6844987 Canada Inc. et al. v. The United People of Canada / Les Peuple Unis du Canada
COURT FILE NO.: CV-22-89991
DATE: 23/09/2022
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF 6844987 Canada Inc., Francis Healy, Rosemary O’Brien, Patrick McDonald and Patrick Kelly, Landlord, against The United People of Canada / Les Peuple Unis du Canada, Tenant
[APPLICATION PURSUANT TO PART III OF THE COMMERCIAL TENANCIES ACT]
BETWEEN:
6844987 CANADA INC., FRANCIS HEALY, ROSEMARY O’BRIEN, and PATRICK KELLY
Applicants
– and –
THE UNITED PEOPLE OF CANADA/LES PEUPLE UNIS DU CANADA
Respondent
COUNSEL:
Gordon Douglas and Shelbi Dippold for the Applicant
Saron Gebresellasie for the Respondent
HEARD: September 19, 2022
JUDGMENT
Justice Sally Gomery
[1] This is a dispute over an agreement of purchase and sale of commercial property, as well as a lease for the same property, between its owners, the applicants, and the respondent, The United People of Canada/Les Peuple Unis du Canada (TUPOC).[^1] The owners say that that their lease and agreement of purchase and sale with TUPOC have been terminated due to TUPOC’s failure to pay rent and deposits as required. They want the court to issue orders allowing them to remove TUPOC from the property. TUPOC contends that it has not materially breached any agreement with the owners and wants the court to declare as such, allowing them to stay. The respondent also wants the court to order the applicants to pay damages.
[2] The application is granted. For the reasons that follow, I find that the terms of the parties’ lease were set out in their agreement of purchase and sale, pursuant to which TUPOC was liable for monthly rent as of June 13, 2022. TUPOC materially breached the agreement by failing to pay deposits of $100,000 on August 10, 2022, despite two extensions of the deadline granted by the applicants. The applicants served TUPOC with a valid notice of termination on August 11, 2022. TUPOC is not entitled to any relief from the consequences of its breaches, since it has still not tendered the funds it had to pay under the agreement and it has not come to the court with clean hands.
Procedural framework
[3] The applicants bring this application pursuant to s. 74 of the Commercial Tenancies Act, R.S.O. 1990, c. L7 (the “Act”), which states:
Application to judge against overholding tenant
74 (1) Where a tenant after the tenant’s lease or right of occupation, whether created by writing or by parol, has expired or been determined, either by the landlord or by the tenant, by a notice to quit or notice pursuant to a proviso in a lease or agreement in that behalf, or has been determined by any other act whereby a tenancy or right of occupancy may be determined or put an end to, wrongfully refuses or neglects to go out of possession of the land demised to the tenant, or which the tenant has been permitted to occupy, the tenant’s landlord may apply upon affidavit to a judge of the Superior Court of Justice to make the inquiry hereinafter provided for and the application shall be made, heard and determined in the county or district in which the land lies.
Inquiry and determination
(2) The court shall in writing appoint a time and place at which a judge will inquire and determine whether the person complained of was tenant to the complainant for a term or period that has expired or has been determined by a notice to quit or for default in payment of rent or otherwise, and whether the tenant holds the possession against the right of the landlord, and whether the tenant, having no right to continue in possession, wrongfully refuses to go out of possession.
[4] Section 76(2) sets out what may occur at a s. 74 hearing, assuming the tenant appears:
In case of appearance
(2) If the tenant appears, the judge shall, in a summary manner, hear the parties and their witnesses, and examine into the matter, and, if it appears to the judge that the tenant wrongfully holds against the right of the landlord, he or she may order the issue of the writ.
[5] On August 25, 2022, I issued an endorsement granting an appointment under s. 74 of the Act. On September 2, 2022, the date set for hearing, I granted TUPOC’s request for an adjournment, but made it subject to terms. These terms included a timetable for the parties to exchange and file materials.
Facts
[6] The applicants filed four affidavits sworn by the applicant Patrick McDonald. Mr. McDonald represented the other applicants in interactions with TUPOC. TUPOC has filed affidavits affirmed by William Komer, Chad Coates, Jason Taylor, William Brian Derksen, and Patrick Sprung. Mr. Komer is TUPOC’s director and its representative in interactions with the applicants. Mr. Taylor and Mr. Coates are TUPOC volunteers. Mr. Derksen had dealings with a bailiff who served the notice of application on August 26, 2022 on TUPOC. Mr. Sprung is the president of “Pat’s Pro Tech Services”, a renovation company.
[7] The affidavit evidence was supplemented by cross-examination of Mr. McDonald at the September 19, 2022, hearing. The applicants declined to cross-examine Mr. Komer or TUPOC’s other affiants.
[8] The applicants collectively own St. Brigid’s, a former church at 314 St. Patrick Street in Ottawa, built in 1890 and deconsecrated in 2006; the church’s former rectory next door at 179 Murray Street; an attached garage; 300-302 St. Patrick Street, next-door to the former church; and the land on which these buildings stand, which includes a small parking lot (collectively, the “Property”).
[9] 6844987 Canada Inc. purchased the deconsecrated church and rectory from the Roman Catholic Episcopal Corporation of Ottawa in 2007. The former church was renamed St. Brigid’s Centre for the Arts in 2008. A local youth orchestra and other music groups performed concerts at the Centre, and local artists exhibited their works there. It also served as the home of the National Irish Canadian Cultural Centre. The former rectory was renamed The Rectory Art House and subdivided into studios leased by artists. Mr. McDonald also kept an office there. In May 2008, the individual applicants purchased 300-302 St. Patrick Street, two houses subdivided into apartments, retail businesses, and offices.
[10] Activities in St. Brigid’s were suspended in March 2020 as a result of the Covid-19 pandemic. Mr. McDonald testified that the shut-down had a significant financial impact. Even though tenants continued to pay rent for space in the other buildings, the former church no longer generated any revenues to offset the costs of heating, electricity, and maintenance. This left its owners with about $16,000 in monthly costs.
[11] The applicants collectively listed the Property for sale with Zinati Realty Commercial Brokerage on June 1, 2021, for an asking price of $5,950,000.
[12] Mr. McDonald first met with Mr. Komer in early March 2022 and gave him a tour of the former church. He returned a day or two later. This time, Mr. McDonald walked Mr. Komer through the entire Property. Although the focus remained the former church, they also visited at least one apartment at 300 St. Patrick, a law office at 302 St. Patrick, and the former rectory. This visit lasted about hours. Mr. McDonald talked about the church’s history and the difficulties arising because of the Covid pandemic. TUPOC’s representatives toured the Property repeatedly over the next two months, and so had ample access to the former church in Spring 2022 for the purpose of assessing its condition and potential use.
[13] On June 8, 2022, the applicants made a written offer (the “Agreement”) to sell the Property to TUPOC on an “as is” basis. The total purchase price was $5,950,000. Under the proposed Agreement, TUPOC would be required to pay a total of $305,000 within 120 days of accepting to purchase the Property. The schedule for payment would require TUPOC to pay:
• a first deposit of $5,000 on acceptance of the applicants’ offer;
• a second deposit of $10,000 within 14 days after acceptance;
• a third deposit of $30,000 within 30 days after acceptance;
• a fourth deposit of $60,000 within 45 days after acceptance; and
• a fifth deposit of $200,000 if and when TUPOC waived all conditions in the proposed Agreement, which was to occur within 120 days of acceptance.
[14] The sale was to close by no later than December 6, 2022 (the “Completion Date”). The offer was conditional on TUPOC obtaining financing, inspecting the Property, and obtaining an inspection report. TUPOC would have 120 days from acceptance of the offer to waive all conditions, failing which the Agreement would be deemed null and void and the applicants would return all deposits to TUPOC.
[15] The proposed Agreement contained various standard terms. Among others:
• At para. 19, the parties agreed that “Time shall in all respects be the essence hereof provided that the completing of any matter provided for herein may be extended or abridged by an agreement in writing signed by Seller and Buyer or by their respective lawyers…”. This is commonly referred to as a “time is of the essence” clause.
• At para. 26, they agreed that “This Agreement, including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement, other than as expressed herein”. This is commonly referred to as a “whole agreement” clause.
[16] Schedule A to the proposed Agreement allowed TUPOC to rent and occupy portions of the Property that were not already leased to existing tenants until the sale of the Property was completed. The terms of the proposed lease were as follows:
LEASE TO BUYER
Provided the Buyer is not in default of this Agreement of Purchase and Sale, the Seller agrees to rent the current unleased space to the Buyer on a month to month basis, commencing on the date this Offer is executed, at a rate of $5,000 per month plus HST (gross) payable in equal monthly installments with the first payment due prior to occupancy by the Buyer. The unleased space includes, but is not limited to:
1.) The entire church building including restaurant and venue space;
2.) The outdoor grounds;
3.) The basement of The Rectory Art House;
4.) The garage of The Rectory Art House;
5.) The parking lot (with the right of existing tenants to continue to park if this is included in their lease agreement).
The Seller shall prepare the lease and shall include a requirement for a minimum $5,000,000 liability insurance with the Seller named as an additional insured.
The aforementioned lease shall be terminated immediately on the earlier of: a) 30 days following notice of material default by the Buyer; b) 30 days following written notice of termination from the Buyer; and c) the Completion Date.
[17] On June 13, 2022, Mr. Komer accepted the offer and signed the Agreement on TUPOC’s behalf. On June 15, 2022, TUPOC delivered a $5,000 bank draft to Mr. Zinati, the applicants’ real estate broker, in payment of the initial deposit for the purchase of the Property.
[18] On June 15, 2022, Mr. Komer and Mr. McDonald met at the Property, and Mr. McDonald gave Mr. Komer keys to the former church and a garage door opener. This gave him access to the garage. Although TUPOC had not yet paid any rent or provided proof of insurance, Mr. McDonald says that he relied on Mr. Komer’s assurances that it would do so. Mr. McDonald did not provide Mr. Komer with a further lease document that day or at any time, nor does it seem that Mr. Komer ever requested one.
[19] Mr. Komer was given another set of keys a few days later, and keys to the former rectory on June 26, 2022. He was never provided with keys to 300-302 St. Patrick Street.
[20] In his affidavit, Mr. Komer speaks at some length about mould and moisture in the former church when TUPOC took possession on June 15, and steps he took to obtain an expert opinion on remediation. Mr. McDonald admits that the building was musty and needed to be aired out. He arranged for professional cleaning and switched on an air extractor unit. On July 4, 2022, Mr. Komer texted Mr. McDonald that “we seem to have the humidity and air at a tolerable level now, so planning on doing some individual tours throughout the week with those that expressed an interest in significant project contributions”.
[21] On June 27, 2022, the day the second deposit was due, TUPOC requested an amendment to the Agreement so that it would have more time to raise the money to pay the required deposits. The applicants agreed. Under the new payment schedule signed by the parties that day, TUPOC was required pay the second deposit of $10,000 by July 13, 2022 (instead of June 27); the third deposit of $30,000 by July 27, 2022 (instead of July 13), and the fourth deposit of $60,000 by August 10, 2022 (instead of July 28). In the written amendment to the agreement, the parties also modified the deadline by which TUPOC had to waive all conditions to October 26, 2022, and they reproduced the “time is of the essence” clause.
[22] Mr. McDonald testified that, after Mr. Komer failed to give him the first month’s rent on June 15, he repeatedly asked him for it whenever he saw him on the Property. He said that the other applicants were asking him about the rent, because they relied on him to manage collections on their collective behalf. TUPOC’s questions to Mr. McDonald implied that it was implausible that these requests were made verbally instead of through email or text. I generally found Mr. McDonald to be a credible witness who answered most questions consistently. He clearly contradicted himself on a minor point: he initially admitted that he told Mr. Komer that he told him to “keep up the good work” on July 24, then later denied he said it. Although I do not find it significant, I find that he did make this comment. I do not, however, have any problem accepting his evidence that he asked Mr. Komer for rent many times between June 15 and July 24.
[23] TUPOC’s own evidence at the hearing supports Mr. McDonald’s testimony about his requests for rent payments from TUPOC. It produced a recording made surreptitiously by Mr. Komer during a conversation with Mr. Komer on July 5, 2022. In the recording, which clearly does not capture the entire conversation, Mr. McDonald agrees that TUPOC could make a rent payment on July 15, and Mr. Komer responds by saying that the rent “was originally going to start … a month ago or whenever … but we’ve sort of not really been … or a couple of weeks ago hadn’t been able to get in there … it’s been longer than that”. Confronted by this at cross-examination, Mr. McDonald maintained that TUPOC was obligated, under the Agreement, to pay rent as of June 15. In his affidavit, Mr. Komer says that, during this conversation, they agreed that rent was only payable as of July 15.
[24] Mr. Komer did not, in any event, give Mr. McDonald a rent cheque on July 15. He instead focussed on the upcoming deadline to pay the second deposit. On July 13, 2022, the day before the deposit was now due, Mr. Komer requested a further extension of the payment schedule. The applicants again agreed. The deadline for TUPOC to pay the second and third deposits was pushed back to August 10, 2022, the same day that the fourth deposit was due. This meant that TUPOC was required to pay a total of $100,000 on August 10, 2022. In the written amendment, the parties repeated, for a third time, that time was of the essence. The other terms of the Agreement, specifically those relating to TUPOC’s lease of the Property, were once again unchanged.
[25] TUPOC finally made a first rent payment of $5,000 plus HST on July 24, 2022. Mr. McDonald testified that he asked Mr. Komer for rent three or four times that day, and then again by text at the end of the afternoon after he left the Property. Mr. Komer left a cheque in the kitchen of the Rectory Art House about an hour later, texting Mr. McDonald a photo of it as he did so. The fact that Mr. Komer felt it necessary to send this confirmation supports Mr. McDonald’s testimony about his repeated requests for the rent that day.
[26] On August 9, 2022, the day before TUPOC was required to pay $100,000 in deposits under the revised Agreement, Mr. Komer asked Zinati Realty for a copy of “the leases”. This presumably refers to the leases held by tenants in the former rectory and in 300-302 St. Patrick Street. In his affidavit, Mr. Komer says that he needed the leases for due diligence purposes and that Mr. McDonald’s failure to provide them earlier had frustrated TUPOC’s fundraising efforts. He does not explain why the leases would be required to fundraise.
[27] Mr. Komer also asked for a third amendment to the Agreement, to push back the deadline for the deposits to September 1st, 2022. He did not receive a response to this request.
[28] On August 10, 2022, Mr. Komer contacted Zinati Realty again, saying that TUPOC had managed to raise the amount of the second deposit, $10,000, despite the applicant’s failure to provide due diligence material (presumably the leases). He offered to pay the $10,000 that day, but said he would need until September 1st, 2022, to pay the third and fourth deposits totaling $90,000. He again received no response.
[29] On August 11, 2022, John Zinati sent two emails to Mr. Komer. In the first email, Mr. Zinati gave notice on behalf of the applicants that TUPOC was in material default of the Agreement and that, as a result, “this deal is now rendered dead and no longer binding on either party”. Mr. Zinati advised that TUPOC’s $5,000 deposit would be returned but that, “as stated in the agreement and give that the agreement is now null and void, you will have to vacate the church”. The second email sent by Mr. Zinati later that day read as follows:
The email is official notice advising that the deal is null and void due to breach by the buyer.
Melissa [a person working in Mr. Zinati’s office] will be circulating a mutual release that will need to be signed by buyer and seller before we can return the one and only deposit we received. The effective date will remain to be the date of the email.
As for vacating, you do have 30 days from a breach as stated in the APS provides [sic] you are current with your rent obligations. Should you wish to leave sooner, I’m sure we can accommodate. Please let me know.
Thank you.
[30] On August 13, 2022, Mr. Komer sent an email to Mr. Zinati alluding to violations of the Ontario Human Rights Code “with respect to the code protected ground of creed, the code protected ground of reprisal (action taken against us based on our beliefs and/or perceptions of our beliefs and on our refusal to discriminate against others at the diverse and inclusive community space that we are developing)”. Mr. Komer has not provided a copy of any human rights complaint that he or other TUPOC representatives may have filed, nor does he mention who was named in the complaint or when a complaint was filed. In any event, he took the position that it was the applicants, not TUPOC, who were in material fault of the Agreement, and that TUPOC’s failure to pay deposits within the specified deadline did not prejudice the applicants.
[31] On August 15, 2022, Mr. Komer sent messages to Mr. McDonald about his wish to make another rent payment. Mr. McDonald responded that Mr. Komer should direct any correspondence to the applicants’ lawyer. Mr. Komer says that he made several attempts that day to pay the rent but was unable to do so. He does not explain why he did not simply leave a cheque for the rent at the former rectory as he had done on July 15, or deliver a cheque to the applicants’ lawyer.
[32] On August 17, 2022, the applicants sent a bailiff to the Property to serve a notice of termination on TUPOC. According to the notice, the lease was terminated effective August 17, 2022, as a result of TUPOC’s failure to pay $10,000 plus HST in accumulated arrears of rent, and its failure to provide proof of $5,000,000 in liability insurance. The notice required TUPOC to vacate the Property immediately, giving the applicants possession.
[33] The next day, the bailiff returned and changed the locks on the former rectory building and the garage. He attempted to change the locks on the former church but was blocked by TUPOC’s supporters and representatives. A TUPOC representative also called the police and filed a complaint against the bailiff for trespass and other offences. According to Mr. Komer, the bailiff had no right to lock the doors since TUPOC had complied with its obligations under the lease.
[34] The bailiff delivered a second notice stating that TUPOC was in violation of the Ontario Heritage Act. Further to municipal by-laws and heritage easement agreements registered against the former church’s legal title, the Ontario Heritage Foundation must approve any material changes to the building’s appearance, historic finishes, and heritage elements. According to the Mr. McDonald, the violation consisted of painting St. Brigid’s doors bright red without first obtaining the required written approval and failing to obtain permits and approvals for construction work underway in the former church. Mr. Komer says that Mr. McDonald raised no objection to the painting prior to August 17, and that the doors have been painted various colors over the years.
[35] On August 19, 2022, Mr. McDonald learned that the parking lot on the Property had been blocked by a vehicle, preventing tenants in 300-302 St. Patrick Street from parking their cars. He himself observed this a day or two later. According to the tenants, people who identified themselves as representatives of TUPOC told them that their access to the parking lot was being denied because of its dispute with their landlord. Mr. McDonald has produced affidavits sworn by the two tenants, both lawyers, and a law student who works with one of them, who confirm this account.
[36] Mr. McDonald was also advised by a tenant with a studio in the Rectory Art House that the new lock on the garage had been broken open. He attaches an affidavit from this tenant, who states that she was concerned about the broken lock since her studio can be accessed through the garage. On August 21, 2022, Mr McDonald himself observed that the door to the garage as well as two vehicle doors on the garage had been forced open.
[37] In his affidavit, Mr. Komer says that he has bank drafts for the second, third, and fourth deposits, as well as a cheque for $10,000 plus HST cheque for outstanding rent, but that the applicants have refused to accept them. Curiously, he has not attached a photocopy of these documents, or any other evidence corroborating his assertion that he has this money or insurance coverage. At the hearing, TUPOC’s lawyer said that her client was prepared to tender the amounts at issue, but she did not seek leave to produce any cheques, bank drafts, or any other relevant records into evidence.
Questions to be resolved
[38] The questions that I must resolve are as follows:
(1) What are the terms of the parties’ lease?
(2) Has the Agreement been validly terminated by the applicants?
(3) Has the lease been validly terminated by the applicants?
(4) Are the applicants entitled to repossess the Property?
(5) Is TUPOC entitled to relief from forfeiture?
(6) Is TUPOC entitled to any other relief?
(1) What are the terms of the parties’ lease?
[39] Under Ontario law, a commercial lease can be either oral or written. If it is in writing, it does not have to be in any particular form. For example, a valid lease can be formed by an exchange of letters setting out proposed terms of a lease, and a responding letter accepting those terms: In Re Pattenick and Adams Furniture Co. Ltd., 1970 CanLII 446 (ONSC), at p. 8. To enter into a lease, however, the parties must agree at a minimum on:
• Who the landlord and tenant are;
• What property is being leased;
• When the lease is to begin;
• The term of the lease;
• The rent to be paid; and
• “all the material terms of the contract not being matters incident to the relationship of landlord and tenant, including any covenants or conditions, exceptions or reservations”: In Re Patennick, at p. 8, citing Williams’ The Canadian Law of Landlord and Tenant.
[40] The applicants contend that the essential terms of the parties’ lease are set out in the Agreement. TUPOC contends that the lease was an oral agreement negotiated by Mr. McDonald and Mr. Komer that “evolved over time”.
[41] Schedule A to the Agreement contains all essential terms of a lease. It was signed by the applicants, both individually and on behalf of the numbered company, and by Mr. Komer, on behalf of TUPOC. TUPOC does not actually argue that the Agreement is missing any essential terms. It instead contends that these terms are not binding, because the Agreement says that the applicants “shall prepare the lease”, and the applicants never provided a draft lease to TUPOC.
[42] The prospective language in the Agreement does not mean that the parties had not already agreed to a lease. The commitment to lease is stated in the present tense, that is, “the Seller agrees to rent the current unleased space to the Buyer … commencing on the date this Offer is executed … with the first payment [of monthly rent] due prior to occupancy by the Buyer”. As already mentioned, a lease does not have to be in any particular form.
[43] Even if the language in the Agreement were not clear, TUPOC has not presented any compelling evidence in support of its claim of an oral lease. In his affidavit, Mr. Komer does not indicate when and where the alleged oral lease was negotiated and agreed to; who was involved in these negotiations; what parts of the Property were leased pursuant to the oral agreement; when the purported oral lease was originally set to begin; how long it was initially supposed to last; or what monthly rent was discussed. When Mr. Komer mentions any of these issues in his affidavit, he implicitly acknowledges that the terms of the parties’ supposed oral agreement match all of those in the written Agreement. He does not contest, for example, that TUPOC agreed to pay $5,000 plus HST each month, or that the premises rented were limited to those listed in the Agreement, or that the applicants had the right to require an insurance policy with $5,000,000 in coverage. He in fact relies on the terms in Schedule A for certain purposes, such as his theory about why TUPOC had the right to block other tenants from the parking lot. The only apparent differences between the terms of the alleged oral lease and the written terms in the Agreement are the date when TUPOC had to start paying rent, and the parties’ ability to vary the terms orally.
[44] Since the signed Agreement contains all essential terms of a lease, since it also contains a “whole agreement” clause, and since there is really no evidence of any competing oral agreement, I find that the parties agreed that TUPOC would lease premises based on the lease terms set out in the Agreement, and only on those terms. The only way the lease could be modified was through a written modification of the lease terms in the Agreement. Although TUPOC asked for and the applicants agreed to two amendments to the Agreement, neither amendment changed the lease terms, nor is there any evidence that TUPOC ever asked to modify them.
[45] The lease accordingly took effect on June 13, 2022, when TUPOC executed the Agreement. Although TUPOC was supposed to pay the first month’s rent prior to occupying the leased premised, the applicants permitted them to move in without first paying. On July 5, 2022, Mr. McDonald extended the deadline for TUPOC’s payment of the first month’s rent to July 15, 2022. This verbal extension had limited (if any) legal effect, both due to the “whole agreement” clause and because the “time is of the essence” clause specifically provides that extension of a deadline must be in writing. There is also no evidence, that Mr. McDonald agreed, even verbally, to waive the applicants’ right to collect past arrears of rent, or that he agreed that TUPOC’s obligation to pay rent began only on July 5. Mr. McDonald did not respond to Mr. Komer’s suggestion, during the recorded excerpt of their July 5 discussion, that the rent obligation would only begin as of that date. Even if he had unambiguously agreed, however, this would not have the effect of modifying the written terms of the lease, given the “whole agreement” clause.
[46] In summary, TUPOC was required, pursuant to the unmodified terms of the Agreement, to pay rent of $5,000 on June 13, 2022, and then the same amount every month thereafter that TUPOC occupied the premises mentioned in the Agreement.
(2) Has the Agreement been validly terminated by the applicants?
[47] The applicants contend that TUPOC’s failure to pay the second, third, and fourth deposits on August 10, 2022 was a material breach of the Agreement, entitling the applicants to terminate both the Agreement and the lease. Alternatively, the applicants say that they had the right to terminate the lease when TUPOC failed to pay rent for any period after the first month, which ended on July 13, 2022.
[48] TUPOC argues that it has not breached the Agreement or lease in any material way. Based on its theory that it did not need to pay rent until July 15, 2022, it contends that the next month’s rent was not due until August 15, at which time Mr. Komer tried to make a payment. TUPOC acknowledges that it did not pay the deposits as required on August 10 but maintains that this did not give the applicants the right to terminate the Agreement.
[49] It is true that the Agreement does not explicitly state that the Buyer’s failure to pay deposits on time is a material breach allowing the applicants to terminate. I nonetheless find that this is implied, given the negotiated schedule of payment and the “time is of the essence” clauses in the Agreement as well as the two amendments to it.
[50] This issue was addressed in 1473587 Ontario Inc. v. Jackson, 2005 CanLII 4578 (ONSC), aff’d 2005 CanLII 26121 (ONCA). In Jackson, the plaintiff property owner agreed to sell farmland to Loblaw for $1,800,000. The agreement of purchase and sale required Loblaw to pay a $75,000 deposit to the seller’s lawyer within five days. Loblaw inadvertently failed to pay on time. When it tried to tender the deposit two days late, the seller refused, saying the deal was void. It then turned around and sold the property to farmland to another purchaser for more money.
[51] At trial, Justice Rutherford ruled that the seller had the right to terminate the deal with Loblaw when it failed to pay the deposit within the stated deadline, even though the agreement of purchase and sale did not explicitly provide for this, even though Loblaw’s failure was the result of an error, and even though the delay in payment did not prejudice the seller in any way. The judge held that, as a result of the “time is of the essence”, Loblaw’s breach of its obligation to pay within a specified deadline allowed the seller to terminate. At para. 19, he wrote:
How more clearly could contacting parties make conditions as to the timing of performance essential than by simply saying, time in all respects shall be of the essence of this agreement? In my opinion, the provisions in clauses 21 and 22 of this agreement, drawn as it was by a professional agent of Loblaw and entered into by sophisticated people of business acumen, clearly signaled that any breach of any of the obligations in the agreement calling for performance at a specified time amounted to the breach of an essential element of the contract. That being the case, the law is clear that such breach may be treated by the other party as discharging the agreement and relieving against performance by that other party.
[52] Although the parties to this Agreement were not as sophisticated as the parties in Jackson, a “time is of the essence” is a standard term in agreements of purchase and sale in Ontario, and its implications are clear. I find it significant that the clause was included not only in the original Agreement, but that it was repeated in each amendment.
[53] In Deangelis v. Weldan Properties (Haig) Inc., 2017 ONSC 4155, at paras. 41 to 43, Justice Ricchetti explained why the enforcement of “time is of the essence” clauses in commercial agreement of purchase and sale does not violate the principle that a contracting party must act in good faith:
It would be tempting to let principles of fairness and equity direct a finding that a three day delay in the closing in the four year history of the Agreement, is a minor breach resulting in a financial windfall to the builder and, therefore, the Agreement should be upheld.
However, in my view, it would be wrong in law to find that insisting on compliance with a term of the agreement, agreed to by both parties with the assistance of counsel, amounts to bad faith depriving a party of the ability to strictly enforce an agreement where time is of the essence. Such a determination would mean that no party could insist on strict compliance of the term of an agreement because to do so would or might amount to bad faith. This would throw the law of contract into chaos by creating uncertainty in the enforcement of contracts.
Such a decision would also be contrary to numerous authorities which provide that, when a party fails to comply with its obligation to complete the transaction at a specified time and there is a time of the essence clause, the other party has the right to terminate the agreement.
[54] Mr. Komer clearly understood the deadline for payment of the deposits in the Agreement was a critically important term. That is why, when he did not have the money to pay the deposits due in June and July, he sought formal amendments extending the deadlines. It is also why he requested a third such amendment on August 9, 2022.
[55] TUPOC argues that the applicants nonetheless did not have the right to terminate the Agreement based on the non-payment of the deposits. It advances two arguments. First, TUPOC says that it was unable to raise the funds to pay the deposits because the applicants themselves breached their obligations under the Agreement. Second, TUPOC relies on Reserve Properties Ltd. v. 2174689 Ontario Inc., 2015 ONSC 3469, for the proposition that the right to terminate is not always implied by the inclusion of a “time is of the essence” clause.
[56] I find that the applicants did not materially breach their obligations under the Agreement. Mr. Komer has not disclosed any unanswered requests to the applicants for documents and records by him or anyone else acting for TUPOC prior to August 9, 2022. On that date, just prior to the expiry of the extended deadline for TUPOC’s payment of the second, third, and fourth deposits, Mr. Komer asked for a copy of the leases between the applicants and the other tenants on the Property. Although this was a legitimate request given that TUPOC agreed to take on the leases when it purchased the Property, I see no rational connection between Mr. McDonald’s failure to provide the leases prior to that date and any inability by TUPOC to raise funds. There is also no apparent connection between the applicants’ failure to provide environmental reports to TUPOC as required under the Agreement, or to authorize the provincial Ministry of the Environment to release its records to TUPOC, and TUPOC’s failure to raise the money needed to pay the deposits.
[57] Mr. Komer says that, when TUPOC took possession of the former church on June 15, it was so mouldy and damp that one of his associates could not remain in the building. The reports filed by TUPOC indicate that the former church requires not insignificant remediation and repair work.
[58] None of this, however, could have been a surprise to TUPOC, given the former church’s age, the many opportunities that TUPOC had to tour it before agreeing to purchase it, and its acknowledgement in the Agreement that it was buying the Property “on an “as is where is” basis without any representations from the Seller”. And, notwithstanding the problems observed on June 15, Mr. Komer told Mr. McDonald as early as July 4 that the humidity and air issues were now “tolerable”.
[59] There is also no evidence at all that TUPOC had any concrete opportunity, or even concrete plans, to engage in fundraising by using the leased premises between June 15 and August 10, or that any such opportunities or plans did not materialize due to the building’s condition.
[60] In Reserve Properties Ltd., Justice Myers held that a buyer’s failure to pay a deposit within the deadline set in an agreement of purchase and sale does not always allow the seller to declare the sale null and void. He found that the right to terminate in these circumstances depends on five factors: (1) the ratio of the deposit to the obligation as a whole; (2) the seriousness of the breach to the innocent party; (3) the likelihood of repetition of the breach; (4) the seriousness of the consequences of the breach; and (5) the relationship of the part of the obligation performed to the whole obligation. Applying these factors to the facts in Reserve Properties, he concluded that, in the unusual circumstances of the case before him, the buyer’s failure to pay a second deposit was not a material breach that gave the seller the right to terminate their agreement of purchase and sale.
[61] Although there are undoubtedly other unusual cases that merit an exception to the general principle set out Jackson and Deangelis, this is not one of them.
[62] The deposit of $100,000 was not a substantial fraction of the total purchase price for the Property. There is, however, no indication, as there was in Reserve Properties, that TUPOC could easily pay any of the deposits. On the contrary, TUPOC’s repeated pleas for an extension of even the second deposit of $10,000, alongside its failure to pay a minimal rent on time (or at all), legitimately put into question its ability to raise the financing necessary to complete the purchase. In light of this, the breach had serious implications, from the applicants’ perspective. TUPOC argues that it did not matter to the applicants whether it paid the deposits, because the funds would sit in a lawyer’s trust account until TUPOC waived conditions. That is not the point. Once TUPOC missed the third extension of time it had negotiated to pay the second, third and fourth deposits, the applicants could have no confidence that, even if TUPOC eventually scraped together $100,000, it would have the ability to pay the further $260,000 that would come due in October, or the balance of the purchase price due on closing in December.
[63] I accordingly conclude that TUPOC’s failure to pay the deposits due on August 10, 2022, was a material breach that entitled the applicants to terminate the Agreement.
(3) Has the lease been validly terminated by the applicants?
[64] Schedule A to the Agreement provides that the lease shall be terminated on “30 days following notice of material default by the Buyer”. The applicants say that they gave TUPOC notice of termination on August 11, 2022, based on its failure to pay the deposits due the day before or, alternative, its failure to pay rent when due or provide proof of insurance. The lease accordingly terminated 30 days later.
[65] I have already found that TUPOC committed a material breach of the Agreement when it failed to pay the deposits on August 10, and so do not need to consider the applicants’ alternative argument. I find that valid notice of termination was given to TUPOC on August 11. The lease therefore terminated on September 10, 2022.
(4) Are the applicants entitled to repossess the Property?
[66] The applicants rely on s. 18(1) of the Commercial Tenancies Act, which provides for re-entry by a landlord on commercial premises if a tenant has failed to pay rent:
Re-entry on non-payment of rent
18 (1) Every demise, whether by parol or in writing and whenever made, unless it is otherwise agreed, shall be deemed to include an agreement that if the rent reserved, or any part thereof, remains unpaid for fifteen days after any of the days on which it ought to have been paid, although no formal demand thereof has been made, it is lawful for the landlord at any time thereafter to re-enter into and upon the demised premises or any part thereof in the name of the whole and to have again, repossess and enjoy the same as of the landlord’s former estate.
[67] The commercial landlord’s right to re-enter leased premises is triggered uniquely by the non-payment of rent, as opposed to other potential breaches by the tenant. Unless the lease provides otherwise, the right to re-occupy comes into effect fifteen days after a tenant fails to pay rent, even if no demand for the rent has been made.
[68] A question that arises in this case is whether the termination provision in the Agreement, which provides that the lease “shall be terminated immediately on … 30 days written notice of material default by the Buyer, precludes the applicants’ reliance on a right of re-entry after 15 days in the Act. I do not need to answer this question, as the answer is not needed to resolve any live issue in this case. Whether the applicants had a right of re-entry as early as June 28, 2022 (15 days after TUPOC failed to pay the first month’s rent) or on September 10, 2022 (the end of the notice period for termination of the lease), the applicants have a right to enter the premises now, and to ask the court for an order requiring TUPOC to go.
(5) Is TUPOC entitled to relief from forfeiture?
[69] TUPOC argues that it is entitled to relief from forfeiture either under common law or under s. 20(1) of the Commercial Tenancies Act.
[70] Relief from forfeiture is an equitable remedy that a court has the discretion to grant when a party has breached its obligations, but fairness dictates that they should have the chance to remedy the deficiency. In considering whether a tenant should be relieved from the consequences of its failure to pay rent, for example, a judge would consider all of the circumstances of the case, including the history of the parties’ relationship, whether the tenant has breached other covenants of the lease, the gravity of its breaches, the tenant’s conduct or misconduct, and “their good faith or bad faith or lack of clean hands”: Green Solutions Industries International Inc. v. Clarke Holdings (London) Inc., 2022 ONSC 1505, at para. 70.
[71] TUPOC says that, even if I conclude that it breached the Agreement and the lease, I should exercise my discretion to grant TUPOC the right to pay the deposit money it was supposed to pay on August 10 and any rent that it is due, so that it can continue leasing the former church and continue to have the right to complete its purchase of the Property.
[72] The central problem with this argument is that TUPOC has not persuaded me that it has the money to pay what it owes. Mr. Komer says he does but did not attach any supporting evidence to his affidavit, such as an image of cheque or bank draft or any other documents attesting to financing available to TUPOC. Based on the record before me, he likewise did not attach any such records to his correspondence with Mr. McDonald or the other applicants’ realtor. In short, Mr. Komer failed to bring any other evidence to the hearing supporting his contention that TUPOC has the funds to complete the purchase of the Property or to pay rent until closing. TUPOC’s lawyer argued that I must accept Mr. Komer’s assertion that he has raised the necessary funds, because the applicants chose not to cross-examine him on his affidavit. Even without cross-examination, however, I find it implausible that Mr. Komer has over $100,000 in funds available to him in the absence of any evidence of this beyond his bald assertions.
[73] Although my September 2, 2022, endorsement required that all evidence must be introduced by affidavit (aside from evidence obtained through cross-examinations at the hearing), and TUPOC had to file any affidavits by September 9, 2022, TUPOC could have sought leave, at the hearing, to introduce evidence obtained after that deadline. This may have been problematic for other reasons, since it would have implied that Mr. Komer was not truthful when he stated, in his September 2 affidavit, that TUPOC already had money to pay the deposits and the rent. But at least there would have been an evidentiary basis for TUPOC’s argument that it was tendering the amounts owed.
[74] Tendering money requires a party to do more than announce that they are prepared to pay: Archdekin v. McDonald, 1912 CanLII 651, at p. 666. Based on the record before me, I find that TUPOC has never tendered the money payable under the Agreement and the lease.
[75] Even if I were convinced that TUPOC had the means to pay the money owed, I would not grant it relief from forfeiture, because it has not come to the court with clean hands. I find that TUPOC’s representatives have impeded other tenants and their visitors from accessing the parking lot and other parts of the Property. Mr. Komer now says that TUPOC did this because he did not know whether specific tenants had leases that gave them the right to park in the lot. I do not believe this since, at the time, TUPOC’s representatives admitted to other tenants that they blocked the lot due to their dispute with the applicants.
[76] In their affidavits, Mr. Taylor, Mr. Derksen, and Mr. Coates say that confrontations have been instigated not by TUPOC but by neighbours who oppose their presence on the Property. Mr. Derksen also complains about the bailiff’s efforts to serve documents on TUPOC by handing them to him. Even if I accepted this evidence at face value, I find that it does not justify the poor conduct of TUPOC’s own representatives, which disentitles it to equitable relief.
[77] I therefore decline to exercise my discretion to relieve TUPOC from the consequences of its non-payment of money owed under the Agreement.
(6) Is TUPOC entitled to the other relief it seeks?
[78] In their written and oral argument, TUPOC seeks various orders, including orders for punitive damages. It has not, however, brought a cross-application or any other legal proceeding that would entitle it to seek any relief other than relief from forfeiture I am therefore unable to consider any claim it might have.
Disposition
[79] The application is granted, with costs to the applicants. I make all orders set out in the applicants’ draft order, save for an order for arrears for rent, as this was not relief requested in their application.
[80] This is not such an exceptional case that it merits an award of substantial indemnity costs. I find the total costs incurred by the applicants reasonable in the circumstances, which required them to file extensive material and to prepare for and attend two separate hearings. The time recorded and the rates charged by the applicants’ legal team were reasonable. The disbursements are high, but understandably so, given the challenges of serving TUPOC, and its representatives’ reactions to attempts by the bailiff to post notices and otherwise enforce the applicants’ rights. I therefore award the applicants costs of $58,000 inclusive of fees, disbursements, and HST. I order Zinati Realty to release the $5,000 deposit received from TUPOC to the applicants, as payment of the first $5,000 in costs owed to them. TUPOC is required to pay the balance of costs, or $53,000, within 30 days.
[81] The applicants shall modify their draft order to reflect this disposition. They do not need to obtain TUPOC’s consent to the form and content of the proposed order but should instead remit it to me for signature directly.
Justice Sally Gomery
Released: September 23, 2022
COURT FILE NO.: CV-22-89991
DATE: 23/09/2022
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
6844987 CANADA INC., FRANCIS HEALY, ROSEMARY O’BRIEN, and PATRICK KELLY
Applicants
– and –
THE UNITED PEOPLE OF CANADA/LES PEUPLE UNIS DU CANADA
Respondent
JUDGMENT
Justice Sally Gomery
Released: September 23, 2022
[^1]: I have reproduced the respondent’s name as it appears in the pleadings and the respondent’s factum.