Court File and Parties

COURT FILE NO.: CV-22-1096

DATE: 2022-11-16

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1874223 Ontario Inc., Applicant

AND:

Hummingbird Timber Solutions Inc. formerly Craft Carpentry Inc., Respondent

BEFORE: J.E. Mills J.

COUNSEL: Michael Magonet, for the Applicant Ian Latimer and A Moten, for the Respondent

HEARD: August 8, 2022

ENDORSEMENT

[1] The Applicant landlord seeks declarations that the Respondent tenant breached a commercial lease agreement and that the Applicant properly and validly terminated the lease. The Applicant asks for an order granting it vacant possession of the property and leave to issue a writ of possession. The Respondent seeks a declaration that the lease has not been validly terminated or in the alternative, it asks for relief from forfeiture in accordance with s. 20(1) of the Commercial Tenancies Act and s. 98 of the Courts of Justice Act[^1].

[2] The property in issue is approximately 11,586 square feet of office and warehouse space located at 1135 North Service Road East, Oakville (the Premises). The parties entered into a lease agreement dated June 1, 2020 for a five-year term at the base rate of $8.00 per square foot (the Lease). The Lease included an option to extend for two additional five-year terms.

[3] It is admitted there have been breaches of the Lease, but Hummingbird submits they are not sufficiently egregious to warrant the extreme remedy of termination. Hummingbird claims to have spent $140,000 in alterations to the Premises which it expected to amortize over the anticipated 15 years of the Lease. It submits that having regard to the current market conditions, the financial terms of the Lease are very favourable to Hummingbird.

[4] The Landlord delivered two Notices of Default followed by a Notice of Termination dated April 30, 2022. The defaults identified include undertaking alterations to the Premises which are not permitted under the Lease, the failure to secure prior approval of the Landlord and undertaking alterations without obtaining a building permit, improperly installing heavy equipment and machinery in the Premises without the Landlord’s knowledge or consent, and the improper use of the common parking lot facilities thereby causing a nuisance, safety and liability concerns, and interfering with the business operations of the other tenants.

[5] As the identified defaults were non-monetary, the question arises as to whether the Landlord can be taken to have waived the defaults when it accepted a rental payment after the initial Notice of Default was issued. Hummingbird submits that its rental payment of April 1, 2022 was accepted by the Landlord and therefore, the alleged defaults identified in the Notice of Default dated March 7, 2022 must be taken as having been waived for the purposes of termination.[^2] This includes the removal of office space, the relocation of the kitchen, and the installation of the heavy equipment. Acceptance of the rental payment after issuing a Notice of Default is said to be an unequivocal act to recognize the ongoing existence of the Lease.[^3] Therefore, it is submitted the Landlord can now only rely on those alleged defaults for the purposes of a damage claim, not for termination. However, where the default is properly characterized as a continuing breach, the subsequent acceptance of rent does not constitute a waiver of the right to forfeiture.[^4]

[6] I am satisfied the enumerated defaults in the Notices of Default are continuing and ongoing. The significant alterations to the Premises made without the prior approval of the Landlord and completed without obtaining a building permit, as well as the unilateral installation of heavy equipment on the Premises are breaches of the Lease that continue to date. The interference with business operations of other tenants was also an ongoing concern at the time of the termination however, Hummingbird advises they have now addressed the issue with the other tenants.

[7] The Landlord provided the requisite Notices of Default on March 7, 2022 and April 19, 2022, followed by the Notice of Termination dated April 30, 2022. It has therefore properly terminated the Lease.

[8] There is no credible evidence to support the suggestion by Hummingbird that the Landlord is pursuing this application solely to lease the Premises at a significantly higher rent. The adjoining tenants have recently signed new lease terms with a modest increase in the rent. I do not accept the submission that the market rate for the Premises is double that which is currently being paid by Hummingbird.

[9] When considering the equitable remedy of relief from forfeiture, the Court must consider and balance the conduct of the tenant, the gravity of the breaches, and the disparity between the value of the property forfeited and the damaged caused by the breach.[^5] The equitable remedy of relief from forfeiture will not be available to a tenant in circumstances where the default of the lease agreement is as a result of the tenant’s own deliberate acts.[^6]

[10] The deliberate conduct of Hummingbird does not entitle it to relief from forfeiture.

[11] The Lease required that any proposed alterations or additions be submitted on a plan to the Landlord for approval, that any alterations or additions comply with municipal regulations and by-laws, and that all necessary and appropriate permits and licenses be obtained. Further, the Lease required that any alterations or additions be carried out in a good and workmanlike manner by contractors approved in writing by the Landlord. Anything done without prior approval must be removed and, if the Landlord requires it, the Premises must be restored to their original state.

[12] Hummingbird made changes to the Premises without prior approval and without obtaining any building permits. A conceptual drawing was provided to the Landlord, but no construction plan was produced for approval. A wall was erected, offices moved, and a kitchen was relocated, all without the express approval of the Landlord and without obtaining the necessary building permits. The wall was subsequently removed and is no longer considered an act of default, but there is no question it was unilaterally and deliberately erected without approval or consent.

[13] Hummingbird admits it moved the kitchen which required relocating the plumbing and electrical supplies, without the express approval of the Landlord and without obtaining any building permits. Hummingbird feigns ignorance and claims it was an innocent mistake to proceed with the construction without obtaining a building permit. Frankly, that is not credible.

[14] While Hummingbird is in the business of manufacturing wooden structural floors, walls, roofs and other items for the construction industry, its directly related affiliate is in the business of residential and structural construction and renovations, an industry where building permits are routinely required. To say that in his past work experience, Hummingbird’s principal performed small scale renovations without going to the trouble or expense of obtaining building permits is no excuse. The failure to obtain a building permit prior to commencing the alterations to the Premises cannot be characterized as an innocent oversight or an honest mistake. Once it was pointed out that the failure to adhere to municipal by-laws and regulations constituted an act of default under the Lease, Hummingbird applied for a building permit. At the time of the hearing, one had not been issued. Hummingbird now asks that the Court allow the application process to play out on the basis that if a permit is ultimately obtained, the renovations will be retroactively approved, and any Building Code infractions will be remedied.

[15] I am not satisfied the issuance of a permit after the renovations have been completed, assuming a permit is in fact issued, is a proper or appropriate cure of the default. The conduct of Hummingbird has been largely to beg forgiveness rather than to ask permission, as is specifically required by the terms of the Lease. It is simply not credible for Hummingbird to suggest that the Landlord’s failure to insist a copy of the building permit be produced at the time the construction was undertaken demonstrates a fundamental disinterest in the issue. The Landlord was sufficiently interested to include an express term in the Lease respecting the requirement to comply with municipal regulations and by-laws, which includes obtaining a building permit. Correspondence to Hummingbird at the time of the construction clearly refutes any suggestion that the Landlord was not genuinely interested in the issue.

[16] Hummingbird undertook significant alterations to the Premises without the express knowledge or consent of the Landlord. It specifically knew the Landlord’s consent for alterations and the requirement for a building permit were terms of the Lease because it had sought the Landlord’s approval to install a window. When the Landlord required a building permit to be obtained prior to cutting a hole in the exterior wall, Hummingbird abandoned the idea as the permit process was going to cost more than the window itself.

[17] Hummingbird now submits it understood the Landlord’s consent was only required for structural changes, not interior alterations of the Premises. Again, this is simply not credible. Hummingbird’s understanding or misunderstanding was not documented in writing and as noted above, the Lease contains specific provisions in this regard. In any event, the relocation of the kitchen must be characterized as a structural alteration as it required relocating the plumbing and electrical services. It cannot be construed as simply an interior alteration to the Premises.

[18] Further, a conceptual drawing for the new office space and the relocated kitchen which fails to clearly specify that the warehouse office space is being removed is not proper notice to the Landlord that those offices were intended to be removed. Hummingbird’s actions have resulted in the office area of the Premises exceeding the 30% limit as specified by the Lease.

[19] It is no answer to say that the Landlord could have peered through the windows to see what was being done, or that it ought to have inspected the vehicles in the parking lot to confirm the contractors performing the work were competent. It is also no answer to say that because Hummingbird didn’t read the detailed provisions of the Lease, they didn’t know or understand that the actions being taken were in breach of the Lease.

[20] Hummingbird installed a component saw and butterfly tables, substantial and heavy equipment that appears to exceed the weight allowance for the concrete floor. It has already removed a crane so that installation is no longer considered an act of default. All heavy equipment installations required prior Landlord approval; it was not obtained. The cracking on the concrete floor cannot be verified as having been caused by the added weight of this equipment. The fact that the cracking may have been witnessed by a representative of the Landlord while attending at the Premises does not waive the default. Equally, Hummingbird’s efforts to rationalize its conduct does not excuse the default. The fact that other tenants have heavy equipment on their premises is not relevant. The terms of their leases, the nature of the equipment or the weight of that equipment are all unknown.

[21] After being notified of the default related to the heavy equipment, Hummingbird requisitioned structural testing to confirm the concrete floor could withstand the added weight. This does not excuse that the installation was done without advance notice to or the approval of the Landlord. Again, Hummingbird now seeks forgiveness rather than asking permission prior to the installation, as was required by the Lease.

[22] Following delivery of the Notices of Default, Hummingbird was granted time to remediate the damage. It was only minimally done. The plumbing lines were capped off but contrary to the express terms of the Lease, they were not restored to their original location. The kitchen also remains in its new location, but the stove has been disconnected so this is no longer a default. Hummingbird hopes to obtain retroactive approval for the relocation of the kitchen and the plumbing lines and therefore was not inclined to restore the Premises to their original condition as demanded by the Landlord and as required by the Lease.

[23] There is also the issue related to the removal of a duct cover which allegedly resulted in Hummingbird’s air conditioning and gas expenses being charged to a neighbouring tenant. This is a disputed issue but photographic evidence from 2020 supports the duct cover was in place at or about the time Hummingbird became a tenant. It has now replaced the duct cover and it has paid $16,000 under protest to resolve the issue, subject to a proper accounting being provided.

[24] The breaches of the Lease are numerous, and all follow the same course of conduct whereby Hummingbird pursues its own agenda without regard to the terms of the Lease. While each of the breaches may not on their own constitute a significant default and accepting that some have been remedied, collectively the defaults reveal a pattern of conduct that is egregious. The defaults when examined as a whole are significant, and they are flagrant. Hummingbird either chose to entirely ignore the Lease provisions or it elected to roll the dice and hope that all would work out well. In either scenario, this is not conduct which ought to entitle Hummingbird to relief from forfeiture.

[25] The Application of the Landlord is granted; the Application of Hummingbird is dismissed. If the parties are unable to resolve the issue of costs, written submissions made be made, limited to two pages in length, plus a Costs Outline and any Offers to Settlement. The Landlord shall have 15 days from the release of these Reasons and Hummingbird shall have 10 days thereafter to respond. There shall be no right of reply.

J.E. Mills J.

Date: November 16, 2022

[^1]: R.S.O. 1990, c. L.7; R.S.O. 1990 c. C.43 [^2]: 1328773 Ontario Inc. o/a Angling Outfitters v. 2047152 Ontario Limited, 2013 ONSC 4953 at para. 18. [^3]: Northwinds Brewery Ltd. v. Caralyse Inc., 2021 ONSC 7682, at para. 30. [^4]: 1383421 Ontario Inc. v. Ole Miss Place Inc., 2003 CarswellOnt 3681 (ONCA) at para. 79. [^5]: Zenex Enterprises v. Promenade, 2019 ONSC 3262; Green Solutions Industries International Inv. V. Clarke Holdings (London) Inc., 2022 ONSC 1505. [^6]: 2074144 Ontario Inc. v. 6167918 Canada Ltd., 2015 ONSC 1833