COURT FILE NO.: CV-20-651529 and CV-20-652761
DATE: 20210126
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
H.A.S. NOVELTIES LIMITED
Applicant/Respondent
– and –
1508269 ONTARIO LIMITED
Respondent/Applicant
Courtney V. Raphael and Brian Chung, for the Applicant/Respondent, H.A.S. Novelties Limited
Dina Peat, for the Respondent/Applicant, 1508269 Ontario Limited
HEARD: January 12, 2021
J. STEELE J.
The Applications
[1] This matter involves two applications under Rule 14.5(3) of the Rules of Civil Procedure. The first application was commenced by H.A.S. Novelties Limited (the “Tenant”), and the second application was commenced by 1508269 Ontario Inc. (the “Landlord”).
[2] The Tenant seeks (i) a declaration that the Tenant is not in default of its obligations under the Lease Agreements (defined below), (ii) a declaration that the Tenant does not owe any further amounts under the Lease Agreements for the period between April and October, 2020 to the Landlord, (iii) a declaration that the Landlord is estopped from insisting on payment for the remaining portions of rent for the period between April to October, 2020; (iv) in the alternative, a declaration that the Tenant is only required to pay 33% of the monthly rental amounts under the Lease Agreements until the government-mandated lockdowns associated with the COVID-19 pandemic are no longer in effect, and a declaration that the renewal options are extended for the same length of time that the Rent Relief Agreement (defined below) is in effect; (v) an order restraining the Landlord from taking any steps to evict the Tenant or otherwise terminate the Lease Agreements, (vi) a declaration that the Landlord is in breach of its obligations under the Lease Agreements, (vii) an order requiring the Landlord to comply with its obligations under the Lease Agreements to maintain and repair the building and premises; and (viii) a declaration that the Tenant is not required to make any further payments under the Lease Agreements until the Landlord has complied with its maintenance and repair obligations.
[3] The Landlord seeks (i) a declaration that the Tenant is in breach of its obligations under the Lease Agreements, (ii) a declaration that the Tenant is not entitled to exercise its options to renew the Lease Agreements, and (iii) an order directing the Tenant to pay its arrears under the Lease Agreements.
Background
[4] The Landlord is the owner of 3 commercial units which are the subject of these applications, located at 10 Gurney Crescent, Toronto (the “Premises”). Kamran Mahdi is the principal and president of the Landlord.
[5] The Tenant is in the business of manufacturing promotional products, such as custom buttons and clothing. The Tenant operates its business in the units it leases at the Premises.
[6] The Landlord and Tenant have entered into 3 commercial leases (the “Lease Agreements”) for the three units in the Premises rented by the Tenant. The terms of all three leases currently expire on July 31, 2021. The Lease Agreements all contain renewal options.
[7] All 3 leases are gross leases. The Tenant pays a monthly amount to the Landlord. The Landlord, meanwhile, is required to pay expenses such as realty taxes and building and other maintenance. The Landlord is also generally required to maintain and repair structural issues and is generally responsible for the maintenance of the exterior parts of the building.
[8] Like many businesses in the province, when COVID-19 hit in March 2020 and Ontario introduced lockdown measures, the Tenant sought relief from its Landlord.
[9] The Tenant and the Landlord, by virtue of emails that passed between them, entered into what was, in effect, a temporary rent relief agreement, which I will refer to as the “Rent Relief Agreement”. In these emails the parties agreed that the Tenant would pay 1/3 of the regular rent under the Lease Agreements “while the Corona-related lockdown is in effect”. The Tenant and the Landlord agreed that the remaining 2/3 of the rent would be paid over six months after the lockdown ends. The parties further agreed that the term of the leases could extend past the expiry date. The Tenant proposed that this lease extension would be for as many months as the crisis continues past April 2020, and the Landlord agreed that it was prepared to extend the leases. This would push back the scheduled July 31, 2021 renewal date by the same number of months as the Corona-related lockdown, and the rent relief, was in effect.
[10] Subsequently, in April 2020, the federal government introduced a program called Canada Emergency Commercial Rent Assistance (“CECRA”). CECRA was a voluntary program under which eligible landlords and tenants could enter into agreements whereby tenants would pay 25% of their rent, the government would pay 50% of the rent to the landlord, and the remaining 25% of the rent would be absorbed or forgiven by the landlord. The program was available from April through September 2020, and was retroactive, provided the application was made within the applicable time period.
[11] The Tenant approached the Landlord by email on April 30, 2020, asking if the Landlord would participate in CECRA and confirming that the Landlord would be eligible to apply given the amount of the monthly rent payable by the Tenant and the fact that the Tenant’s revenues had fallen by more than 70% (as was required to apply for CECRA). The Landlord responded on May 4, 2020: “This program is still unfinished by CMHC so we must wait to get the final details”.
[12] The Tenant followed up with the Landlord on May 25, 2020, as further details of the CERCA program were then available. The Landlord responded on May 25, 2020 that the CECRA “application can be done on Wednesday”, agreeing to apply to the arrangement provided by CECRA. The Landlord was presumably referring to Wednesday, May 27, 2020, as the program had opened such that applications could be made as early as Tuesday, May 26, 2020. Further, on May 27, 2020, the Landlord sent the Tenant the agreements and other documents for the CECRA program.
[13] On May 28, 2020, the Landlord emailed the Tenant following a noise complaint from Billbrough, another tenant in the premises. In this email, the Landlord states “I am not risking and jeopardizing my reputation to sign anything for you with government since you have proven that you are not trustworthy”, citing an issue with utility bills and the noise issue.
[14] On June 16, 2020, the Landlord emailed the Tenant raising the noise issue again and asking that the Tenant relocate the allegedly noisy button machines used by the Tenant in its manufacturing. The Landlord also noted that the Tenant was operating its business and indicated that he should start to pay the rent relief shortfalls under the Rent Relief Agreement. Clearly, however, the Landlord misapprehended what he had already agreed to, namely that the rental shortfalls would not start to become due until after the Corona‑related lockdown ended. Further, the Landlord knew, from the Tenant’s May 28, 2020 email, that then Tenant was operating at a significantly reduced capacity: the Tenant’s sales were down by over 70% and the Tenant only had 30 out of its normal employee count of 105 working.
[15] In his affidavit, Adam Sterling, General Manager of the Tenant, states that on June 26, 2020, he had a discussion with Fariba Mahdi, Kamran Mahdi’s wife. Mr. Sterling indicates that during this discussion he asked Fariba Mahdi about the CECRA application and why the Landlord had not applied despite having received the Tenant’s completed forms and attestation. He further states that he proposed to Fariba Mahdi that the Tenant would re‑locate two machines related to the noise issues and asked that she agree to complete and submit the CECRA application.
[16] On June 26, 2020, Fariba Mahdi emailed the Tenant, thanking them for moving the button machines and confirming that she had asked her husband, the principal of the Landlord, to cooperate with the Tenant on the CECRA application.
[17] However, the Landlord failed to ever submit the CECRA application, despite this assurance.
[18] The Tenant has raised various issues related to the premises with the Landlord during the tenure of its tenancy. The Tenant’s complaints include a leaking roof, leaking windows, an expired building sprinkler certificate, issues with the HVAC system and rodent issues. The Landlord has alleged that the Tenant has caused damage to the premises.
[19] The Landlord has raised complaints with the Tenant regarding noise, particularly from unit 1. Importantly, unit 1 does not contain any noise limiting provisions. The Lease Agreements for units 2 and 3, on the other hand, do contain such provisions. The Landlord has always been aware of the Tenant’s use of unit 1 for “manufacturing, warehousing and related offices”. The complaints that have been levied by the tenant below unit 1, Bilbrough, recognize the right for the Tenant to use its space to run its business and note that many of the noises that are made above are not excessive (heels, chairs, etc.) but say that these regular noises echo and amplify in the below unit. Bilbrough suggests in correspondence that the issues are structural and that the Landlord should engage a sound engineer to investigate. This has not been done.
Issues
[20] The primary issues on the applications are as follows:
a. How have the Tenant’s rental obligations under the Lease Agreements been amended since March 2020?
b. Under the Lease Agreements, is the Tenant entitled to renew?
c. Were there breaches of the Lease Agreements by the Landlord/Tenant regarding maintenance/repairs?
Analysis
[21] I am satisfied that despite the Landlord’s apparent undertaking to submit the CERCA application, he was not obliged to proceed with the application. He had the right to refuse to apply for CECRA, not based on his own failure to inspect the corporate books and records, but because he would have the most to lose (i.e., 25% of the rent) by submitting the application. It was a voluntary program and the Landlord elected not to participate.
[22] The Landlord was also certainly entitled to cancel the Rent Relief Agreement as he purported to do on August 5, 2020, and demand payment thereafter of full rental payments, because by then the government had modified the lockdown legislation. The parties had contemplated in their email exchange resulting in the Rent Relief Agreement that after the Corona related lockdown ended, regular rent would resume and the postponed rent would be repaid.
a. How have the Tenant’s rental obligations under the Lease Agreements been amended since March, 2020?
[23] The Lease Agreements all contain the following “entire agreement” language:
This Agreement, including any Schedule attached hereto, shall constitute the entire Agreement between Landlord and Tenant. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein.
[24] Despite the foregoing, the Rent Relief Agreement clearly was intended by both parties to be binding on them. On the other hand, the Landlord was never obliged to submit the CECRA application. The Landlord clearly considered CECRA, but then decided against it. The Landlord did not make promises or assurances about the CECRA application that were intended to affect the parties’ legal relationship.
RENT RELIEF AGREEMENT
[25] The Landlord does not dispute the existence of the Rent Relief Agreement. The issue is the duration of this agreement.
[26] The Rent Relief Agreement was contained in a reply email from the Landlord, which states:
“…We are agreeable to receiving 1/3 of the regular rent while the Corona‑related lockdown is in effect on condition that any underpayment of rent (the 2/3’s that is postponed) be paid over six (6) months after the lockdown ends until the balance is reduced to zero.
The current lease is set to expire in July 2021. We are prepared to extend the lease. Any postponement of the rent would have to be paid in advance of the lease renewal date.” (emphasis added)
[27] The Landlord’s email was in response to an email from the Tenant requesting the rent postponement. The following are some key excerpts from the Tenant’s email to the Landlord:
a. By Government of Ontario edict, all non essential business has been forced to close until further notice, and we therefore have been forced to suspend our operations with the exception of our e-commerce.
b. Equally as important is obtaining the support from you, our landlord, and as such, ask for your patience regarding payments until we all get through this situation. In that regard, we are proposing monthly payments at 33% of normal rent, until the crisis subsides, and society gets back to normal. (emphasis added)
c. We are also prepared to extend the lease out after expiry for as many months as the crisis continues after April 2020.
[28] The Rent Relief Agreement lacks clarity as to when the Tenant is no longer entitled to the 2/3 rent postponement and when the Tenant must start to repay the postponed rent amount over six months. The Tenant’s position is that the Corona-related lockdown continues to be in effect and therefore the Tenant is still entitled to pay 1/3 of the regular rent in accordance with the agreement.
[29] The term “lockdown” is not defined in the email correspondence between the Landlord and the Tenant establishing the agreement. There have been various stages of lockdown in the Province of Ontario since March 17, 2020, when Ontario declared a state of emergency under the Emergency Management and Civil Protection Act. On March 23, 2020, the Ontario government ordered the closure of all non-essential businesses for 14 days commencing on March 24, 2020 (O.Reg. 82/20). This order was subsequently extended by further regulations. There have since been various phases of re-opening, and by July 31, 2020 most regions in the province (including Toronto) had moved to Phase 3. The state of emergency that had been declared on March 17, 2020 ended on July 24, 2020, when Bill 195, Re-opening Ontario (A Flexible Response to COVID-19) Act, 2020, S.O. 2020, c. 17 came into force, although many restrictions remained in place. A second state of emergency was recently declared in the province.
[30] The Landlord’s position is that the Rent Relief Agreement is at an end, as the Tenant breached the terms of that agreement by failing to pay the rent due for the months of June and July 2020.
[31] As noted above, the Landlord wrote to the Tenant on June 16, 2020, requesting that the Tenant start paying the deferred rent on the basis that the Tenant had been operating its business, albeit at a reduced capacity. However, this was not what the parties had agreed under the Rent Relief Agreement. As noted above, that agreement referred to the end of the Corona-related lockdown, not to the Tenant’s resumption of some level of operation.
[32] The Landlord sent follow up emails to the Tenant:
a. on July 6, 2020, where he refers to the June 16, 2020 letter and indicates that the Tenant has failed to pay a portion of the 33% of the month of June rent ($3,000), failed to send monthly post dated rent checks, failed to pay July rent, and failed to pay “other outstandings”.
b. on July 24, 2020, with regard to July rent.
c. On July 28, 2020, noting that rent for the months of April, May, June and July is in arrears and requesting that the Tenant send all rent in arrears immediately.
[33] In or around July 21, 2020, the Tenant sent the Landlord a fraction of the rent owing for the month of July. The Tenant also provided certain invoices to the Landlord claiming they related to charges that were the Landlord’s responsibility.
[34] The Landlord wrote again to the Tenant on August 5, 2020, with regard to the rent arrears. This letter states that the Tenant is “no longer in 33% agreement” between the parties as the Landlord claims that the Tenant failed to comply with the Rent Relief Agreement. The Landlord’s letter further states that the “33% Agreement between the Landlord and the Tenant is canceled”, then makes demands for rent arrears. The Tenant’s position is that there were maintenance issues that had not been addressed and there is correspondence from the Tenant alleging that it is entitled to a rent abatement.
[35] As indicated above, the email correspondence establishing the Rent Relief Agreement lacked specificity. However, as the Tenant failed to pay rent in accordance with that agreement, it was reasonable for the Landlord to treat that agreement as at an end (as specified in the August 5, 2020 letter), given that by then the government had modified the lockdown legislation. This timing closely corresponds with the end of the first COVID‑19 state of emergency in Ontario (which ended July 24, 2020). It is also a reasonable interpretation of the Rent Relief Agreement that the end of this state of emergency was the end of the (first) Corona-related lockdown.
[36] With regard to the lease extension, a reasonable interpretation of the Rent Relief Agreement, taking into account the correspondence of both parties, is that it would be for as many months as the Corona-related lockdown continued after April 2020. Accordingly, it would be extended for three additional months, pushing back the lease renewal date to October 31, 2021 from July 31, 2021.
[37] Accordingly, I find that the rent postponement ceased as of August 5, 2020. Commencing as of September 2020, the Tenant was required to pay the deferred rent repayment under the Rent Relief Agreement. As set out below, whether there is any entitlement by the Tenant to a rent abatement as a result of the maintenance/repair issues is not an issue that can be addressed on these applications.
CANADA EMERGENCY COMMERCIAL RENT ASSISTANCE PROGRAM
[38] Unlike the Rent Relief Agreement, the parties differ on whether there was an agreement or promise made by the Landlord with regard to CECRA.
[39] For the month of June 2020, the Tenant paid $3000.00 less than was required under the Rent Relief Agreement. The Tenant does not dispute that it did not initially pay the $3000 rent under the Rent Relief Agreement but argues that this was because it understood that the Landlord was applying to CECRA. (Ultimately, the Tenant brought all of the arrears into good standing save for the month of October).
[40] The Tenant submits that the Landlord should be estopped from insisting on further rental amounts for the period from April through September 2020 due to the alleged agreement between the parties regarding CECRA. The Tenant relies on the equitable doctrine of promissory estoppel.
[41] The principles of promissory estoppel are set out in Maracle v. Travellers Indemnity Co. of Canada, 1991 CanLII 58 (SCC), [1991] 2 S.C.R. 50:
“The principles of promissory estoppel are well settled. The party relying on the doctrine must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. Furthermore, the representee must establish that, in reliance on the representation, he acted on it or in some way changed his position.”
[42] The Tenant submits that the Landlord’s email on May 25, 2020, where the Landlord states that the application can be done on Wednesday, constitutes a representation made by the Landlord that was intended to affect their legal relationship. In the alternative, the Tenant submits that an intention to affect the parties’ legal relationship can be inferred from the Landlord’s conduct. The Tenant points to the email from Mr. Mahdi of May 27, 2020, when the Landlord forwarded the details of the program to the Tenant, stating “[s]ee below documents for rent reduction. If you find issues, let me know. Attached are three rent reduction agreements for three different agreements. Sign and witness all applicable areas and returned [sic] them to me.”
[43] The Tenant also points to Ms. Mahdi’s email of June 26, 2020, where she indicated that she has asked the Landlord to cooperate with the Tenant on CECRA and further that the Landlord had asked the realtor to draft an amendment to the Lease Agreement for unit 1 for “noise issues so [the Tenant] will not change [its] mind and move any machines to start any noise pollution”. The Tenant submits that the Landlord was leveraging CECRA to obtain the benefit of the Tenant moving certain machines to try to address the noise issue (even though the Lease Agreement for unit 1 did not contain the noise clause). In this email, Ms. Mahdi did not state that the Landlord had, in fact, agreed to CECRA.
[44] The Tenant completed the rent reduction agreements and tenant attestations required under CECRA and returned the forms to the Landlord. The Tenant also moved its machines in unit 1 as requested.
[45] In his affidavit, Adam Sterling states that the Tenant did not receive any further updates on CECRA after Ms. Mahdi’s June 26, 2020 email. He states that when Ms. Mahdi came to the Premises to check a water leak, he asked her for an update on the CECRA application. His affidavit states that Ms. Mahdi “confirmed that the Landlord did not yet submit [the Tenant’s] application, and suggested that the Landlord had until the end of August to do so.” Mr. Sterling states that the he then “reminded her of [their] agreement, and asked if the Landlord could apply as soon as possible.”
[46] The Tenant submits that it reasonably relied on the Landlord’s assurance that it would apply to CECRA. The Tenant further submits that it detrimentally relied on the Landlord’s assurance. In this regard, the Tenant states that by moving its machines, it made its manufacturing process less efficient and productive. In his affidavit, Adam Sterling states:
Moving our machines impacted our manufacturing and production processes. These machines, as originally located, were part of our button print and assembly area, made up of around 20 different machines and processes. By moving them, we now had to carry heavy printed and laminated materials back and forth to these machines, an extra 30 feet. One of these machines (Button Stamping Machine) is used frequently and is used in the middle of a multiple step assembly process that otherwise all takes place within a small area of 20 by 20 feet, allowing for an efficient production process. We were prepared to accept the inconvenience and decrease in productivity in exchange for the Landlord applying under CECRA as we desperately needed the relief.
[47] The Tenant’s position is that these changes were made based on the Landlord’s assurance that it would apply for CECRA. The Tenant claims it made the changes based on this assurance and did not seek out any financial or other compensation.
[48] The Landlord acknowledges that the Tenant was informed that the Landlord would consider the Tenant’s CECRA request. However, the Landlord states that it did not apply for CECRA as the Tenant refused to provide its financial books and records. The Landlord states that the Landlord informed the Tenant that it needed to provide its financial books and records for the Landlord to assess the Tenant’s eligibility for the CECRA program. The Landlord requested the corporate books and records in accordance with the Lease Agreements; however, the Lease Agreements only require the Tenant to make the books and records available for inspection at reasonable times.
[49] On July 8, 2020, the Landlord emailed the Tenant stating “You sent me wrong material. I asked you to send me your CORPORATE BOOKS & RECORDS.” In his affidavit, Kamran Mahdi (president of the Landlord) states that the Landlord was unable to assess the Tenant’s eligibility for CECRA, as the Tenant did not provide this requested information and “[a]ccordingly, the Landlord never applied for CERCA.” The Tenant did not provide these financial books and records, but it did provide the required attestation documents under the program. The CECRA attestation document requires the impacted tenant to attest to certain matters, including that the tenant has experienced financial hardship evidenced by a decline in gross monthly revenues of at least 70% from pre-COVID-19 revenues. There is no evidence that the Tenant’s books and records were required by the Landlord to assess the Tenant’s eligibility for the program (the Tenant attested to its eligibility in the attestation documents). In fact, the “frequently asked questions” section posted on the Government of Canada’s website detailing the CECRA program confirms that a landlord can rely on an impacted tenant’s declaration and attestation.
[50] With regard to the Tenant’s position that the Landlord made certain assurances with regard to CECRA by words or conduct, the Landlord submits that the Tenant has not provided evidence to demonstrate that the Landlord agreed to apply for CECRA, which is a voluntary program. The Landlord submits that there is no written document that contains the terms alleged to have been agreed to by the parties. The Landlord also points to its demands for rent arrears in June, July and August as evidence that there was no agreement with regard to CECRA.
[51] The Landlord also emailed the Tenant on May 28, 2020, regarding the noise issue. In that email he states: “I am not risking and jeopardizing my reputation to sign anything for you with government since you have proven that you are not trustworthy.” However, in Kamran Mahdi’s affidavit, he states that when he attended the Premises on May 28, 2020 to discuss the noise complaint he did not “indicate that [he] was refusing to submit an application for CECRA. [He] had just provided the Tenant with the documents it needed to complete and [he] was still waiting to review the Tenant’s financial documentation to determine whether or not the Tenant was eligible for CECRA.”
[52] The Tenant submits that there is no need for express words for there to be a promise. In this regard, the Tenant points to Re Med-Chem Health Care Inc., [2000] O.J. No. 4009 (at para. 9):
“The Registrar erred in requiring that there be express words before there can be a clear or unequivocal promise, since promissory estoppel can arise where the conduct of the promisor indicates an intention not to rely on contractual rights…”
[53] I agree. Express words are not required for there to be a promise or assurance made for purposes of promissory estoppel. On balance, however, I find that although the Landlord may have given the impression that he would apply for CECRA, there was no promise or assurance made by his conduct which was intended to affect their legal relationship. It is clear that the Landlord was considering the CECRA program and was leveraging this on the noise complaint issue. However, based on the record before me, the Landlord did not by his words or conduct promise that the application for CECRA would be made. This was a voluntary program. The Landlord was certainly looking at it and considering it but did not proceed.
[54] I agree with the Landlord that Central London Property Trust Limited v. High Trees Houses Limited, [1947] 1 K.B. 130, [1956] 1 All E.R. 256, relied upon by the Tenant, is distinguishable. In High Trees the parties came to an agreement with regard to the reduced payment of rent on a block of flats during World War II – that agreement was reduced to writing and was acted upon for five years. In addition, unlike in High Trees, in the instant case the Landlord made several demands for full payment of rent through June and July 2020.
[55] Accordingly, having found that there was no promise or assurance made by the Landlord regarding CECRA that was intended to affect the legal relationship between the Landlord and the Tenant, I find that the Landlord was not obliged to submit the CECRA application.
b. Under the Lease Agreements is the Tenant entitled to renew?
[56] The Landlord submits that the Tenant is not entitled to renew under the Lease Agreements as a result of the defaults in rent. My understanding, based on the oral submissions, is that as of January 12, 2021, the rent arrears had been paid, other than for October 2020.
[57] The Lease Agreements contain renewal language. They state:
“Provided the Tenant is not at any time in default of any covenants within the lease, the Tenant shall be entitled to renew this lease for 1 additional term(s) of 60 months (each) on written notice to the Landlord given not less than 6 months [12 months in the case of unit 3] prior to the expiry of the current term at a rental rate to be negotiated.”
[58] The Landlord argues that this case is similar to 1290079 Ontario Inc. v. Beltsos, 2011 ONCA 334. I disagree. The Beltsos case involved unique facts where there had been a lapse of insurance, and during the time of the lapse there was a slip and fall. This slip and fall was an ongoing issue related to the tenant’s failure to have the required insurance in place at the material time. The lease in that case required that the tenant was not “during the initial Term in default under any of the provisions or covenants of the Lease.” The breach was, however, subsisting at the time of the renewal, as the litigation related to the slip and fall was ongoing. The breach in Beltsos was a subsisting breach, as opposed to a spent breach.
[59] In Beltsos, the Court of Appeal canvassed jurisprudence on the doctrine of “spent breach”, stating (at paras. 22, 23 and 25):
22 This court held in Fingold v. Hunter, 1944 CanLII 337 (ON CA), [1944] 3 D.L.R. 43, that a lessee does not lose his rights because, at some point in the past, prior to his reliance on those rights, there was a default that was subsequently corrected. Citing the Supreme Court of Canada’s decision in Loveless v. Fitzgerald (1909), 1909 CanLII 8 (SCC), 42 S.C.R. 254, Robertson C.J.O. stated at p. 46, “[i]t is, however, well settled that to show due performance the lessee need not necessarily show punctual performance. It is enough to show that the covenants have been performed at the time when the lessor is required to observe or to perform his promise.”
23 These authorities stand for the proposition that an historical breach of a lease covenant, once remedied, will not entitle a landlord to refuse an otherwise valid option to renew the lease. In the case law, this has become known as the doctrine of “spent breach”: see Sail Labrador Ltd. v. Challenge One (The), [1991] 1 S.C.R. 265, at para. 58 (“Sail Labrador”) and 1383421 Ontario Inc. v. OLE Miss Place Inc. (2003), 67 O.R. (3d) 171 (C.A.), at para. 58.
25 In Bass Holdings, Kerr L.J. referred to “spent breaches” and “subsisting breaches” and described the rationale for the doctrine of spent breach at p. 1005:
The upshot of these authorities is that spent breaches will not destroy the tenant’s right to exercise the option, but subsisting breaches will. … [T]he reasoning is in effect as follows. First, it must be accepted that absolute and precise compliance by the tenant with every single covenant throughout the period of the lease prior to the operative date is virtually impossible of attainment. If this were required as a condition precedent, then the option would in practice be worthless or merely at the mercy of the landlord. Therefore the parties cannot have intended that the absence of spent breaches should be a condition precedent. Secondly, however, it is natural and sensible that the landlord should require that the tenant not to be in breach of any covenant on the operative date and that all outstanding claims for breach of covenant should have been previously satisfied, so that the lease is then effectively clear. The proviso is therefore to be construed as intended to apply to subsisting breaches, with the result that the relevant condition precedent in the absence of any subsisting breach.
[60] Where there has been an historical breach by a tenant, which has been remedied, the tenant is entitled to exercise the renewal right under the agreement. The breach in such a case is a “spent breach”. Only where the breach is subsisting at the time of the exercise of the renewal is the tenant precluded from exercising the option.
[61] The Landlord also submits that Cardillo Entertainment Corp. v. PCM Sheridan Inc., 2011 ONSC 4426, [2011] O.J. No. 3602 is analogous to this matter. I disagree. The clause in the lease agreement in Cardillo provided that the tenant would only be entitled to extend the lease if the tenant was not in “material or chronic (three times or more) default” under the lease. This clause defines chronic. As set out above in the passage from Bass Holdings quoted in Beltsos, “absolute and precise compliance” by a tenant is “virtually impossible” and if this were required, then the option to renew would really be “worthless” or “merely at the mercy of the landlord.”
[62] There were defaults in rent payments by the Tenant over the course of the summer in 2020. However, these were likely due, at least in part, to the misunderstanding between the parties regarding CECRA.
[63] It is clear from the foregoing that the Tenant is doing its level best to maintain the rent payments under the extraordinary difficulties it faces, through no fault of its own, and that the Landlord has not suffered any rental shortfall whatsoever, save for the outstanding October 2020 rent averted to by the parties in their oral submissions. It is clear, reading between the lines, that the Landlord’s main interest is in securing 100% of the rent despite the difficulties faced by the Tenant’s business, and that the Tenant’s main interest is in maintaining its capacity to renew the Lease Agreements. We are in extraordinary times which call for extraordinary measures. I have no doubt that the Tenant will find some way to pay up the October arrears, and ensure that the rent is in good standing in advance of the renewal date. As long as this is the case, I see no reason why the Tenant should not be entitled to renew the Lease Agreements. As set out above, the lease renewal date would be moved back by three (3) months to October 31, 2021, instead of July 31, 2021 due to the Rent Relief Agreement. Clearly the breaches which would be relied upon by the Landlord would be spent by six months prior to this (April 30, 2021) for units 1 and 2 and the Tenant would be entitled to renew the Lease Agreements.
c. Were there breaches under the Lease Agreements by the Landlord/Tenant regarding maintenance/repairs?
[64] The Tenant alleges that the Landlord was in breach of its obligations under the Lease Agreements and seeks an order requiring the Landlord to comply with its obligations under the Lease Agreements to maintain and repair the building and Premises. The Landlord claims certain amounts from the Tenant in respect of repairs for alleged damage by the Tenant.
[65] The structural maintenance clause from the Lease Agreement for Unit 1 and 3 provides:
“The Landlord shall be responsible for structural repairs to the building including, but not limited to, roof, walls, and floors and its services to the building not resulting from the Tenant’s negligence or default. The Landlord shall undertake any such repairs promptly upon receipt of notice from the Tenant, in accordance with the provisions of the Lease to be entered into for the Premises. The Tenant agrees to repair and maintain all heating equipment, and washrooms at the Tenant’s expense throughout the Lease term or any renewal thereof. If heater cannot be repaired and needs to be replaced then Landlord will replace. Landlord will be responsible for HVAC maintenance on rooftop. Anything inside building is Tenant’s responsibility. Anything outside building is Landlord’s responsibility.”
[66] The structural maintenance clause in the Lease Agreement for unit 2 is substantially similar.
[67] There are emails exchanged between the Tenant and the Landlord related to the noise issue, where the Tenant also raises repair and maintenance issues, such as the email of May 28, 2020 from the Tenant to the Landlord, where the Tenant states:
“The noise issue has to do with your building’s structure, and you must call in the appropriate engineer to rectify. There are numerous emails confirming this fact. But you seem to believe that magically, the building will heal itself.
The landlord maintenance and financial issues per below outstanding, some for 4 years….
Roof leaking on machines
Windows leaking, with water then leaking on floors and ceiling below
Gurney walkway flooding after a rain, then allowing no access to Gurney entrance.
Grass not being cut
Air Conditioning in Gurney Office not working. Office staff unable to work in oppressive heat.
Building sprinkler certificate has expired and you need to have an inspection and new certificate issued. This issue also impacts your other tenant, and their insurance.
Reimbursement for the costs we are incurring of having the sprinkler system monitored, for all tenants in the building.”
[68] The affidavit evidence of Kamran Mahdi is that the Tenant contributed to several of the maintenance issues. He notes:
a. “The roof, which was only six years old, only began to have leaks once the Tenant had improperly cut into the roof to install vents for their machines without the Landlord’s permission;”
b. “The Tenant would often leave its windows open during heavy rainfall, leading to water leaking into the Premises and allowing rodents and birds to enter and damage the Building;”
c. “The Premises had all been delivered to the Tenant in good working condition, but the Tenant had caused damages to the Premises and the Building since that time;”
d. “The Tenant had broken several windows in the Premises, which were not broken when the Tenant received possession;”
e. “The Tenant was storing hazardous materials such as paints, thinners, large empty boxes and garbage around the interior and exterior of the Building despite repeated notice from the Landlord;”
f. “The Tenant left garbage, debris, wood skids, metal rods and leftover food in non-garbage disposal areas around the interior and exterior of the Building, damaging the stucco on the exterior of the Building;”
g. “The Tenant had damaged the four garage doors leading into the Building with its delivery trucks and forklift; and”
h. “The Tenant had disconnected the hydro meter for the Third Premises without the Landlord’s knowledge.”
[69] The affidavit of Adam Sterling disputes these suggestions that the Tenant has contributed to the maintenance issues, and addresses each of the Landlord’s allegations:
a. “The Tenant has experience leaks in the drain and vent pipes since moving into the Leased Premises in 2016, and has complained to the Landlord since then….Despite our repeated requests, the Landlord failed to have the roof and leaks repaired. They remain an ongoing problem which has caused damage to our equipment and product. The Tenant denies that any work undertaken by the Tenant to install vents and exhausts, which was done in accordance with the Lease Agreements, has contributed to the roof leaks. We undertook that work through professional contractors, and we obtained the Landlord’s permission to do so…”
b. “The Tenant denies that it regularly leaves its windows open when the units are not occupied. The Landlord has been made aware many times of broken windows in the Building, which it has refused to repair.”
c. “It is unclear what “damages” are alleged the Tenant caused. I would note that the Leased Premises were delivered to the Tenant in “as-is” condition except for a small list of deficiencies the Landlord agreed to address.”
d. “Before moving into the Leased Premises, we were aware of many broken windows and doors of the Leased Premises and Building. We have reported these broken windows to the Landlord. The Leased Premises required a significant amount of renovations, cleaning and general repairs to bring it up to usable condition, and we have always maintained the premises in a better state than how it was delivered to us.”
e. “We do not store hazardous material at the Leased Premises other than in strict compliance with all regulatory requirements. Our facility has undergone inspections by, and is compliant with, various regulatory and other agencies including the Ministry of Labour, our insurance company, and third party compliance inspectors on behalf of our customers.”
f. “Since 2016, we have noticed others leaving items and dumping garbage around the Building near our Leased Premises. We have often complained to the Landlord about this….When we have noticed items accumulating against the Building in the past, we have notified the Landlord, and have often removed those items and paid for their disposal in our bins. The Tenant denies any responsibility for the damage caused to the exterior stucco of the Building….”
g. “We maintain the garage door mechanics in good working order as required under the Lease Agreements, and have spent many thousands of dollars upgrading the safety sensors and other systems attached to these doors for compliance with safety rules. We believe however that maintenance of the garage doors should be included in the gross structural maintenance and common area maintenance responsibility of the Landlord as provided under the Lease Agreements.”
h. “We have not disconnected or modified the hydro meter of the Office Unit in any way.”
[70] Some of the issues raised by the Tenant have also been raised by the Landlord’s other tenant in the building, Bilbrough.
[71] There is a significant dispute on the facts material to the issue of repair and maintenance. These issues involve credibility of witnesses and cannot properly be determined on an application.
[72] After hearing the submissions and upon review of the record before me, under Rule 38.10(b), I direct that the issues of whether there were breaches under the Lease Agreements by the Landlord and/or Tenant with regard to building maintenance and repair of the Premises, and the measure of any damages flowing therefrom, proceed to trial. Accordingly, I am seizing myself of this matter for trial purposes.
Disposition and Costs
[73] Before concluding, I must congratulate both counsel on their excellent presentations. Both applications had relatively equal merit. This is a factor which speaks directly to the issue of costs on the applications. Should the parties not be able to agree to a mutually acceptable costs disposition, I will, if the parties require it, entertain brief written submissions for the costs of the applications, or if the parties agree, reserve the costs issue on the applications to the conclusion of the trial on the maintenance/repair issues, should the parties decide to proceed with such a trial.
[74] In the result, therefore, I find and declare that:
a. The Rent Relief Agreement terminated as of August 5, 2020. Commencing as of September 2020, the Tenant was required to pay the rent that was postponed under the Rent Relief Agreement.
b. Pursuant to the Rent Relief Agreement, the renewal date under the Lease Agreements is October 31, 2021, instead of July 31, 2021.
c. Provided that the Tenant has paid all rent arrears in advance of the renewal date, the Tenant is entitled to renew the Lease Agreements in accordance with the terms thereof.
[75] With regard to the issues of whether there were breaches under the Lease Agreements by the Landlord and/or Tenant with regard to building maintenance and repair of the Premises, and, if so, any damages flowing therefrom, I order the following (provided only in the event that the parties determine that they will proceed with a trial of these issues):
a. The issues shall proceed to trial on an expedited basis.
b. The parties shall contact my judicial assistant, Polly Diamante (Polly.Diamante@ontario.ca) to schedule a case conference for the purpose of setting the dates for the trial and the timetable.
J. Steele J.
Released: January 26, 2021
COURT FILE NO.: CV-20-651529 and CV-20-652761
DATE: 20210126
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
H.A.S. NOVELTIES LIMITED
Applicant/Respondent
– and –
1508269 ONTARIO LIMITED
Respondent/Applicant
REASONS FOR JUDGMENT
J. Steele J.
Released: January 26, 2021