COURT FILE NO.: CV-20-650704
DATE: 20210419
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
URMILA HOLDING INC.
Applicant
and
ANAND HOLDINGS INC., HARPAUL J. ANAND DENTISTRY PROFESSIONAL CORPORATION and HARPAUL JIMMY ANAND
Respondents
BEFORE: Justice Edward P. Belobaba
COUNSEL: Allan Sternberg for the Applicant
Jonathan Kulathungam for the Respondents
HEARD: April 1, 2021 via Zoom video and further written submissions
Application to Interpret a Condominium Declaration
[1] In this application under s. 134 of the Condominium Act[^1] and Rules 14.05(3)(d) and (g), the owner-landlord of a commercial condominium unit asks for a determination of its rights under the exclusive usage provisions set out in the condominium’s Declaration. The responding tenant agrees that it is bound by the Declaration but says it has complied fully with its provisions.
Background
[2] The application arises out of a dispute involving the operation of a dental clinic in a commercial condominium plaza (“the Plaza”) that is located at the corner of Ray Lawson Blvd. and McLaughlin Road in the City of Brampton.
[3] When the Plaza was being marketed, the applicant Urmila Holding reserved and shortly thereafter purchased Unit 20 at a premium price for its exclusive use as a dental clinic. The agreement of purchase and sale made clear that Urmila was acquiring an exclusive business usage — no other unit in the Plaza could be used or operated as a dental clinic.[^2]
[4] The exclusivity feature was important to Urmila. As its principal explained:
I have a preference for purchasing condominium units with an exclusive use as a dental clinic for a number of reasons. Such units are in great demand thereby generating a significant growth over time on my capital investment. Furthermore, the rents obtainable for such units when leased are currently approximately $8.00 per square foot more than the rents achievable from other units in these types of plazas.
[5] Urmila leased the unit to the respondent dentist Dr. Anand in 2007 for use as a dental clinic. The lease had a 10-year term with a five-year renewal option. At the end of the 10-year term, Dr. Anand pressed for a further 10-year renewal. Urmila would not agree to another ten years so he reluctantly accepted the five-year extension. The lease expires next year in 2022.
[6] Realizing that his lease would end sooner than he would have preferred, Dr. Anand took the following steps to maintain his Plaza location. He discreetly purchased the adjacent Unit 21 while still a tenant in Unit 20. Sometime in 2020 (about 13 years into his 15-year lease) and unbeknownst to Urmila, Dr. Anand moved his dental clinic into Unit 21 and purported to transfer Unit 20’s exclusive dental clinic use to Unit 21. Although Unit 20 sat empty, Dr. Anand continued to pay the monthly rent.
[7] Urmila first noticed that that the respondent had vacated Unit 20 and was using Unit 21 as a dental clinic in July 2020. Upon further investigation and a title search, Urmila discovered that Anand Holdings had purchased Unit 21 three years earlier on May 8, 2017 — about two months before the end of the 10-year lease — for a purchase price of $715,000.
[8] Urmila concluded that Dr. Anand was wrongfully misappropriating its premium-paid exclusivity to use Unit 20 as a dental clinic and was doing so contrary to any reasonable interpretation of the provisions in the Declaration. Urmila commenced this application for declaratory and injunctive relief.
[9] The respondent dentist acknowledges that initially Unit 20 enjoyed exclusive usage as a dental clinic but submits that section 4.5 of the Declaration allows him to operate a dental clinic in Unit 21 if the dental clinic tenant in Unit 20 has provided its written consent. And, according to the respondent, that’s exactly what happened here.
[10] In a letter to the Plaza’s property manager dated July 3, 2020, Dr. Anand outlined what he had done — as the tenant operating a dental clinic in Unit 20, he consented in writing to allow himself (the owner of Unit 21) to operate a dental clinic in Unit 21. He then asserted a usage exclusivity in Unit 21 that would forever bar Urmila or any other unit-owner in the Plaza from leasing their unit to another dentist. As Dr. Anand explained in the letter:
Harpaul J. Anand Dentistry Professional Corporation is relocating its business of a dental clinic to Unit 8 (legally unit 21, level 1) (the "New Unit") effective July 3, 2020. Therefore, as the beneficiary of Article 4.5 with respect to an Existing Business, the Tenant, as "[the] tenant, occupant or licensee already carrying on an Existing Business within and from their Unit" hereby consents in writing to itself, and its successors and assigns, carrying on the business of a dental clinic in the New Unit effective July 3, 2020.
The Tenant will cease to carry on the Existing Business of a dental clinic in the Existing Unit immediately thereafter.
To be clear, after relocation to the New Unit on July 3, 2020, the Tenant does not consent to any other unit, including any owner, tenant, occupier, or licensee of the Existing Unit, conducting, operating or owning a dental clinic, as more particularly specified in clause 4.5(iv) of the declaration, within Peel Standard Condominium Corporation No. 829.
Please provide confirmation of receipt of this notice.
[11] The property manager replied the same day. She thanked Dr. Anand for the “update and clarification” and advised that she would “adjust the records accordingly”.
[12] Contrary to the submission of counsel for the respondent, there is no evidence that Dr. Anand’s letter to the property manager was ever discussed or approved by the Condo Board. I hasten to add, however, that the respondent’s misstatement about Board approval is not relevant to my analysis.
[13] This application turns on the court’s interpretation of the parties’ lease agreement and in particular the terms of the Declaration. Under section 3.7 of the lease agreement, the terms of the Declaration are incorporated as terms of the lease.
The condominium’s Declaration
[14] The Declaration for this commercial condominium sets out, among other things, a list of 10 prohibited uses (such as tattoo parlour or pawn shop) and 32 exclusive uses (such as a pharmacy, several specified restaurants and, of course, a dental clinic).
[15] Section 4.5 of the Declaration says this about exclusive uses:
Restrictions of Use
Owners and the tenants, occupants, licensees or any other person utilizing such Owner’s Unit(s) shall not engage, within or from such Unit(s) in any of the following business operations (unless two contiguous Units are owned by the same Owner and are operated together as one of the following business operations), if such business operations are already being carried on in another Unit as at the date that such Owner, tenant, occupants, licensees or any other person utilizing such Owner’s Unit intends to engage in such existing business operations (the “Existing Business”):
[Here a list of 32 business operations, including “dental clinic”]
(iv) dental clinic (includes: general dentistry, dental hygiene, endodontics, periodontics, orthodontics, oral surgery, denture therapy, paedodontics);
[And then this proviso]
Unless any Owner, tenant, occupant or licensee already carrying on an Existing Business within or from their Unit, consents in writing to allow any other Owner, tenant, occupant or licensee to carry on such Existing Business, which consent may be arbitrarily withheld by any such existing Owner, tenant, occupant or licensee conducting, operating or carrying on such Existing Business.
[16] Section 4.6 deals with the “leasing of units” and says this:
(d) No Owner shall be entitled to lease a Unit to a third party for a proposed use that is then enjoyed by or operated in another Unit in the Corporation.
[17] The theme of exclusive usage for designated units appears to permeate the Declaration. And yet, if one reads section 4.5 literally, such exclusive usage can be transferred by a tenant without the knowledge or consent of the initial unit-owner even where, as here, the initial unit-owner paid a premium for the exclusive usage designation.
[18] Counsel for Urmila says this doesn’t make commercial sense — that there must be some reasonable limitation on the tenant’s right to consent/transfer the Unit’s exclusive usage designation. Counsel for Dr. Anand responds that this exclusive usage belongs to the entity actually operating the exclusive business and that section 4.5 means what it says and allows the tenant to consent/transfer even to himself.
[19] The law is clear that a Declaration made pursuant to the Condominium Act, 1998 should be read as reasonably well-informed unit holders would read it and not in a technical or specialized sense.[^3] That is, the reasonable interpretation of the tenant/consent provision herein cannot turn on overly clever submissions involving scintillas of time or other strained technicalities. Fortunately, neither side is making any such overly clever submissions.
Analysis
[20] As already noted, the terms of the Declaration are incorporated into the lease agreement for Unit 20. This is therefore a case of contractual interpretation. The applicable legal principles are not in dispute. As the Supreme Court of Canada noted in Sattva Capital:[^4]
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" … [caselaw omitted] … To do so, 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.[^5]
[21] The nature of the evidence that can be relied upon under the rubric of "surrounding circumstances" will necessarily vary from case to case. It does, however, have its limits:
It should consist only of objective evidence of the background facts at the time of the execution of the contract … that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting.[^6]
[22] Here Urmila’s reasonable and continuing expectations about usage exclusivity as reflected in its initial APS cannot burden Dr. Anand because he wasn’t privy to this agreement. The only background facts that are germane are those that Dr. Anand knew or reasonably ought to have known when he entered into the ten-year lease and the five-year renewal.
[23] The evidence is this:
(i) Dr. Anand knew that Unit 20 had been assigned the exclusivity for use as a dental clinic. He knew this because in 2007 he had tried to purchase a unit at the Plaza with this exclusive designation. On being told that the unit had already been sold to Urmila, Anand contacted Urmila and managed to secure a ten-year lease with a five-year renewal option. During the negotiation of the terms of the lease, Dr. Anand wanted confirmation that his practice would be the only dental practice in the Plaza and he was shown Urmila’s initial reservation form. In the lease Urmila warranted that should it or its principals purchase any other unit in the Plaza, such unit “shall not be leased to any person to operate therein a dental practice”. The lease also provided “that the Tenant will use and occupy the said Premises as a dental practice only and will not carry on or permit to be carried on therein any other trade or business”. The fact that as the tenant he was the “beneficiary” of this exclusive usage was also acknowledged and referenced in Dr. Anand’s July 3, 2020 letter to the property manager set out above.
(ii) Dr. Anand also knew or should have known that an exclusive usage designation carried a premium over non-exclusive usages. He knew or should have known this from the elevated rent he paid for Unit 20 and because of his offer to purchase Unit 20. In 2017, shortly before the expiry of the ten-year term, Dr. Anand offered to purchase Unit 20 for approximately $1 million, some $300,000 above market value. Some of this premium no doubt related to the physical costs of relocating but it is reasonable to assume that a significant portion related to the acquired goodwill which had grown over the years, in part because of usage exclusivity. As it turned out, Urmila was not interested in selling but agreed to extend the lease for another five years. The base rent was increased to $38 per square foot. Dr. Anand knew or should have known all this at the time he agreed to the five-year renewal.
[24] In my view, the challenge at hand involves:
➢ Protecting the owner-landlord’s capital investment and premium paid for the exclusive usage of Unit 20 as a dental clinic
➢ while giving reasonable meaning to both the tenant’s ability in section 4.5 to consent to another owner or tenant carrying on such exclusive usage and to the leasing prohibition in section 4.6.
[25] There is one more principle of interpretation that must be kept in mind: a commercial contract should be interpreted “in a fashion that accords with sound commercial principles and good business sense and that avoids a commercial absurdity”.[^7]
[26] In my view, Mr. Sternberg, counsel for Urmila, provided the court with the most reasonable interpretation of the provisions in question. Dr. Anand, as tenant, can only consent to what he has and what he has is the time remaining on his lease. In other words, tracking the well-known nemo dat principle,[^8] Dr. Anand can consent to Unit 21 carrying on a dental clinic but this consent expires on July 31, 2022 when his five-year renewal on Unit 20 comes to an end.
[27] In the present case, the operator carrying on the exclusive business in the existing unit is a tenant. As such the tenant has the contractual right to carry on the exclusive business within the existing unit for the term of the lease. If such tenant gives its consent to another operator to carry on the exclusive business in a new unit, such consent cannot be for a period of time longer than the balance of the lease term — because one cannot convey what one does not have.
[28] In my view, this is a reasonable interpretation of the provisions in question because it protects Urmila’s capital investment (its tenant will continue to pay the elevated rent on Unit 20 to lease-end) and gives a commercially reasonable meaning to the concluding paragraph in section 4.5 of the Declaration.
[29] If I am wrong in this regard — that is, if I am compelled to interpret the language in question more literally and without the nemo dat limitation — I would still find in Urmila’s favour. I would rely on the following analysis, based on Dr. Anand’s own letter to the property manager and what his counsel referenced in his factum:
• The parties to the lease for Unit 20 are Urmila Holding and Dr. Anand’s Dentistry Professional Corporation (“DPC”);
• The purchaser and owner of Unit 21 is Dr. Anand’s holding company, Anand Holdings;
• Pursuant to the requirements of the Royal College of Dental Surgeons of Ontario (as set out in Dr. Anand’s factum), only DPC can operate a dental clinic, not Anand Holdings. This explains why Dr. Anand purported to consent/transfer the exclusive usage “to itself” allowing DPC to operate a dental clinic in Unit 21— presumably under a lease from Anand Holdings. But under section 4.6 of the Declaration, Anand Holdings as owner is precluded from leasing Unit 21 to “a third party for a proposed use that is then enjoyed by or operated in another Unit in the [Plaza].” There can be no doubt that DPC’s proposed use of Unit 21 as a dental clinic was then “enjoyed by … another Unit”, namely Unit 20.
• Even if Dr. Anand were to reconvey the ownership of Unit 21 from his holding company to DPC to avoid the leasing prohibition in section 4.6, he would still not be able to overcome the language in section 4.5 which clearly limits a consent/transfer to “any other owner [or] tenant” and thereby excludes a consent/transfer to oneself.
[30] In other words, if I were pressed to undertake a more literal interpretation of section 4.5 as just described, the implications for Dr. Anand would be much less beneficial than the nemo dat approach which at least gives him more than a year (the time remaining on his Unit 20 lease) to explore all options, including a possible resolution with Urmila that would allow his dental clinic to remain in the Plaza.
Conclusion
[31] The evidentiary record filed by both sides could have been, from my perspective, more fulsome. I would have preferred more information — from Urmila, about the premium that it paid for the exclusive dental clinic usage assigned to Unit 20; from Dr. Anand about the contents of the APS he entered into when Anand Holdings purchased Unit 21; and, ideally, from the condominium corporation itself about the historical rationale for the “consent” language in section 4.5 of the Declaration. However, I must decide the matter before me on the basis of the evidence as set out in the application records filed by the parties.
[32] For the reasons set out above, I conclude that the most reasonable interpretation of sections 4.5 and 4.6 of the Declaration allows the tenant in Unit 20 to consent/transfer the exclusive dental usage to Unit 21 but only for the time remaining on the tenant’s lease on Unit 20.
[33] I agree with Urmila that it makes no commercial sense that an owner who purchased a unit at a premium because of its designated exclusive use and thereafter leased that unit in good faith to a tenant to carry on that exclusive use can lose the exclusive use, without notice or compensation, to the tenant.
[34] It is one thing for Urmila as the owner-landlord of Unit 20 to consent, between leases, to the transfer of its exclusive usage to another Unit. The premium that Urmila paid for the original exclusivity (reflecting the expected stream of future earnings over many leases) would no doubt factor into whatever compensation is agreed to by the parties for said transfer. However, it is quite another matter when the tenant, without the owner-landlord’s knowledge or permission, tries to do this on his own and in essence misappropriates the unit’s exclusive usage to himself and enjoys an undeserved windfall.
[35] I am prepared to issue a declaration that provides in essence that Dr. Anand can continue to operate his dental clinic in Unit 21 but only until July 31, 2022 when his lease on Unit 20 comes to an end, provided of course that the rent on Unit 20 continues to be paid.
Disposition
[36] The application for the revised declaration as set out above is granted.
[37] The declaration that Urmila originally requested, to the effect that the applicant has an exclusive to operate a dental clinic in Unit 20, cannot issue because it does not incorporate the sensible nemo dat component that is part of the contractual interpretation herein.
[38] The parties have agreed that if Urmila prevailed on its application, a costs award in the range of $20,000 would be fair and reasonable. Urmila did prevail but on a submission that was first voiced at the hearing. I therefore fix costs at $15,000 all-inclusive payable to Urmila within 30 days, unless the parties together agree otherwise.
[39] I shall remain seized of this matter.
[40] I trust that with this decision in hand, the parties will be able to negotiate a more refined resolution to their dispute over the course of the year or so that remains on Dr. Anand’s lease. Such a resolution could well result in Dr. Anand and his dental clinic remaining in the Plaza given certain accommodations on both sides. I would be pleased to assist in this regard if invited to do so.
[41] The requested injunctive remedies are reserved and may again be considered by this court as and when appropriate.
[42] I am grateful to counsel on both sides for their assistance.
Signed: Justice Edward P. Belobaba
Notwithstanding Rule 59.05, this Judgment [Order] is effective from the date it is made, and is enforceable without any need for entry and filing. In accordance with Rules 77.07(6) and 1.04, no formal Judgment [Order] need be entered and filed unless an appeal or a motion for leave to appeal is brought to an appellate court. Any party to this Judgment [Order] may nonetheless submit a formal Judgment [Order] for original signing, entry and filing when the Court returns to regular operations.
Date: April 19, 2021
[^1]: Condominium Act, 1998, S.O. 1998, c. 19.
[^2]: Several provisions in the Urmila Agreement of Purchase and Sale dated October 23, 2006 clearly refer to and discuss the “exclusivity of uses”. This is not in dispute. However, there is no suggestion that the respondent knew about or is somehow bound by Urmila’s APS. The focus herein is therefore on the Declaration that was contractually incorporated into the respondent’s lease.
[^3]: Metropolitan Toronto Condominium Corp. No. 699 v. 1177 Yonge Street Inc., 1998 CanLII 3583 (ON CA), [1998] O.J. No. 2007, at para. 7.
[^4]: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53.
[^5]: Ibid., at para. 47.
[^6]: Ibid., at para. 58,
[^7]: All-Terrain Track Sales and Services Ltd. v. 798839 Ontario Limited, 2020 ONCA 129, at para. 27.
[^8]: Nemo dat quod non habet is a well-known common law rule that means "no one gives what they do not have". It is equivalent to the civil (continental) rule, nemo plus iuris ad alium transferre potest quam ipse habet, which means "one cannot transfer to another more rights than they have".