Court File and Parties
COURT FILE NO.: CV-19-632763 DATE: 20210603
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Tabriz Persian Cuisine Inc Plaintiff
– and –
Highrise Property Group Inc. Defendant
COUNSEL: Esmaeil Mehrabi, for the Plaintiff Angela Assuras, for the Defendant
HEARD: May 26, 27, and 28, 2021
BEFORE: J.T. Akbarali J.
Overview
[1] In this action, the plaintiff tenant seeks damages and punitive damages against the defendant landlord for what it alleges is the defendant’s bad faith and unreasonable refusal to consent to an assignment of lease to a prospective purchaser of the plaintiff’s restaurant business.
Brief Background
[2] Until recently, the plaintiff operated a Persian restaurant in premises leased from the defendant under an Assignment of Lease. The relationship between the parties was not smooth; there was plenty of conflict during the tenancy. In particular, the parties, and the condominium corporation that manages the condominium in which the leased rental unit is located, are involved in separate litigation, brought by the plaintiff, over a patio the plaintiff built on a common area owned by the condominium corporation without having obtained permission from the defendant or the condominium corporation. The plaintiff alleges breach of contract, bad faith, and misrepresentation in that action.
[3] In the fall of 2018, the plaintiff decided to sell its business. Doing so required the defendant to consent to an assignment of lease.
[4] Three times, the plaintiff found a buyer. The plaintiff accepted the first offer to purchase on January 26, 2019. The defendant raised a list of conditions the plaintiff would have to meet before it would consider the request for an assignment of lease, including removing the disputed patio, settling outstanding indebtedness, ceasing the legal action ongoing between the plaintiff, defendant and condominium corporation and paying their costs in full, and making good some alleged damage to the premises, among other conditions. However, the defendant eventually rejected the first buyer because its proposed sushi menu was too similar to the menu of a Japanese restaurant in the condominium complex, such that the assignment would be in breach of a restrictive covenant contained in the existing lease with the Japanese restaurant.
[5] The plaintiff accepted the second offer on May 11, 2019. The second buyer backed out of the deal after a meeting with the plaintiff’s and defendant’s representatives during which the plaintiff alleges the defendant’s representative spooked the potential buyer by claiming rent would increase significantly when the time came to renew the lease. In any event, the defendant indicated that it would not consider the potential assignment of lease until the plaintiff took certain steps, including paying the outstanding debt, dismantling the patio, and rectifying other alleged breaches of the lease. The plaintiff did not take the steps required by the defendant.
[6] The plaintiff accepted the third offer on June 29, 2019. When the plaintiff’s agent contacted the defendant in July 2019 about the third potential buyer, the defendant refused to consider the assignment of lease until the patio was dismantled, and the action against the defendant and the condominium corporation dismissed, although on this occasion the defendant did not demand payment of legal costs. Without an assignment of lease, the third deal to sell the restaurant also fell through.
[7] In this litigation, the plaintiff argues that the defendant behaved unreasonably in refusing to consent to the third assignment of lease. It seeks damages for the loss of the value of the third contract of sale - $200,000. It also seeks punitive damages for what it alleges is the defendant’s bad faith, relying on the totality of the defendant’s dealings with the plaintiff during the plaintiff’s attempts to sell the restaurant to establish the alleged bad faith.
[8] The defendant denies that it refused to consent to the assignment of lease. Alternatively, if refusing to consider the proposed assignments before the plaintiff had rectified the alleged breaches of lease and dismissed or discontinued the litigation amounts to a refusal, the defendant argues the refusal was reasonable. The defendant further argues that the plaintiff has not proven its losses, and denies it acted in a manner that was high-handed, such that no punitive damages award is warranted.
[9] The issues raised in this action are:
a. Did the defendant refuse to consent to the proposed assignment of lease?
b. If so, was its refusal to consent reasonable?
c. If the refusal to consent was not reasonable, is the plaintiff entitled to damages, or was the plaintiff’s remedy limited to an order under s. 23(2) of the Commercial Tenancies Act, 1990, R.S.O. 1990, c. L.7 permitting the assignment to be made?
d. If the plaintiff is entitled to damages, what compensatory damages has the plaintiff proven? Is it entitled to punitive damages?
[10] I first address some preliminary matters, and then turn to an analysis of these issues.
Abandoned Issues
[11] Certain issues were raised in the parties’ pleadings and at trial, but were abandoned.
[12] First, the plaintiff confirmed it has abandoned its claim for aggravated damages.
[13] Second, at the outset of trial, the defendant, for the first time, raised the question of whether the plaintiff was the proper party to this action, noting that the Assignment of Lease at issue was signed by the two individual principals of the plaintiff. It suggested that the plaintiff did not have the right to claim a remedy arising out of the terms of the lease.
[14] The plaintiff noted that the defendant had made a formal admission in its statement of defence that the plaintiff was the lessor under the Assignment of Lease. It argued that the defendant would have to move to withdraw its admission, and lead evidence in support of its motion. The defendant did not then indicate an intention to bring that motion.
[15] After the close of evidence, in closing submissions, the defendant indicated that, if necessary, it was bringing a motion to withdraw its formal admission. This was problematic, because, having not delivered a notice of motion, or even given notice at the outset of trial that it would bring the motion to withdraw its admission, the evidentiary foundation for the motion had not been adduced.
[16] I asked whether I was bound by a formal admission that was incorrect in view of the documents. The defendant noted that it is not clear that the admission is incorrect. In some documents, the plaintiff is referred to as the tenant. Moreover, the Assignment of Lease provides that the individual principals of the plaintiffs are also the guarantors under the lease. The plaintiff asks why the lessors would also be the guarantors? The plaintiff also notes the defendant’s position that the Assignment of Lease contains an error with respect to the storage space to which the plaintiff was entitled. Perhaps it contains more than one error.
[17] After considering the matter further, the defendant indicated it would not bring a motion to withdraw the admission. Accordingly, I proceed on the basis that the plaintiff is the correct tenant under the Assignment of Lease, in view of the admission of the defendant. While a judge has the freedom to interpret what an admission means, “the interpretative exercise cannot morph into an analysis of the veracity of the admission… A formal admission is conclusive of the matter admitted. The court is bound to act on formal admissions before it, even if other evidence contradicts the admission”: Champoux v. Jefremova, 2021 ONCA 92, at para. 34.
Striking Evidence
[18] The witnesses each swore affidavits that functioned as almost all of the witnesses’ examinations-in-chief. An issue arose as to the admissibility of certain paragraphs contained in the affidavit of Mehrdad “Rod” Limoochi, sworn December 11, 2020. Mr. Limoochi is a real estate broker with 17 years’ experience who worked with the plaintiff to market and sell the restaurant. He was involved in the first two offers to purchase the restaurant.
[19] The defendant objected to Mr. Limoochi’s evidence about comments he stated were made by the defendant’s property manager, Mr. William Fung, to the second potential buyer about future rental rates, arguing that Mr. Limoochi strayed into opinion evidence by stating that Mr. Fung acted in a manner contrary to standard business practice, and outside of the normal course of business. The defendant sought to have paragraphs 17 and 19 struck from Mr. Limoochi’s affidavit.
[20] On reviewing the impugned paragraphs, I agreed that portions of the paragraphs were opinion evidence, and no effort had been made to qualify Mr. Limoochi to give it. I thus struck the following:
a. In paragraph 17 – the words “as this is completely contrary to what the standard business practice is;”
b. In paragraph 19 – the words “and out of the normal course of business.”
[21] I now turn to the analysis of the issues.
Did the defendant refuse to consent to the proposed assignment of lease?
[22] The onus to prove the defendant unreasonably refused its consent lies with the plaintiff: Rabin v. 2490918 Ontario Inc., 2021 ONSC 2388, at para. 73.
[23] The defendant argues that it never refused to provide its consent to the assignment; rather, it refused to consider whether to provide its consent until the plaintiff took steps to remedy the alleged breaches of lease, including dismantling the patio, and until the plaintiff discontinued or dismissed the action against the defendant and the condominium corporation.
[24] The defendant relies on Rabin, where Perell J. took judicial notice that it is not uncommon for landlords and tenants to negotiate lease assignment agreements: at para. 56. In Rabin, the landlord sought a new term in the lease as a condition of consenting to the assignment, but the term was not acceptable to the tenant or proposed new tenants. However, Perell J. found that the condition was a proposal made by the landlord, not a refusal to provide consent. The defendant argues that similarly, it had not refused consent, but rather made a proposal in negotiations.
[25] Mr. Zhong Yuan Gao, the principal of the defendant, testified that he viewed the request for an assignment as a good opportunity to get the plaintiff to drop the lawsuit it had brought against the defendant and condominium corporation. Mr. Gao indicated his main consideration was not to leave any issue between the parties unresolved. He testified that he would have consented to the assignment had the plaintiff done what the defendant had asked.
[26] There is no indication in the evidence that the defendant would have been prepared to negotiate the terms that it required the plaintiff to fulfil before considering the proposed assignment. Although Mr. Gao testified that he would have consented to the assignment if the tenant had done what the defendant had asked of it, that evidence does not appear in his affidavit, nor is it consistent with the documentary evidence, nor the evidence of Mr. Fung, who communicated Mr. Gao’s terms to the plaintiff. I find that the defendant was not prepared to consider the assignment of lease unless and until the plaintiff remedied all the items demanded by the defendant, including dismissing the lawsuit, and that this was not its negotiating position, but rather, its decision.
[27] Unlike in Rabin, where the landlord would have consented to the assignment had its proposal about the new term of the lease been accepted, the defendant’s consent to the assignment was not conditional on the plaintiff remedying the items set out by the defendant. There was no guarantee the defendant would consent to the assignment even had the plaintiff done everything the defendant wanted. The defendant only promised to consider the assignment request once the plaintiff fulfilled the conditions it laid out.
[28] In my view, the defendant’s unwillingness to negotiate terms, and the fact that its demands included a dismissal of the action the plaintiff had brought against it and the condominium corporation before it would even consider an assignment of lease amounted, practically speaking, to a refusal.
[29] In reaching this conclusion, I rely on my conclusion, in paras. 62-65 below, that it was unreasonable for the defendant to require the plaintiff to dismiss the action against the defendant and condominium corporation as a pre-condition to the defendant considering the proposed assignment. Since the defendant demanded an unreasonable condition be met as a pre-requisite to considering the proposed assignment, it is appropriate to view the defendant’s position as a refusal.
Refusal to Consent to the Assignment of Lease
The Applicable Legal Principles
[30] The leading case on this issue is the decision in 1455202 Ontario Inc. v. Welbow Holdings Ltd. (2003), 2003 10572 (ON SC), 33 B.L.R. (3d) 163 (Ont. S.C.), where, at para. 9, Cullity J. described the relevant principles to apply when considering the reasonableness of a landlord’s refusal to consent to an assignment of lease. Of relevance here:
The burden is on the tenant to satisfy the court that the refusal to consent was unreasonable. In deciding whether the burden has been discharged, the question is not whether the court would have reached the same conclusion as the landlord or even whether a reasonable person might have given consent; it is whether a reasonable person could have withheld consent.
In determining the reasonableness of a refusal to consent, it is the information available to – and the reasons given by - the landlord at the time of the refusal - and not any additional, or different, facts or reasons provided subsequently to the court - that is material. Further, it is not necessary for the landlord to prove that the conclusions which led it to refuse consent were justified, if they were conclusions that might have been reached by a reasonable person in the circumstances.
The question must be considered in the light of the existing provisions of the lease that define and delimit the subject matter of the assignment as well as the right of the tenant to assign and that of the landlord to withhold consent. The landlord is not entitled to require amendments to the terms of lease that will provide it with more advantageous terms, but, as a general rule, it may reasonably withhold consent if the assignment will diminish the value of its rights under it, or of its reversion. A refusal will, however, be unreasonable if it was designed to achieve a collateral purpose, or benefit to the landlord, that was wholly unconnected with the bargain between the landlord and the tenant reflected in the terms of the lease.
The question of reasonableness is essentially one of fact that must be determined on the circumstances of the particular case, including the commercial realities of the marketplace and the economic impact of an assignment on the Landlord. Decisions in other cases that consent was reasonably, or unreasonably, withheld are not precedents that will dictate the result in the case before the court.
[31] In Zellers Inc. v. Brad-Jay Investments Ltd., [2002] O.J. No. 4100 (S.C.J.), at para. 26, Mesbur J. held that, in considering whether the landlord’s refusal to consent is unreasonable, the court looks first at the covenant in the context of the lease to ascertain its purpose. The court looks at all the circumstances of the case. “No rigid rules govern the types of reasons that the court may take into account when deciding the question of reasonableness. The test must always have regard to the contractual matrix, and the test should encompass consideration of the surrounding circumstances, the commercial realities, and the economic impact of the change of use on the landlord within the context of a ‘reasonable person’ standard.”
[32] As Perell J. put it in Rabin, the modern law does not limit the landlord to any particular criteria, and allows the landlord to consider the surrounding circumstances, the commercial realities of the marketplace, and the economic impact of an assignment or sublease: at para. 7. A landlord will not be acting reasonably if its refusal to consent is merely capricious or arbitrary in the sense of being without any reasonable ground. The landlord must exercise its discretion to refuse to consent to an assignment or a sublease in good faith and not for a collateral purpose: Rabin, at paras. 14-16.
[33] In Tradedge Inc. v. Tri-Novo Group Inc., 2009 22578 (Ont. S.C.) at para. 3, Lauwers J. (as he then was), citing Dominion Stores Ltd. v. Bramalea Ltd., [1985] O.J. No. 174, at para. 34, held that the withholding of consent was unreasonable no matter what grounds were advanced as supporting the refusal where the landlord’s sole purpose of withholding consent was to secure a new advantage uncontemplated by the terms of the lease.
[34] In Royal Bank of Canada v. Oxford Medical Imaging Inc., 2019 ONSC 1020, at para. 50, McEwen J. held that there is an obligation on a landlord to consider requests for a proposed assignment, particularly where the landlord has no particular reason to believe that the proposed assignee is undesirable.
[35] However, a landlord may be acting reasonably in setting conditions that must be fulfilled before consenting to the assignment of the lease. In Federal Business Development Bank v. Starr, 1986 2534 (ON SC), 28 D.L.R. (4h) 582 (Ont. H.C.J.), the tenant was in default of the lease for not having performed the covenant to maintain and repair the property. Donnelly J. held that the landlord was not unreasonable when he required that the leased premises be properly repaired as a condition precedent to consenting to the assignment of lease.
[36] Similarly, in Aspostolopoulos v. Saitis, [1997] O.J. No. 5642 (Ont. Ct. (Gen. Div.)), at para. 39, the court held that a landlord was within his rights to require that a tenant’s indebtedness be discharged (among other things) before agreeing to the assignment of the lease.
[37] Against this backdrop, I turn to consider the evidence with respect to the defendant’s refusal to consent to the Assignment of Lease.
Was the defendant’s refusal to consent to the Assignment of Lease reasonable?
[38] Under the terms of the lease, the tenant may only assign the lease with the prior consent of the landlord “in each instance which consent may not be unreasonably withheld or delayed.” The term provides that it will not be considered unreasonable for the landlord, when deciding whether to grant consent to the assignment, to take into account:
a. Whether the transfer is contrary to any covenants or restrictions granted by the landlord to other existing or prospective tenants or occupants of the building;
b. Whether in the landlord’s opinion the financial background, business history and capability of the transferee are satisfactory, and
c. Whether the landlord will have in the next ensuing three-month period other premises elsewhere in the building which might be suitable for the needs of the transferee.
[39] However, a tenant who is not in default under the lease may unilaterally transfer its interest under the lease to any holding body corporate, subsidiary body corporate or affiliate of the tenant, without the consent of the landlord, subject to certain conditions.
[40] It is apparent that the three factors the lease specifies as not unreasonable for the landlord to take into account when considering a proposed assignment are not engaged on the facts of this case. There is no evidence before me that an assignment of lease to the third prospective buyer would be in breach of any existing covenants or restrictions. Nor is there evidence that there were concerns about the financial background, business history or capability of the proposed third buyer. Finally, there is no evidence that the defendant had other suitable premises available or coming available that might have been suitable for the third prospective buyer.
[41] Rather, the defendant here rests its refusal to consent to the assignment of lease on the following grounds:
a. The plaintiff was in breach of the lease in the following respects:
i. It had failed to remove the patio it built as the landlord and condominium corporation had requested;
ii. It had failed to remove a gas line that it had constructed without permission, including in the common areas of the condominium corporation;
iii. It had failed to keep its items within the 100 sq ft of the basement storage space that had been allotted to it;
b. It had failed to dismiss or discontinue the litigation the plaintiff brought against the landlord and condominium corporation with respect to the patio.
[42] With respect to the alleged breaches of lease, I note that the demands made by the defendant changed with each potential buyer. When the first offer was accepted, the list of items the defendant required to be remedied was long, and included the removal of the patio, the payment of the then-outstanding indebtedness which the defendant calculated to be in the amount of $6,258.28, the removal of the gas line, and the dismissal of the action and payment of costs. At that time, the defendant said nothing about the basement storage space.
[43] When the second offer was accepted, Mr. Fung again advised the plaintiff that for the assignment to proceed, the lease had to brought into good standing and the defaults had to be remedied, including the removal of the patio, the outstanding indebtedness (which by then had been partially paid only) had to be paid in full, and the collection of the plaintiff’s items had to be returned to the allocated storage space in the basement.
[44] By the time of the third proposed assignment, the defendant required the plaintiff to remove the patio and dismiss the action against it before it would consider whether to consent. By then, the indebtedness had been paid in full and was no longer an issue; however, no mention was made of the gas line or the basement storage.
[45] As early as February 2019, the plaintiff had indicated that it would do much of what the defendant asked of it. On February 4, 2019, the plaintiff’s representative, Pegah Ziaei Gargani, wrote to Mr. Fung advising that the plaintiff was willing to do what had been asked of it except pay for the defendant’s and condominium corporation’s legal costs.
[46] Subsequently, on February 11, 2019, the plaintiff’s counsel wrote to Mr. Fung (incorrectly named as Mr. Hung in correspondence) and indicated that the plaintiff “has indicated that they will be taking down the patio, remove the gas line, pay the outstanding $6,258.24 and repair the necessary areas.” Counsel went on to state that the ongoing litigation is not relevant to a consideration of the assignment of the lease agreement.
[47] This wording suggests an implicit acknowledgement that the other alleged defaults under the lease were relevant considerations to the landlord’s consent. Moreover, the letter indicates that the plaintiff “will” meet the defendant’s demands, except as they related to the dismissal of the litigation.
[48] Later, when the defendant had been asked to consider the third potential buyer as a transferee, Mr. Fung and Ms. Gargani had an exchange of emails. On July 11, 2019, Ms. Gargani wrote to Mr. Fung noting that the plaintiff had “already agreed to remove the deck and withdraw legal action when you are ok with new tenants and accept the lease transfer.” She proposed placing the condition that the defendant would accept the assignment of lease upon the plaintiff removing the deck and withdrawing their lawsuit. Mr. Fung indicated this was not acceptable; the patio had to be removed and the action withdrawn before the defendant would consider the assignment. Ms. Gargani responded, asking what guarantee the plaintiff had that the defendant would accept the third potential buyer if it proceeded to remove the patio and withdraw the lawsuit. Mr. Fung simply reiterated the defendant’s demands in his response.
[49] Although the plaintiff indicated, back in February 2019, that it was going to remove the patio and address the other alleged breaches of lease, it largely failed to do what it promised.
[50] For example, the evidence indicates that the gas line the plaintiff installed remains on the premises. The gas line installation was started by the plaintiff because it hoped to convert its kitchen to gas. It eventually realized that the required hood would be too expensive, so it ceased its efforts to install the gas line. The gas line was never used nor operational. Ms. Gargani testified that she discussed the issue with Mr. Fung, and advised that the work the plaintiff had done had a value of about $5,000-$6,000 and might be of interest to another tenant in the future. Ms. Gargani’s view was that the defendant agreed that it did not require the removal of the gas line. This is not consistent with the evidence, where the gas line is identified as a matter that needed to be remedied, at least in January 2019. The installation of the gas line was a breach of s. 8.02 of the lease, which prohibited the tenant from making any repairs, alterations or improvements to the leased premises without first obtaining the defendant’s written approval. However, in my view, the evidence does not support a conclusion that the gas line had anything to do with the defendant’s refusal to consent to the third proposed assignment of lease. The defendant indicated that it would consider the third proposed assignment of lease once the patio and the litigation had been addressed.
[51] The evidence about the storage area is less clear. While the defendant indicates that it advised the plaintiff where in the basement it could store its things, the lease sets out no such restriction. The defendant claims this is a mistake in the lease. Perhaps the lease does not reflect what the defendant wanted in the storage terms. But in my view, it would not be reasonable for the defendant to rely on a breach of a provision not contained in the lease, even if it were omitted in error, in refusing to consider an assignment of lease – especially a provision relating to improper storage of articles, a matter that presumably would be addressed on the tenant’s departure. But in any event, like the gas line, the basement storage issue was not raised in the context of the third assignment of lease.
[52] In terms of defaults under the lease, the one that really mattered was the patio. Although the plaintiff’s counsel indicated back in February 2019 that the plaintiff would remove the patio, it never did. The evidence indicates that, sometime in 2020, the condominium corporation took steps to remove the patio and has billed the landlord about $6,000 for the expense of doing so.
[53] The patio is the subject of the litigation that is currently ongoing between the plaintiff, defendant, and condominium corporation. I am cognizant of the fact that the evidence before me is not the entirety of the evidence that will be led in the trial of that litigation, and as a result, I am disinclined to make significant findings of fact regarding the events that transpired with respect to the patio, beyond those absolutely necessary for the disposition of this action.
[54] What is clear is this: the leased premises did not include the patio space. Prior tenants had used the patio space for outdoor dining. The outdoor dining space had been surrounded by a railing. The plaintiff may have thought it could use the space also, but it was concerned with the safety of the area due to significant difference in grading. It constructed a patio in a common area belonging to the condominium corporation without permission from the condominium corporation or the defendant.
[55] Attempts to resolve the problem were unsuccessful. The defendant refused to sign an alteration agreement that would have allowed the plaintiff to continue to use the patio. The plaintiff did, however, use the patio in 2018 and 2019. It did not pay rent to anyone to do so, though presumably that failure forms part of the other litigation.
[56] Much was made during evidence about the difference between a patio and a deck. The defendant argues that the plaintiff was never prepared to remove the whole patio, but only the wooden flooring of the deck. Ms. Gargani seemed puzzled by the whole dispute. She was under the impression that she was to return the area to its original condition, which required the removal of the wooden flooring but the maintenance of a railing.
[57] In the end, the hand wringing over patio versus deck is a distraction only. If the plaintiff were willing to take down the wooden flooring, it would have been willing to take down the railing too. That would have been both easier and cheaper. There may have been misunderstandings between the parties about what was asked in terms of removal, but that is not the issue.
[58] The issue is that, despite saying it was willing to remove the patio, the plaintiff never did. The patio was constructed in an area outside the leased premises, when the lease required that the plaintiff not obstruct the sidewalks, entrances or passages, and that the plaintiff not place or maintain any supplies, merchandise or other articles in any footwalks adjacent to the leased premises or elsewhere on the exterior of the leased premises.
[59] Moreover, the agreement of purchase and sale the plaintiff signed with the third buyer included a provision stating that “upon completion of the deal the Seller shall remove at it’s [sic] own expense the wooden deck structure of the patio. The patio itself and the railing shall remain as shall the use of said patio.”
[60] The agreement of purchase and sale was provided to the defendant. Leaving aside the confusion about whether the railings were to be removed or not, the agreement of purchase and sale specifies that the purchaser will have use of the patio space, when the plaintiff knew that the patio space did not form part of the leased premises, was owned by the condominium corporation, and its use of the space had led it to commence litigation against the defendant and condominium corporation.
[61] In these circumstances, I conclude that the defendant was acting reasonably in requiring the patio to be removed before consenting to the assignment of lease. In insisting on this condition precedent, the defendant was not seeking to improve its position under the lease, but rather, to bring the status of the leased premises in line with what the lease provided. It is not reasonable to expect the defendant to consent to an assignment of lease in circumstances that are going to perpetuate the patio problem that had plagued the parties for years. The commercial realities facing the defendant, and the surrounding circumstances, make this a reasonable consideration, even if it is not one of the three factors specifically set out in the lease. I do not view those three factors as the exclusive bases on which the defendant could reasonably refuse consent to an assignment. No one argued that they were exclusive factors in any event.
[62] However, there is also the matter of the defendant’s demand that the plaintiff discontinue or dismiss the lawsuit it had launched against the defendant and condominium corporation. I turn to consider the reasonableness of this factor.
[63] In Cvokic v. Belisario, 2008 35269 (Ont. S.C.J.), at paras. 26-27, the landlord refused to consent to an assignment of lease unless the tenant dismissed a lawsuit against them in which claims of assault and interference with the tenant’s right to quiet enjoyment of lease were made. The court found the withholding of consent was unreasonable, because the landlord was trying to achieve a collateral purpose or benefit that was wholly unconnected with the bargain between the landlord and tenant reflected in the terms of the lease.
[64] In my view, demanding that the plaintiff give up its rights in litigation against, not just the defendant, but also the condominium corporation, is a collateral purpose. While the other litigation is not wholly unconnected to the lease – it arises as a result of the parties’ contractual landlord-tenant relationship – in my view, the allegations in the other litigation of breach of contract, bad faith, and misrepresentation with respect to the events that transpired around the construction of the patio, and the subsequent negotiations as to its use, are not relevant or proper considerations in the context of the request to consent to the assignment of the lease. The dismantling of the patio is one thing: it is reasonable for the defendant to want to ensure that the issues around the use of the patio would not continue with a new tenant. However, trying to use its greater bargaining power to secure a dismissal of the action in which the plaintiff may be asserting legitimate rights is not connected to the request to assign the lease.
[65] Thus I find that, while the defendant acted reasonably in refusing to consent to the assignment of lease based on the plaintiff’s failure to remove the patio, the defendant also acted in furtherance of a collateral purpose with respect to its requirement that the plaintiff dismiss the other litigation. What is the impact of the defendant having both reasonable and unreasonable grounds to refuse to consent to the assignment of the lease? Neither party provided law that directly answered this question.
[66] In Welbow Holdings, Cullity J. held that the question to ask was whether a reasonable person could have withheld consent.
[67] This phrasing was adopted by McEwen J. in Oxford Medical Imaging, at para. 9. Justice McEwen then went on to frame the question in terms of the sufficiency of the landlord’s reasons, or how crucial the reason was. He wrote, at para. 59:
In my opinion, the additional reason provided by the Landlord in the letter – that the Tenant was in default of an obligation to perform certain renovations to the Premises – would not, in the circumstances, be sufficient in itself to justify the Landlord’s refusal to consent. Nor do I believe that, in view of the substantial measure of agreement that had been reached on this question, it would have been a crucial consideration.
[68] I thus conclude that, where a landlord’s reason for withholding consent is sufficient to find that, based on the reason, a reasonable person could have withheld consent, the fact that the landlord has another, improper, purpose on which a reasonable person could not have withheld consent does not matter. Put another way, a reasonable basis to refuse consent saves a co-existing tainted purpose.
[69] In this case, there is sufficient basis on which a reasonable person could have withheld consent – the failure to remove the patio. Moreover, this is not a case where the defendant refused consent based only on an improper consideration. The failure to remove the patio was, in fact, one of the reasons the defendant withheld consent.
[70] The defendant thus had a reasonable basis to refuse consent. The plaintiff’s action is dismissed.
Damages
[71] In view of my conclusion, it is not necessary for me to consider the issues raised regarding the plaintiff’s claims to damages and punitive damages. However, for completeness of the record, I will make a few comments on the damages arguments raised.
[72] First, with respect to whether a claim for damages lies from a landlord’s unreasonable failure to consent to an assignment of lease, the defendant relies upon the 1914 decision of the Ontario Court of Appeal in Cornish v. Boles (1914) 1914 527 (ON CA), 19 D.L.R. 447, which held that a tenant in such circumstances does not have a right of action for damages, but only the right to apply to a judge for an order permitting the assignment of sublease to be made. In Ontario, this application is made under s. 23(2) of the Commercial Tenancies Act, and it is in this context that much of the law regarding reasonableness of refusal has come about.
[73] The plaintiff relies on the decision of the Supreme Court of British Columbia in Cudmore v. Petro Can. Inc., 1986 1030 (B.C.S.C.), where the court found (back in 1986) that it is time to modernize the law relating to remedies for an unreasonable refusal to consent to an assignment of lease. In Cudmore, the court concluded that the old bar against recovering damages ought to be reconsidered in light of the modern trend in favour of treating leases not simply as conveyances, but also as contracts. It noted the decision of the Supreme Court of Canada in Highway Properties Ltd. v. Kelly, Douglas & Co., 1971 123 (SCC), [1971] S.C.R. 562, where the Court held, at p. 576, that “it is no longer sensible to pretend that a commercial lease…is simply a conveyance and not also a contract. It is equally untenable to persist in denying resort to the full armoury of remedies ordinarily available to redress repudiation of covenants, merely because the covenants may be associated with an estate in land.”
[74] In Cudmore, at para. 20, the court held that it was incumbent on the courts to adapt and react to changes in the society in which they operate. It found that recognizing that the requirement that refusal to consent to an assignment of a lease must be reasonable should no longer be considered to be a qualification of the lessee’s covenant, but rather a covenant on the part of the lessor subject to the remedy of damages. It found that this approach recognizes and responds to the needs and demands of today’s society.
[75] I agree. In my view, the Supreme Court of Canada’s decision in Highway Properties has overtaken the decision in Cornish. Consistent with Highway Properties, I therefore recognize the need for the common law to permit damages as a remedy that flows from a landlord’s unreasonable refusal of consent to an assignment of lease.[^1]
[76] Second, with respect to the plaintiff’s claim for compensatory damages, I note that it sought $200,000, which was the sale price of the business under the agreement of purchase and sale with the third purchaser. The plaintiff’s damages claim suffers from two significant problems. First, the plaintiff has adduced no evidence of the value of the business. I can see no principled reason why the plaintiff is entitled to both, the business with whatever residual value it has, and the full amount of the purchase price. Second, the claim for damages has not been reduced by the costs that the plaintiff would have incurred to close the sale, including real estate commissions and legal fees. The plaintiff’s damages are thus, at the very least inflated. Depending on the residual value of the business, the damages may be non-existent. Damages have not been adequately proven.
Costs
[77] At my request, the parties provided their costs outlines to the court at the end of the trial. I encourage the parties to resolve the question of costs. If they are unable to do so, I will receive written submissions as follows:
a. The defendant may file written submissions of no more than three pages, plus any offers to settle, within one week of the release of these reasons;
b. The plaintiff may file responding submissions of no more than three pages, plus any offers to settle, within one week of receipt of the defendant’s submissions;
c. The defendant may file reply submissions of no more than one page within two business days of receipt of the plaintiff’s submissions.
Conclusion
[78] The plaintiff’s action is dismissed.
J.T. Akbarali J.
Released: June 3, 2021.
COURT FILE NO.: CV-19-632763 DATE: 20210603
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Tabriz Persian Cuisine Inc Plaintiff
– and –
Highrise Property Group Inc. Defendant
REASONS FOR JUDGMENT
J.T. Akbarali J.
Released: June 06, 2021
[^1]: I note that two Ontario cases have considered damages to be an appropriate remedy flowing from a landlord’s unreasonable withholding of consent. In Cvokic, the court made an award of damages. In Tradedge, Lauwers J. directed a trial of an issue with respect to the damages that the landlord might owe to the applicant as a result of the breach of the lease. It does not appear that Cornish or Highway Properties was drawn to the attention of either of those courts. As a result, I do not find the decisions helpful in my consideration of this issue.