ONTARIO SUPERIOR COURT OF JUSTICE
IN THE MATTER OF 100 BLOOR STREET WEST CORPORATION, LANDLORD, v. BARRY’S BOOTCAMP CANADA INC. OPERATING AS BARRY’S BOOTCAMP, TENANT
BETWEEN:
100 BLOOR STREET WEST CORPORATION
Howard J. Wolch,
Applicant
– and –
BARRY’S BOOTCAMP CANADA INC. operating as BARRY’S BOOTCAMP and BBC HOLDINGS, LLC
Respondents
Mark Dunn, Joe Latham, and Kirby Cohen, for the Respondents
HEARD: August 11, 2022
APPLICATION UNDER Rule 14.05(2) of the Rules of Civil Procedure R.R.O. 1990, Reg. 194 and Section 74 of the Commercial Tenancies Act R.S.O. 1990, c. L. 7
KOEHNEN J.
REASONS FOR JUDGMENT
1These reasons arise out of two competing applications. One by the applicant Landlord for a writ of possession and an order terminating its lease with the respondent tenants and a second by the tenants for a declaration that the Landlord is not entitled to terminate the lease and that its purported termination was invalid.
2For the reasons set out below, I dismiss the Landlord’s application and grant the tenant’s application.
3The principal issue between the parties involved the manner in which realty taxes would be allocated to the leased premises. I find that the Landlord’s method of ascribing taxes was one that the lease permitted. That said, the lease did not permit the Landlord to ascribe to the tenant, any taxes referable to the parking lot beneath the building. Although the Landlord largely succeeded on the principal issue of tax allocation, it is nevertheless not entitled to terminate the lease because the tenant did not breach the lease by failing to pay the amounts the Landlord demanded. This is so because the Landlord had agreed to defer payment of realty taxes until a later undefined date at which time the Landlord had agreed to give the tenant options with respect to how the realty taxes could be paid. The Landlord did not abide by that agreement but simply demanded payment of taxes without forewarning and without providing adequate time to pay. In addition, the Landlord demanded payment of Occupancy Costs from the tenant. When doing so, the Landlord had failed to comply with its own obligations under the lease with respect to Occupancy Costs, namely the requirement that the Landlord was required to provide the tenant with an estimate of Occupancy Costs for the upcoming year and a reconciliation of estimated to actual Occupancy Costs at year end. The Landlord was not entitled to demand Occupancy Costs until it had complied with its own obligations under the lease in this regard.
I. Factual Background
4The Landlord, 100 Bloor Street West Corporation (the “Landlord”) as its name suggests, owns and operates retail premises for lease at 100 Bloor Street West in the city of Toronto. The property is located on a prime area of Bloor Street that is often referred to by realtors as the “mink mile.” Street front properties in this area command some of the most expensive retail lease rates in Canada.
5The tenants, Barry’s Boot Camp Canada Inc. and its holding company BBC Holdings LLC (“collectively hereinafter referred to as “Barry’s”) lease approximately 852 ft.² of ground-floor space and 5,281 ft.² of second floor space in the building which Barry’s operates as a high-end fitness studio. Barry’s lease is dated March 14, 2018, and runs for 10 years. The rent commencement date of the lease was deemed to be September 12, 2019. The initial draft of the lease was provided by Barry’s, not the Landlord.
6The lease is a “triple net lease” pursuant to which Barry’s was required to pay a monthly base rent as well as operating expenses and realty taxes. Operating expenses and realty taxes were based on projections prepared by the Landlord which were then to be reconciled at the end of each year. The Landlord provided those projections in early February 2020. Barry’s paid the rent, occupancy costs and taxes on that basis in February 2020 and March 2020 without objection.
7In March 2020, the worldwide Covid 19 pandemic broke out as a result of which Barry’s was forced to close its doors to clients. Although Barry’s could no longer receive clients on the premises, it maintained the lease. A number of rental adjustments were made by agreement between the parties to take into account the difficulties created by the Covid 19 pandemic. As a result of these adjustments, Barry’s proposed to pay the base rate owing under the lease ($35,805.44 per month) plus its own calculation of operating expenses of $10,106.98 per months and taxes of $16,334.12 per month. Barry’s says it made and continued to make those payments on a monthly basis to the date of this hearing. The Landlord disagrees that all payments were made although the disputed amount appears to be relatively small.
8Although the operating expenses and taxes paid by Barry’s as a result of these objections were less than the estimates the Landlord provided in February 2020, the Landlord accepted the payments without objection and to all appearances was prepared to accommodate Barry’s given the hardships imposed on both retail landlords and tenants by the pandemic.
9Barry’s provided its own estimate of taxes rather than accepting what the Landlord estimated because, in 2017, the Landlord had appealed its new tax assessment which increased the value of the property for tax purposes from $59 million to over $226 million.
10At the end of 2020 and 2021 the Landlord did not provide a reconciliation of operating expenses or taxes nor did it provide estimates of those costs for 2021 or 2022. Rather, the Landlord continued, without objection, to accept the base rent and the operating expenses and taxes as Barry’s had estimated them.
11On April 26, 2022, the Landlord served Barry’s with a notice of default and demanded payment of arrears of nearly $1 million by 5 PM on May 3, 2022, failing which the Landlord would exercise its remedies under the lease. On May 5, 2022, the Landlord retained a bailiff to retake possession of the premises. The Landlord was unable to take possession because Barry’s had hired a security guard to prevent entry into the leased premises.
12On May 16, 2022, Barry’s sought and obtained an interlocutory injunction restraining the Landlord re-taking possession pending the result of this hearing.1
13The application before me revolved around two central issues:
A. How are taxes to be calculated?
B. Is the Landlord entitled to terminate the lease?
A. The Dispute over Taxes
14The principal dispute between the parties is about how to calculate realty taxes owing under the lease. This involves two sub- issues:
(i) Whether Barry’s share of the realty taxes should be based on the value of the premises Barry’s rents or whether it should be based on the percentage that Barry’s space comprises of the total retail space.
(ii) Whether Barry’s should be paying any realty taxes that are referable to the parking lot at 100 Bloor Street West.
(i) Value based or Percentage Based Tax Calculation
15The Landlord has calculated each retail tenant’s realty tax by charging to them that per centage of the tax bill that corresponds to the per centage of the square footage they occupy of the retail space. Given that Barry’s occupies 11.878% of the retail space, the Landlord has charged Barry for 11.878% of the total realty taxes owing on the total retail space at the property.
16Barry’s takes the position that its tax bill should be calculated based on the ratio of the value of the space Barry’s occupies to the value of the total retail premises.
17The City of Toronto issues a single tax bill to the Landlord. The amount of that tax bill is determined by the Municipal Property Assessment Corporation (“MPAC”). MPAC calculates the tax bill by attributing a value to each of the retail spaces on the premises in its working papers. MPAC then aggregates the values of all of the retail spaces and multiplies that value by the tax rate to arrive at the tax applicable to the retail portion of 100 Bloor Street West. The MPAC working papers indicate that the value of the premises Barry’s occupies amount to between 4.06% and 5.06% of the value of the total retail space as a result of which Barry’s submits that it’s taxes should be limited to between 4.06% and 5.6% of the total tax bill.
18The discrepancy between the percentages of square footage and value arises from the location of Barry’s space within 100 Bloor Street West. The building is divided into superior units and standard units. The superior units front directly onto Bloor Street. Tenants with street frontage include Holt Renfrew, Hermes, and Zegna. As noted earlier, the units with street frontage are among Canada’s most expensive retail properties. Barry’s does not occupy a superior unit. Its unit is at the back of the property and is accessed either through a courtyard or through an alley. In addition, as noted, while Barry’s occupies a small amount of space on the ground floor, the main part of the fitness studio occupies space on the less valuable the second floor.
19In support of its position, Barry’s relies principally on Article 5.3 of the lease which provides:
5.3 Occupancy Costs
The Tenant shall pay to the Landlord, at the times and in the manner provided in this Lease, the Tenant's share of Realty Taxes and the Tenant's Proportionate Share of Operating Expenses determined in accordance with the provisions of Schedule "B" attached hereto (collectively, the "Occupancy Costs"). [Emphasis added.]
20Barry’s relies on the distinction in the language between the “Tenant’s share of Realty Taxes” on the one hand and the “Tenant’s Proportionate Share of Operating Expenses” on the other hand. The difference assumes importance in Barry’s eyes because the term “Proportionate Share” is defined in Article 2.1 (vv) as
the ratio, expressed as a percentage which the Rentable Area of the Leased Premises bears to the Rentable Area of the Retail Component, which ratio shall be determined from time to time by the Landlord.
21In other words, when speaking about the allocation of operating expenses, the lease specifically refers to a rateable allocation according to square footage. When speaking of the allocation of taxes, the lease speaks only of the “Tenant’s share of Realty Taxes”. Although “Tenant’s share” is not defined in the lease, Barry’s submits that it cannot mean a share according to square footage because, had that been intended, the lease would have used the phrase “Tenant’s Proportionate Share”.
22The Landlord relies on Article 6.3 of the lease. The first portion of Article 6.3 provides that the tenant shall pay to the Landlord any Realty Taxes that are separately assessed against the leased premises. This speaks to a circumstance in which the taxing authority separately assesses taxes against individual leased premises within a larger retail complex. That was the case in Ontario before 1998 but has not been the case since then.2 The second portion of Article 6.3 addresses the situation in which taxing authorities do not individually assess separate units within a building but provide a single tax bill for a building comprised of multiple leased units. It provides:
…in the event that Realty Taxes are not separately assessed against the Leased Premises by the Taxing Authority, the Landlord shall determine, in its sole and unfettered discretion, the portion of Realty Taxes attributable to the Leased Premises using such method of determination which the Landlord shall choose.
Article 6.3 then goes on to obligate the tenant to pay to the Landlord the taxes as calculated by the Landlord.
23In my view, Article 6.3 takes precedence over Article 5.3. Article 5.3 does not actually specify how realty taxes are to be calculated, it merely refers to the tenant’s share of Realty taxes. It is Article 6.3 of the lease that describes how taxes are to be calculated.
24The reference to Proportionate Share in Article 5.3 when addressing Operating Expenses and “Tenant’s share” when addressing taxes, does not necessarily exclude the application of the proportionate share method based on square footage. It merely leaves the open the issue of how to determine the tenant’s share. Article 6.3 confirms this by describing the tenant’s share of taxes as the amount separately assessed against the leased premises or, if there is no separate assessment, as the amount determined by the Landlord to be attributable to the leased premises in the Landlord’s sole and unfettered discretion, using such method of determination as the Landlord chooses.
25Barry’s submits Article 6.3 is not determinative because, the Supreme Court of Canada held in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District,3 that even a facially unfettered contractual discretion is subject to the duties of honesty and reasonableness. In addition, paragraph six of Schedule “H” to the lease provides that whenever the Landlord makes a determination under the lease, the determination “shall be made and given on a reasonable basis.”
26In Wastech the Supreme Court described the exercise of unfettered discretion as follows:
[88] In sum, then, the duty to exercise discretion in good faith will be breached where the exercise of discretion is unreasonable, in the sense that it is unconnected to the purposes for which the discretion was granted. This will notably be the case where the exercise of discretion is capricious or arbitrary in light of those purposes because that exercise has fallen outside the range of behaviour contemplated by the parties. The fact that the exercise substantially nullifies or eviscerates the fundamental contractual benefit may be relevant but is not a necessary pre-requisite to establishing a breach. [Citations omitted.]
27Barry’s argues that the Landlord falls afoul of the Supreme Court’s guidance because, among other things:
(i) The purpose of the discretion under Article 6.3 is to allocate taxes payable on the premises Barry’s rents. The Landlord’s calculation, in effect, requires Barry’s to pay taxes referable not only to its own premises but also to pay taxes referable to other, superior, units in the building.
(ii) Using the working papers approach would allow the Landlord to charge Barry’s for taxes that are directly referable to its unit.
(iii) The Landlord’s calculation of monthly taxes comes to $31,425.49 while Barry’s base rent is only $30,763.33.
(iv) The Landlord did not consider any of these factors when it allocated taxes. Instead, the Landlord always intended to allocate taxes rateably according to square footage. As a result, the Landlord is demanding Barry’s pay 11.80% of the tax bill rather than the 4.06% and 5.06% that Barry’s says it should pay.
28In my view, the Landlord has exercised its discretion under the lease reasonably. The purpose of Article 6.3 is to allocate a portion of the Realty taxes to the leased premises. There are various ways of conducting that exercise. One way is to use the working papers approach advocated by Barry’s. That, however, is not the only way. Another way is to divide the tax assessment among all tenants in proportion to the square footage that they lease. There are no doubt other methods in addition to these two. Any one method has its advantages and disadvantages. Any one method may advantage or disadvantage a particular stakeholder.
29Article 6.3 specifically accords the Landlord discretion to choose the method. That discretion is described as being “sole and unfettered”. The Landlord has chosen one of the reasonable options available to it to apportion realty taxes between tenants.
30The tenant’s own materials support this analysis. One of Barry’s experts, Carmen Siegel, agreed that the proportionate share method was a common way to allocate taxes but that it is “not the only method of allocating costs and is not appropriate for every case.”
31Barry’s submits that the fact that proportionate allocation by square footage is common is irrelevant because its premises are not “common” because there is a wide variation in value among the leased premises at 100 Bloor St. That is beside the point. That simply underscores the fact that there are different methods of attributing realty taxes to tenants and that any single method may advantage or disadvantage different stakeholders.
32In in paragraph 95 of its factum Barry’s states:
The Landlord was granted discretion so that it could choose an allocation method that accomplishes that purpose4 – and the best way to do that is to allocate Taxes based on the relative values of the units in the Property, as that value generates Taxes.
33Reference to “the best way” suggests that there are a number of ways to allocate taxes. In Barry’s view the Landlord has not chosen the “best way”. That is not, however, what Article 6.3 requires. Article 6.3 does not require the Landlord to choose the “best way.” It allows the Landlord sole and unfettered discretion in choosing the way to allocate taxes.
34If, as Barry’s argues, the working papers approach is the appropriate one notwithstanding the discretionary language in the contract, then that discretionary language is superfluous. It is trite law that the proper approach to contractual interpretation is to give effect to all of the language in a contract and, if possible, read the contract as a harmonious whole.
35In my view, the flaw in Barry’s approach is that it takes a judicial approach to the exercise of discretion rather than a contractual approach. A judicial approach would, for example, find error where a judge exercised his or her discretion in a manner that failed to take into account certain relevant factors. Barry’s stresses that the Landlord did not properly exercise its discretion because it did not take into account the factors set out in paragraph 27 above but always intended to apply the square footage approach.
36In Wastech, however, the Supreme Court of Canada warned against taking an “administrative law” approach to reasonableness and described the concept in a contractual context as requiring a duty to exercise the discretion honestly and in light of the purposes for which it was conferred. The Court went out of its way in Wastech to warn against the use of a judge’s personal views of commercial morality or fairness as follows:
[73] I hasten to say that the role of the courts is not to ask whether the discretion was exercised in a morally opportune or wise fashion from a business perspective. The common law recognizes that “[c]ompetition between businesses regularly involves each business taking steps to promote itself at the expense of the other…. Far from prohibiting such conduct, the common law seeks to encourage and protect it”. As a general matter, good faith should not be used as a pretext for scrutinizing motive.
[74] Not only does this deferential approach ensure “some elbow-room” for the “aggressive pursuit of self-interest”, but it also prevents good faith from veering into “a form of ad hoc judicial moralism or ‘palm tree’ justice”. In this context, then, courts must only ensure parties have not exercised their discretion in ways unconnected to the purposes for which the contract grants that power. [Citations omitted.]
37There is no basis in my view for suggesting that the Landlord acted dishonestly or in bad faith when allocating taxes as it did. It applied the approach it chose not only to Barry’s but to other occupants of standard units. It can also not be suggested that the Landlord took the approach it did for a purpose other than the one for which the discretion was conferred. The purpose of the discretion was to determine what portion of the realty taxes were attributable to the leased premises. The Landlord did just that, albeit in a manner with which Barry’s disagrees.
38Although even an unfettered discretion must be exercised reasonably and honestly, that does not mean that courts should subject the exercise of contractual discretion to microscopic examination. The fact that contractual discretion may be subject to review for reasonableness, good faith and honesty does not mean that courts will now ignore language that gives a party “sole and unfettered” discretion.
(ii) Taxes on the Parking Garage
39100 Bloor St. West has an underground parking lot which the Landlord operates for its own profit. When the tax assessment on the property was settled, the Landlord agreed with MPAC that the parking garage reflected 5.3% of the overall value of the property.
40The Landlord did not pay any taxes referable to the parking lot out of its parking lot revenues but instead charged the tenants for those taxes by including them in the tax amount referable to the retail space as a whole. As a result, since Barry’s occupied 11.8% of the retail space, it was also required to pay 11.8% of the taxes referable to the parking garage. Barry’s objects to this approach.
41The Landlord justifies the approach on the theory that the parking lot is an amenity of which all retail tenants enjoy the benefit, much like common areas in the retail space. In support of this approach the Landlord relies on the definition of Retail Component in Article 2.1 (fff) of the lease as follows:
"Retail Component" has the meaning ascribed thereto in Article 1.4 and includes the Leased Premises, the Common Areas and all improvements located therein, thereto, thereon or thereunder and every enlargement thereof and every addition thereto even though separated therefrom.
42The Landlord argues that the parking garage is located under the Retail Component and therefore falls within the reference to an “improvement located… thereunder”.
43On my reading of the lease as a whole, the Landlord is not entitled to ascribe any taxes referable to the parking lot to Barry’s because the Lease specifically precludes the Landlord from doing so.
44Schedule “H’ to the lease contains what are referred to as Special Provisions. The introduction to Schedule “H” makes it clear that, in case of discrepancy, the Special Provisions of prevail over the Standard Provisions in the lease. Paragraph four of Schedule “H” provides:
- Parking
Notwithstanding anything contained herein to the contrary, the Tenant hereby acknowledges and agrees that the Leased Premises does not include a license or any other interest whatsoever in any parking facilities on or adjacent to the Lands and/or the Development and that same is not included in the Rent paid pursuant to the terms hereof. [Emphasis added.]
45Rent is defined in Article 2.1 (aaa) as follows:
"Rent", "rent", "Rental" or "rental" means all payments and charges payable by the Tenant pursuant to this Lease, including without limitation, the Base Rent and Additional Rent.
46If there were any doubt that realty taxes were a “charge payable by the Tenant pursuant to the lease” the issue is made even clearer by the fact that Rent includes “Additional Rent.”
47Additional Rent is defined in Article 2.1 (a) of the Lease as meaning, among other things, Occupancy Costs. Occupancy Costs are in turn defined in Article 5.3 of the Lease as including the Tenant’s Share of realty taxes.
48As a result, the end effect of paragraph 4 of Schedule “H” is that realty taxes referable to the parking lot are not included in the realty taxes the tenant is required to pay.
B. Is the Landlord Entitled to Terminate the Lease?
49The Landlord submits that it has validly terminated Barry’s lease for failure to pay taxes and Occupancy Expenses when due. The Landlord relies on Articles 21.1 and 21.2 of the lease which provide that the failure to pay rent is an event of default for which the Landlord can terminate the lease. The Landlord further submits that payment now of past arrears cannot remedy the situation because the Landlord has already terminated the lease and Article 21.7 provides that no payment by the tenant after termination of the lease shall reinstate or continue the term of the lease. The Landlord notes that Barry’s ceased paying the full amount of rent owing in March 2020.
50Although the Landlord acknowledges that there was a dispute about the amount of tax payable and potentially about the Occupancy Expenses payable, the Landlord points to Article 5.6 of the lease which provides that the tenant is not entitled to deduct or set off from rent payable amounts that the tenant may claim to be entitled to unless the Landlord agrees in writing. Article 5.6 further provides that all disputes about amounts that the tenant claims from of the Landlord shall be settled as a matter separate from the tenant’s obligation to pay rent unless the Landlord agrees in writing. Finally, the Landlord also relies on its fundamental right to terminate a commercial lease for failure to pay rent pursuant to s. 18 (1) of the Commercial Tenancies Act.5
51On my view of events, these provisions do not assist the Landlord because its purported termination of the lease was invalid because the amounts the Landlord claims were not in arrears and its purported termination of the lease was invalid. This is so for two reasons. First, the Landlord was precluded from terminating the lease for failure to pay taxes because the Landlord had entered into an agreement with Barry’s pursuant to which the Landlord deferred the determination of the amount due for taxes until after the Landlord had received the tax refund to which it was entitled by virtue of the tax appeal. Second, the Landlord was precluded from terminating the lease for failure to pay Occupancy Expenses because the Landlord had failed to abide by its obligations under the lease in relation to those occupancy costs.
(i) The Agreement with respect to Tax Payments
52As noted earlier in these reasons, after Barry’s was forced to close because of the Covid-19 pandemic, it paid its base rents as set out in the lease and Occupancy Expenses and taxes based on its own calculations which it shared with the Landlord. The Landlord accepted these payments without protest.
53The Landlord’s general counsel, Avi Peison, also assured Barry’s external counsel, Alan Siegal, that the Landlord would not take any action against Barry’s as long as it made the provisional payments that Barry’s had promised to make. There is no dispute that Barry’s made those payments.6 Although the Landlord sent three demand letters to Barry’s in May, June and July 2021, Mr. Peison assured Mr. Siegal that the letters were generated automatically by the Landlord’s accounting system and that Barry’s should disregard them. Barry’s received no further demand letters after July 2021.
54Mr. George Karnoupakis is the Head of Asset Management for ASG Equities LLC, the asset manager of 100 Bloor Street West Corporation and was the Landlord’s affiant on this application. He agreed during cross-examination that he told Barry’s external counsel, Mr. Siegal, that he wanted to do “the right thing” because Barry’s was a valuable client and that the Landlord would give Barry’s “options” to address the property taxes after the Landlord had received the tax refund arising out of the settlement of the tax appeal.
55The settlement of the tax appeal was finalized in December 2021. In January 2022 Mr. Siegal wrote to Mr. Karnoupakis to resolve the tax payments and provided a detailed summary of Barry’s position. Mr. Karnoupakis responded by email dated January 6, 2022 in which he stated that the Landlord would review Barry’s position and get back to Barry’s. He also noted that the Landlord had not yet received a refund from the city. Mr. Siegal responded further on January 7, 2022 agreeing that the quantum of taxes would be resolved after the Landlord had received the refund from the city but added:
We are merely proposing that in advance of this, it would be prudent to agree on the percentage of the total taxes that Barry’s Boot Camp is responsible for.
56These emails demonstrate that this was not a situation of a tenant trying to avoid responsibility for taxes. Rather, it was the Landlord who deferred those discussions until after it had received the tax refund even though the tenant wanted to begin those discussions right away.
57In these circumstances Barry’s had a reasonable expectation that it would discuss the amount of taxes owing with the Landlord after the Landlord had received its refund from the city and that the Landlord would provide Barry’s with a number of options to initiate those discussions.
58This is not, however, what occurred. Without any further discussion or forewarning, the Landlord sent Barry’s a notice of default on April 26, 2022 and threatened to terminate the lease on May 3, 2022 if Barry’s did not pay the alleged arrears of $984,407.95
59On April 29, 2022, the Landlord entered into a letter of intent with Harry Rosen to lease Barry’s premises to Harry Rosen provided the Landlord was able to evict Barry’s.
60On May 5, 2022 the Landlord tried to re-enter Barry’s premises.
61In my view, the concept of promissory estoppel applies to restrain the Landlord from terminating the lease as it did. Promissory estoppel applies where one party has by words or conduct made a promise to or assured another in a way that was intended to affect their legal relationship. The doctrine of promissory estoppel applies where:
(a) One party has made a promise or representation and expected the other party to rely on it.
(b) The other party relied on the representation.
(c) The party that relied on the representations suffered detriment as a consequence of its acts or omissions.7
62Here, the Landlord promised Barry’s that it would address the tax issue after it had received the tax refund from the city and after it had presented options to Barry’s. The Landlord expected Barry’s to rely on it. Indeed, when Barry’s tried to discuss the issue of taxes, the effect of the Landlord’s response was that such discussions were premature. Barry’s relied on the representation by not making additional tax payments. Barry’s suffered detriment. It made interim tax payments and did not insist on an accounting and reconciliation of taxes from the Landlord as it was entitled to under the lease (see section “b.” below).
63The Landlord submits that an estoppel is not created simply because one party to a contract grants a friendly indulgence to another.8 While that is correct, the situation here was more than simply a friendly indulgence. As noted, when Barry’s tried to settle the tax issue with the Landlord, the Landlord declined to do so and wanted to defer discussion to a later point.
64The Landlord submits that even if there was an agreement with the tenant to defer the tax issue, or even if promissory estoppel applies, that should not prevent the Landlord from claiming taxes at some point. I agree. Here, however, the Landlord gave the tenant five days notice. In my view, that is not a reasonable amount of time to allow the Landlord to revert to its strict rights under the lease. This is not a situation like a demand loan where a debtor knows or ought to know that the creditor can demand payment at any time and where the debtor must be prepared for that contingency. This was a situation where the tenant was told that there would not be a demand but that a number of options would be put to the tenant and discussed at an indefinite point in the future. The Landlord did not put any options to Barry’s. It simply issued a demand at a time of its own choosing. Given that the Landlord refused to discuss taxes four months earlier when Barry’s asked to and given the Landlord’s decision to defer discussion to an indefinite point in the future, giving the tenant 5 days to pay is unreasonably short. I am also troubled by the Letter of Intent with Harry Rosen. In the absence of any further explanation from the Landlord, I infer from the record before me that the notice of termination was not motivated by any breach of the lease on Barry’s part but was motivated by a presumably better offer for the premises from Harry Rosen.
b. Landlord’s Failure to Abide by Its Obligations under the Lease
65The Landlord is further precluded from terminating the lease for failure to pay taxes or Operating Costs because of the Landlord’s own failure to comply with the lease provisions in this regard.
66Article 5.9 (a) of the lease requires the Landlord to deliver to the tenant at the beginning of each of the Landlord’s fiscal years, a reasonable estimate of the Occupancy Costs for the upcoming year and the tenant’s portion of those Occupancy Costs. Occupancy Costs are defined by Article 5.3 of the lease as “the Tenant's share of Realty Taxes and the Tenant's Proportionate Share of Operating Expenses.”
67Article 5.9 (b) of the lease requires the Landlord to keep proper records of Occupancy Costs and to deliver to the tenant as soon as possible at the end of each fiscal year, a certified written statement of the actual Occupancy Costs for the past fiscal year. If the tenant paid less than the reconciled amount, the tenant shall pay the difference to the Landlord within 30 days of receipt of the statement. If the tenant paid more than the reconciled amount, the Landlord shall reimburse the excess to the tenant within 60 days or credit the difference against the tenant’s rental account for the current year.
68The Landlord agrees that after the pandemic broke out and after Barry’s put its proposal to the Landlord about what it would pay on a monthly basis, the Landlord never provided an estimate of the upcoming fiscal year’s Realty taxes or Operating Costs nor did it ever provide a reconciliation of the taxes or Operating Costs for the previous year.
69Instead, in its notice of default, the Landlord merely set out amounts owing for taxes and other Occupancy Costs without describing how they were arrived at and without reconciling them to actual expenses.
70In 2373322 Ontario Inc. v. Nolis9 the court dealt with a similar provision and held:
It is apparent from the foregoing that the failure of the Landlord to deliver a statement setting forth information for calculation of additional rent or to deliver an adjusting statement does not have the effect of relieving the tenant from the obligation to pay additional rent once the statement is provided. However, until the statements are provided by the Landlords, as required by the lease, the tenant cannot be considered to be in breach of its obligation to pay additional rent.
71In Nolis, the court allowed the Landlord to recover outstanding occupancy costs from the tenant but only after the Landlord had complied with the lease.
72The British Columbia Supreme Court came to a similar view in SCP 173 Dining Limited v Costa Del Sol Holdings Ltd.10:
[101] Importantly, with regard to the tenant’s obligation to pay Additional Rent, Article 4.2 obligated the Landlord to provide estimates of the “amount” in advance of each fiscal year. The Landlord did not provide any estimates of the “amount” of Additional Rent that was to be paid by the tenant. In my view, as I will explain below, this did not relieve the tenant of its obligation to pay Additional Rent. However, as was the case in Nolis at para. 55, the tenant is not in breach of its covenant to pay Rent under s. 20(1)(b). As the Tenant never received any estimates of Additional Rent, it paid the Rent at “all times required” under Article 20.1. There being no estimates provided in the manner mandated by the Lease, the tenant was not required to pay “such amount”, being the Additional Rent. Further, there was no default under Article 13.1(a). There was therefore no bar to the exercise of the option to renew.
[144] Until those statements are completed by the Landlord, it is not possible for the Court to determine the quantum of Additional Rent owing by the tenant.
73The Landlord resists the application of these cases by pointing out that Barry’s never asked for estimates of future or reconciliations of past expenses and that Barry’s counsel admitted that Barry’s raised the issue during the litigation so that it “would have another arrow in its quiver to raise against the Landlord.” That is somewhat beside the point.
74Whatever Barry’s motivation for raising the issue, the point is that the lease requires the Landlord to produce annual estimates and reconciliations. Without those documents, a tenant would not know whether it is being treated in a contractually appropriate manner or not. The Landlord is obliged to provide those statements regardless of whether the tenant demands them. If the Landlord wants to rely on its rights for payment of Occupancy Costs under the lease, lease it must also comply with its obligations in respect of Occupancy Costs.
75Moreover, it is not surprising that Barry’s would not have demanded estimates or reconciliations of Occupancy Costs because both parties were proceeding under an interim agreement pursuant to which Barry’s was paying an agreed-upon amount each month. Estimates and reconciliations would only become necessary after that arrangement was terminated. Here the Landlord sought to terminate the interim arrangement without providing estimates or reconciliations to justify its demands.
76In the present case, it would be appropriate to allow the Landlord to collect Occupancy Costs from Barry’s after it has delivered to Barry’s a statement of reconciliation of Occupancy Costs for past years as well as an estimate of Occupancy Costs for the current fiscal year.
77As noted above, Article 5.9 (b) of the lease requires the tenant to pay any shortfall to the Landlord within 30 days of receiving the reconciliation statement. The Landlord has 60 days to refund the tenant with any excess payment. In the circumstances of this case, it is in my view appropriate to give Barry’s 60 days to pay any shortfall arising out of the reconciliation statements. I grant that accommodation because, in the ordinary course, the reconciliation statement covers only one year at a pre-determined time. Here Barry’s will be receiving reconciliation statements for at least two years several years and will be receiving them at a time that Barry’s could not have anticipated. In those circumstances granting an extra 30 days for Barry’s to review and make arrangements to pay does not strike me as unreasonable.
78The Landlord claims interest of 15% on any arrears owing. Given the Landlord’s agreements as set out above and given the Landlord’s failure to provide estimates or reconciliations, interest on any amounts owing shall begin to accrue 60 days after the Landlord has delivered reconciliations and estimates to Barry’s.
Relief from Forfeiture
79As set out above, the Landlord was not entitled to terminate the lease because Barry’s has not breached the lease by virtue of the interim arrangements the parties made and by virtue of the doctrine of promissory estoppel.
80If I am wrong in this regard, the circumstances of this case warrant granting Barry’s relief from forfeiture as a remedy to prevent the lease from being terminated.
81A court has authority to grant to a tenant relief from forfeiture under either Article 20 of the Commercial Tenancies Act or s. 98 of the Courts of Justice Act.11
82Relief from forfeiture should be granted sparingly. The onus is on Barry’s to establish its entitlement to the relief.12
83When considering relief from forfeiture, the court should consider all of the circumstances of the case including the history of the relationship between the parties, the gravity of the breach, the tenant’s conduct or misconduct, the tenant’s good faith or bad faith or want of clean hands, whether the object of the right of forfeiture was essentially to secure the payment of money, and the disparity or disproportion between the value of the property forfeited and the damage caused by the breach.13
84In my view, the totality of the circumstances of this case warrant relief from forfeiture. The gravity of the breach here, to the extent there even is any, is relatively minor. Any initial nonpayment of Occupancy Costs is the result of an accommodation granted by the Landlord by virtue of the Covid 19 pandemic. When the Landlord reversed its position and demanded full payment, Barry’s failed to pay within 5 days and then obtained an interlocutory injunction restraining the Landlord from taking possession. Barry’s is and was prepared to pay any arrears once it received a statement setting out the Occupancy Costs and a reconciliation statement for past costs. There is no bad faith on the part of Barry’s in asking the Landlord to adhere to the lease agreement. The Landlord’s termination of the lease was essentially an effort by the Landlord to secure payment of money. There was, however, never any dispute that money may be owing on the provision of proper Occupancy Cost statements. The disproportion between the value of the property that Barry’s would forfeit and the damage caused by any alleged breach is considerable here. Any damage caused by the breach is caused largely because of the Landlord’s delay in advising Barry’s of the taxes and Occupancy Costs owing. That was a matter within the Landlord’s control. When the Landlord did make a demand in that respect it gave Barry’s only five days to comply (still without reconciliations or estimates). If Barry’s could not comply within those five days, that was a situation entirely of the Landlord’s own making. Recall that Barry’s had wanted to engage the Landlord in discussions about outstanding taxes in January 2022. The Landlord declined to do so. Terminating the lease would mean that Barry’s would lose an investment of over $2 million that it made to outfit the premises into an appropriate fitness studio. It would also lose the goodwill associated with its presence on the premises. To cause Barry’s to lose those benefits because of a failure to pay outstanding amounts within five days when Barry’s had asked for discussions about those amounts for months would, in my view, be inequitable.
85The Landlord submits that Barry’s does not come to court with clean hands because it unilaterally determined what should be paid. That unilateral determination was made as a temporary compromise during the Covid pandemic to which the Landlord appears, on the record before me, to have agreed. That agreement is especially apparent to me given that Barry’s wanted to enter into discussions about tax amounts owing and the Landlord declined to do so because it was premature. There has been no outright refusal to pay rent. Rent has been in arrears for a relatively short period of time given the Landlord’s tacit agreement at least until April 2022 to provide a Covid related accommodation. The Landlord has not demonstrated any serious loss by reason of Barry’s failure to pay rent within the five days the Landlord gave it.
Disposition and Costs
86For the reasons set out above, I dismiss the Landlord’s application. The lease between Barry’s and the Landlord continues to be a valid and binding lease on both parties. Barry’s shall have 60 days from the time that the Landlord delivers a reconciliation statement for past Occupancy Costs and an estimate for the Occupancy Costs for this fiscal year to pay those amounts.
87Any party seeking costs arising out of this application may make written submissions within 14 days of the release of these reasons. The responding party shall have 10 days to respond with a further five days provided for reply.
Koehnen J.
Released: September 06, 2022
COURT FILE NO.: CV-22-00680935-0000
DATE: 20220906
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF 100 BLOOR STREET WEST CORPORATION, LANDLORD, AGAINST BARRY’S BOOTCAMP CANADA INC. OPERATING AS BARRY’S BOOTCAMP, TENANT
BETWEEN:
100 BLOOR STREET WEST CORPORATION
Applicant
– and –
BARRY’S BOOTCAMP CANADA INC. operating as BARRY’S BOOTCAMP and BBC HOLDINGS, LLC
Respondents
APPLICATION UNDER Rule 14.05(2) of the Rules of Civil Procedure R.R.O. 1990, Reg. 194 and Section 74 of the Commercial Tenancies Act R.S.O. 1990, c. L. 7
REASONS FOR JUDGMENT
Koehnen J.
Released: September 06, 2022
Footnotes
- Barry's Boot Camp Canada Inc. v. 100 Bloor Street West Corp., 2022 ONSC 2962
- Zellers Inc. v. Orlando Corporation, 2003 57435 (ON CA)
- 2021 SCC 7
- That is to say, ascribe taxes to Barry’s premises.
- R.S.O. 1990, c. L – 7.
- But for a potential discrepancy in Occupancy Costs which was not clear on the record before me.
- Leibel v. Leibel, 2014 ONSC 4516 at para. 58; Sekhon v. Aerocar Limosine Services Co-Operative Ltd., 2013 ONSC 542 at para. 114; Maracle v. Travellers Indemnity Co. of Canada, 1991 58 (SCC), [1991] 2 SCR 50 at para. 13; Canadian Superior Oil Ltd. v. Hambly, 1970 CarswellAlta 101 (SCC) at para. 19.
- Canaccord Genuity Corp. v. Beck, 2013 ONSC 7964 at para. 42; John Burrows Ltd. v. Subsurface Surveys Ltd., 1968 81 (SCC), [1968] S.C.R. 607 at pp. 614-617
- 2373322 ONTARIO INC. v. NOLIS, 2017 ONSC 1518
- SCP 173 Dining Limited v. Costa Del Sol Holdings Ltd., 2021 BCSC 1252
- Commercial Tenancies Act, supra, at s. 20(1); Courts of Justice Act, R.S.O. 1990, c. C-43, at s. 98
- Hosen v. Lam, 2017 ONSC 6992 at para. 15
- 114 Michele’s Italian Ristorante Inc., supra, at para. 35; Ontario International College Inc. v. Consumers Road Investments Inc., 2020 ONSC 6772 at para. 37; 2324702 Ontario Inc. v. 1305 Dundas W Inc., 2020 ONCA 353 at para. 22