COURT FILE NO.: CV-19-00615409
DATE: 20210318
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
FORTRESS CARLYLE PETER ST INC.
Plaintiff
– and –
1774781 ONTARIO LIMITED and YOUSEF BANI
Defendants
Neil G. Wilson, for the Plaintiff
Jonathan Barr, for the Defendants
HEARD: December 10, 2020
J. Steele J.
Motion
[1] This is a motion for summary judgment by the plaintiff, Fortress Carlyle Peter St Inc. (“Fortress”). The main action concerns a termination agreement between the defendant, 1774781 Ontario Limited (“Ontario 177”), and Fortress, the defendant’s former landlord, related to a lease of a commercial unit located at 126 Peter Street, Toronto, Ontario (“126 Peter”).
[2] The plaintiff seeks summary judgment (i) granting the plaintiff a declaration that it is entitled to the $288,000 being held in trust pursuant to the Termination Agreement (defined below), and (ii) awarding the plaintiff $288,193.75 in damages for unpaid rent under the Lease.
[3] The parties agreed that the Court could make the determination as to which party is entitled to the $288,000 being held in trust pursuant to the Termination Agreement.
Background
The Lease
[4] Ontario 177 was the tenant under a lease with Fortress, dated September 29, 2009, for the commercial unit in 126 Peter (the “Lease”), which was renewed by a Renewal of Lease dated October 31, 2014 (the “Lease Renewal”). The Lease Renewal was for an additional 7-year term, ending on October 31, 2021.
[5] The defendant, Yousef Bani (“Bani”), is the principal of 177 Ontario. Bani is the owner of the Ali Baba restaurant chain.
[6] 126 Peter was initially operated as one of Bani’s Ali Baba restaurants. It was subsequently rebranded as Habiba Restaurant.
[7] The Lease had originally been between Toopbin Management Limited and Ontario 177. However, on or about May 5, 2015, Fortress purchased 126 Peter, and became the landlord.
[8] The salient terms of the Lease and the Lease Renewal included (i) Base Rent for the premises in the amount of $5,200 per month plus HST, (ii) Additional Rent for the premises, including property taxes and utilities, payable by the tenant; and, as noted, (iii) a seven-year term from November 1, 2014 to October 31, 2021.
[9] Ontario 177 repeatedly failed to pay Base Rent on time. For a period of time, Fortress was lenient on the enforcement of the timing of rent payments.
[10] Additional Rent was not paid from the time that Fortress purchased the property. However, the Additional Rent was not requested from Fortress until they conducted an audit of their leases in January 2019 and realized that it was required under the Lease.
[11] Ontario 177 was over a month late in paying December 2018 rent. During that time the plaintiff followed up with the defendants.
[12] January 2019 rent was not paid when it came due and was still unpaid on January 15, 2019. On January 15, 2019, Fortress’ lawyer wrote to Ontario 177 to demand immediate payment of the outstanding rent. In this letter, the defendants were advised that further rent defaults would not be permitted.
[13] In late January 2019, after conducting their audit and determining that Additional Rent was payable under the Lease, Fortress made a demand for payment of Additional Rent in respect of past years. On January 28, 2019, Fortress sent a letter to Ontario 177 advising that $64,345 of past due Additional Rent was owing and requesting that the defendants propose payment terms.
[14] Ontario 177 did not pay the rent again on February 1, 2019. On February 14, 2019, Fortress requested payment of the outstanding February rent by February 15, 2019. The emails indicated that if the outstanding rent was not received then Fortress would terminate the Lease.
[15] The outstanding rent was not paid. Fortress terminated the Lease on or about February 19, 2019 for non-payment of rent. In the notice of termination, Fortress expressly preserved its rights under the Lease to look to Ontario 177 for all Rent and other charges owing at time of the termination and throughout the balance of the Lease.
The Termination Agreement
[16] As mentioned, the prior landlord for 126 Peter was Toopbin Management (“Toopbin”). In the fall of 2014, Toopbin was considering selling the property, but was concerned that the existence of the Lease, including its renewal terms, may be an impediment to a potential purchaser.
[17] On or about September 18, 2014, Toopbin and the defendants entered into a termination agreement (the “Termination Agreement”). The Termination Agreement provided that 177 Ontario would permit early termination of the Lease on 30 days’ written notice in return for a payment of $288,000, which was to be held in trust by 177 Ontario’s solicitor.
[18] The Termination Agreement was to come into force if Toopbin successfully concluded a firm and binding agreement for the sale of 126 Peter, in which case the Termination Agreement and the obligations under it would be assigned to the buyer of 126 Peter.
[19] Fortress entered into an agreement of purchase and sale with Toopbin for the purchase of 126 Peter. The Termination Agreement was a schedule to the APS.
[20] In accordance with the Termination Agreement, Fortress paid the $288,000 into the trust account of Ontario 177’s solicitor.
[21] The parties disagree on the interpretation of the Termination Agreement in respect of who is entitled to the $288,000 given that the Lease has been terminated.
Subsequent Information
[22] At the request of the defendants, while this matter was under reserve, a case conference call was held with the defendants, the plaintiff and me. The purpose of the call was to advise the Court that the building at 126 Peter Street was demolished on or about January 12, 2021.
Preliminary Matters
[23] One issue on the summary judgment motion involves Additional Rent, i.e., whether the defendant owes any and, if so, how much.
[24] The plaintiff brings a motion under Rule 39.02(2) for leave to deliver an affidavit in support of its claim for Additional Rent after the completion of cross-examinations for the plaintiff’s summary judgment motion. The affidavit attaches tax bills incurred for 126 Peter. Although the plaintiff has claimed $64,345 in Additional Rent relating to property tax, water and waste management, it had not provided copes of the relevant bills. It seeks to do so in respect of the tax bills by providing an affidavit that is objected to by the defendant.
[25] The plaintiff seeks to include the affidavit of Rosa Porco, sworn on December 8, 2010 (the “Porco Affidavit”). Rosa Porco is a legal assistant with the law firm of Stevenson Whelton LLP, lawyers for the plaintiff. Exhibits to the Porco Affidavit include correspondence between counsel attaching property tax bills for 126 Peter.
[26] The defendant objects to the introduction of the affidavit. The defendant argues that it will be prejudiced by the late introduction of the tax bills. I disagree.
[27] Rule 39.02 of the Rules of Civil Procedure provides that:
39.02(2) A party who has cross-examined on an affidavit delivered by an adverse party shall not subsequently deliver an affidavit for use at the hearing or conduct an examination under rule 39.03 without leave or consent, and the court shall grant leave, on such terms as are just, where it is satisfied that the party ought to be permitted to respond to any matter raised on the cross-examination with evidence in the form of an affidavit or a transcript of an examination conducted under rule 39.03.
[28] The plaintiff submits that the leading case on when leave should be granted under Rule 39.02(2) is First Capital Realty Inc. v. Centrecorp Management Services Ltd, [2009] O.J. No 4492 (Div. Ct.) (“First Capital Realty”). In this case, the Divisional Court stated (at para. 14):
14 A flexible, contextual approach is to be taken in assessing the criteria relevant to rule 39.02(2), having regard to the overriding principle outlined in Rule 1.04 of the Rules of Civil Procedure that the rules are to be interpreted liberally to ensure a just, timely resolution of the dispute. An overly rigid interpretation can lead to unfairness by punishing a litigant for an oversight of counsel.
[29] In First Capital Realty, the Divisional Court also confirmed the criteria for the Court to consider in determining whether to grant leave under Rule 39.02(2) (at para. 9):
[9] The case law under rule 39.02 confirms the criteria to consider in determining whether a party should be granted leave to respond to a matter raised on cross examination:
Is the evidence relevant;
Does the evidence respond to a matter raised on the cross-examination – not necessarily raised for the first time;
Would granting leave to file the evidence result in non-compensable prejudice that could not be addressed by imposing costs/terms/an adjournment
Did the moving party provide a reasonable or adequate explanation for why the evidence was not included at the outset?
[30] The defendant notes that the plaintiff moved for summary judgment prior to the exchange of affidavits of documents and in advance of examinations for discovery. The defendant further argues that the plaintiff has the evidentiary burden to prove the amount of past Additional Rent that it is claiming and that it is owed by Ontario 177.
[31] In Shah v. LG Chem, Ltd., 2015 ONSC 776, 124 O.R. (3d) 570, Justice Perell noted (at para. 23):
The jurisprudence about rule 39.02(2) indicates that: (a) leave should be “granted sparingly”: Catalyst Fund Partnership II v. IMAX Corp., 2008 CanLII 8778 (ON SC), [2008] O.J. No. 873 (S.C.J.) at para. 14; Skrobacky v. Frymer, 2011 ONSC 3295 at para. 27; Sure Track Courier Ltd. v. Kaisersingh, 2011 ONSC 7388 at para. 51; (2) the moving party has “a very high threshold” to meet: Catalyst Fund Partnership v. IMAX Corp., supra at para. 14; Skrobacky v. Frymer, supra at para. 27; Sure Track Courier Ltd. v. Kaisersingh, supra at para. 51; (3) the rule about the delivery of subsequent affidavits should not be used as a “mechanism for correcting deficiencies in the motion materials”: Lihou v. VIA Rail Canada Inc., [2006] O.J. No 4451 at para. 24 (Master); and (4) the rule is designed to fairly regulate and provide closure to the evidence gathering process for motions and applications.
[32] The plaintiff submits that the defendants are not prejudiced by the delivery of the Porco Affidavit. The plaintiff argues that the defendants have not sought to challenge the authenticity of the tax bills other than raising various alleged technical defects with the production of the bills. The plaintiff argues that the documents speak for themselves and show what the taxes were for the years in question. I agree with the plaintiff’s submission that the defendant’s position is a “technical but impractical” argument. The Divisional Court has cautioned against such arguments in First Capital Realty (at para. 27):
“The Rules of Civil Procedure are meant to promote both fairness and the search for truth. They are not meant to encourage the adversarial game of cat and mouse, with technical but impractical arguments.”
[33] However, the defendants submit that they would be prejudiced. In this regard, the defendants note that they were deprived of the benefit of an examination for discovery prior to the summary judgment motion. Therefore, in making their strategic decisions up to the time of the motion, the defendants relied on the plaintiff’s evidence in the three affidavits for the motion. The defendants further submit that failing to include this evidence was a deficiency in the original motion record and that this Rule should not be used as a “mechanism for correcting deficiencies in the motion materials.”
[34] The plaintiff argues that the 2015-2018 tax bills were not provided to correct a deficiency. The plaintiff points to section 2(7) and (8) of the Lease. These provisions do not require the plaintiff to provide tax bills in order to claim the additional rent. These sections require the landlord to “notify the Tenant of its reasonable and bona fide estimate of Additional Rent” and to “make a final determination of Additional Rent for the relevant lease year within 120 days of the Landlord’s financial year end”. The plaintiff did not have an obligation to produce the tax bills, nor were they requested. The issue was first raised during cross-examination of the defendants.
[35] I am satisfied, therefore, that there will be no prejudice to the defendants in admitting the documents through the affidavit in dispute, because they do nothing more than provide the concrete evidence that the defendant would have always wanted if the case went to trial, but which help support the plaintiff’s quantum claimed. Accordingly, the affidavit will be admitted.
Issues
[36] The issues to be determined on this motion are:
i. Which party is entitled to the $288,000 held in trust pursuant to the Termination Agreement?
ii. Is the plaintiff entitled to summary judgment as against the defendants for (i) the arrears of the Additional Rent; and (ii) the future rent payments for the balance of the Lease?
Analysis
Test for Summary Judgment
[37] Under Rule 20.04 the Court may grant summary judgment where the Court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.
[38] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada set out the principles for the summary judgment motion judge to consider in order to determine whether there is a genuine issue requiring a trial based on the evidence before the Court. Specifically, the Supreme Court of Canada indicated that there will be no genuine issue requiring a trial when the summary judgment 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 a just result.”
[39] The Supreme Court of Canada in Hryniak v. Mauldin also explained the process that should be followed by the summary motion judge by providing a roadmap at paragraph 66:
On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring a trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
[40] This is an appropriate case for summary judgment. The issues relate to the interpretation of the Termination Agreement and the Lease. Based on the record before me, I am satisfied that there is no genuine issue requiring a trial.
Which party is entitled to the $288,000 held in trust under the Termination Agreement?
[41] As indicated above, both parties consented to the Court determining this issue based on the Termination Agreement and the record before me. This is an issue of contractual interpretation.
[42] In the leading case on contractual interpretation, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, the Supreme Court indicated (at para. 50) that the historical approach to contract interpretation should be abandoned and that “[c]ontractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix”. The Supreme Court of Canada stated (at para. 47):
“…the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at par. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.). To so do, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:”
[43] The Supreme Court cautioned, however, that the consideration of the surrounding circumstances “must never be allowed to overwhelm the words of that agreement”. The Court stated (at para. 58):
“…The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement…”
[44] The Termination Agreement is short and contains an entire agreement clause. The recitals to the Termination Agreement state (among other things):
Whereas the Tenant [Ontario 177], pursuant to a lease dated September 29, 2009 (the “Lease”), is in possession of commercial premises owned by the Landlord municipally known as the Ground Floor of 126 Peter Street, Toronto, Ontario (the “Premises”).
And whereas the Landlord is contemplating of selling the subject premises and is desirous of acquiring the possession of the subject premises to itself or to its assigned and/or designated [sic].
And further, the Landlord wishes to buy back the subject Lease including possession of the Premises and any reaming [sic] term before the expiry of the Lease plus any option term(s) of the Lease from the Tenant on the EFFECTIVE DATE under the terms and conditions stipulating in this Agreement.
And whereas the Tenant wishes to sell the subject Lease including possession of the subject Premises and any remaining term before the expiry of this Lease plus any option term(s) to the Landlord on the EFFECTIVE DATE under the terms and condition stipulating in this Agreement. (emphasis added)
[45] The Termination Agreement provides:
i. The effective date will be the date when the landlord secures a firm and binding offer from the buyer of the Premises, which shall be no later than December 31, 2014.
ii. The landlord has the right to assign the agreement to the buyer.
iii. “[u]pon successful closing of this Property between the Landlord and its Buyer, the Tenant [Ontario 177] shall be paid [emphasis added] the amount as provided and stipulated in Section II of this Agreement.”.
iv. The landlord or its buyer will have the right to terminate the Lease after the effective date on 30 days written notice to the tenant, “with the date specified in the Landlord’s notice being the “Termination Date””.
v. On the closing date and on the successful closing between the landlord and the landlord’s buyer, the amount of $288,000.00 will be delivered to the tenant’s lawyer in escrow. “This amount shall be given to the Tenant solicitor in trust and be deposited to the Tenant’s solicitor’s trust account pending the release of the escrow, the surrender of the subject Lease and its option term to the Landlord and/or its assign and the vacation of the subject property by the Tenant.”
vi. The tenant agrees to vacate the premises on or before the termination date.
vii. “Upon the tenant vacating the Premises by the Termination Date, the Tenant’s solicitor shall release the sum in Escrow to the Tenant…”
viii. The Tenant shall continue to comply with the terms and conditions of the lease and shall pay rent and additional rent in compliance with the Lease “until the Lease is surrendered and terminated as stipulated in this Agreement.”
[46] The Termination Agreement does not contemplate a scenario where the landlord or its assign would receive the $288,000. It only contemplates that the agreement will be null and void if the landlord was unable to secure a firm and binding offer on or before the effective date.
[47] The plaintiff’s position is that the $288,000 was only to be paid to 177 Ontario if Fortress exercised the early termination option. The plaintiff submits that if the Lease term was completed or the tenancy was terminated, other than under the early termination option and surrender, the $288,000 was to be returned to the plaintiff.
[48] The plaintiff argues that based on a plain reading of the agreement, the conditions for the money being paid out have not been met. The plaintiff’s position is that there has not been a “surrender” and therefore the conditions have not been met. The plaintiff points to Galaxy Sports Inc. (Re), 2004 BCCA 284, 240 D.L.R. (4th) 301 where the term “surrender” of a lease is contrasted with the term “termination” of a lease. Where a lease is surrendered, rent stops accruing and the landlord has no further claim to damages.
[49] The plaintiff submits that it did not exercise the early termination option under the Termination Agreement. The Lease was terminated for non-payment of rent and was not surrendered.
[50] The issue with the plaintiff’s argument is that the terms “terminate” and “surrender” appear to be used interchangeably in the Termination Agreement. In section II(1) the Termination Agreement provides that the landlord or its successor “shall have the right to terminate this Lease… on not less than 30 days written notice…the date specified in the… notice being the “Termination Date””. Then in section II(2) the Termination Agreement provides that the $288,000 escrow funds will be held in the lawyer’s trust account “pending the release of the escrow, the surrender of the subject Lease and its option term… and the vacation of the subject property by the Tenant”. The operative provision is section II(4), which refers to the release of the escrow funds upon the vacation of the premises by the tenant on the Termination Date. In section III(2), in reference to the requirement of the tenant to continue to pay rent, the agreement provides “until the Lease is surrendered and terminated”.
[51] The plaintiff further submits that 177 Ontario committed a fundamental breach of the Termination Agreement by failing to pay rent and is therefore not entitled to the $288,000. I disagree. The obligation of the tenant to pay rent to the landlord is under the Lease and failure to do so would be a breach of the Lease. The landlord has recourse under the Lease as against the tenant for failure to pay rent. The Termination Agreement is a separate contract that was made so that the landlord could, in effect, buy back the tenant’s rights under the Lease.
[52] The defendants submit that when the Termination Agreement was entered into in 2014, at the request of the prior landlord, they agreed to give up their rights under the Lease for the consideration of $288,000. They further submit that the funds were to be held in trust to ensure that the tenant did in fact vacate the premises if required under the Termination Agreement. In the affidavit of Yousef Bani, dated October 6, 2020 (the “Bani Affidavit”), he provides the following background on the Termination Agreement:
i. “Chau/Toopbin proposed entering into a termination agreement with me and 177 Ontario, whereby Toopbin, or any successors or assigns, could terminate the Lease early on 30 days notice and proposed purchasing that right from me.
ii. “Based on representations made by Chau/Toopbin, it was my understanding that a sale of 126 Peter was imminent and that the prospective buyer would require 177 Ontario to vacate the property to allow for a building development well before the expiry of the Lease term option which would have ended the Lease in October 2021.
iii. “I advised Chau/Toopbin that I valued the Restaurant operation at 126 Peter at that time at approximately $300,000 and was considering selling the Restaurant to new prospective franchisees of the Habiba brand. I advised Chau/Toopbin that I would not be able to do that if the proposed termination agreement allowed for a termination of the Lease on 30 days notice. I further advised that even if I didn’t end up selling the Restaurant at that time, it was always my intention to do so eventually and I wouldn’t be able to properly invest in leasehold improvements and the growth of my Restaurant business if I entered into a termination agreement that allowed for a termination of the Lease on 30 days notice.
iv. “After negotiation and discussion, the value of $288,000 was arrived at. In exchange for 177 Ontario selling the right to the full term of the Lease and option renewal and for the loss of the ability to sell the Restaurant operation at 126 Peter to a prospective new franchisee, Toopbin was to pay me/177 Ontario $288,000.
v. “Pursuant to the Termination Agreement, in exchange for $288,000, I on behalf of 177 Ontario sold the right to the full term of the Lease, sold the right to the peace of mind knowledge of the specific duration of the lease and sold the rights to a long term tenancy (valid until October 31, 2021) including, but not limited to, the ability to further invest and develop the franchise Restaurant business for resale.
vi. “It was always my understanding that the $288,000 Escrow Amount was paid to me as consideration for giving up my right to the full term of the lease once the Termination Agreement came into effect.”
[53] The plaintiff did not submit any other evidence on the background of the Termination Agreement. I have no reason to doubt Mr. Bani’s evidence, given that it is consistent with the Termination Agreement language.
[54] The defendants’ position is that they sold the right to the full term of the Lease, in consideration for the $288,000, which was to be held in trust to ensure compliance with the conditions set out in the Termination Agreement, including the vacating of the property by the tenant and leaving the property in the condition required under the Lease. I accept this evidence. If the defendant had a lease for 7 more years for his business and, in effect, agreed to a new lease that could be terminated at any time on 30 days’ notice, it is logical that the defendant would have requested a sum of money in exchange. By removing the certainty of a long-term lease, any long-term business plans of the defendant at that location would be thwarted. First principles of contract law require that there be consideration for an agreement. The defendants’ consideration under the Termination Agreement was foregoing the certainty of a long-term lease.
[55] The recitals and the terms of the Termination Agreement support the defendants’ interpretation of the agreement. The Termination Agreement was entered into in 2014 by the defendants and the former landlord at the request of the former landlord. The former landlord wanted to be able to sell the property and not have the purchaser bound by a lease with a term that extended into 2021. The $288,000 was consideration for the tenant giving up its rights under the Lease and agreeing to vacate the property on 30 days’ notice. As indicated above, Section I(2) of the Termination Agreement provides that upon the successful closing of the sale of the property from Toopbin to Fortress, Ontario 177 shall be paid the $288,000. The wording of the agreement, read in light of the surrounding circumstances at the time of the formation of the agreement, supports the defendants’ position.
[56] I further note that the plaintiff cannot have it both ways. The plaintiff purchased the property from Toopbin in 2015 and assumed the Termination Agreement and its terms. Those terms gave the plaintiff the right to terminate the Lease on thirty days’ notice, which the plaintiff could have done right away. However, the plaintiff chose not to do that and permitted the Lease to continue. When the defendants entered into the Termination Agreement, they terminated their capacity to do anything long-term with the property.
[57] Accordingly, I order that Ontario 177 is entitled to the $288,000 held in trust, subject to set off, as discussed below.
Is the plaintiff entitled to summary judgment as against the defendants for the arrears of the Additional Rent?
[58] The Lease provides that Ontario 177 was to pay both Base Rent and Additional Rent. With regard to Additional Rent (in respect of utilities, real property taxes, etc.), the Lease contains the following provisions in section 2:
(7) Prior to the commencement of each lease year, the Landlord shall notify the Tenant of its reasonable and bona fide estimate of Additional Rent for that lease year. The Tenant shall pay such estimated amount in equal monthly installments in advance on the same dates stipulated for payment of Rent in Section 2(2). From time-to-time during a lease year the Landlord may acting reasonably, re-estimate the amount of the Additional Rent and shall fix monthly installments for the remaining balance of the lease year so that the Landlord’s estimate, original or revised, of Additional Rent will have been entirely paid during that lease year.
(8) The Landlord shall make a final determination of Additional Rent for the relevant lease year within 120 days of the Landlord’s financial year end, which shall be binding upon both parties and shall provide the Tenant with a statement of the Additional Rent for the relevant lease year. The Landlord and the Tenant shall expeditiously make any necessary readjustments in payments provided that the Tenant may not claim a readjustment based solely upon any error of estimation, determination, or calculation unless claimed in writing within six months after the lease year to which the claim relates.
[59] The Lease provides that where there has been an act of default by the tenant, the landlord has the right to terminate the lease and re-enter the leased premises. If the landlord exercises this right, the Lease provides that the tenant is still liable for payment of Rent (which includes Additional Rent) and all other amounts payable by the tenant under the Lease until the landlord has re-let the premises.
[60] The plaintiff does not dispute that they did not comply with the provisions of the Lease with regard to Additional Rent. That is, the plaintiff did not make the annual estimate of the Additional Rent each year and request payment in monthly instalments. The plaintiff was unaware until the audit of its leases was completed in January 2019. There is an issue between the parties as to whether the plaintiff can now ask the defendants to pay the arrears.
[61] The defendants argue that because the plaintiff failed to comply with the mandatory terms of the Lease with regard to Additional Rent, they are now not entitled to the rent claimed for the period May 2015 to the end of 2018. The defendants argue that the plaintiff’s failure to abide by the mandatory terms of the Lease deprived Ontario 177 of its contractual right to pay the additional rent in equal monthly installments over the course of a given lease year. However, I note that when the plaintiff recognized that it had made an error in not charging additional rent, the plaintiff proposed payment terms (i.e. instalments) for the arrears given the large sum requested in respect of the unpaid additional rent.
[62] The defendants also argue that the plaintiff has not provided documentation to corroborate the amount or calculation of the past Additional Rent claimed. However, when the plaintiff wrote to the defendants asking for payment of the arrears, the email correspondence from Bani (January 29, 2019) suggests that he contests whether there was any obligation to pay additional rent in the first place: “hi my rant [sic] 5200 plus HST. 126 peter st ONLY no additional rent…”. Bani was not requesting additional supporting documents from the plaintiff; he was taking the position that the additional rent was simply not owed. With the Porco Affidavit, the property tax bills have been provided.
[63] The Lease also states that payments of rent and additional rent must be made by the tenant without any deduction for any reason whatsoever and, further that, “[n]o partial payment by the Tenant which is accepted by the Landlord shall be considered as other than a partial payment on account of Rent owing and shall not prejudice the Landlord’s right to recover any rent owing or to pursue any remedies as against the Tenant for breach or default of the Lease”. Interpreting the contract as a whole with the inclusion of this clause, supports the plaintiff’s position that it should still be able to recover additional rent owing. The fact that the plaintiff failed to provide the estimate and the statement does not mean that Ontario 177 is not liable to pay for the property taxes, water and utilities that it contracted to pay for and used (in the case of water and utilities) during its tenancy.
[64] The plaintiff relies on 2373322 Ontario Inc. v. Nolis, 2017 ONSC 1518. That case also concerned a dispute under a commercial lease with regard to the obligation of the tenant to pay certain common area maintenance charges. The landlords in that case had similarly not provided the tenant with the required statement regarding the calculation of additional rent. The lease also contained an express clause that the payments of rent and additional rent must be made without any deduction for any reason. In that case, Justice D.A. Broad stated (at para. 55):
“It is apparent from the foregoing that the failure of the landlord to deliver a statement setting forth information for calculation of additional rent or to deliver an adjusting statement does not have the effect of relieving the tenant from the obligation to pay additional rent once the statement is provided. However, until the statements are provided by the landlords, as required by the lease, the tenant cannot be considered to be in breach of its obligation to pay additional rent.”
[65] I agree. The Lease provides that Ontario 177 is responsible for the Additional Rent. The Lease also contains a no deduction clause similar to the one in Nolis. The failure of the plaintiff to provide the annual estimate and statement does not relieve Ontario 177 from its obligation to pay the rent under the Lease.
[66] However, based on the record before me, I cannot determine the quantum of additional rent. Although I have allowed the Porco Affidavit into evidence, there is no evidence in the record of water and waste management invoices, nor is there evidence that the plaintiff paid them (as opposed to another entity). I address this below.
Is the plaintiff entitled to summary judgment as against the defendants for the future rent payments for the balance of the Lease?
[67] The Lease provides that an act of default has occurred when, among other things, the tenant has failed to pay rent for a period of 15 consecutive days, regardless of whether demand for rent payment has been made. As set out above, Ontario 177 was often late in paying its rent. In the past the plaintiff had been lenient around enforcement. However, this changed in 2019 when the plaintiff asked that rent be paid on the first of the month moving forward. Further, the plaintiff put Ontario 177 on formal notice in January 2019 that it would no longer tolerate late payment of rent. The letter to Ontario 177 from the plaintiff’s lawyer stated, among other things, that “[t]his letter will serve as notice that the landlord requires strict compliance with the terms of the lease, including timely payment of all rent due under the lease. The landlord will not tolerate any further defaults in the tenant’s obligations under the lease, and will exercise all available remedies without further notice in the event of further defaults.” When Ontario 177 was again late in February 2019, the plaintiff wrote to Ontario 177 to advise that if the outstanding rent was not received by February 15, 2019, the plaintiff would terminate the Lease. The plaintiff terminated the Lease on or about February 19, 2019 for non-payment of rent.
[68] Based on the record before me and the oral submissions of the parties, I am satisfied that the plaintiff was well within its rights to terminate the Lease. The question then becomes one of damages.
[69] The notice of termination to Ontario 177 provides that the plaintiff preserves its rights under the Lease to look to Ontario 177 for all rent and other charges owing at the date of termination and throughout the balance of the Lease.
[70] Under the Lease, where there has been an act of default by the tenant and the landlord exercises its right to terminate the Lease, as in this case, the tenant is still liable for payment of rent in accordance with the Lease terms until the landlord has re-let the property.
[71] The obligation under the Lease to pay future rent for the term of the Lease is clear, subject to the obligation of the landlord to attempt to mitigate its losses. At law, where a landlord terminates a lease as a result of a default by the tenant, and claims damages for the balance of the term of the lease, the landlord has an obligation to mitigate its damages in accordance with the law of contract: Weins Canada Inc. v. Ensil Corporation, 2019 ONSC 5406 (at para. 46).
[72] The defendants argue that the plaintiff failed to mitigate its damages to a reasonable degree and are therefore not entitled to future rent. The defendants have the onus to demonstrate that on a balance of probabilities the plaintiff did not meet that standard of reasonableness with its mitigation efforts: Midland Plaza Inc. v. Midland Medical Services Inc., 2015 ONSC 7608 (at para. 56). It is also clear that the landlord is not expected to be perfect in its mitigation efforts. As set out in 2072467 Ontario Inc. v. Dr. Matthews P.C., 2020 ONSC 2739 (at para. 157):
“In assessing the plaintiff’s efforts at mitigating damages, “the courts are tolerant, and the innocent party need only be reasonable, not perfect; in deciding what is a reasonable way to mitigate the effects of a breach of contract, the innocent party is not to be held to too nice a standard; it need only act reasonably, using what is known then, without hindsight and it need not do anything risky”: Banco De Portugal v. Waterlow & Sons, Ltd., [1932] A.C. 452 at 506 (H.L.); Syncrude Canada v. Babcock & Wilcox Canada Ltd., [1997] A.J. No. 503 (C.A.), at para. 41; Janiak v. Ippolito, 1985 CanLIi 62 (SCC) [1985] 1 S.C.R. 146, at para. 28. The fact that the Landlord could have taken additional steps does not mean that the steps taken were inadequate….”
[73] The plaintiff’s evidence was that after the Lease was terminated a contractor was hired to remove the debris left at the premises to make it presentable to potential new tenants. In addition, a “For Rent” sign was placed on the window of the premises, sometime after May 15, 2019, and the property was listed with the real estate brokerage, Uppercase Realty Inc., then subsequently the brokerage, Berkshire Hathaway Home Services. There were leads on renting the space that were followed up on; however, none of them ultimately decided to lease the property.
[74] The defendants submit that the plaintiff should have taken certain steps to put the property in a better condition. However, given that the plaintiff had always intended at some point to demolish the property, the plaintiff could not reasonably have been expected to make extensive renovations or other significant upgrades to the property. As the plaintiff submits, the building was going to be demolished and therefore it would be very risky to do a full overhaul of the building. It was reasonable for the plaintiff to clean the property and make attempts to re-lease it, which they did. The defendants take issue with the evidence and suggest that Brandon Young should have provided the affidavit evidence on the mitigation efforts instead of Mr. Mansour, the president. I am satisfied that it was appropriate for Mr. Mansour, as president of Fortress Carlyle Peter St. Inc., to provide the affidavit evidence.
[75] As indicated above, the parties advised me that the property was demolished on January 12, 2021. At that time the plaintiff conceded that any future rent claim (from the date of termination of the lease) would only be until the end of December 2020. The parties also advised that their understanding was that the property had been sold.
[76] The defendants submit that any entitlement to future rent payments would cease sometime prior to the end of December 2020. They submit that any entitlement to these future rent payments would have ceased at an earlier date, depending on numerous other factors that have not been explored as the plaintiff failed to advise the court at the hearing of the motion that the demolition was forthcoming. For example, if the property was sold, when did the plaintiff enter into negotiations with the buyer/finalize the agreement with the buyer? When did the plaintiff start to look for a buyer or was the plaintiff approached by a buyer?
[77] I agree that the plaintiff’s entitlement to future rent payments likely ceased prior to the end of December 2020. Given this new information, I cannot determine the date at which the future rent payments for the balance of Lease cease, and therefore the quantum of the damages, without further submissions and evidence.
Disposition and Costs
[78] In the result, therefore, although Ontario 177 should be entitled to an order for payment of the $288,000 held in trust, it is nonetheless liable to the plaintiff for the Additional Rent and future rent payments, which shall be set off. If the parties are unable to agree on the Additional Rent and future rent payments, it will be necessary to determine the amount of set off that the plaintiff is entitled to from the $288,000. Consequently, I order that the $288,000 continue to be held in trust, unless the parties wish for it to be paid into Court, pending the final disposition of the matter.
[79] As set out above, the record before me is insufficient to enable me to determine the Additional Rent and the future rent payments. Accordingly, if the parties are unable to agree, the parties shall provide further and better affidavit evidence in support of their positions based on the following schedule:
i. The plaintiff shall deliver its affidavit by April 16, 2021. The affidavit shall be no more than 5 pages in length (plus exhibits).
ii. The defendants shall deliver their affidavit by April 30, 2021. The affidavit shall be no more than 5 pages in length (plus exhibits).
iii. The plaintiff shall deliver any reply affidavit by May 7, 2021. The reply affidavit shall be no more than 3 pages in length (plus exhibits).
The parties shall then each deliver written submissions (up to 5 pages each plus cases) by May 19, 2021. Each party may deliver responding submissions (up to 3 pages each plus cases) by May 26, 2021. Upon receipt of the requested materials, I will either deliver final judgment or advise counsel that I will require further oral submissions.
[80] I remain seized.
[81] Costs will be addressed following the final disposition of the matter.
J. Steele J.
Released: March 18, 2021
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
FORTRESS CARLYLE PETER ST INC.
Plaintiff
– and –
1774781 ONTARIO LIMITED and YOUSEF BANI
Defendants
REASONS FOR INTERIM JUDGMENT
Released: March 18, 2021