Court File and Parties

COURT FILE NO.: CV-22-00679861-0000

DATE: 20220823

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 207396 Ontario Inc., o/a Up In Frames, Applicant

– AND –

NYX Yonge Inc. and NYX Yonge GP Inc., Respondents

BEFORE: Justice E.M. Morgan

COUNSEL: Mark Ross, for the Applicant

Jeffrey Levine and Mitch Koczerginski, for the Respondents

HEARD: August 19, 2022

ENDORSEMENT

I. The commercial tenancy

[1] This is a commercial tenancy dispute in which the Respondent is attempting to evict the Applicant and the Applicant is seeking to avoid eviction from the leased premises.

[2] The lease in issue is a commercial lease dated September 18, 2018 between Maria Messina, as landlord, and the Applicant, as tenant (“Lease”). The Lease will expire in 2023 with a potential 5-year extension. The leased premises is located at 3200 Yonge Street, Toronto, and is 883 square feet on the main floor plus roughly the same amount of usable space in the basement (“Premises”). The Applicant runs a retail business from the Premises.

[3] The Respondent is an affiliate of NYX Capital Corp., a real estate development company that on May 20, 2020 acquired the building that contains the Premises. The acquisition was part of a land assembly of adjacent properties, with the entire block slotted for a redevelopment project. The Respondent was assigned the landlord’s interest in the Lease as part of NYX Capital Corp’s acquisition. The Lease contains no demolition clause.

II. The parties’ respective positions

[4] The Respondent states that the Applicant is in default of payments owing under the Lease. The Applicant seeks an injunction, arguing that it is not really in default of the Lease and that the Respondent has “manufactured” any supposed instances of default in order to force the Applicant out of the Premises.

[5] In their affidavits and other materials, the parties go to considerable effort to paint each other as the wrongdoer. The Applicant accuses the Respondent of a large, greedy developer forcing a small business tenant out of its commercial home so that it can redevelop the property for millions of dollars. The Respondent accuses the Applicant of not being as small and innocent as it says it is, and of possibly hiding income not declared in its tax returns. Much of this is irrelevant to the legal dispute between them and, to be blunt, amounts to the landlord and tenant throwing dirt at each other. Neither side has impressed me as being good or evil, and extraneous character issues are not what this case is or should be about.

[6] Rather, the question is whether the Applicant is really in default of the Lease or is in good standing under the Lease. The respective financial strength and/or motives of each party are not relevant factors.

[7] Having said that, it is central to the argument on which the parties have joined issue that the Respondent has not rested its termination of the Applicant’s tenancy on there being a breach of the Lease. Rather, the Respondent takes the position that it can simply terminate the Applicant’s tenancy as long as it pays the Applicant a reasonable amount in compensation.

[8] On April 11, 2020, the Respondent wrote to the Applicant:

…further to our letter to Mr. Azan of March 21, 2022, the Landlord is not relying on any breach of the Lease to justify the termination effective May 20, 2022. There is no attempt to, as you say ‘manufacture a default.’ The Landlord accepts that a court may rule in your client’s favour on the interpretation of the Lease, but is nevertheless terminating the Lease on May 20, 2022 accepting that your client may well be entitled to damages if its position on the Rent owing turns out to be correct or if the Rent owing is paid.

[9] The parties spent some months engaged in what were ultimately inconclusive negotiations in which the Respondent sought to buy out the balance of the term of the Applicant’s Lease. The Applicant was not inclined to sell. The Respondent then changed course in its dealings with the Applicant and sought to terminate the Lease with notice. Cognizant of the fact that the Applicant would seek damages if it were terminated, the Respondent undertook a review of the status of the Applicant’s account and discovered what were claimed to be outstanding rental arrears.

III. The alleged default in rent

[10] The Respondent sent a Notice of Default to the Applicant on February 17, 2022 and required payment of the arrears within 30 days. Then, on March 21, 2022, the Respondent delivered a Notice of Termination of the Lease effective May 20, 2022. The total amount of rent said to be outstanding in the Notice of Default was $45,057.19.

[11] The record before me establishes that although some of the claimed rental arrears were indeed owing by the Applicant, those relatively small amounts were the result of the Respondent’s own bookkeeping errors or its failure to ever bill the amounts in question. For example, part of the so-called “arrears” is an unpaid water bill from the previous year in the amount of $240.41 that the Respondent had never forwarded to the Applicant.

[12] Applicant’s counsel submits, logically and correctly, that a tenant cannot be expected to pay or know about a bill it did not receive, and that its failure to have done so cannot be an instance of “default” leading to termination of the tenancy. In any event, the Applicant has tendered a cheque in full payment of this water bill.

[13] The second item of “default” discovered by the Respondent is supposedly unpaid property tax in the amount of $40,773.43. In its Notice of Default, the Respondent claimed that this amount was outstanding and had been accumulating since the Respondent’s acquisition of the property.

[14] In making this claim, the Respondent appears to misread or to ignore a significant clause in the Lease. Sections 3(a) and (b)(i) of the Lease provide:

(a) Semi-Gross Rent

The Tenant shall pay a Semi-Gross Rent (which shall be deemed Basic Rent and Property Tax). The Taxes may be subject to increase or decrease during the term of the lease. Any changes in Taxes from the amount payable during the first year of the Term of the lease shall be reconciled with the Tenant on an annual basis. Until changed in accordance with the foregoing, the Semi-Gross Rent shall be as follows, plus applicable taxes:

(i) Realty Taxes

The Tenant shall pay for its realty taxes, deemed to be 75% of the building’s realty taxes, as assessed by an municipal, provincial, federal or other government authority against the Leased Premises. The current Realty Taxes are $28,236.22 annually or $2,353.03 per month.

[15] In other words, the Applicant has not been delinquent in payment of realty taxes; rather, it has been paying those taxes as part of its monthly “semi-gross” rental payments (all of which have been paid in a timely fashion and are up to date). The only amount that the Applicant is responsible for that is over and above its monthly rental payments is any escalation in realty taxes over that payable the first year of its Lease. Moreover, the Lease specifically provides that such escalation amounts only become payable by the Applicant when and if it is invoiced for the amount as part of the Respondent’s annual reconciliation of expenses.

[16] The Applicant knew as soon as it received the Notice of Default that the Respondent’s calculation of the unpaid realty taxes was incorrect. The $40,773.43 claimed by the Respondent represents the entire realty tax bill for the property for the relevant time, not the escalation in realty taxes over and above the first year of the tenancy. It took a significant effort on the Applicant’s part to figure out for itself the escalation amount, since the Respondent never presented this in an annual reconciliation as it was obliged to do under the Lease.

[17] It turns out that the amount owing by the Applicant on account of escalated realty taxes was at most $4,931.95, being the difference between 2020 and 2021 realty taxes. Like the amount of the water bill, the Applicant had never paid this because it was never billed for it. And also like the water bill, the Applicant has now tendered a cheque in full payment of this tax escalation.

[18] The third component of the supposed arrears in rent discovered by the Respondent is one month’s unpaid basic rent in the amount of $4,520. This arrears dates back to May 2020, which was the month in which the Respondent acquired the property in issue.

[19] Upon investigation, it turns out that the Applicant had in fact sent a post-dated rent cheque for May 2020 to the previous landlord, and that the previous landlord had forwarded this cheque to the Respondent when the Respondent took over as landlord in the middle of that month. An email from the previous landlord’s lawyer to the Applicant’s lawyer dated May 15, 2020 states: “With respect to the main floor tenant, Up in Frames, I confirm that May’s rent cheque is with the Purchaser’s lawyer along with the other post-dated cheques for this client.”

[20] The Respondent therefore had the Applicant’s cheque but, through no fault of the Applicant’s, neglected to deposit it. Moreover, the Respondent never notified the Applicant of this and never requested a new cheque, such that the first time the Applicant learned of the Respondent’s error in this regard was when it received the Respondent’s Notice of Default.

[21] Applicant’s counsel submits, again logically and correctly, that a tenant cannot, without some notification or explanation by the landlord, be expected to give a second rent cheque for a month when it has already delivered a rent cheque for that month. The Applicant’s failure to have paid basic rent for May 2020 lies entirely with the Respondent as a clerical error in not depositing the cheque. The discovery by the Respondent of its own error nearly two years later cannot constitute the discovery of a default on the Applicant’s part and cannot form the basis for validly terminating the Applicant’s tenancy.

[22] Like the amount of the water bill and the realty tax escalation, the Applicant had never paid May 2020 basic rent because it was never notified that the Respondent needed a new cheque to replace the one that the Applicant had delivered on time. And also like the water bill and the tax escalation, the Applicant has now tendered a cheque in full payment of the May 2020 rent.

[23] In all, the Applicant is right that there are no instances of default in rent to support the Respondent’s Notice of Default. Every one of the components of that Notice result from the Respondent’s own delinquency or errors in billing. The proper amounts have now been tendered by the Applicant.

[24] For its own tactical reasons, the Respondent has refused to accept or deposit the cheques tendered by the Applicant. But that refusal simply amounts to one more error or miscalculation on the Respondent’s part. Of course, the Respondent is free to deposit or not deposit the Applicant’s cheques, as it sees fit; but the Applicant has paid all rent up to date is not (and never was) in arrears. If the Respondent does not wish to deposit the cheques it has been given, then it will have to suffer that loss. The Applicant can consider the relevant amounts to be paid.

IV. The purported termination of the tenancy

[25] As already indicated, the Respondent sent the Applicant notice that the Lease was terminated as of May 20, 2022. However, when it became clear that the matter was headed for litigation, the Respondent agreed to allow the Applicant to remain in the Premises pending the outcome of the case.

[26] Given the unsupportable bases for the Notice of Default, it is little wonder that the Respondent conceded in its April 11, 2020 email that it “accepts that a court may rule in your client’s favour on the interpretation of the Lease.” Although it has taken me 20-some paragraphs to get there, it was really a foregone conclusion. The Applicant was not in default under the Lease; anyone, including the Respondent, could see that.

[27] Rather, what this Application is really about is the Respondent’s position, also expressed in the April 11, 2020 email, that even in the absence of any default by the Applicant it “is nevertheless terminating the Lease on May 20, 2022 accepting that your client may well be entitled to damages if its position on the Rent owing turns out to be correct or if the Rent owing is paid.” In effect, it is the Respondent’s position that a landlord can, for a reasonable payment, buy back the term of a commercial tenant’s tenancy even if the tenant does not agree to sell.

[28] Appellant’s counsel submits that the starting point for an analysis of this issue is that the tenant’s right in the Premises is, first and foremost, a property right. Moreover, that right, as Perell J. pointed out in Laurier Homes (27) Ltd. v. Brett, 2005 CanLII 44817, at para 32, is not just an economic interest to be bought or sold like generic commercial goods, but rather is a possessory right. The landlord owns a non-possessory, reversionary interest; absent any default, it is the tenant that is entitled to possession of the Premises.

[29] Respondent’s counsel submits that the real starting point for an analysis of this issue is the change instigated by the Supreme Court of Canada’s well-known judgment in Highway Properties Ltd. v. Kelly, Douglas and Co. Ltd., 1971 CanLII 123 (SCC), [1971] SCR 562. In that case, Laskin J. (as he then was) commenced his discussion of the legal point by acknowledging, at 568, “the continuity of common law principle that a lease of land for a term of years under which possession is taken creates an estate in the land, and also the relation of landlord and tenant, to which the common law attaches various incidents despite the silence of the document thereon.” However, Justice Laskin went on to indicate that a commercial lease, while not abandoning the “estate” character of the landlord and tenant’s respective interests, is also a commercial contract for certain purposes.

[30] This concept of a property rights/contract rights crossover has been applied in a number of situations. In Highway Properties itself, the contractual aspect of the landlord-tenant relationship was brought out by the specific terms of the rental agreement, which called for the tenant, a supermarket, to pay rent based on a percentage of its sales.

[31] Justice Laskin viewed that arrangement as having a sufficiently contract-type element to justify the landlord’s claim of expectation damages in response to the tenant’s repudiation of the lease. It is important to note that the contract remedy, although innovative at the time, was implemented on behalf of a landlord where the tenant had repudiated its possessory right; it was not imposed in a context that deprived a party of its possessory right.

[32] Respondent’s counsel argues that this movement away from a property analysis and toward a contract analysis has more recently taken a step forward in the Supreme Court of Canada’s judgment in Semelhago v. Paramadevan, 1996 CanLII 209 (SCC), [1996] 2 SCR 415. There, Sopinka J. reasoned that a disappointed purchaser of property under an Agreement of Purchase and Sale can no longer expect a remedy of specific performance but rather might be compensated in damages.

[33] Although the purchaser under a firm agreement of purchase and sale does have a form of proprietary interest, it is not a possessory one. Justice Sopinka was of the view that in the absence of something identifiably unique about the property in question, the agreement can be read as an ordinary contract and damages can substitute for specific performance. In that way, the purchaser’s interest in the land becomes an economically quantifiable interest enforced by a damages award rather than a strictly proprietary one enforced by an equitable remedy.

[34] It is the Respondent’s position that the Highway Properties-like expansion of contract remedies and contraction of property remedies is, or should, now be extended to the present context – i.e. to the rights of a landlord to buy out, through damages, the term of a valid tenancy. The Respondent relies on Evergreen Building Ltd. v. IBI Leaseholds Ltd., 2005 BCCA 583, at para 32, where the British Columbia court observed that the law is generally moving away from specific performance of property rights.

[35] While that may be the case in various contexts, it is not the case with respect to the one before me – at least not in Ontario. The present case is squarely within the law as set out by the Ontario Court of Appeal in 1465152 Ontario Limited v. Amexon Development Inc., 2015 ONCA 86. There the Court noted that a landlord who takes the position that the Respondent has taken here is effectively seeking authorization for “a complete repudiation of its grant.”

[36] In Amexon, Brown JA found, at para 15, that, much like the Respondent’s April 11, 2022 communication, “the Landlord’s February 28, 2014 Notice to Vacate did not allege that the Tenant had breached any provision of the Lease, nor did it identify any specific provision of the Lease under which the Landlord was purporting to re-enter the leased premises.” From there he concluded, at para 16, that “[a] commercially unreasonable interpretation of [the lease] would result if the Landlord could act without lawful authority to bring the Lease to an end and re-occupy the premises, and then rely on the disclaimed Lease [as being a mere contract] to prevent the Tenant from restraining the Landlord’s unlawful conduct.”

[37] There is, of course, good reason for protecting the Applicant’s right via injunctive or other equitable relief. The essence of what the tenant owns in a commercial tenancy is the possessory right. Only an injunction or other mandatory court order can adequately enforce the possessory aspect of that right. The Court of Appeal in Amexon quoted approvingly from Robert J. Sharpe, Injunctions and Specific Performance (Toronto: Canada Law Book, 2014), at 4.10 and 4.20, to that effect:

Where the plaintiff complains of an interference with property rights, injunctive relief is strongly favored. This is especially so in the case of direct infringement in the nature of trespass…

The reason for the primacy of injunctive relief is that an injunction more accurately reflects the substantive definition of property than does a damages award. It is the very essence of the concept of property that the owner should not be deprived without consent. An injunction brings to bear coercive powers to vindicate that right.

[38] As Justice Sharpe himself observed in Watchcraft Shop Ltd. v. L&A Dev. Ltd., [1996] OJ No 5479, at para 9, the “holder of a property right is not obliged in law to surrender the right even if objectively reasonable terms are offered.” Otherwise, the situation would raise “a concern for future abuses if landlords are given carte blanche to throw out tenants just because a better deal comes along”: 1465152 Ontario Limited v. Amexon Development Inc., 2014 ONSC 4384, at para 3 (SCJ costs endorsement).

[39] Given that a tenancy like the one at bar is not just a proprietary interest but a possessory right, the Respondent’s view of the law would allow arbitrary trespasses and conversion of property to be imposed on anyone unwilling to sell their tenancy to their landlord. The expansion of this principle any further would mean the disappearance of property rights altogether.

[40] There is therefore good reason that the Highway Properties thinking about commercial leases and other hybrid property/contracts instruments has not been applied to a possessory right. An infringement of the right of possession requires injunctive relief in order to “preserve property rights and to restrain tortious conduct”: Amexon, at para 25 (quoting Myers J. at first instance). Otherwise, all property would be open to be taken by any market bidder – a legal development that would, ironically, undermine property and contract rights all at once. After all, there would be no reason for a buyer to seek a meeting of minds with a seller if the property could be appropriated non-consensually anytime by a buyer willing to pay.

[41] The record establishes that moving locations would be onerous for the Applicant and risky for the viability of his business. But in my view, it is not necessary for the Applicant to even make that argument.

[42] The Applicant has a possessory right in the Premises, which cannot be simply taken from him by the Respondent. Otherwise, there would have been no need for the Respondent to negotiate with the Applicant at all; the Applicant’s property would by definition be available for it to “buy”.

V. Disposition

[43] There shall be a declaration that the Respondent’s Notices of Default and Notice of Termination are null and void.

[44] The Respondent is enjoined from terminating the Lease or re-entering the Premises without further Court order.

[45] The parties may make written submissions on costs. I would ask counsel for the Applicant to send to my assistant by email brief submissions within two weeks of today, and for counsel for the Respondents to send to my assistant by email equally brief submissions within two weeks thereafter.

Date: August 23, 2022

Morgan J.