NEWMARKET COURT FILE NO.: CV-21-1405
DATE: 20211108
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Jagtoo & Jagtoo, Professional Corporation
Applicant
– and –
Grandfield Homes Holdings Limited
Respondent
James Jagtoo, for the Applicant jjagtoo@jjlaw.ca
Michael Doyle, for the Respondent michael@doulebarteaux.com
HEARD: October 29, 2021
SUPPLEMENTARY REASONS FOR DECISION
LEIBOVICH J.
[1] On November 1, 2021 I dismissed the application and provide brief reasons set out in Jagtoo & Jagtoo v. Grandfield Homes, 2021 ONSC 7230. I indicated that additional reasons would follow. These are those reasons.
The main issues
[2] The applicant has set out the main issues in his factum, as follows:
a) Does the court have jurisdiction to determine the market rate and extend the contract?
b) If the answer to a) is yes, what is the market rate for basic rent?
c) Has the respondent breached its obligation to act in good faith with the applicant to negotiate on a reasonable basis to determine the current market rate for basic rent of the premises?
d) If the answer to c) is yes, what is the appropriate remedy?
a) Does the court have jurisdiction to determine the market rate and extend the contract?
[3] My reasons with respect to this issue are set out in Jagtoo & Jagtoo v. Grandfield Homes, 2021 ONSC 7230 at paras. 5-12.
b) Has the respondent breached its obligation to act in good faith with the applicant and negotiate on a reasonable basis to determine the current market rate for basic rent of the premises?
[4] In Bhasin v. Hrynew, 2014 SCC 71, the Supreme Court of Canada recognized that there is an organizing principle governing contractual performance that requires parties to perform their contractual duties honestly and reasonably and not capriciously or arbitrarily. Essentially, this duty requires that a party not seek to undermine the legitimate contractual interests of the other party in bad faith. Cromwell J. explained the general duty of honesty in contractual performance in at para. 73:
I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one's contractual performance.
[5] I agree that the duty to act in good faith extends, in this case, to negotiating the renewal rate. In my view, there would be no point to have the renewal rate based on the market rate, which is to be agreed upon by the parties, if the landlord was allowed to not negotiate in good faith. It would turn the rate from a rate based on the market to a rate based only on the landlord’s view of the market. As stated by the British Columbia Court of Appeal in Empress Towers Ltd. v. Bank of Nova Scotia:
But, in my opinion, that is not the only effect of the requirement of mutual agreement. It also carries with it, first, an implied term that the landlord will negotiate in good faith with the tenant with the objective of reaching an agreement on the market rental rate and, second, that agreement on a market rental will not be unreasonably withheld. See Meehan v. Jones, per Mason, J. at p. 589, Lee-Parker v. Izzet, [1971] 3 All E.R. 1099 at p. 1105, per Goff, J., and Janmohamed v. Hassam (1976), 126 N.L.J. 696 per Slade, J.
[6] The applicant has submitted that the respondent did not act in good faith in the negotiations with respect to the market rate. In assessing this claim, it is critical to look at the timeline of the various discussions amongst the parties. I have set out the various discussions in the chart below. It is evident that the written letters and emails were also accompanied by oral conversations. I have not set out all of the legal posturing set out in the correspondence.
March 11, 2021
Ms. Peralta, an employee for the respondent, confirmed in an email to Mr. Jagtoo that the new rate would be $17 per square foot.
March 11, 2021
Mr. Jagtoo responded that the renewal rate should be based on the market rate. He requested documentation to support the $17 proposed rate. Mr. Jagtoo also asked to speak to the landlord directly, stating that Ms. Peralta was just a go between.
March 11, 2021
Ms. Peralta sent some comparables to Mr. Jagtoo in support of the requested $17 dollars. She also indicated that unit 310 in that building had been leased at $17 dollars. She asked Mr. Jagtoo to email Mr. Yang with any further questions regarding the renewal rate.
March 12, 2021
Mr. Yang confirmed to Mr. Jagtoo that he was authorized to negotiate on behalf of the landlord and to enter into a binding agreement.
March 17, 2021
Mr. Jagtoo sent a detailed letter to Mr. Yang stating that:
- He disagreed with the comparables provided;
- There is a duty to negotiate in good faith. Mr. Jagtoo then set out the principles from Bhasin v. Hrynew;
- In his view based on his research the market rate should be $9.75 per square foot; and
- Unless he had a response by March 22, 2021 he would bring a court application to determine the issue. He asked that the respondent agree to suspend all timelines in the lease pending the court application
March 21, 2021
Counsel for the respondent sent a letter to Mr. Jagtoo. He stated that the respondent did not agree to waive the timelines set out in the lease. Counsel indicated that he was not retained to negotiate the lease with the applicant. Counsel stated that the negotiations should be conducted directly with Mr. Yang and that the landlord shall respond to Mr. Jagtoo’s letter with a counteroffer.
March 22, 2021
Mr. Jagtoo sent an email to counsel for the respondent indicating that he was content with a March 24, 2021 deadline.
March 23, 2021
Mr. Yang emailed Mr. Jagtoo and provided some market comparables in support of the suggested lease of $17 per square foot. Mr. Yang stated that as an act of good will he was prepared to lower the rate to $16.75 per square foot.
March 25, 2021
Mr. Jagtoo emailed Mr. Yang and noted that a number of the listed properties were listed pre-pandemic. He agreed to meet with Mr. Yang, the next day.
March 30, 2021
Mr. Jagtoo emailed Mr. Yang and stated that he was willing to pay $11 per square foot.
April 7, 2021
Mr. Yang emailed Mr. Jagtoo. He stated that he was content that the $17 per square foot represented the market rate since they had leased a similar unit in the building for that price in the middle of the pandemic. He stated that he was willing to lower the rate to $16.60.
April 16, 2021
The current application was filed.
June 22, 2021
Mr. Doyle, current counsel for the respondent, emailed Mr. Jagtoo in response to various messages left by Mr. Jagtoo. He asked whether Mr. Jagtoo would be interested in exploring a different length renewal, as opposed to the three-year period set out in the lease.
June 22, 2021
Mr. Jagtoo emailed Mr. Doyle and indicated that he was not interested in varying the length of any possible renewal. Mr. Jagtoo asked for a reasonable counteroffer.
June 30, 2021
Mr. Jagtoo emailed Mr. Doyle and asked if there would be any counter proposal to his latest proposal of $11 an hour. If not, they should schedule the court application.
June 30, 2021
Mr. Doyle emailed Mr. Jagtoo and made two proposals: 1) a four-year term at $16.50 per square foot or a three-year term as contemplated in the lease at $15 per square foot.
July 5, 2021
Mr. Jagtoo responded to the offer and counter proposed a four-year lease at $12 per square foot with a right of renewal of three years at the prevailing market rate.
July 15, 2021
Mr. Doyle rejected the counteroffer but left his June 30th offer on the table.
July 15, 2021
Mr. Jagtoo withdrew his July 5, 2021 offer but proposed $12 per square feet for a three-year term.
September 1, 2021
Mr. Jagtoo offered $14 per square foot for a three-year term.
September 8, 2021
Mr. Doyle made a formal offer to settle. He offered $14.50 per square foot for three years as per the lease. In addition, the agreement would resolve: “i. Any and all issues raised regarding or connected to any renovations previously carried out by either the Landlord or the Tenant in the Rental Unit or at the Property, whether connected to the Tenant’s own renovations to the Rental Unit or the previous settlement of renovations carried out by the Landlord, and the compensation provided to the Applicant, all of which is acknowledged by the Applicant, and the sufficiency of which is confirmed by the Applicant; ii. Any and all issues regarding the thermostat and/or temperature control in the Rental Unit; and, iii. Any and all issues regarding the calculation or assessment of Additional Rent (as defined and set out in section 2 of the Lease), or the Tenant’s ongoing obligation to pay same, or the Landlord’s obligation to detail same to the Tenant.” Both parties would pay their own costs.
[7] The applicant has set out at paragraph 32 of his factum the respondent’s acts of bad faith. I have grouped them into three categories:
a. The respondent conducted significant construction work in the unit next to the applicant’s unit and that “the Landlord knew that the noise from a construction site (the Landlord is a Builder) is anathema to the requirement of quiet solitude that is a prerequisite for performing legal work, and providing legal services and that omission amounts to, at a minimum, misrepresentation and bad faith.” The construction worked showed a flagrant disregard for the applicant’s rights and the respondent had the same mindset when discussing the market rate;
b. The respondent sent employees to negotiate the market rate with the applicant who did not have the “authority to do so – a continuation of that bad faith conduct” Similarly the applicant was “misled into believing that Peralta and Daniel and thereafter Singer, had the authority to negotiate market rate of rent but that was not the case;” and
c. The respondent manipulated the value of rent rates at 7800 Woodbine Avenue, the building in which the Premises are located, by increasing the listing of Unit 303 from $15.00 per square foot on July 31, 2020, to $17.00 per square foot, notwithstanding the inability to find a tenant in the midst of a pandemic.
The construction grievance
[8] As can be seen from the applicant’s materials a significant amount of time has been spent detailing the problems the applicant had with the respondent’s construction in the unit next door. The construction interfered with the applicant’s ability to run his law firm. I have no doubt that this is correct and that the construction was a source of aggravation and disturbance to the applicant. However, the applicant and the respondent resolved this dispute and formalized that settlement in an agreement dated November 3, 2020, whereby the respondent agreed to financially compensate the applicant. In addition, the agreement had the following release term:
The Tenant and his/her/their respective heirs, executor&, administrators, successors and assigns (the “Releasing Parties” hereby indemnify, release and forever discharge the Landlord and their successors and assigns, shareholders, directors. officers, employees, agents, contractors, consulting engineers and architects (“Released Parties”) and/or any other party that may be able to claim indemnity or compensation from the Released Parties, from and against any and all costs, damages, actions, proceedings, demands and/or claims whatsoever which the Tenant hereto now has, or may hereafter have, against the Landlord, by reason of, or in connection with, the Renovations of the Property.
[9] I am prepared to accept that even though the construction dispute was settled and a release signed, the applicant is allowed to rely on the evidence of the dispute in support of his assertion that the failed market rate discussions is a continuation of a pattern of misconduct by the respondent. However, while the applicant can make the argument, the argument fails. I do not find that the settled construction dispute shows a pattern of misconduct or malice by the respondent towards the applicant. In my view, the settled dispute shows the opposite. The respondent agreed to compensate the applicant for the disruption and both parties came together to resolve the issues. This shows that the respondent was responsive to the applicant’s complaints not that he had any malice or agenda against the applicant.
Authority to negotiate
[10] The applicant stated that he was misled into thinking “into believing that Peralta and Daniel and thereafter Singer, had the authority to negotiate market rate of rent but that was not the case.” The applicant submitted, in essence, that he wasted time negotiating with people who did not have the ability to negotiate, indicating bad faith. The record does not, in any way support the applicant’s submissions in this regard. On March 11th, 2021 the discussions regarding the renewal rate started. Ms. Peralta told Mr. Jagtoo that she was just a go between and said that he can negotiate with Mr. Yang [Daniel Yang]. The next day Mr. Jagtoo corresponded, and Mr. Yang told him that he had full authority to negotiate a new rate. Mr. Singer, who was briefly retained when the applicant threatened to bring a court application, quite clearly in his correspondence told Mr. Jagtoo that he was not retained to negotiate the new rate and that those negotiations should continue with the landlord’s representative, Mr. Yang. I do not see any issues. The applicant was told, without delay, with whom he should negotiate, and he did negotiate with Mr. Yang before negotiations continued with Mr. Doyle, after Mr. Doyle was retained. He was never misled, and no time was wasted.
[11] The applicant in his written material has made much over the fact that he was not granted a personal meeting to discuss the market rate with Mr. Wang. Mr. Wang is the President of Grandfield Homes. I do not see why negotiating in good faith, requires him to personally deal with Mr. Jagatoo. I see nothing wrong with Mr. Wang authorizing Mr. Yang, and then Mr. Doyle, to negotiate on his behalf.
Manipulating the market rate
[12] The applicant complains that the respondent attempted to manipulate the market rate by raising the listed lease rate for other units he owned. I do not understand this submission. It is correct that the respondent can list whatever rate he wants but he can’t manipulate the market. The listed rate only has relevance to the market rate if someone actually agrees to lease the space at that rate. I see nothing wrong with the respondent raising the listed lease rate for another unit in the building. In fact, it makes good economic sense to do so if the respondent feels he can get that rate. However, if the respondent lists a property at an inflated rate and it stands empty unleased then the respondent has in fact assisted the applicant in demonstrating that the higher rate is not the market rate.
[13] I have no quarrel with the respondent pointing to the rate for leased units in the same condo as the applicant as supporting their position. I also see nothing wrong with the applicant pointing to the fact that these units are different or were leased pre-pandemic.
[14] The applicant, in his materials has attacked the respondent’s expert on market rate. The respondent’s expert provided a supplementary affidavit which stated:
In addition to the six comparable properties contained in my Report, I have attached hereto a recent listing for another comparable unit to the Subject Property, which recently came to my attention. It is attached hereto and marked as Exhibit “A”. The unit is located at 7800 Woodbine Avenue (Unit 203), which is the same building as the Subject Property and, accordingly, offers the same amenities as the Subject Property. This unit was listed in August, 2021 at $19.00 per square foot for Basic Rent, and was sold at $19.00 per square foot on October 12, 2021. It should be noted that this property is smaller than the Subject Property (1537.53 square feet), measuring at 1198 square feet.
[15] The applicant in his supplementary responding factum at paras. 11,22 and stated:
What Mr. Shi has not disclosed, although he has a duty to do so, is the fact that Unit 203 is also owned by the Landlord, Mr. Wang, who controls the date of the listing, the expiry date, the date of the lease and the amount of basic rent. So much for Mr. Shi claiming to be independent.
Finally, by failing to advise that Unit 203 is owned by Mr. Wang and remaining silent about a material fact, it is reasonable to conclude that Mr. Shi and Mr. Wang are in cahoots, and engaged in a concerted attempt to manipulate the price of basic rent and mislead this Court.
[16] If the applicant is going to attack the honesty and credibility of a witness, he must have an evidentiary basis for doing so. Mr. Shi’s affidavit specifically states that Unit 203 is in the same building as the applicant. Furthermore, the attached listing in Exhibit A, specifically states that the respondent is the owner. The applicant’s submissions that Mr. Shi was attempting to mislead the court by not disclosing that the respondent was the owner of unit 203 are wholly devoid of merit and should not have been made.
Overall Negotiations
[17] The chronology of offers and counteroffers set out in the chart above demonstrates that the respondent was clearly negotiating in good faith. He moved from his initial position of $17 per square feet to $14.50. In an effort to break the impasse, the respondent offered to change the length of the proposed new lease. At the time of oral submissions, the parties were only .50 cents apart on the rent per square foot after starting over $7 apart. I asked the applicant how one could say there is bad faith given how close the parties were at the time of the application. The applicant stated that the fact that the respondent was willing to risk losing the application, with its costs implications, for .50 cents per square foot shows that the respondent had no desire to settle and the respondent’s true goal was for the applicant to leave. I reject this submission. I have no doubt that had the respondent not lowered its “ask” the applicant would have pointed to that fact as an indication of bad faith.
[18] The applicant also noted that the offer of $14.50 also required that he agree that other potential disputes be considered resolved, and he could not agree to this stipulation. The applicant, in this regard, referenced the issue regarding control of the thermostat in the unit. I do not fault the applicant for not agreeing to those other conditions. That is his choice. But I do not find the respondent’s decision to seek those conditions improper or in any way indicative of bad faith.
[19] The respondent has submitted that if anyone acted in good faith, it was the applicant. I disagree with this submission. The applicant is litigious. His letter writing style is aggressive. He certainly bombarded the respondent with emails. However, I believe that he genuinely wanted to resolve the market rate issue. His “ask” moved significantly from the outset of these negotiations and he was correct to note that he only had a limited amount of time to get this application heard. However, it was perfectly reasonable for the respondent, in attempting to resolve this matter, to also seek to ensure that other potential areas of litigation be resolved, especially given that the applicant has regurgitated at length the construction dispute, despite having signed a release and settlement agreement. This did not reflect, as the applicant submits, a desire not to agree. Rather, it was good common sense.
[20] Both parties negotiated in good faith, they simply could not come to an agreement. The lease is at end.
Other Issues
[21] The applicant, in his notice of application, also sought as alternatives the following:
b) In the event that the Court determines that there is no option to renew and that the lease agreement is terminated, an Order:
a. That the landlord repay the tenant the cost of all improvements to the unit, on a quantum merit basis; and
b. Be made setting out remaining payments, if any, owed by the Landlord to the Tenant vis-a-vis a written agreement dated November 3, 2020;
c) In the alternative to (c) above, an order that the landlord pay the tenant the cost of improvements to the unit, based on the principles of unjust enrichment and such other equitable principles that may apply to the extent that the landlord will not reap a financial benefit as a result of a breach of the lease agreement.
[22] The applicant did not provide make any written submissions on the above requests nor seek it as a remedy in his factum. While the applicant referenced the leasehold improvements that he made to the unit during oral argument he did not explain the basis for his request to be compensated for those improvements. There is no basis. The lease clearly sets out that all such improvements are to be paid for by the tenant, as can be seen in the following sections:
- ALTERATIONS AND ADDITIONS
(1) If the Tenant, during the Term of this Lease or any renewal thereof, desires to make any alterations or additions to the Leased Premises, including but not limited to erecting partitions, attaching equipment, and installing necessary furnishings or additional equipment of the Tenant's business, the Tenant may do so at his own expense, at any time and from time to time, if the following conditions are met:
(a) before undertaking any alteration or addition the Tenant shall submit to the Landlord a plan showing the proposed alterations or additions and the Tenant shall not proceed to make any alteration or addition unless the Landlord has approved the plan, and the Landlord shall not unreasonably withhold his approval; and items included in the plan which are regarded by the Tenant as "Trade Fixtures" shall be designated as such on the plan;
(b) any and all alterations or additions to the Leased Premises made by the Tenant must comply with all applicable building code standards and the by-laws of the municipality and the condominium corporation in which the Leased Premises are located.
(2) The Tenant shall be responsible for and pay the cost of any alterations, additions, installations or improvements that any governing authority, municipal, provincial or otherwise, may require to be made in, on or to the Leased Premises.
[23] The applicant did not make any written or oral submissions regarding the payments owed to him by the respondent by virtue of the November 3, 2020 agreement.
[24] The applicant’s request for alternative relief if also dismissed.
Next steps and Costs
[25] My order with respect to next steps and my direction regarding costs submissions was set out in Jagtoo & Jagtoo v. Grandfield Homes, 2021 ONSC 7230 at paras. 15 and 16. After the release of those reasons and prior to the release of these supplementary reasons counsel for the applicant wrote, on November 5, 2021, to the court seeking a stay of my decision. In the alternative, the applicant has asked that I extend the lease for an additional 30 days to December 31, 2021 to allow the applicant time for his firm to pack and find new premises. The respondent opposes the request. The applicant’s request for relief set out in his November 5, 2021 letter is denied. At the oral hearing I asked the applicant what interim relief he wanted if I ruled against him. He asked for a 30-day grace period. This is what I gave him. Furthermore, he was placed in the same position as set out in the lease, which required that there be an agreement one month before the end of the lease. In addition, the request for a stay is improperly before me.
Justice H. Leibovich
Released: November 8, 2021
NEWMARKET COURT FILE NO.: CV-21-1405
DATE: 20211108
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Jagtoo & Jagtoo, Professional Corporation
Applicant
– and –
Grandfield Homes Holdings Limited
Respondent
REASONS FOR decision
Justice H. Leibovich
Released: November 8, 2021