COURT FILE NO.: CV-20-00652717-0000
DATE: 20210503
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MERIDIAN CC INTL INC. and GUIYAN XIN
Plaintiffs/Defendants by Counterclaim
– and –
2745206 ONTARIO INC.
Defendant/Plaintiff by Counterclaim
Robert S. Choi, for the Plaintiffs/Defendants by Counterclaim
Michael A. Katzman, for the Defendant/Plaintiff by Counterclaim
HEARD: April 26, 2021
FL Myers j.
reasons for judgment
Background and Outcome
[1] The defendant recently purchased the building in which the plaintiffs rent commercial premises and operate a retail store. The landlord has purported to give the tenant 180 days notice to terminate the lease for remodelling and demolition under para. 11 (1) of the lease.
[2] The tenant argues that the landlord is trying to get rid of her store because she will not increase the rent under her recently renewed five year lease term. Mr. Choi made an impassioned plea to hold the landlord to the parties’ bargain.
[3] In 2020, the prior landlord renewed the lease for another five year term. Mr. Choi submits that allowing the new landlord to terminate the lease would render the renewal agreement meaningless. Moreover, the tenant says that the former landlord “guaranteed” that she could operate her store for five years. She argues that the landlord is exercising the “termination for remodeling” clause in bad faith. She argues that a trial is required to assess the landlord’s purpose and to ensure that the landlord complied with the terms of the lease.
[4] The lease is the commercial deal setting out the allocation of risks and burdens to which the tenant and the old landlord agreed. It includes the “termination for remodelling” clause. That is the parties’ deal. The law recognizes it as part of the binding lease contract.
[5] Although there are some disputed facts concerning whether the tenant actually renewed the lease and a potential dispute about how long the proposed remodeling might take, I find that they do not affect the outcome. On the uncontested facts that I set out below, I am able to make findings of fact and apply the law fairly and in a proportional process. I do not need to resort to the enhanced powers to make findings under Rule 20.02 (2.1) and (2.2) to resolve this proceeding.
[6] I agree that the parties must be held to the terms of their contract. The new landlord is subject to the lease and takes the lease on the terms agreed between the tenant and her old landlord.
[7] For the reasons that follow, I find that the landlord has properly given notice to terminate the lease in accordance with the parties’ bargain.
Para. 11 of the Lease
[8] The lease deals expressly the circumstance where the landlord desires to remodel or demolish any part of the rented premises. Paragraph 11 (1) of the lease provides:
(1) If the Landlord desires at any time to remodel or demolish the Premises or any part thereof, to an extent that renders continued possession by the Tenant impracticable, the Tenant shall, upon receiving 180 clear days' written notice from the Landlord :
(a) surrender this Lease, including any unexpired remainder of the Term; and
(b) vacate the Premises and give the Landlord possession.
[9] When the parties entered into the lease, there were many other ways they could have allocated the risks and burdens if the landlord at some time in the future formed a desire to remodel. The tenant could have negotiated for a payment or a right of first refusal on the renovated property. She could have refused to lease the property with an early termination right in favour of the landlord and insisted that the landlord wait until the end of the lease before renovating (if it was willing to so agree).
[10] But that is not what happened.
[11] In this lease, the parties agreed that if the landlord desires to remodel or demolish any part of the “Premises” as defined in the lease, and the remodeling or demolition is to an extent that “renders continued possession by the tenant impracticable” then the landlord can terminate the lease on 180 days notice.
[12] The remodelling clause is not nefarious. Exercising it does not undermine the parties’ bargain. It is a part and parcel of the contract. It is a term of the parties’ bargain as much as any other term. It sets out the rights and obligations of the parties should the landlord decide, at any time, that it wants to invest in the property to change its physical premises to the requisite degree. The landlord and the tenant agreed that in that event, the tenant would have six months notice so she can look elsewhere, or wind up her business in an orderly manner, or do whatever she desires. The landlord agreed to hold off re-entering for that six-month period. That is just the deal they reached.
[13] It is perfectly clear on the evidence that even before it purchased the building, the landlord was considering renovations involving remodelling and demolishing part of the rented premises. When the tenant said she wanted to stay, the landlord asked her to triple the rent that she was paying. When she understandably declined, the landlord determined to proceed with its plan to invest in the renovations to demolish a part of the rented premises and to subdivide the remainder of rented premises into two brand new units.
[14] The landlord gave the tenant appropriate notice under para. 11 of the lease. The notice recites the terms of the lease. No more is required by law. Accordingly, the landlord has established that there is no genuine issue requiring a trial on its claim that the lease has been properly terminated in accordance with its terms.
Good Faith and the Interpretation of the Lease
[15] The tenant argues that there is a triable issue as to whether the landlord invoked the “termination for remodelling” clause in good faith. At para. 3 (a) of his factum, Mr. Choi submits:
The Landlord has breached its duty of good faith, in its ill-fated efforts to circumvent the Tenant's leasehold rights and improperly effect termination of the Lease.
[16] Mr. Choi argues that the evolution and expansion of the landlord’s plans from a simple sketch to detailed renovations of the tenant’s store unit in face of the tenant’s resistance is evidence of bad faith.
[17] However, the initial sketch is enough in my view to determine the issue.
[18] The lease defines the “Premises” as consisting of the garage, the basement, and the whole main floor of the building. The tenant uses the garage and basement for storage. She uses half the main floor for her retail store and the other half for storage.
[19] The pre-purchase sketch initially sent by one of the landlord’s property managers shows the garage being demolished to make room for retail parking. The main floor is divided into two units so that the part used currently by the tenant for storage will become a separate rental unit for a different retail outlet.
[20] On that sketch alone, the garage is a part of the Premises that is being demolished. Half of the main floor will no longer be available to the tenant. As the remodelling is now proposed, the windows, wiring, and plumbing are being removed and replaced throughout the Premises. Part of the basement currently in the tenant’s exclusive possession will be kept and used by the landlord for building services and utilities.
[21] The tenant sought to adduce evidence of a person experienced in construction. However, counsel did not make any attempt to qualify the witness as an expert. His opinions are therefore inadmissible. Regardless, the upshot of his proposed evidence is that the renovation could be accomplished more cheaply and quickly than the landlord proposes. For example, he says, there is no need to replace all the wiring with new wiring. Although he has never been in the building to inspect the wiring, I am prepared to assume that this could well be true. However, under lease, it is just irrelevant.
[22] If the landlord proposes changes that make the continued possession of the tenant impracticable, it can terminate the lease and then do what it wishes. Para. 11 does not require the landlord to renovate in a way that minimizes its cost or minimizes disruption to the tenant. The tenant has no basis to inject her desires into the landlord’s desire to remodel or demolish. If it wants to make the investment to upgrade the building from its current state to have brand new finishes and services so as to maximize marketing potential and thereby maximize rent, that is no business of the tenant once her lease is terminated.
[23] Mr. Choi points to para. 9 of the lease that is instructive. It provides that if the premises are damaged or destroyed, in whole or in part, by fire or other peril, then, if the premises are unfit for occupancy for 120 days despite reasonable diligence to repair and rebuild, the lease is terminated. However, if the damage can be repaired within 120 days, then rent is suspended and the landlord shall make repairs “with all reasonable speed”. Para. 9 (1)(c) provides:
If the Premises can be repaired within 120 days as aforesaid, but the damage is such that the Premises are capable of being partially used, then until such damage has been repaired, the Tenant shall continue in possession and the Rent shall abate proportionately.
[24] Mr. Choi argues that renovation is a “peril” so that the tenant should be entitled to stay in possession with a rent abatement for the loss of the garage, half the main floor, and part of the basement under para. 9.
[25] If this were correct, para. 11 would never apply. Under ordinary principles applicable to the interpretation of a contract, para. 9 is dealing with fire and unintended perils rather than a decision by the landlord to invest in remodelling or demolishing all or a part of the unit. Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53.
[26] The more important point however, is that para. 9 shows that the parties put their minds to a kind of renovation in which the tenant gets to stay on with an abatement. The tenant then would have input into whether the premises are “unfit” and whether remodelling is being conducted with “reasonable diligence” or “all reasonable speed”.
[27] In the case of para. 11 however, the landlord agreed to give the tenant 50% more notice (180 days instead of just 120) and bought the right to terminate the lease. The only potential factual issue is whether the demolition and remodelling proposed “renders continued possession by the Tenant impracticable”.
[28] Mr. Choi notes, fairly, that para. 11 speaks of “continued possession” rather than occupancy (that is used in para. 9). Possession denotes both occupancy and control or exclusive rights to the space. With the garage gone, half the first floor being rented to someone else, and part of the basement being used by the landlord for services and utilities, that outcome is self-evident.
[29] The tenant cannot practicably maintain continued exclusive possession of the “Premises,” as defined in the lease, once the garage is gone, half the main floor is rented to someone else, and part of the space in the basement is in the possession of the landlord.
[30] The tenant would like to show that she can restructure her business to stay in the remaining, renovated, one-half of the main floor and then she could rent out the second half of the main floor to a new tenant. She ignores the demolition of the garage. Moreover, she is giving herself a right of first refusal on the remodelled premises that she does not have. The lease does not contemplate the landlord investing in remodelling to let the existing tenant reap the increased rental. Rather, it contemplates the landlord desiring to remodel or demolish any part of the leased premises to the specified degree and terminating the lease on six months notice as it has done.
[31] The issues surrounding the evolution of the landlord’s plans and whether the tenant could possibly remain in part of the premises during renovations are all irrelevant. Because the proposed remodeling and demolition deprive the tenant of substantial portions of the “Premises” defined under the lease, her continued possession of the defined “Premises” is impracticable from the get-go. She has no lease to the new, standalone, renovated unit that will emerge where her store was located when under lease.
[32] The tenant argues that to invoke para. 11 of the lease, the landlord must propose work of substantial magnitude “such as changing the fundamental character of the Premises”. No precedent holds that this is required. Para. 11 sets the applicable standard otherwise. Nevertheless, the landlord’s remodeling meets tenant’s proposed test. The landlord’s proposed work changes the building from a single use main floor to two separate and new units. It deprives the tenant of very substantial parts of the property expressly defined as her “Premises” including outright demolition of the garage.
[33] The tenant effectively concedes this outcome. She submits she is entitled to an abatement of rent even if she succeeds. That is, she claims entitlement to a reduction in rent because she will no longer have exclusive possession of the “Premises” she rented. In fact, the “Premises” will no longer exist.
[34] The tenant’s bad faith argument is premised on her view that she is entitled to stay in her unit if she can during the renovations or that the landlord is obligated to structure its remodelling and demolition so as not to terminate the lease. The whole idea that the landlord expanded its plans to show that the tenant could not remain in the premises during construction ignores that from the first sketch proposed before it bought the building, the landlord desired to remodel and demolish in a manner that made continued possession impracticable. It was demolishing the garage and removing from the tenant’s dominion and control one-half of the main floor and part of the basement.
[35] Once para. 11 was invoked by a desire to remodel or demolish to the extent that the tenant’s continued possession would be impracticable, the landlord became entitled to terminate the lease on due notice. It has no ongoing obligation to the tenant concerning the post-termination construction.
[36] Similarly, the fact that the landlord offered the tenant the right to stay for triple the rent is of no consequence. The landlord had its right under para. 11 and was prepared to defer exercising it if the tenant made it worth the landlord’s while. The simple fact that it offered to accept increased rent or, even to put it more harshly, that it told the tenant that it would exercise its right to evict her unless she agreed to pay triple the rent, is not an indication of bad faith. It is simple economics. It bought a property with certain rights and subject to certain defined obligations. It made an investment in rights and obligations and it is ordering its affairs in its own interest in accordance with those contractual rights and obligations. That is how freedom of contract works.
[37] Now, if the landlord were shown to not actually hold the desire to remodel, then its statements might well violate the organizing principle of good faith. One cannot lie when carrying out contractual rights. But the tenant has no evidence at all that the landlord plans to replace her with another tenant without remodeling. The fact that planning work started even before the landlord bought the building or had any contact at all with the tenant takes this issue off the table. There is simply no basis in the evidence to require a trial on the organizing principle of good faith recognized by the Supreme Court of Canada.
Promissory Estoppel
[38] Finally, the tenant alleges that when she renewed her lease in 2020, the former landlord agreed she could stay for a five year term. The tenant’s agreement to stay then is said to form the reliance on which to base an estoppel preventing the landlord from exercising its right to terminate the lease early under para. 11. The tenant’s actual evidence is:
Approximately six months prior to the end of the extended Lease, I spoke with Ms. Lee in January 2020 to discuss the terms of the Tenant's purchase the subject property. Regrettably, we could not agree on the terms of the sale. I thus communicated the Tenant's exercise of the Renewal Option and notified Ms. Lee that the Tenant would renew the Lease for another five-year period, until June 30, 2025. Lee confirmed the renewal of the Lease, and she promised that the Tenant may continue its operations until June 2025.
In March 2020, Ms. Lee and I also agreed on the base rent for the new five-year term, and it was agreed that the Tenant would continue to pay the same base rent at $4,300.00 plus HST per month. Ms. Lee accepted that the base rent of $4,300.00 plus HST per month was fair and reasonable given the general uncertainty in the economy. In reliance on these communications, the Tenant did not seek alternate commercial leasing space.
On March 16, 2020, I delivered by mail a letter to Ms. Lee to confirm the renewal of the Lease and requested that the parties execute a formal renewal agreement. A copy of this letter is attached at "Exhibit 3".
[39] Mr. Choi agrees that the lease renewal was on the same terms and conditions as the prior written lease including the “termination for remodeling” clause in para. 11. The tenant’s note to the landlord that confirms the renewal and is Exhibit 3 to her affidavit, as translated, says:
When shall we sign the renew contract?
[40] For the purposes of this motion only, I accept the tenant’s evidence and ignore that the landlord denies the renewal happened. According to the tenant, the parties agreed to renew the lease for five years. But, even on that evidence, nothing said by the landlord can amount to a promise that it would not exercise early termination rights under the renewed lease. Mr. Choi agreed, for example, that if the tenant failed to pay rent, the landlord would still be able to rely on the early termination right in the lease that applies when a tenant fails to pay rent. He agreed that if the tenant began to commit illegal acts on the premises, nothing prevents the landlord for relying on its early termination right covering that eventuality. He argues that para. 9 of the lease that provides for early termination on fire or other peril actually applies in this case. So, it is not subject to the alleged estoppel. Although in his factum and oral argument, Mr. Choi referred to the landlord “guaranteeing” the tenant five more years, the tenant’s affidavit evidence, in para 12 above was that, “she promised that the Tenant may continue its operations until June 2025” and on that basis the tenant renewed the existing lease on its existing terms.
[41] The tenant does not point to any promise or representation by the former landlord that it would not exercise any of its early termination rights under the renewed lease. She has no basis to say that the early termination right for remodeling is different that the host of other early termination rights in the lease that the tenant agrees are not affected by the renewal even with the landlord’s promise of a further five year term.
[42] Without any evidence of a promise by the landlord that it would not rely on its early termination rights under the lease, there can be no issue of promissory estoppel. There is no triable issue raised on the doctrine of promissory estoppel based on the tenant’s evidence that the landlord promised that she could continue operations for another five years. That was the renewal term to which the parties agreed.
Order
[43] This is not a case of a landlord exercising a right for an improper purpose to surreptitiously undermine the tenant’s right of quiet enjoyment as argued by Mr. Choi. This case involves a risk or contingency that the parties considered and agreed upon. The parties agreed that the tenant’s lease could be ended on the landlord forming the desire to remodel or demolish any part of the leased premises to the requisite degree. The tenant has no right of quiet enjoyment or to posses the premises once the lease is ended under para. 11.
[44] There is no genuine issue requiring a trial on the validity of the notice of termination. I find that it is a valid exercise of the landlord’s rights under para. 11 of the lease. Accordingly the action is dismissed and the counterclaim is allowed.
[45] The landlord may deliver cost submissions no later than May 10, 2021. The tenant may deliver cost submissions no later than May 17, 2021. In addition, the parties may deliver copies of any offers to settle on which they rely. Submissions shall be no longer than three pages. Both parties shall deliver Costs Outlines if they deliver submissions.
[46] All costs material is to be filed through the Civil Submissions Online portal and uploaded to Caselines although counsel will not have received confirmation of the acceptance of their filings from the registrar.
[47] No case law or statutory material is to be submitted. References to case law and statutory material, if any, shall be embedded in the parties’ submissions as hyperlinks to case law.
FL Myers J
Released: May 3, 2021
COURT FILE NO.: CV-20-00652717-0000
DATE: 20210503
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MERIDIAN CC INTL INC. and GUIYAN XIN
Plaintiff/Defendants by Counterclaim
– and –
2745206 ONTARIO INC.
Defendant/Plaintiff by Counterclaim
REASONS FOR JUDGMENT
FL Myers J
Released: May 3, 2021