Court File and Parties

COURT FILE NO.: CV-22-676066-0000 DATE: 20220405 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Top Modern Nail Spa Inc. AND: 2383437 Ontario Inc.

BEFORE: J.T. Akbarali J.

COUNSEL: E. Tingley, for the Applicant G. Low, for the Respondent

HEARD: April 4, 2022

Endorsement

Overview

[1] The applicant tenant brings this application seeking a declaration that it has validly exercised its right to renew the lease between the parties, and that the term of lease has been validly extended to April 30, 2027 at the rental rates set out in the lease. The application also seeks injunctive relief prohibiting the respondent from interfering with the applicant’s quiet enjoyment of the leased premises, and damages for breach of contract, although no argument was made on these issues. The applicant also seeks, if necessary, an order granting relief from forfeiture, and an accounting and remittance of all rent paid by the applicant.

Brief Background

[2] The landlord respondent and Nguyen Thanh Tuyen, the principal of the applicant, entered into a lease on February 12, 2017 that was subsequently assigned to the applicant. The lease includes several terms relevant to its renewal.

[3] Clause 3 of the lease indicates that the lease is for a term of 60 months, ending on April 30, 2022. However, “[p]rovided the tenant is not at any time in default of any covenants within the Lease, the Tenant shall be entitled to renew” the lease for another 60-month term, on written notice to the landlord given not less than four months prior to the expiry of the current term.

[4] Schedule A to the lease provides for the right of renewal in slightly different terms. It allows the tenant to extend the lease for another 5-year term, at the prescribed rent, “[p]rovided that [it] is not in default.”

[5] The lease itself provides that if there is a discrepancy between the standard terms of the lease and a schedule, the schedule prevails. It is not disputed that the tenant is entitled to renew the lease if, at the time of renewal, the tenant is not then in default.

[6] The tenant gave timely written notice of its intent to renew the lease on December 8, 2021. In response, the landlord alleged that the tenant had broken the lease agreement many times during the course of the lease, such that the landlord would not permit the extension of the lease. It did not allege that the tenant was, at that time, in breach of the lease.

[7] Counsel for the tenant wrote to the landlord on December 20, 2021 reiterating the tenant’s intention to renew the lease. The landlord responded to counsel indicating that it would not consent to a renewal of the lease, but again, did not allege that the tenant was, at that time, in breach of the lease.

[8] The tenant brought this application. In a response to the application, delivered after the four-month period within which the tenant could renew the lease, the landlord alleged that the tenant was then in breach of the lease by reason of its failure to pay rent for one month, which appears to be October 2020, and by its failure to pay two $50 charges relating to rent cheques deposited by the landlord and returned by the tenant’s bank.

[9] In contrast, the tenant argues that it overpaid rent by a half month, the surplus of which more than covers the two $50 charges. The discrepancy between the parties’ accounting of rent relates to the landlord’s application for rent relief under the federal government’s program in response to the COVID-19 pandemic known as the Canada Emergency Commercial Rent Assistance Program (“CECRA”).

[10] The tenant also argues that, if a proper accounting leads to the conclusion that it has underpaid rent by a month, the principle of estoppel by convention applies. Alternatively, it seeks relief from forfeiture.

[11] For its part, the landlord denies the applicability of estoppel by convention, and argues that this is not a case for relief from forfeiture. It also argues the tenant does not have clean hands.

Is the tenant currently in default of the lease?

[12] The parties disagree about whether the tenant is in a position of rent surplus or rent shortfall.

[13] The dispute turns on what happened in the months immediately after the declaration of the COVID-19 pandemic.

[14] The applicant operates a nail salon out of the leased premises. Like other small, personal services businesses, the applicant’s business was ordered shuttered by the government in response to the pandemic.

[15] Notwithstanding the fact that it was closed, the tenant paid full rent in April, May and June 2020.

[16] On July 2, 2020, however, the tenant emailed the landlord to advise that it was unable to pay July rent, and asked the landlord not to deposit its July 2020 rent cheque to avoid incurring a bank charge for the returned cheque. By that time, the nail salon had re-opened. The landlord responded indicating that the tenant should pay its rent from the non-interest-bearing small business loan the landlord was aware the tenant had applied for from the government as part of its COVID-19 relief measures. The landlord insisted on being paid the rent. The tenant responded asking the landlord to apply for relief under the CECRA. The principal of the tenant indicated it didn’t have money to pay “until I can afford to pay”. The principal explained that the tenant had to repay the $40,000 loan it had received, and it had to pay for supplies, disinfectant products, utilities and employee salaries. The principal wrote “This is the last time I repeat, we are dying here so you must apply the program 4 months and if you don’t then I don’t have money and can’t afford to pay the rent for 4 months July, August, September and October.”

[17] The landlord reiterated that it had no interest in applying for any program that would cause it to lose money. It said there was no excuse that the tenant could not pay its rent. The tenant responded that it did not have any money to pay for the four months’ rent from July to October 2020. It again indicated that the landlord should apply for the CECRA.

[18] The landlord deposited the July cheque which was returned as non-negotiable by the bank.

[19] In August 2020, the tenant again told the landlord not to deposit its rent cheque. On August 16, 2020, the landlord wrote to the tenant and indicated that it had deposited the tenant’s August rent cheque, which was also returned. It demanded full rent for July and August and two bank fines of $50 each, one for each bounced cheque. It asked for payment by August 18, 2020.

[20] The tenant again referenced the CECRA program. The tenant’s principal explained that from April 1, 2020 to August 31, 2020, “the total of five months I (the tenant) can pay you is 25% as full payment of rent. I had paid you the entire amount of rent and not the 25% as set out in the legislation for April, May, and June which meant these 3 months the payment of full rent covered by 25% rent over a period of 5 months. Therefore I did not pay and will not pay you rent in July, August, September, October and November to reduce the rent payments for April, May and June to the 25% set out in the government legislation.”

[21] On August 27, 2020, the landlord telephoned the tenant. Later that day, the tenant’s principal wrote the landlord’s representative, thanking him for the call and especially for telling him that the landlord had decided to apply for the CECRA program to support him. He wrote, “[b]ecause of this agreement, I am writing this as a letter of commitment to you that I will pay you full rent on November 1 st and every other month onward.” There is no correspondence between the parties indicating that the landlord did not agree with the tenant’s characterization of this agreement.

[22] The landlord entered into a rent reduction agreement with the tenant, which was required by CECRA. Under the agreement, dated August 27, 2020, the parties agreed to reduce the tenant’s rent to 25% of the monthly rental amount under the lease. The tenant signed an attestation declaring it had entered into a binding rent reduction agreement with its landlord which referenced the months of April, May and June 2020.

[23] There is some confusion in the evidence as to how the parties were calculating rent for each month, and whether they were making retroactive adjustments to rent owing from April to June, 2020 such that the tenant was in a credit position by July 1, 2020, or whether the reduced rents would be applied for July 2020 and following, but in the end, the confusion does not matter because the question of what the landlord was owed versus what the tenant paid is a straightforward question of math.

[24] The record indicates that the landlord applied for CECRA benefits for four months, April, May, June and July 2020. The landlord’s representative deposes it expanded the time period to include a fourth month at the behest of the tenant. There is no indication the tenant saw the landlord’s application.

[25] However, as part of the decision to apply for CECRA in respect of July 2020, the tenant signed an agreement indicating that it failed to pay the landlord July and August rent, and promising that if the application for CECRA program “(e.g. July extension)” was not approved, the tenant would be 100% responsible for the loan forgiveness, described at 50% of the rent.

[26] In November 2020, the tenant’s rent cheque was returned again. The landlord asked for a replacement cheque and a further $50 fine. The tenant responded that, by its calculations, it only owed 50% of November’s rent. The landlord reminded the tenant that it had “promised to pay us rent in full starting Nov. 1, 2020.” It specifically denied any agreement that the landlord would lose 50% of November’s rent, and attached the tenant’s confirmation from its email of August 27, 2020. Notably, it made no demand for payment of anything other than November’s rent.

[27] The tenant eventually paid the full amount of November’s rent, despite the fact that it believed it only owed 50% of the rent. For this reason, the tenant believes it is in a surplus position of a half month’s rent. This math works if the tenant’s understanding of the landlord’s CECRA application is correct. The tenant’s principal deposes that he believed the landlord had applied for six months’ worth of CECRA assistance. In that case, the tenant would have owed 25% of the rent for six months (April – September 2020) and full rent thereafter. Having paid 100% of the rent for three months (April – June 2020), its credit as of September 30, 2020 would have been 150% of one month’s rent. This math explains why the tenant believed it had paid full rent in October 2020 and only owed 50% of the rent for November 2020.

[28] On the other hand, the landlord deposes that it applied for four months’ of CECRA relief. Under the math applicable to this scenario, the tenant would have been obligated to pay 25% of the rent owing for April – July 2020, and by August 2020, the tenant would have to pay 100% of the rent owing. Since the tenant paid 100% of the rent for April – June 2020, the tenant’s obligation to pay rent would have resumed by October 1, 2020. The tenant having paid full rent for November 2020 would be in a shortfall position of one month for October 2020.

[29] Neither of these scenarios lines up consistently with the documentary evidence. First, the rent reduction agreement only covers three months, April – June 2020. Second, the subsequent agreement to pay 100% of rent if acceptance into the CECRA program is refused refers to the “July extension”. The online application suggests that the landlord applied for four months only. The landlord’s representative deposes that it applied for four months’ relief only.

[30] However, the evidence of deposits from the government indicates that the landlord received deposits significantly greater than four months’ of rent subsidy related to the leased premises. The landlord explains that it has other properties, and these amounts relate to those properties. There is no reconciliation of the amounts received in the record.

[31] Most puzzling is the landlord’s silence about the missing October 2020 rent, if indeed it was missing. While the landlord and the tenant disagreed about the amount owing for November rent, the landlord never demanded any rent for October in the communications related to the November rent. The record indicates that the landlord never made any in writing demand for October rent.

[32] The landlord’s representative argues that he made verbal demand for rent, and the tenant’s principal swore at him. The tenant denies this. If true, I would have expected this landlord, who made prompt written demand for all kinds of payments owing under the lease, would have asked in writing for the funds it believed were owing to it.

[33] Instead, in the correspondence between the parties to which I have already referred, the one thing the parties agree on is that as of November 1, 2020, the tenant owes full rent. Implicit in the correspondence is that the obligation to pay full rent resumes on November 1, 2020, and not earlier.

[34] This shared understanding between the parties is supported by the fact that the landlord did not invoke any current breach of lease in December 2021 when the tenant sought to renew the lease term, but rather made reference to past breaches of lease.

[35] I cannot conclude, on this record, that the landlord in fact applied for six months of CECRA relief. The only evidence before me of the application indicates that the landlord’s CECRA application covered a four-month period as it related to this tenant.

[36] It thus follows that the tenant is in a shortfall position of one month’s rent.

[37] Moreover, the tenant did not pay the fees for the cheques that were returned by the bank. There is some confusion in the record as to whether three fees went unpaid or two (July, August and November). The landlord relies on the fees for the July and August 2020 returned cheques, so I proceed on that basis. If the tenant were in a surplus position, the fees would be a non-issue, because the surplus would have more than covered the fees. However, given my finding that the tenant is in a shortfall position, I move next to consider whether, despite the fact that the tenant is currently in breach of the lease in these ways, there is a basis for it to renew its lease.

Estoppel by Convention

[38] The tenant argues that if it is in breach under the lease, estoppel by convention applies to prevent the landlord from relying on those breaches to refuse to renew the lease.

[39] In Ryan v. Moore, 2005 SCC 38, [2005] 2 S.C.R. 53, at p.81, the Court set out the criteria to establish estoppel by convention:

a. The parties’ dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption. Nevertheless, estoppel can arise out of silence (impliedly).

b. A party must have conducted itself, i.e. acted, in reliance on such shared assumption, its actions resulting in a change of its legal position.

c. It must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption. The party seeking to establish estoppel therefore has to prove that detriment will be suffered if the other party is allowed to resile from the assumption since there has been a change from the presumed position. [emphasis in original]

[40] In my view, the criteria for estoppel by convention are met in this case.

[41] First, as I have already explained, the parties dealt with each other on the basis of a shared assumption that the tenant would pay full rent from November 2020 going forward. They were both mistaken in their math. Even if one assumes that the tenant believed the landlord would apply for six months of CECRA, that does not explain why it confirmed it would pay full rent from November 1, 2020 onwards. Similarly, the landlord presumably knew it applied for four months’ of relief under CECRA, but the record suggests it was mistaken in its calculations, and believed rent was owing as of November 1, 2020, not October 1, 2020, or it would have demanded rent for that month in writing. Moreover, it would not have accepted the tenant’s confirmation that it would pay full rent as of November 1, 2020. The shared assumption between them is that full rent would be owing from November 1, 2020 onwards and not before. They may have made different mistakes, but they reached the same wrong conclusion.

[42] Second, the tenant conducted itself in reliance on the assumption. It did not pay rent for October 2020, and it was not asked to until after the four-month deadline to renew its lease had closed. The tenant relied on the shared assumption that rent was due in full as of November 2020 to conclude it was not in a shortfall position and was entitled to renew the lease. Its uncontradicted evidence is that had the October 2020 rent been demanded in December 2021, the tenant would have paid it (under protest) to protect its right to renew the lease.

[43] Third, in my view, it would be unjust to allow the landlord to depart from the common assumption that rent became due in full as of November 1, 2020. The landlord was diligent in seeking to collect the amounts owing to it under the lease. By failing to demand October 2020 rent at any time until after the window to renew the lease had closed, the landlord gave the tenant no reason to believe that its ability to renew the lease was in jeopardy due to shortfall of rent. The tenant has spent significant funds on renovating the leased premises and it stands to lose a significant portion of its customer base if it cannot renew the lease. It would be unfair for the shared mistake of fact to prohibit the tenant from renewing the lease when the landlord did not make any effort to correct that mistaken assumption until it was too late for the tenant to remedy the default and renew the lease.

[44] I thus conclude that the landlord cannot resile from the position it took for so long, that full rent would begin to be owed again as of November 1, 2020 and not before.

[45] However, estoppel by convention does not apply to the two outstanding $50 fees relating to the returned cheques. There is no shared assumption of fact that these fees were not owing. I thus turn to consider relief from forfeiture.

Relief from Forfeiture

[46] Under s. 20(1) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7, s. 20(1), a court has discretion to grant a tenant relief from forfeiture under a commercial lease:

Where a lessor is proceeding by action or otherwise to enforce a right of re-entry or forfeiture, whether for non-payment of rent or for other cause, the lessee may … apply to the court for relief, and the court may grant such relief as, having regard to the proceeding and conduct of the parties under section 19 and to all the other circumstances, the court thinks fit, and on such terms as to payment of rent, costs, expenses, damages, compensation, penalty, or otherwise … as the court considers just.

[47] The Courts of Justice Act, R.S.O. 1990, c. C.43, s. 98 also provides that a court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.

[48] The principle of relief from forfeiture also applies to options to renew a lease, although more narrowly. In 2324702 Ontario Inc. v. 1304 Dundas W Inc., 2020 ONCA 353, at para. 23, the Court of Appeal held that relief from forfeiture is available in the context of a lease renewal when the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own.

[49] In this case, the default that remains to be considered is the non-payment of two $50 penalties for the July and August 2020 rent cheques that were returned by the bank.

[50] First, I reject the landlord’s argument that the tenant does not come to the court seeking relief from forfeiture with clean hands. In making this argument, the landlord relied principally on two allegations: first, that the tenant did not give evidence as to all its past breaches under the lease, and in so doing it misrepresented the truth, and second, that the tenant willfully chose not to pay its rent in July and August 2020, stopping payment on its rent cheques, and not trying to work with the landlord to remedy difficulties, but instead calling the landlord greedy and refusing to pay rent from July – October, thus breaching the lease anticipatorily.

[51] With respect to the first allegation, I am satisfied that the tenant has put forward its evidence with respect to the breaches that are relevant for purposes of this application. I am not prepared to draw an inference that the tenant has not come to the court with clean hands because it failed to disclose additional breaches that have been remedied, and as such are irrelevant to this application.

[52] I also reject the second allegation. The tenant may not have communicated elegantly with the landlord, but it is apparent, and the tenant’s principal has deposed, that he does not have full facility with the English language. I am not going to police the tone of a non-fluent English speaker in dire straits, as many small business owners were, who was telling his landlord that the business was “dying here” and being rebuffed at his attempts to convince the landlord to apply for relief through the CECRA program. The tenant was frustrated at the landlord’s lack of sympathy, which is a normal human response to the situation. Moreover, everyone at the time of the communications in question was suffering under the extraordinary stressful conditions of being at the outset of a global pandemic and not having any understanding or certainty about their relative physical safety or economic prospects.

[53] Moreover, the tenant made efforts to comply with its obligations. Although shuttered, it paid full rent for April to June 2020. Although it disagreed with the landlord’s calculations, it paid the second half of November 2020 rent. This is not a tenant which has disregarded its obligations under the lease. Rather, it is a tenant who was caught up in a global pandemic and faced a business shut down, and did its best in the circumstances.

[54] With respect to the outstanding $50 fees, it is apparent what happened. The tenant told the landlord not to deposit the cheques so as to avoid the bank’s fees. The landlord deposited the cheques anyway. When it emailed the tenant in August 2020 asking for the rent and fees to be paid, the tenant focused on the rent in its response, as that was the significant amount in issue. The tenant either forgot about or did not feel responsibility for the fees because it had advised the landlord not to cash the cheques, and the landlord had disregarded its advice.

[55] The landlord did not forgive the fees. But neither did the landlord ever mention them again until after the tenant had attempted to renew the lease, and the time period within which the tenant could do so while not in default under the lease had passed. As I have noted, this landlord was diligent about seeking the amounts it was owed under the lease.

[56] I have no doubt that the tenant would have paid the total $100 in fees to bring itself into good standing had the issue ever been raised again. The tenant has made diligent efforts to comply with the terms of the lease, including by making full payments under the extraordinary circumstances in April to June 2020, and by paying a half month’s rent it believed it did not owe. The tenant should have paid the $100 in fees, but the failure of the landlord to ever raise the issue again, in the context of a period of time when the parties were working together to address the issues around the rent and the CECRA application, and in which they reached agreement that full rent would begin to be owed in November 2020 without any further mention of the fees, leads me to conclude that the tenant reasonably did not believe that the landlord was insisting on those fees. The fact that the landlord did not demand the fees again until it delivered its responding material in this application lends further support to that conclusion.

[57] In these circumstances, I grant relief from forfeiture to the tenant on the term that it pay the outstanding $100 in fees to the landlord within thirty days of the release of this decision.

[58] I make no order with respect to damages, injunctive relief, or reconciliation of accounts beyond that already made. The issues of damages and injunctive relief were not argued. The landlord is estopped from claiming the missing month’s rent. The only other matter to be reconciled is the outstanding fees, which I have dealt with as a term of relief from forfeiture.

Costs

[59] The parties filed costs outlines on this application and agreed that once I had reached my determination on the merits, I would adjudicate costs without further submissions.

[60] The three main purposes of modern costs rules are to indemnify successful litigants for the costs of litigation, to encourage settlement, and to discourage and sanction inappropriate behaviour by litigants: Fong v. Chan (1999), 46 O.R. (3d) 330, at para. 22.

[61] Subject to the provisions of an Act or the rules of court, costs are in the discretion of the court, pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The court exercises its discretion taking into account the factors enumerated in r. 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, including the principle of indemnity, the reasonable expectations of the unsuccessful party, and the complexity and importance of the issues. Overall, costs must be fair and reasonable: Boucher v. Public Accountants’ Council for the Province of Ontario, 71 O.R. (3d) 291, at paras. 4 and 38. A costs award should reflect what the court views as a fair and reasonable contribution by the unsuccessful party to the successful party rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier, 2002 CarswellOnt 4020, 118 A.C.W.S. (3d) 341 (C.A.), at para. 4.

[62] The applicant tenant is the successful party and is presumptively entitled to its costs.

[63] The tenant seeks its partial indemnity costs of $16,676.04, all-inclusive. Had the landlord been the successful party, it would have sought all-inclusive costs of $9,173.72.

[64] There is no reason to award costs on anything other than a partial indemnity scale. No offers were made. No party has acted unreasonably in the litigation.

[65] I accept that the issues in this litigation were important to both parties, and particularly so to the tenant, who stood to lose its investment in the renovations to the property and a significant portion of its client base. The legal issues were not terribly complex, but there were some complicated points of fact to address. The materials were well-prepared. Counsel’s hourly rates are reasonable.

[66] The applicant spent more time on this litigation than did the respondent. Some of that is accounted for by reason of the applicant’s burden on the application. However, some of that additional time falls outside the reasonable expectations of the unsuccessful party, having regard to its own costs.

[67] In all the circumstances, I conclude that the respondent shall pay all-inclusive, partial indemnity costs to the applicant of $11,500 within thirty days.

Conclusion

[68] In summary, I grant the following orders:

a. I grant relief from forfeiture on the term that, within thirty days, the applicant shall pay the landlord $100 in respect of the two $50 fees owing for the rent cheques returned by the bank in respect of rent from July 2020 and August 2020.

b. I declare that the lease between the application and the respondent for premises municipally known as 2230 Lakeshore Boulevard West, Unit 11, Toronto, Ontario has been validly renewed until April 30, 2027 at the rental rates set out in the lease;

c. Within thirty days, the respondent shall pay to the applicant its all-inclusive costs of $11,500.

J.T. Akbarali J. Date: April 5, 2022