a rate equal to the lesser of the prime rate established as such by the Landlord’s bank from time to time plus ten (10) per cent per annum and the maximum rate by applicable law, upon any default in payment of Rent from the due date for payment thereof until the same is fully paid and satisfied. The Tenant shall indemnify the Landlord against all costs and charges reasonably incurred in enforcing payment of Rent hereunder and in obtaining possession of the Leased Premises should the same be necessary.
(f) 15.17 Utilities. Both parties agree that the Tenant shall pay the utilities on behalf of the Landlord and such amount shall be deducted from the Security Deposit and Rent Payment.
ANALYSIS
Property Taxes
[7] The property taxes are the big-ticket item - $35,090.00 per year. Frankly, despite the submissions, I see no ambiguity regarding the property taxes. Excerpts of the relevant sections of the lease are as follows (full clauses set out above):
4.1 The Landlord is solely responsible for the payment of property tax and the commercial property insurance.
4.2 Net Lease. The Tenant acknowledges that it is intended and agreed that, save as expressed out herein, this lease …
5.3 Property Taxes. The Landlord shall be responsible for payment of all of the property taxes.
[8] The applicant suggests that the section defining operating costs creates ambiguity as it does include the payment of taxes and the lease states that it is a net net lease and urges that I look at extrinsic evidence, in this case conduct of the parties after execution of the lease. That is not necessary in my view.
[9] 4.1 and 5.3 are perfectly clear and fall within the exception (although poorly worded) in 4.2. The landlord is responsible for the property taxes.
Utility Arrears
[10] 15.17 deals with utilities and sets out that “Both parties agree that the Tenant shall pay the arrears on behalf of the Landlord and such amount shall be deducted from the Security Deposit and Rent Payment”.
[11] The applicant made payments totalling $38,087.35 for arrears on hydro and propane related to the property as they had been placed with a collection agency. The arrears relate to the property but were not in the name of the landlord. In my view, if the arrears were incurred by a prior tenant, it makes absolutely no sense that these would be the responsibility of the applicant. The landlord submits that arrears must its name. The question is why? It could be possible that the tenant paid a totally unrelated account. However, it makes no sense that it would have done that.
[12] If the tenant paid an account that had to be paid in order for the utility to provide service to the tenant, then that is the responsibility of the landlord. While the tenant has to pay for utilities it uses, the landlord has to supply utilities to the site. If there were arrears that allowed the utility to refuse service, then that is the landlord’s duty.
[13] If this conclusion on this issue raises quantum of who pays what, the parties can provide brief written submissions on this issue.
Renovation Expenses
[14] At the time the lease was entered into, both the landlord and tenant were aware that the property required renovations and repairs prior to being open to the public. The applicant concedes that the lease does not require the respondent to reimburse for all renovations. The applicant relies on emails between representatives of the parties which I have reviewed. I accept the evidence put forward from the respondent that the parties addressed the issue of the required repairs when the landlord agreed to provide the tenant with five months of free rent valued at $30,000.00. This is supported by section 9.1 of the lease. The applicant is responsible for the renovation costs.
Legal Fees
[15] The applicant does not dispute that it owes legal fees but disputes quantum. I agree that legal fees have to be reasonable no matter what the lease says, however, I find that these legal fees are reasonable.
Management Fees
[16] The landlord is entitled to recover management fees. The tenant disputes the authority of the property manager. That is ridiculous. Property management fees were contemplated when the lease was entered into. The landlord was entitled to engage a property manager. The landlord is/was in China and could not return because of Covid‑19. It is not for the tenant to say that the landlord cannot use a property manager or should not travel. $3,500.00 is reasonable for these fees.
[17] The security deposit involves an accounting exercise. Once the calculations are done using the above findings, if the landlord owes the tenant for taxes and utility arrears etc. a set-off can be used. If there is any issue about this, I can be provided with brief written submissions.
[18] I also note that the applicant incorrectly started the application using 2682223 Ontario Inc. (a typo). I have changed the title of proceedings to correct this without the necessity of receiving a formal motion.
[19] If the parties cannot agree on costs, they can provide brief written submissions. Please provide my assistant with a timeline by email at: lorie.waltenbury@ontario.ca.
J.E. Ferguson J.
Released: November 30, 2020
FILE DIRECTION ORDER
ADDENDUM TO REASONS FOR DECISION
OF JUSTICE J.E. FERGUSON
DATED NOVEMBER 30, 2020
BETWEEN:
2692223 Ontario Inc.
Applicant
– and –
Harbour Inn Resort Inc.
Respondent
Yonatan Lipetz, for the Applicant/Tenant
Kevin D. Sherkin and Allison J. Farley, for the Respondent/Landlord
Addendum to Reasons dated November 30, 2020 and released December 21, 2020 (late). On December 18, 2020, the Respondent provided a supplementary affidavit resulting from the receipt of a utility bill totalling $51,551.98 which was unknown to the Respondent at the time of the hearing. This is the water bill and the Applicant/Tenant confirms that it is responsible for the payment of this bill. This amount is to be included in the Judgment and calculations.
Counsel will provide a schedule of cost submissions to be sent to my assistant at lorie.waltenbury@ontario.ca
J.E. Ferguson J.
Released: February 8, 2021
COURT FILE NO.: CV-20-645689
DATE: 20201130
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2692223 Ontario Inc.
Applicant
– and –
Harbour Inn Resort Inc.
Respondent
REASONS FOR DECISION
J.E. FERGUSON J.
Released: November 30, 2020