Overview

[1] This is a dispute between the Applicant/subtenant Drop and Run Inc. (“Drop and Run”) which is a shipping and delivery company, and the Respondent/sublandlord health care clinic, Integral Health Group Inc. (“Integral Health”), regarding the terms of their two-year commercial tenancy sublease for premises located at 420 Britannia Road East, Unit 108B, in Mississauga. The sublease began on June 1, 2019 and ended May 31, 2021.

[2] On September 7, 2020, Integral Health locked Drop and Run out of the premises for non-payment of rent. Drop and run contends that the lockout was unlawful because it had paid reduced rent in full compliance with an oral agreement made with Integral Health to reduce its monthly rent by 75%. Integral Health denies that there was any amendment to the sublease terms.

[3] On October 2, 2020, Drop and Run brought an Application, on notice, for an interim injunction. Integral Health did not attend. Mandhane J. granted an interim interlocutory injunction, which enabled Drop and Run to re-enter the leased premises and continue its operations. Drop and Run was locked out of the premises for a total of 26 days.

[4] In early 2021 this Court denied Integral Health’s motion for an urgent hearing to declare the tenancy at an end. On May 19 and 20, 2021 I heard Drop and Run’s Application. Integral Health intended to argue its motion also, however, in view of the fact that the lease period had less than two weeks to run by that time, it was not necessary to determine that issue. Integral Health confirmed to the Court that it would not interfere with the remaining period of Drop and Run’s sublease. Drop and Run correspondingly agreed that it would comply with the sublease terms and vacate the premises by May 31, 2021.

Issues to be determined and position of the parties:

[5] Originally, the Application issued in September 2020 sought a declaration of validity of the amended sublease and an order for relief from forfeiture. However, by the time the Application was argued on May 19 and 20, 2021, the only issue for determination is whether Integral Health was lawfully entitled to lock Drop and Run out of the premises on September 7, 2020. That issue turns primarily on whether the parties orally agreed to amend their sublease agreement to reduce the rental payments by 75%.

Position of parties:

[6] The lease is now at an end. Each party claims the other breached the terms of the lease. If Drop and Run succeeds in proving that the lockout was unlawful, it claims damages for business losses flowing from the 26 days it was locked out. Should the Applicant fail to prove the existence of an agreement to reduce the rent, the Respondent Integral Health seeks damages in the amount of all unpaid rent due under the terms of the sublease. Both parties seek their costs.

[7] For the reasons below, I find that Integral Health was entitled to lockout Drop and Run in the manner it did. The Application by Drop and Run is dismissed with costs.

Relevant facts:

[8] There is no dispute that the parties’ commercial sublease:

• was for a 24-month term commencing June 1, 2019 and ending May 31, 2021;

• that the agreed monthly rent for the first year was $24.00/sq ft of the leased premises; which amount increased to $25.20/sq. ft beginning June 1, 2020;

• that the sublease was approved as required by the head landlord of the premises;

• that the terms of the lease did not preclude oral amendments to its terms;

• that Drop and Run paid first and last months’ rent as required at the beginning of the subtenancy;

• that for the first 10 months of the subtenancy, Drop and Run paid its full monthly rent each month;

• rental payments for those first 10 months were made to Integral Health at or near the beginning of each month, without objection from Integral Health;

• that Drop and Run began paying only 25% of its rent to Integral Health commencing April 2020;

• that Drop and Run was locked out of the premises on Sept 7, 2020 for non-payment of rent;

• at the time of the lockout, Integral Health demanded payment of the missing 75% of the rent from the previous months;

• that Drop and Run did not accede to that demand, and instead commenced an Application seeking injunctive relief;

• That Integral Health had notice of the injunction Application but did not attend or file any materials;

• that Drop and Run obtained an interim and interlocutory injunction from Mandhane J. on October 2, 2020, and re-entered the premises on that date;

• That Integral Health’s subsequent motion to end the subtenancy and for other relief was deemed not urgent by the Superior Court in January 2021 under the terms of pandemic-related protocols; and

• that Drop and Run therefore continued operating from the leased premises until the end of the lease May 31, 2021.

Issues:

[9] The first issue I must determine is whether the parties entered into an oral agreement to amend the lease to reduce the subtenant’s rental payment to 25% effective April 2020.

[10] If I find such an amending agreement was made, it follows that the subtenant did not breach the terms of the lease, should not have been locked out, and that the sublandlord is accordingly liable for its damages and costs.

[11] If the evidence does not establish that an amending agreement was made, it follows that the tenant was in breach of the lease when it cut its rental payments by 75%. In that event, Drop and Run raises a second issue: whether the lockout was precluded by the 2020 amendments to the Commercial Tenancies Act, R.S.O., 1990, c. L. 7 (“Commercial Tenancies Act”).

[12] Both parties filed affidavit evidence in support of their positions.

Issue 1: Did the parties agree to amend the lease?

Legal framework

[13] I agree with the parties that the terms of their sublease did not prevent them from making an oral agreement to amend its payment terms. It is common ground that the burden of proving the existence of the alleged oral contract falls on the party seeking to rely on it: in this case, the Applicant Drop and Run. It bears the evidentiary onus of proving, on a balance of probabilities, the existence of the alleged amendment.

Evidence and Factual findings

[14] Drop and Run relies on the affidavit evidence of its principal, Mr. C. Batchelor. Mr Batchelor alleges that he met with Integral Health’s principal, Mr. Y. Stefanov, in March 2020 at Mr. Stefanov’s invitation. At the meeting the two men discussed the impact of the COVID-19 pandemic on Drop and Run’s business.

[15] Mr. Batchelor’s evidence is summarized as follows in the Applicant’s factum at paras 37 and 38:

“Mr. Stefanov made assurances to Mr. Batchelor regarding rental payments and the CECRA that were intended to, and did, affect the legal relationship between Drop and Run and Integral Health. Mr. Stefanov offered Mr. Batchelor reduced and deferred rental payments during the COVID-19 period because Integral Health would be obtaining financial assistance under the CECRA [Canada Emergency Commercial Rent Act]”

[16] Mr. Batchelor does not specify the date on which the meeting took place, but is certain that it was in the month of March 2020. Nor does he point to any subsequent communications between the parties confirming the rent reduction agreement.

[17] Further, the Applicant argues that the terms of a binding oral amendment to the sublease can be inferred from Integral Health’s subsequent conduct. Specifically, Drop and Run points to the fact that Integral Health cashed their 25% rent cheque payments made in May (for April and May), June, July and August 2020, and made no objection to the amount paid.

[18] Integral Health filed the affidavit of its principal Mr. Stefanov (sworn March 15, 2021). Mr. Stefanov denies that he met with Mr. Batchelor in March 2020. There was no reason to do so, as Drop and Run had paid its full rent that month. Mr. Stefanov does describe a discussion with Mr. Batchelor in April 2020, and that he understood from Mr. Batchelor that Drop and Run’s business was suffering due to the pandemic, as was the business of Integral Health.

[19] Mr. Stefanov denies at any time agreeing to a rent reduction with Mr. Batchelor. After the federal CECRA program was announced in April 2020, Integral Health hoped that it could make an Application for CECRA but required evidence from Drop and Run about its business losses to include in the Application. Integral health gave Drop and Run information about the attestation of business losses which it was required to complete as part of the sublandlord’s application for financial assistance. Although Drop and Run disputes receiving such information, I find on the record that it was advised about the CECRA requirements by email and by documentation delivered to its premises.

[20] Drop and Run does not deny that it did not provide any documentation of its business losses to either Integral Health or their head landlord. Drop and Run insists that the 75% rent reduction given by Integral Health was not based on any condition or requirement for Drop and Run to substantiate its alleged financial losses due to the pandemic.

[21] Mr. Stefanov deposed that pursuant to the terms of its lease with the head landlord, Integral Health was required to make full rental payments throughout the same period. When Drop and Run began to pay only 25% of the monthly rent, Integral Health had to cover the 75% shortfall out of its own pocket. This was an additional hardship on Integral Health, which had itself been required to close for three months early in the pandemic and was suffering financial losses accordingly.

[22] Where the evidence of Mr. Batchelor conflicts with that of Mr. Stefanov, I prefer the evidence of Mr. Stefanov. His evidence is consistent with the timelines of announcement of the CECRA program and the financial realities of the parties that each describes. I accept Mr. Stefanov’s evidence that Integral Health provided information about the requirements of the CECRA program to Drop and Run, and that Drop and Run was told it was required to confirm its business losses, and that Drop and Run did not do so.

[23] I agree with the Respondent that it was not credible that Mr. Stefanov could discuss a program with Mr. Batchelor in March 2020 as alleged, when the evidence shows that the program was not announced until April 2020. Mr. Batchelor’s evidence is additionally improbable, in that it provides no explanation of what consideration was advanced by Drop and Run in exchange for a 75% rent reduction in March 2020.

[24] Mr. Stefanov’s evidence, by contrast, is supported by documentation of communications from the Integral Health asking for full rental payment after Drop and Run reduced its rent payments down to 25%. The record establishes that these communications from the sublandlord started informally, by text on or about June 6, 2020, and were happening at the same time that Integral was asking Drop and Run to provide information required for it to make a CECRA Application on their joint behalf.

[25] The record of communications in the summer of 2020 is consistent with Integral Health giving Drop and Run a fair opportunity to provide business loss evidence for a CECRA Application. It was patient with late and short rent payments, but continued to ask for full payment. I do not agree with Drop and Run’s submission that the actions of Integral Health support an inference of the binding rent reduction agreement alleged.

[26] The CECRA applications were due by August 31, 2021. The evidence supports Integral Health’s position that it was unable to complete and file an application without the eligibility information required from Drop and Run.

[27] Indeed, when the CECRA Application deadline passed without Drop and Run providing any supporting documentation, and it did not pay its rent arrears despite what I find to have been multiple requests to do so, Integral Health locked its subtenant out of the premises on September 7, 2020.

[28] I accept the evidence of Integral Health, that as the sublandlord with its own lease payments due to the head landlord every month, it was not in a position to reduce the subtenant’s rent, and that the shortfall was paid from its own pocket. There was no evidence of any rental relief for Integral Health in 2020.

[29] The alleged oral rent reduction makes no commercial sense in this context, especially given the uncontradicted evidence that Integral Health’s health care business was suffering at least as much, if not more, than the Applicant’s shipping business as a result of pandemic restrictions.

[30] As referenced earlier, the onus is on Drop and Run to prove on a balance of probabilities that an oral agreement was reached. For the reasons above, I conclude that the Applicant has not met its evidentiary onus. I find that the terms of the parties’ sublease was not amended as alleged by the Applicant.

Issue #2: Was Integral Health entitled to lockout the Applicant for non-payment of rent?

[31] The Applicant did not dispute that the Commercial Tenancies Act permits a remedy of lockout to landlords where a tenant has breached the terms of its lease by failing to make the rental payments required.

[32] Drop and Run argued that it had not been given appropriate notice prior to lockout; and further, that pandemic-related amendments to the Commercial Tenancies Act precluded a landlord from locking out a commercial tenant on September 7, 2020.

[33] With respect to sufficiency of notice, the evidence of Mr. Stefanov, supported by the documentary record, shows that Integral Health asked Drop and Run formally and informally, by text, email, and eventually with a lawyer’s letter in August 2021, to pay the rent owing. Drop and Run was wholly unresponsive to these requests, and at no time responded with reference to any alleged binding oral agreement made with Mr. Batchelor in March 2020.

[34] I find that Drop and Run had no legal basis to reduce its rental payments, effective April 2020, that Integral Health asked it on several occasions from June through August 2020 to pay the accruing arrears. The evidence establishes that Drop and Run was given sufficient notice prior to the lockout.

Statutory prohibitions on evictions

[35] Drop and Run argues that pandemic-related amendments to Ontario’s Commercial Tenancies Act prevented Integral Health from locking it out on September 7, 2020.

[36] I have reviewed the parties’ oral and written submissions on this point, and the case law filed.

Ontario’s Bill 192:

[37] On June 18, 2020 Ontario’s Bill 192, Protecting Small Business Act, 2020 received Royal Assent. This Bill provided some protections for commercial tenants and prevented evictions of small businesses that were negatively impacted by COVID-19 and the government-mandated lockdown measures.

[38] Bill 192 applied to landlords that fulfilled one of these two criteria: (1) The landlord is eligible to receive assistance under CECRA or (2) the landlord would be eligible to receive assistance under CECRA if they entered into a rent reduction agreement with the tenants.

[39] The evidence does not support a finding that sublandlord Integral Health, or the head landlord, were eligible under the terms of CECRA to receive assistance. The parties before me did not dispute that the CECRA eligibility criteria required landlords to file business loss evidence from tenants as part of the application.

[40] In short, on this point, the evidence establishes that it was Drop and Run’s refusal to provide the required financial attestation or information which precluded the sublandlord and head landlord from falling within the scope of Bill 192.

[41] I note further that the restriction on evictions in Bill 192 ended on September 1, 2020. Bill 192 was therefore not a statutory restriction on the lockout of Drop and Run which took place on September 7, 2020.

Ontario’s Bill 204:

[42] Bill 204, which came into force on October 1, 2020 as the Helping Tenants and Small Businesses Act, 2020, S.O. 2020, c. 23, reinstated the previous restriction on commercial tenant evictions effective October 1, 2020.

[43] Whether Integral Health’s lockout of Drop and Run on September 7, 2020 would have been considered unlawful as of the beginning of October was not specifically argued before me. It was not necessary to do so, because Drop and Run’s interlocutory injunction was granted on October 2, 2020, with the result that they re-entered the premises and resumed business as of that date.

[44] In conclusion on this issue, I find that on September 7, 2020, the Commercial Tenancies Act did not preclude Integral Health for locking out Drop and Run for breach of their commercial sublease agreement by non-payment of rent.

Order:

[45] For the foregoing reasons, the Application is dismissed.

[46] The Respondent seeks an order that the Applicant pay any rental arrears owing under the terms of the sublease. Although I have determined that the sublease was not amended by the oral contract alleged by the Applicant, the Respondent’s counsel conceded that her client did not file a counter-Application for such relief in this proceeding.

[47] I therefore make no order regarding rental arrears, which claim the Respondent may pursue in the appropriate venue.

Costs:

Costs of injunction:

[48] Costs of interlocutory injunction heard October 2, 2020 were reserved to me by Justice Mandhane. Although the Applicant was successful in obtaining the injunction, I have now dismissed the Application, having found on fuller evidence that the oral amendment to the sublease was not proved. I am not prepared to award costs to the Respondent of that appearance as it did not attend or file any materials.

[49] No costs ordered with respect to costs reserved to me by Mandhane J. for the injunction proceeding.

Application costs:

[50] The Respondent Integral Health was successful before me and is presumptively entitled to its costs. I have reviewed its cost outline and find the hourly rate reasonable. Its partial indemnity costs per its filed Bill of Costs are $10,098.81.

[51] The Applicant objected to the Respondent’s pursuit of its argument seeking an end to the subtenancy, which it states should have been abandoned prior to the return of the motion when the court raised the issue of why counsel was continuing to pursue that relief.

[52] The Applicant argues that it should have some costs thrown away for being required to do preparation of materials and argument for an issue which was effectively moot by the date of the hearing.

[53] I consider that is was reasonable for the Respondent to seek to move urgently for relief against the injunction in early 2021. Through no fault of either party, the court could not accommodate the hearing of the Respondent’s motion until the end of May.

[54] By the time the Application was argued on May 19 and 20, 2021, however, I agree with the Applicant that it was not necessary for the Respondent to pursue that issue. Some reduction in costs payable to Integral Health by Drop and Run is appropriate to offset the unnecessary preparation for argument which did not proceed on the Respondent’s motion.

[55] In arriving at a fair and just cost award, I have considered the parties’ submissions, the Applicant’s bill of costs, as well as the factors in Rule 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Having done so, I fix costs of the Application in the amount of $8,500 inclusive of fees, disbursements, and all taxes.

[56] Accordingly costs of $8,500 are ordered payable by Drop and Run Inc. to Integral Health Group Inc. within 30 days.

McSweeney J.

Released: August 17, 2021

COURT FILE NO.: CV-20-3664-00

DATE: 2021 08 17

SUPERIOR COURT OF JUSTICE ONTARIO

DROP AND RUN INC.

Applicant

and -

1909703 ONTARIO INC. operating as INTEGRAL HEALTH GROUP INC.

Respondent

REASONS FOR JUDGMENT

McSWEENEY J.

Released: August 17, 2021

Drop and Run Inc. v. 1909703 Ontario Inc., 2021 ONSC 5583

Case Summary