Court File and Parties

COURT FILE NO.: CV-21-00672174

DATE: 20211210

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

GALT MACHINE & PLATING INC

Applicant

– and –

MLS GROUP LTD

Respondent

COUNSEL:

Dylan Baker for the Applicant

Josh Suttner for the Respondent

HEARD: December 09, 2021

BEFORE: M. D. Sharma J.

Reasons for Judgment

[1] This is an urgent Application brought by a commercial tenant to recover possession of leased property under s. 20 of the Commercial Tenancies Act, R.S.O. 1990, c. L.7 and sections 98 and 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43. It was ordered to proceed as an urgent hearing by Justice Chalmers on November 30, 2021.

[2] The respondent locked the applicant out of commercially leased premises on August 26, 2021 for non-payment of a security deposit due under the lease. The applicant argues the termination of the lease was unlawful. In the alternative, it seeks an interlocutory injunction or mandatory order granting use of the property pending trial, and in the further alternative, relief from forfeiture.

[3] The applicant alleges his delay in regaining possession has caused significant harm to his business. For this reason, I have undertaken to issue this decision promptly.

Facts

[4] The applicant, Galt Machining & Plating Inc. (the “Tenant”) is a machine shop that provides, among other things, chrome plating services. Since 1993, the Tenant has operated its business in Units 10 and 11 of at 520 Collier Macmillan Drive in Cambridge, Ontario (the “Property”).

[5] The respondent, MLS Group Ltd. (the “Landlord”), became the Tenant’s landlord in July of 2014 when the Property was transferred to it.

[6] The Landlord and Tenant entered into a lease commencing on January 1, 2021, with a term ending December 31, 2022 (the “Lease”). The relevant provisions are:

a. The Tenant was to deliver a security deposit of $11,582.50 by June 30, 2021 (s. 2.12).

b. The Landlord can only terminate the Lease upon an Event of Default (s. 9.01).

c. An Event of Default will occur whenever any Rent is in arrears and is not paid within three (3) days after written demand by the Landlord (s. 8(a) of Sch. C).

d. Rent means the aggregate of Net Rent and Additional Rent (s. 22 of Sch. C).

e. Additional Rent means all sums of money required to be paid by the Tenant under this Lease (except Net Rent) whether or not the same are designated “Additional Rent” or are payable to the Landlord or otherwise (s. 1 of Sch. C).

f. Except as otherwise provided in the Lease, all Additional Rent shall be payable by the Tenant to the Landlord within five (5) business days after demand (s. 2.06).

g. Notice provisions are set out in s. 11.06. The Landlord can deliver notices under the Lease in person or by registered mail “addressed…to the Tenant, at the Premises.” If notices are sent by registered mail, they are deemed to have been delivered 48 hours following the date of mailing. Emails between the parties “shall not be considered proper notice under this Lease.”

h. Any amendments to the Lease “shall be in writing, signed, sealed and delivered by both the Landlord and Tenant” (s. 12 of Sch. C).

[7] The Tenant did not pay the security deposit due on June 30, 2021. The Landlord sent a notice of default on July 16, 2021 demanding payment by July 20, 2021 (“July Default Notice”). It was sent by email and registered mail.

[8] Negotiations followed by phone on July 20, 2021. The Landlord said that it would accept the security deposit in three equal installments, the first being due on August 15, 2021. In an email on July 21, 2021 to the Tenant, Michael Herberman for the Landlord stated “If the cheques are not available on those days or they bounce, you will immediately owe the balance of the unpaid funds immediately.” The Tenant argues that this new deadline, and the immediate consequence of default, was not set out in a signed amendment to the Lease.

[9] On August 1, 2021, the Landlord accepted payment of the Tenant’s monthly rent for August.

[10] On August 15, 2021, the Tenant did not make payment on the installment of the security deposit. Its evidence from its principal, Harjit Basra, is that this was due to the slowdown of the Tenant’s business due to the COVID pandemic.

[11] On August 18, 2021, Mr. Herberman on behalf of the Landlord sent an email to the Tenant containing a notice of default, demanding delivery of the full security deposit by August 25, 2021 (“August Default Notice”). The notice said the security deposit constituted Additional Rent, and non-payment amounted to default in payment of Rent. The notice advised the Tenant it had until August 25, 2021 to remedy the default. It further stated that if the Tenant had been approved for COVID-19 rent assistance (“CERS”), the Tenant must provide proof to the Landlord before the deadline. Failing which, the Landlord would terminate the Lease.

[12] The Tenant argues he did not receive the August Default Notice by registered mail or by personal delivery. The Landlord says the August Default Notice was sent by registered mail and offered in evidence the Canada Post receipt showing it was sent on August 18, 2021 and delivered on August 19, 2021. However, the receipt does not evidence a signature from the Tenant, nor does it indicate the unit number of the Property. The Tenant says that mail is often lost among the several units in the building.

[13] The security deposit remained unpaid on August 25, 2021. On August 26, 2021, the Landlord caused bailiffs to secure and lock the Property and notice of termination of the lease was posted at the Property.

[14] On August 31, 2021, the Tenant filed applications for CERS, and was approved on September 3, 2021.

[15] On September 2, 2021, the Tenant delivered a cheque for the full amount of the security deposit, but the Landlord refused to deposit it or return possession of the Property to the Tenant.

[16] The parties attempted to subsequently resolve this issue, which were unsuccessful.

Analysis

Was the lease unlawfully terminated?

[17] The Tenant argues the lease was unlawfully terminated.

i. Waiver of Right to Terminate

[18] The Tenant says the Landlord waived its right to terminate the Lease for non-payment of the security deposit by accepting rent on August 1, 2021 and after sending the July Default Notice. It relies on Malva Enterprises Inc. v. Rosgate Holdings Ltd. (1993), 1993 CanLII 8675 (ON CA), 14 O.R. (3d) 481, 104 D.L.R. (4th) 167 (C.A.) for the following proposition:

A landlord who has the right to forfeit a lease by reason of the tenant's default may waive the exercise of this right when, after the act or omission giving rise to the right of forfeiture has come to its knowledge, it does any act whereby it recognizes the relationship of landlord and tenant as still continuing. see Prudential Insurance Co. v. McLean, supra, at pp. 382-84, and Hill and Redman, Law of Landlord and Tenant, 18th ed. (1988), at pp. A952-A953.

[19] The Tenant says that (a) when the security deposit was not delivered on June 30, 2021, (b) and then the Landlord delivered the July Default Notice demonstrating it was aware of the default, and (c) the Landlord accepted the August 1st rent payment, the Landlord thereby waived any rights it had to terminate the Lease for the Tenant’s failure to pay the security deposit.

[20] In response, the Landlord says that waiver is an implicit assertion that the lease will continue. However, in this case, there was an explicit intention for the lease to continue, but on the condition that the Tenant pay the security deposit installments when they came due after August 1. On August 1, when rent was paid and accepted, there was a continuing intention by the Landlord that the lease would continue. However, when there was a subsequent non-payment of the first installment of the security deposit, there was a mutual intention by the Landlord and Tenant that the Landlord could then exercise its termination rights as set out in the Lease.

[21] During oral argument, counsel for the Tenant confirmed that there was an agreement reached on July 20, 2021 that the Tenant would make security deposit payments in installments; however, if there was default, the Tenant ought to have been provided with notice pursuant to the Lease to cure that default before the Landlord exercised forfeiture.

[22] In Mr. Besra’s affidavit, he does not use the term “agree” when discussing what happened during the July 20, 2021 call. Instead, he states:

On July 20, 2021, during a telephone conversation between me and a director of the Landlord, Michael Herberman, the Landlord affirmed that it would accept the Security Deposit in three equal installments beginning on August 15, 2021. Mr. Herberman told me that he would send me a document to sign to finalize this agreement, but he never did. [emphasis added]

[23] Upon review of the affidavit materials filed on this Application and emails exchanged at this time, I find it impossible to conclude that the deal reached on July 20, 2021 was anything but an agreement. The delay in paying the security deposit through installments must have been offered by the Landlord. It benefitted the Tenant, resulting in more time to pay the security deposit and forestalling the termination of its lease. The alternative for the Tenant, pursuant to the express terms in the Lease, was for the Landlord to terminate the Lease. Given this alternative, and the relief the Tenant is now seeking on this Application, it challenges credulity to conclude that the Tenant did not agree to paying the security deposit in installments.

[24] This agreement was reached before rent was due and paid on August 1, 2021. At that time, there is no question that there was a mutual intention for the lease to continue. I cannot accept the Tenant’s argument that the acceptance of rent on August 1, 2021 constituted a waiver of the Landlord’s right to terminate for non-payment of the security deposit. The agreement reached on July 20, 2021 created a new possibility for a defaulting event, but the earliest that defaulting event could occur was August 15 when the first installment was due and after rent was paid on August 1, 2021.

[25] In my view, this new agreement distinguishes this case from the cases that the Tenant relies upon. It is unlike 1328773 Ontario Inc. o/a Angling Outfitters v. 2047152 Ontario Ltd., 2013 ONSC 4953, 34 R.P.R. (5th) 266 where the court said at para 21:

…when the Landlord accepted rent from Angling Outfitters after indicating its knowledge of specified defaults allegedly warranting termination of the lease, it therefore made a binding implicit election and indication that it henceforth would not be relying on the alleged defaults as a basis for termination or forfeiture of the lease.

[26] In this case, the original default was not passed over by the Landlord with the result that it was waiving default of payment of the security deposit. Instead, a new agreement was reached, which did not create payment obligations until after rent was paid on August 1. Therefore, it is unlike Angling Outfitters where the alleged default was passed over.

[27] For these reasons, I cannot conclude that the acceptance of the August 1st rent cheque waived the Landlord’s rights with respect to obligations of the Tenant to pay a security deposit which only became due on August 15, 2021 under their new agreement.

Was the Required Notice Under the Lease Given?

[28] The Tenant argues that the August Default Notice was defective under the Lease for several reasons. In this regard, it cites authority for the proposition that a landlord, when exercising forfeiture of a lease, must be bound to absolute conformance of its own obligations under the lease: Arrow Holdings Ltd. v. Lakeview Shopping Centre Ltd., 1991 CanLII 4346 (NS SC), 107 N.S.R. (2d) 312, 290 A.P.R. 312 (N.S.S.C.). It also cites Perrett v. Perrett (1943), 1943 CanLII 369 (ON SC), [1944] 1 D.L.R. 673, [1944] O.W.N. 21 (S.C.) for the proposition that courts do not look favourably upon forfeitures and “will take advantage of even trifling reasons to avoid upholding them.”

[29] The Tenant argues that since the agreement to accept installment payments of the security deposit was not in writing and not signed by the parties, there was no valid amendment to the Lease due to the “entire agreement” clause in s. 12 of Schedule C of the Lease. Therefore, the security deposit was due on June 30, 2021 not August 15, 2021. For the reasons already given, I found that there was an oral agreement reached for the first installment of the security deposit to be paid on August 15, 2021, and not on June 30, 2021 as set out in the Lease.

[30] It is clear to me that the parties, by their conduct and oral agreement, intended to amend the Lease such that the entire agreement clause no longer represents the intention of the parties: See Shelanu Inc. v Print Three Franchising Corp. (2003), 2003 CanLII 52151 (ON CA), 64 O.R. (3d) 533, 226 DLR (4th) 577 (C.A.) at para. 54; 466369 Ontario Ltd. v. 2379078 Ontario Inc., 2018 ONSC 5877 at para. 29. I am supported in this conclusion by Mr. Herberman’s affidavit which evidence an historical pattern of the parties agreeing to new terms over the phone, and with the Landlord sending email correspondence confirming their agreements. This was commercially practical.

[31] In my view, the Tenant’s position would result in a commercially absurd and unfair result. The Tenant would be entitled to enjoy the benefit of the extension of time to pay the security deposit, which it committed to pay in the original Lease, but the Landlord would be without termination rights upon default of the new agreement because that agreement was not put into a signed, written amendment.

[32] While I am satisfied that there was a mutual intention to not enforce the entire agreement clause and that a new oral agreement was reached on when payment of the security deposit would occur, the Statute of Frauds, R.S.O. 1990, c. S.19 may preclude enforcement of that oral agreement. I discuss its relevance below. However, I do not decide this Application based on the Statute of Frauds. Instead, I base my decision on whether there was an agreement to change the terms of the Lease with respect to the notice the Tenant was to be given. I discuss this next.

Was Sufficient Advance Notice of Default Given?

[33] The Tenant next argues that there was insufficient advance notice of default. The August Default Notice was sent on August 18 by registered mail but would not have been deemed delivered until August 20, 2021 under the Lease (s. 11.06).

[34] The payment of the security deposit would have been considered “Additional Rent” under the Lease, since “Additional Rent” is defined as including “all sums of money required to be paid by the Tenant under this Lease (except Net Rent)…or are payable to the Landlord.”

[35] Section 2.06 provides that “Except as otherwise provided in this Lease, all Additional Rent shall be payable by the Tenant to the Landlord within five (5) business days after demand.” The fifth business day after August 20 was August 27, 2021, which was the day after the Lease termination.

[36] Furthermore, s. 9.01 states that Landlord may only terminate by notice to the Tenant if there is an Event of Default. Section 8(a) of Sch. C defines an Event of Default. It includes whenever “any Rent [including Additional Rent] is in arrears and is not paid within three (3) days after written demand by the Landlord.” Accordingly, after sending the August Default Notice, the earliest possible date that the Landlord could have terminated the Lease for failure to pay the security deposit was Tuesday, August 31, 2021. By this date, the Lease had already been terminated for five days.

[37] The Landlord says, as evidenced by Mr. Herberman’s email on July 21, 2021, that there was an agreement that if any of the installments of the security deposit were not paid, the full amount of the security deposit was payable immediately. Therefore, consistent with s. 2.06 of the Lease, there was a new and separate (but unwritten) agreement that these amounts would be payable immediately. In other words, the Landlord says there was a new (unwritten) provision in the Lease that said this amount was payable immediately, rather than “within five (5) business days after demand.” The July 21, 2021 email to Mr. Basra said:

Jeet,

As we agreed to over the phone yesterday afternoon, Galt Machining is going to provide 3 post-dated cheques dated August 15, September 15, and October 15 for $3,860.83 each. We will deposit on those days and security deposit will be paid.

If the cheques are not available on those days or they bounce, you will immediately owe the balance of the unpaid funds immediately.

Please mail in all the cheques as soon as possible

[38] Mr. Barsa did not reply to this email.

[39] There is no evidence before me to conclude that the Tenant agreed to having all the security deposit payable immediately, rather than within five business days of demand as set out in the Lease.

[40] I have considered the contemporaneous evidence of Mr. Herberman’s email, sent one-day after his telephone call with Mr. Basra. Perhaps Mr. Herberman communicated this to Mr. Basra as being the Landlord’s intention during their call, but I am not satisfied that Mr. Basra understood or agreed to immediately pay amounts outstanding, rather than within five business days. The sentence in which the requirement to pay funds “immediately” appears is separate from the paragraph which begins with, “As we agreed to over the phone…” As a result, I am left questioning whether there was agreement on this issue.

[41] Moreover, Mr. Herberman’s affidavit states that he and Mr. Basra “agreed to an installment plan with respect to the security deposit”, but it is silent with respect to whether there was also an agreement that upon default of payment, the amount would be payable immediately, rather than “within five business days of demand.”

[42] Finally, the Lease was drafted by the Landlord. It already had a superior bargaining position with respect to the terms of the Lease. I am reluctant to eliminate a protection afforded to the Tenant in the Lease absent clear evidence that this was agreed to by the Tenant.

[43] For these reasons, I find that there was no oral agreement to have the security deposit payable immediately rather than within five business days after demand as set out in s. 2.06 of the Lease. As such, the notice of termination and the Landlord’s possession of the Property on August 26, 2021 was premature and unlawful, according to the terms of the Lease.

[Statute of Frauds](https://www.canlii.org/en/on/laws/stat/rso-1990-c-s19/latest/rso-1990-c-s19.html)

[44] There was argument with respect to the impact of the Statute of Frauds, which I address briefly. The tenant argued that even if I were to find there was an oral agreement to amend the Lease to remove the five business days’ notice to which the Tenant was entitled, such an oral agreement would be unenforceable, pursuant to s. 1(2) of the Statute of Frauds.

[45] Section 3 provides a limited exception where a lease is less than 3 years (which it is in this case), and where “the rent upon which, reserved to the landlord during such term, amounts to at least two-thirds of the full improved value of the thing demised.” There was insufficient evidence in this Application to allow me to conclude this exception applies.

[46] The Landlord argued that the Tenant did not cite the Statute of Frauds as a ground in its Notice of Application (although it did include the usual language of “such further and other grounds as the lawyers may advise”). Accordingly, the Landlord did not have notice to present evidence that the s. 3 exception applied.

[47] In any event, this argument is academic. Given my finding that there was no oral agreement to have the security deposit payable immediately, rather than within five business days after demand, there is no need to resort to the Statute of Frauds.

Other Arguments Made by the Tenant

[48] Given my findings above, it is not necessary for me to make findings on the other alternative arguments made by the Tenant, including injunctive or equitable relief from forfeiture.

[49] If I were to consider equitable relief, I note that the evidence revealed many instances where the Landlord made accommodations for the Tenant, and that the Tenant had several instances in the past where it failed to live up to its obligations. Given this history, I would not be prepared to grant an interim, interlocutory or permanent injunction restraining the Landlord from taking further action to terminate the Lease in the event of a future default under the Lease. I am not satisfied that the balance of convenience would favour granting this relief. The Tenant is cautioned to ensure it strictly complies with its legal responsibilities under the Lease.

Conclusion

[50] For the reasons given, and conditional on payment by the Tenant to the Landlord within 5 business days of this Judgment the security deposit of $11,582.50, plus Rent for the month of December 2021 (including Net Rent, and any applicable Additional Rent), the following requested relief by the Tenant is granted:

a. A declaration that the Landlord’s termination of the lease on August 25, 2021 was invalid and not lawful, and that the Lease remains in full force and effect.

b. An order requiring the Landlord to give exclusive possession of and access to the Property in accordance with the Lease.

c. An order that issues related to damages caused by the unlawful termination of the Lease proceed to trial.

Costs

[51] Parties are encouraged to agree upon an appropriate cost award, with due regard to my reasons. The parties have already uploaded to CaseLines their respective Bill of Costs. If there is no agreement, cost submissions may be submitted that do not exceed three pages. The Tenant shall deliver any cost submissions by December 23, 2022. The Landlord shall deliver its submissions by January 14, 2022. The Tenant shall delivery any reply submissions by January 21, 2022.

M. D. Sharma J.

Released: December 10, 2021