COURT FILE NO.: CV-21-656214-0000 and CV-21-00659849-0000
DATE: 20220128
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2613787 ONTARIO INC.
Applicant
– and –
ISKENDER COMLEKCIER and ARTHUR COMLEKCIER
Respondents
Monica Peters, for the Applicant
Eldar Babayev and John Cintosun, for the Respondents
HEARD: July 9, 2021
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ISKENDER COMLEKCIER
Applicant
– and –
2613787 ONTARIO INC., MARWAN CARMI and OSAMA KHALAF
Respondents
Eldar Babayev and John Cintosun, for the Applicant
Monica Peters, for 2613787 Ontario Inc.
Marwan Carmi, Self-Represented Respondent
Osama Khalaf, Respondent (not appearing)
HEARD: July 9, 2021
VELLA J.
REASONS FOR DECISION
[1] These applications were heard jointly and rely on the same affidavit materials.
[2] 2613787 Ontario Inc. (the “Tenant”) is a commercial tenant of an unincorporated entity called Arbicom Investments (the “Landlord”).
[3] The Tenant seeks relief primarily in the form of a declaration that it has been constructively evicted from the leased premises and related consequential damages.
[4] The Landlord seeks relief primarily in the form of a declaration that the Tenant was in material or fundamental breach of its lease, a declaration that the Tenant has forfeited its lease and authorizing it to re-enter the leased premises, and damages for loss of rental income from other tenants.
[5] The Tenant operates a restaurant called “Darna” (the “restaurant”) on the first floor of a property municipally known as 1613 Bayview Avenue, in the City of Toronto (the “leased premises”).
[6] Iskender Comlekcier (“Iskender”) is the registered owner of the building in which the leased premises are located, and is the sole registered proprietor of the Landlord.
[7] Arthur Comlekcier (“Art”) is the son of Iskender and has held himself out as the designated agent of Iskender and the Landlord. It is alleged that Art is also effectively a proprietor of Arbicom, though this is contested.
[8] Marwan Carmi (“Marwan”) is the principal of the Tenant and operates the restaurant.
[9] Osama Khalaf (“Osama”) is Marwan’s father-in-law and a co-indemnifier with Marwan of the leasehold obligations for the initial three-year term of the lease. Osama did not appear at the hearing.
[10] The Landlord and Tenant entered into an offer to lease dated September 6, 2018 (“Offer to Lease”). Attached to the Offer to Lease is Schedule A which sets out certain of the Tenant’s obligations. The evidence shows that Marwan actively negotiated the terms, including most notably reducing the proposed term of the personal indemnity required of himself and his father-in-law, from the full leasehold term of ten years to three years. This would become a sore point in the relationship.
[11] Subsequently, the Landlord and Tenant entered into an agreement to lease dated September 2018 (the “Lease”). Under the terms of the Lease the Tenant entered into a fixed 10-year commercial tenancy to terminate on October 14, 2028. The Lease has attached to it various schedules, including Schedule A in the form and substance reflected in Schedule A to the Offer to Lease.
[12] The leased premises are described as consisting of the main floor together with access to and use of the basement of the premises with the exception of the mechanical room. In addition the Tenant has possession of two “tandem” parking spots at the rear of the leased premises. The parking spots are for use “only during business hours” and expressly excludes “overnight parking”.
[13] Of note, the leased premises are contained in a building which consists of two floors. In addition to the restaurant, on the main floor, there are apartments on the second floor occupied by residential tenants rented from Iskender and/or the Landlord.
[14] The Lease contains various provisions concerning what uses can and cannot be made of the leased premises, the parking lot at the rear, and the roof which will be reviewed later in these reasons.
[15] The Tenant alleges that it has spent 1.3 million dollars in tenant improvements to renovate and fixture the leased premises over the course of the initial thirteen months of the term. This figure has not been challenged by the Landlord.
[16] The Landlord counters that it provided the Tenant with a rent-free period (for the minimum rent only, excluding additional rent as defined in the Lease) of eight months.
[17] The Tenant submits that the facts it relies upon are not in dispute, and therefore an application is the appropriate procedure. Should I find that the Tenant is entitled to damages, then the Tenant submits that I can direct a reference.
[18] The Landlord submits that a trial of the issues raised by the Tenant’s application may be more appropriate. However, it was content to proceed, and wishes to have the issues raised in its application resolved as well. It submits that in the event I find in favour of the Landlord, it would seek leave to file an updated record of its liquidated damages (in the form of loss of prospective rent).
[19] It is apparent that the parties need a resolution of this matter, and I agree that the evidentiary record provides the requisite basis for a determination of the issues raised by way of the respective applications, save for the issue of damages sought by each party against the other.
Issues
[20] The application by the Tenant raises the following issues to be resolved:
a) Is the Landlord in fundamental breach under the Lease?
b) Is the Landlord in breach of its covenant of quiet enjoyment?
c) Is the Landlord in breach of its duty of good faith?
d) Are the remedies of constructive eviction and the consequential damages warranted?
e) Is the Tenant entitled to a rent abatement in the equivalent of the amount it would have received by way of rent subsidy under the Canada Emergency Commercial Rent Assistance (“CECRA”) program?
[21] The Landlord’s application raises the following additional issues to be resolved:
a) Is the Tenant in material breach of the terms of the Lease?
b) If so, has the Tenant forfeited the Lease?
c) Is the Landlord entitled to damages in the form of loss of (other tenants’) rental income and out of pocket expenditures?
Law and Analysis
[22] At the crux of this dispute is whether the Tenant has committed a fundamental breach of the Lease resulting in a forfeiture of the Lease or, alternatively, whether the Landlord has committed a fundamental breach of the Lease by having “bullied” the Tenant into incurring expenses that were not required by the Lease and “harassed” the Tenant by raising alleged breaches of the Lease such as to have created an untenable situation for the Tenant justifying its plea of constructive eviction by the Landlord. Underlying this dispute is the obvious development of animosity between the Landlord and the Tenant.
[23] As will be seen, complicating this matter is the lack of documented agreements or writings allegedly made by the Landlord and Tenant altering certain of the written terms of the Lease. Of note, the Lease contains a standard “Entire Agreement” clause which reads in part:
This Agreement, including any Schedules, Riders or Appendices attached to this Agreement, constitutes the entire agreement between the parties pertaining to the subject matter of this Agreement and supersedes all prior agreements, understandings, negotiations, and discussions, whether oral or written, of the parties….
[24] The Tenant’s main complaints are summarized as follows:
a) The Landlord has acted unreasonably in complaining that the music the restaurant plays is too loud;
b) The Landlord has acted unreasonably in unjustifiably complaining that the Tenant has used more than its allocated parking spots;
c) The Landlord has acted unreasonably in demanding that the Tenant remove the security cameras it installed at the exterior back of the restaurant;
d) The Landlord has acted unreasonably in putting constraints on the restaurant’s use of the garbage bin located at the rear of the leased premises (in the parking lot);
e) The Landlord has acted unreasonably in requiring the Tenant to install an expensive HVAC system in order to avoid damaging the roof of the building and putting it to unnecessary expense in the process of finding a suitable HVAC system;
f) The Landlord has bombarded the Tenant with communications, including 200 pages of text messages and photographs exchanged with the tenant in addition to frequent in person meetings, emails and phone calls, culminating in a detailed demand letter dated December 14, 2020 (the “default letter”) which the Tenant characterizes as harassing and abusive representing an untenable situation for the Tenant and an irreconcilable break down in the landlord-tenant relationship; and
g) The Landlord acted in a manner that is “egregious” when it ultimately refused to submit an application under the CECRA (the federal government’s COVID commercial rent subsidy/relief program) after it represented it would, demanded rent for the Tenant’s use of a space for a patio operated in front of the restaurant, and a number of other demands that will be reviewed in these Reasons.
[25] The Tenant complains that the Landlord’s alleged conduct was all the more egregious given the ongoing COVID pandemic which has resulted in either the complete closing of the restaurant’s indoor dining or capacity limits from time to time since the beginning of the pandemic.
[26] The Tenant states that the “final straw” culminating in an irrevocable breakdown in the landlord-tenant relationship was the issuance of a “default letter” dated December 14, 2020, by the Landlord’s lawyer listing a number of alleged defaults and threatening termination of the Lease. In the default letter, the Landlord’s lawyer lists a number of alleged breaches of the Lease by the Tenant and minor issues not raised previously with the Tenant such as snow removal and requiring the installation of a greaser exchanger.
[27] As at the date of the hearing, the restaurant continued to occupy the premises and carry on its business in one form or another (namely, takeout and delivery, patio service, and in person dining when permitted by the public health guidelines).
[28] The Landlord counters that every demand it has made of the Tenant is justified within the bounds of the Lease, except for the CECRA application which it says it was not obliged to submit. The Landlord relies on all of the alleged violations of the Lease that it advanced in the default letter as justifying its plea that it is entitled to re-enter the leased premises and damages arising out of the alleged violations of the Lease by the Tenant.
[29] The alleged breaches of the Lease in the default letter are substantially the same as those that form the basis of the Tenant’s complaint that the Landlord has acted in an egregious manner constituting a fundamental breach of the Lease or alternatively, breach of the covenant of quiet enjoyment, breach of the duty to act in good faith, and/or material breach of the Lease.
[30] The Tenant conducted negotiations of the Offer to Lease without the benefit of a lawyer. However, it had a lawyer review the draft lease. The Tenant also entered into the Offer to Lease and the Lease without the benefit of a leasing agent. This was of its own volition. Notwithstanding, it is apparent that the Tenant requested and in some instances succeeded in having changes made to the draft Offer to Lease which were then incorporated into the Lease.
[31] It is evident that the Landlord and Tenant’s relationship worsened in 2020.
[32] The Landlord and Tenant entered into a consent injunction to keep the status quo that remains in place pending the release of this decision.
The Law
[33] A fundamental breach of a lease agreement occurs when the conduct of one of the parties to the lease substantially deprives the other party of the whole benefit of the lease. As stated by Nishikawa J., in 2072467 Ontario Inc. v Dr. Matthews P.C., 2020 ONSC 2739, 23 R.P.R. (6th) 128, at para. 110:
A fundamental breach is a breach that goes to the root of the contract, and, as a consequence, “the performance of the contract becomes something totally different from that which the contract contemplates” (citing Kenny Alwyn Whent Inc. v. J. Mao Dentistry, 2016 ONSC 584, 65 R.P.R. (5th) 269, at para. 5, in turn quoting Fridman, The Law of Contract in Canada, 6th ed.).
[34] By way of general framework, the following elements of fundamental breach of contract (in this case the Lease) must be proven by the party asserting the breach:
i. The ratio of the party’s obligations not performed to the party’s obligations as a whole; ii. The seriousness of the breach to the innocent party; iii. The likelihood of a repetition of such breach; iv. The seriousness of the consequences of the breach; and v. The relationship of the part of the obligation performed to the whole obligation. (Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92, 88 O.R. (3d) 721 at para. 27)
[35] In order to establish a breach of the covenant of quiet enjoyment, a tenant must prove that the landlord’s conduct has substantially interfered with the enjoyment of the leased premises. The alleged interference must be:
grave and permanent such that it renders the premises substantially unfit for the purposes for which it was leased. Inconvenience and annoyance to the Tenant or his employees do not constitute interference with the right to quiet enjoyment unless they are of a serious nature and unless there is actual interference with the ability of the Tenant to use the Premises for the purpose for which they were leased: Pentex Print at para. 31” (Dr. Matthews P.C. at para. 140).
[36] The law imposes a duty of good faith and honesty in the performance of contractual obligations. In Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, at paras. 63, 65, 70 and 74, the Supreme Court of Canada articulated the obligation as follows:
a) Parties must perform their contracts reasonably and honestly and not capriciously or arbitrarily; b) Parties may not lie, deceive or mislead each other about matters directly related to their performance of the contract; and c) Parties must act with “appropriate regard” for the other party but may still act in the party’s own self-interest.
[37] Constructive eviction is an extreme remedy. If established, the tenant’s obligation to pay rent is terminated, and the tenant is entitled to damages for consequential loss (Arangio v. Patterson, [1993] O.J. No. 448 (Gen. Div.), at para. 25). However, in order to establish this remedy, the tenant must demonstrate that the breach is either “intentional or the probable consequence of intentional conduct, the consequences are foreseeable, the interference has the character of permanence and wrongfulness, and the degree of interference is so substantial or intolerable as to make it reasonable for the tenant to vacate” (Arangio, at para. 23).
[38] However, where the tenant has established a breach of the lease, short of a fundamental breach, an abatement of rent may be warranted if the tenant can prove that it is not receiving a benefit that it had reasonably expected in return for paying rent (Dr. Matthews P.C., at para. 180).
The Alleged Breaches/Complaints
Noise level
[39] Section 8 of the Lease (Conduct and Operation of Business) stipulates, in part, that the “Tenant shall restrict its business so as not to maintain or produce any noxious, offensive…noise …(the “Hazardous Substances”)”.
[40] Section 8 of the Lease also provides that the Tenant is obliged to notify the Landlord in writing prior to the opening of its business if any Hazardous Substances are in any way related to the Tenant’s use of the Leased Premises or its business practices.
[41] Section 1 of Schedule A to the Lease required the Tenant to submit complete drawings for the Leased Premises to include the “floor plan and reflected ceiling plan”.
[42] After the Tenant submitted plans for the Landlord’s approval, it installed speakers attached to the ceiling. The plans did not show the proposed speakers, and the Landlord accordingly did not pre-approve their installation.
[43] The restaurant plays music both during and after business hours. Some of the Landlord’s residential tenants living above the restaurant have complained about the noise. These residential tenants and the Landlord have requested that the sound levels be turned down. The evidence supports the allegation that the Landlord has lost some residential tenants, at least in part, due to the noise levels caused by the restaurant.
[44] One such residential tenant called the police and 311 by-law services as a result of the noise disruption.
[45] There is also evidence that the music has been played by the restaurant’s staff during the province wide closure of indoor dining services.
[46] The Landlord states that the noise problem is enhanced because the Tenant, without authorization, installed 8 speakers at the ceiling, without properly installing adequate soundproof barriers. In an email to the Landlord, the Tenant agreed to install soundproof barriers where warranted.
[47] The Landlord alleges that the noise level is in breach of section 8 of the Lease, and that it has repeatedly warned the Tenant to reduce the volume of its speakers without any success other than temporary noise reductions from time to time immediately following complaints by other residential tenants. The Landlord’s main complaint is that its residential tenants have complained about the music from time to time.
[48] The Landlord further alleges that it has incurred damages in the sum of $9,922.18 in lost rent as a result of losing residential tenants due to the noise disturbances caused by the music played in the restaurant.
[49] The Tenant did not provide any construction drawings or plans prepared before entering into the Lease, to the Landlord’s knowledge. The Landlord permitted the Tenant to take occupation, notwithstanding the lack of construction drawings or plans. However, the Tenant provided plans on or about January 25, 2019. The Landlord eventually approved the plans on April 20, 2019 after receiving answers to some, but not all, of its questions. In an email exchange, Marwan agreed to install sound barriers as may be necessary to deal with any noise issues.
[50] The Tenant acknowledges that the speakers installed at the ceiling were not reflected in the plans submitted to the Landlord, and that it had not advised the Landlord about them in advance.
[51] However, the Tenant counters that it was reasonably foreseeable to the Landlord that, as a restaurant, it is obvious that music would be played, and that the ceiling does not require any further sound barrier.
[52] The Tenant submits that it has complied with Toronto Municipal Code Chapter 591-2.1 (noise by-law) by keeping noise levels with those prescribed limits.
[53] The Tenant relies on the fact that it has never been charged, much less convicted, of any noise by-law violations, including when its neighbour (the Landlord’s residential tenant) called a municipal by-law enforcement officer to inspect the restaurant’s noise levels.
[54] The Tenant submits that, under the Lease, it owes no obligations to the Landlord’s residential tenants.
[55] In my view, the Landlord has not proven that the Tenant has violated section 8 of the Lease. The reference to when noise becomes a “hazardous substance” is not specified, and there is no general prohibition against playing music. The fact that the Landlord has adduced evidence of complaints from its other residential tenants does not translate into a noise violation of the Lease by the Tenant. The Landlord ought to have been aware that the Tenant would play music as part of its restaurant operations so long as it was open in some capacity. There is no provision in the Lease restricting the hours or days during which the Tenant may play music. In the absence of a definition of the parameters of when noise constitutes a Hazardous Substance in the Lease, it is reasonable to imply that the relevant by-laws governing noise levels apply.
[56] There is also no expert evidence regarding whether a sound barrier is required in the circumstances presented by the Tenant’s playing of music in the restaurant.
[57] The fact that the residential tenants are annoyed by the noise emanating from the restaurant’s speakers from time to time is not the concern of the Tenant, aside from the important notion that tenants ought to be neighbourly and considerate of one another. However, for purposes of this analysis, the Tenant does not owe any lease-related obligations to other tenants under the terms of this Lease. The Landlord did not insert such a clause into the Lease.
[58] Providing the Tenant is not in violation of the applicable noise by-laws, it is not in violation of section 8 of the Lease.
Garbage Bin Usage
[59] Section 4.4 of the Lease provides, in material part, that the Tenant shall pay :
(b) the full cost of the garbage disposal of all garbage, cardboard, recycling and refuse generated by the Tenant in the Premises. The storage of garbage shall not interfere with the use of the parking lot at the rear of the building.
[60] Section 16(o) of the Lease provides:
The tenant shall not place any containers, bins, garbage or recycling bins, sheds or any storage of any nature at the rear of the building or in the parking lot of the building.
[61] Section 8 of the Lease also provides that the Tenant shall dispose of its garbage in accordance with practices acceptable to the Landlord and any applicable regulations as amended from time to time.
[62] The issue of how the Tenant is supposed to dispose of its garbage from the restaurant is an ongoing saga.
[63] When the Tenant began renovations of the leased premises it requested permission of the Landlord to use a garbage bin to be placed at the back of the property on a temporary basis, contrary to the terms of the Lease. The Landlord agreed.
[64] The Landlord then agreed to the Tenant’s use of a garbage bin in the rear provided the Tenant would pay for a larger bin, allow the residential tenants to use it, and would pay for weekly emptying of the garbage bin.
[65] The Tenant agreed to this proposal in or around November 2019.
[66] This arrangement occurred for some months without significant complaints.
[67] However, as the pandemic persisted with indoor dining prohibited, the Tenant determined that only a bi-weekly emptying of the garbage bin was required and unilaterally implemented this new regime. This was a cost reduction measure for the Tenant.
[68] The Landlord did not agree to this proposal. The dispute escalated in November 2020.
[69] According to the Tenant, the tipping point arose from the Tenant’s request that the Landlord not place Iskender’s and Art’s personal waste into the garbage bin. From the Landlord’s perspective, the Tenant’s refusal to have the garbage bin removed on a weekly basis resulted in a repeated overflowing of the bin, attracting rodents and complaints from its residential tenants. Furthermore, the Landlord claims that on one occasion, in retaliation against the Landlord, the Tenant locked the bin so that the residential tenants could not use it.
[70] On December 14, 2020 (the Default Letter) the Landlord’s lawyer relied on the prohibition in the Lease against the Tenant using a garbage bin in the back-parking lot. This is the only location available to the Tenant for placement of a garbage bin.
[71] The Landlord points out that the City has a “Yellow Tag” system of garbage disposal available to the Tenant. The Tenant apparently does not want to use this program, even though it did initially sign up for it. The Tenant counters that having garbage in front of its restaurant is unsightly.
[72] Under cross examination, Art admitted that the Landlord agreed to the placement of the garbage bin in November 2019, and that the condition agreed to was that the Tenant would absorb the cost of the garbage collection for all tenants and have it emptied every week.
[73] In my view, notwithstanding the clear term of the Lease prohibiting placement of a garbage bin in the back parking lot, the Landlord is estopped from insisting on enforcement of that term provided the Tenant continues to pay all costs associated with the weekly removal of garbage from this bin for all tenants. Implicit in this arrangement, the Tenant shall not prohibit the other residential tenants from placing their garbage into this garbage bin. However, the Landlord is not permitted to place its personal garbage in this garbage bin. The Tenant is also responsible for keeping the garbage bin in a sanitary state consistent with the requirements of applicable by-laws.
Parking
[74] The Lease entitles the Tenant to the use of two “tandem” parking spots at the rear of the building. Some of the Landlord’s residential tenants also have access to parking in this lot as well. By all accounts the parking lot is small.
[75] The Landlord complains that the Tenant has on at least two occasions permitted employees or others to park in unauthorized spaces (taking more than two parking spots). The Tenant denies that it has permitted any vehicles under the restaurant’s control to park in unauthorized spaces.
[76] Based on the evidence, the Landlord has not persuaded me that the Tenant has committed a material breach of the parking provision in the Lease. Even if the Tenant did permit its employees on two occasions to park in unauthorized spots, this is not sufficient to meet the bar of a material breach.
[77] The Landlord has other remedies beyond the Lease to enforce parking; e.g., towing unauthorized vehicles at the owner’s expense. However, the Tenant is only authorized to use the designated two tandem parking spots at the rear of the building, consistent with the terms of the Lease.
Security Cameras
[78] The Tenant placed security cameras at the exterior rear of the restaurant overlooking the Landlord’s private parking lot without prior permission from the Landlord.
[79] Some residential tenants have complained that the security cameras are invading their privacy and makes them feel uncomfortable.
[80] There is no suggestion that the security cameras are pointed anywhere but the outdoor rear parking lot. They were placed there by the Tenant for security purposes associated with running a restaurant business.
[81] The Lease provides at section 10 that any improvements or alterations, to the Leased Premises must be carried out, in part, in accordance with plans and specifications pre-approved by the Landlord, in writing, acting reasonably. The Landlord maintains that its pre-approval was required for the installation of the security cameras.
[82] I do not accept that the residential tenants have a reasonable expectation of privacy when using the outdoor back parking lot or, in any event, that the security cameras unreasonably interferes with their use of the parking lot. In any event, as I stated earlier, the Tenant does not owe any leasehold obligation to the other tenants.
[83] Furthermore, I do not agree that section 10 required the Tenant to obtain the approval of the Landlord to install security cameras. Security cameras are incidental to the running of a restaurant and do not constitute a change to the “structure” of the Leased Premises or the “systems” in the Leased Premises within the meaning of section 10 of the Lease.
[84] Furthermore, the Landlord knew or ought to have known of the security cameras which are visibly placed on the exterior of the building overlooking the parking lot by virtue of the frequent attendances to the Leased Premises by Art. The Landlord’s evidence concerning its demands to remove the security cameras is lacking in specificity.
[85] Even if the Tenant ought to have requested the Landlord’s pre-approval in writing before it affixed the security cameras, this is not a material or fundamental breach of the Lease. Based on the evidence, the Landlord acquiesced in the placement of the security cameras installed at the rear of the Leased Premises. It only raised this as an alleged breach of the Lease after tensions escalated.
HVAC System
[86] The Tenant submits that the Landlord acted unreasonably in forcing it to install, at its own significant expense, an HVAC platform system called the “Bigfoot platform” to preserve the integrity of the membrane roof to the leased premise’s building when there were reasonable alternatives. Furthermore, the Tenant submits that the Landlord put it to unnecessary expense in obtaining architectural and other designs for installing a system at the rear of the building that the Landlord knew, from prior experience, would never work.
[87] A Bigfoot platform supports the HVAC system on legs attached to the roof, so that the weight of the HVAC does not sit directly on the membrane roof.
[88] The Landlord submits that the terms of the Lease are clear that no HVAC system is to be erected on the roof, because it is a membrane roof and hence fragile. Hence, the Landlord made a reasonable concession since the Tenant’s business requires an HVAC system.
[89] The Lease explicitly prohibits the installation of an HVAC system on the roof. The Tenant was unaware that this would be a problem when it entered into the Lease.
[90] Section 10 of the Lease reads in part that “the Landlord shall have the right to maintain the HVAC system serving the premises on behalf of and at the expense of the Tenant. Notwithstanding the above, the Tenant agrees and covenants that it will not make any changes or repairs to the structure of the premises, or the systems within the premises, without the express written permission of the Landlord acting in its sole discretion.”
[91] Furthermore, Schedule A to the Lease provides “the Tenant shall supply and have installed a new 10 ton top-tier HVAC manufacture subject to landlord approval in terms of a heating and cooling system. All ductwork, grills, dampers, diffusers and later shall be arranged and provided for by the Tenant.”
[92] Section 1(d) of Schedule A also prohibits the Tenant from placing any equipment of the roof, requiring that work to be provided by the Landlord as additional work. Additional work in turn, is defined in the Lease as the actual expenses incurred by the Landlord plus a 15% premium to be paid to the Landlord. Section 1(e) of Schedule A specifies that no loads may be placed or suspended from the roof structure of the building structure without the written approval of the Landlord. Section 16(i) of the Lease provides that any work performed by the Landlord for the Tenant is subject to cost plus fifteen percent.
[93] The Landlord was heavily involved in the search for an acceptable HVAC system.
[94] In the end the Landlord and Tenant agreed that the Bigfoot system would meet the concerns of the Landlord to protect the fragility of the membrane roof and would permit the Tenant to carry on its restaurant business. The Bigfoot system was expensive, however, the Landlord was within its rights to insist on this system which attached to the roof, given the prohibition in the Lease of affixing any equipment to the roof.
[95] The Tenant was not in a position to insist on a cheaper HVAC system since no other satisfactory system that would accommodate the Tenant’s business’s requirements could be found that did not require some sort of roof attachment that could imperil the membrane roof. The Tenant was aware of the Lease provisions as related to HVAC and the membrane roof when it entered into the Lease and cannot now complain that it had to spend more money than it had anticipated. The Tenant did not obtain professional advice concerning HVAC requirements suitable to its restaurant business prior to entering into the Offer to Lease or the Lease and discovered this problem only afterwards.
[96] Accordingly, the Landlord’s insistence on the Tenant installing this form of HVAC system is not a breach of the Lease or evidence of bad faith. It was an accommodation by the Landlord to assist the Tenant.
Patio
[97] According to the evidence, the Tenant always wanted to have a patio in front of the restaurant premises. The Tenant’s interior plans submitted to the Landlord reflected a patio.
[98] However, the description of the Leased Premises does not include the use of any exterior property in front of the restaurant.
[99] Accordingly, there is no rental rate stipulated for the use of any such “patio” property in the Lease.
[100] It is also well known that for periods over the course of the tenure of the Lease to the date of the hearing, there have been lockdown periods, owing to the COVID-19 pandemic, in which in door dining was completely prohibited, leaving restaurants restricted to take out, delivery, and outdoor dining only.
[101] The patio was built by the Tenant in and around the spring of 2019. The Landlord was aware of this activity. Indeed, the Landlord assisted the Tenant in obtaining a patio licence.
[102] The patio opened later in the spring of 2019, again to the knowledge of the Landlord.
[103] The Landlord first raised a concern about the Tenant’s operation of a patio in June 2019. As a result, the Tenant made some concessions to the Landlord. The issues were apparently resolved, and the patio operated for about 6 months without complaint by the Landlord.
[104] However, when the Landlord delivered its rent schedule for the 2020 year, in or around December of 2019, the Landlord included a rental component relative to the Tenant’s use of the patio area. This amounted to an additional $1,431 per month on a prospective basis, and a claim of $9,703.86 by way of retroactive rental charges.
[105] In cross examination, the Landlord’s representative admitted that it knew that the Tenant wanted a patio and it was included in the drawings received by the Landlord but stressed that those drawings were for interior renovations only.
[106] The Tenant objects to paying any rent, much less retroactive rent, for the patio. The Tenant says it made concessions that constitute compensation for the use of the patio space for the remainder of the term of the lease. The Tenant also observed that in the rent schedule, a portion of the rent allocated to use of the Patio was characterized as “TMI” (taxes, maintenance and insurance) and there was no TMI attributable to use of the patio space.
[107] The Landlord says that the patio space is not included in the demised premises, and it is ridiculous to think that the Tenant would have the space rent free, and the Tenant ought to have realized this. It wants the rent arrears, including the retroactive rent, and rent on a prospective basis for the duration of the tenancy.
[108] The Landlord relies on a strict interpretation of the Lease.
[109] In these circumstances, the Landlord acquiesced to the Tenant’s construction of and operation of the patio. Not only did the Landlord acquiesce, but it actively cooperated in securing a permit on behalf of the Tenant and allowed the Tenant to operate the Patio for some months without raising any issue about a rental charge.
[110] In the circumstances it would be unfair for the Landlord to insist on retroactive rent in the sum of $9,703.86 for the period of time pre-dating its first notice of a rental charge. The Tenant relied on the Landlord’s acquiescence and active involvement in expending money to construct the Patio and made concessions requested by the Landlord. The Landlord ought to have raised its intention to charge rent as soon as it became aware of the Tenant’s intention to construct and operate a patio and advised that it would be charging rent. Then, the Tenant could have entered into negotiations regarding the commencement of rental payments, and the quantum. That way the Tenant would know what it was getting into in advance of expending funds to construct and operate a patio and reverse its decision to do so if the rent was too much.
[111] The Tenant, however, should have expected to pay some amount of rent for the use of the Patio space starting from some point in time. The evidence and argument fell short of providing the court with the necessary basis upon which to make a ruling on this discreet point. I will address this deficiency later.
CECRA – The Canada Emergency Commercial Rent Assistance program
[112] This issue appears to have created the most acrimony as between the Landlord and Tenant.
[113] The Tenant alleges that the Landlord promised to apply for CECRA, and then last minute neglected to do so and tricked it into believing it had done so. The Tenant submits that the reason why the Landlord reneged on its promise was twofold. First, the Tenant says that the Landlord was infuriated because Marwan refused to subsidize the rent of a prospective tenant, who happened to be an employee of the Tenant. Second, the Tenant says that the Landlord was incensed that Marwan refused to pay the cost of a minor paint touch up required on the railings of the back of the building and to replace a rain downspout (preferring to repair it himself), both caused by repair/installation work by the Tenant.
[114] The Tenant submits that it was initially led to believe that the application for the CECRA had been properly submitted. The Landlord did submit the application, but it bounced back due to a clerical error, and the Landlord did not re-submit it. By the time the Landlord informed the Tenant that it had not successfully submitted the application, the time for applying had expired.
[115] The Tenant also alleges that the Landlord demanded that it pay the 25% rent subsidy that under CECRA the Landlord was intended to forfeit.
[116] The Landlord insisted that, as one of the conditions of providing consent to apply for the CECRA, Marwan and Osama agree to extend their personal indemnity agreements to ten years plus one month relative to the HVAC system and its removal at the end of the term of the Lease. The Landlord submits that Marwan and Osama orally agreed to this term, but in the end refused to sign an amending lease agreement that included, inter alia, this extension of their personal indemnity agreement. Marwan, in his affidavit, denies that any such commitment was provided. Osama did not tender an affidavit. However, the Landlord does not seek an order enforcing an alleged oral agreement to extend the indemnity to ten years.
[117] While the Tenant acknowledges that the Landlord had no obligation to apply for CECRA, once it undertook to do so, the Tenant relied on that promise to its detriment.
[118] The Landlord submits that the reason why it did not re-submit the application was because it became aware that the Tenant had not made full financial disclosure due to the Tenant’s failure to report its delivery revenues. The Landlord was concerned that it could be exposed to liability under CECRA in the event that the government determined that the application had been made under false pretenses. The Attestation required under CECRA to be signed by both the landlord and tenant does make reference to the landlord certifying that it is not aware of any misrepresentation in the financials by the tenant (though the form adds “without investigation” by the landlord). The Landlord claims it had actual knowledge of a misrepresentation by the Tenant insofar as it became aware that the Tenant did business with food delivery applications but neglected to reflect those revenues in its financial representations. The Tenant claims that the Landlord has misread the Attestation and that the Landlord would not have been liable for any overpayment made to it under CECRA. In any event, it claims that the revenues from those delivery services were minimal and would not have made any material difference in its eligibility for the CECRA.
[119] Regardless, the Landlord’s conduct in relation to the CECRA is unfortunate. The email exchanges suggest that the Landlord was taunting the Tenant and refused at the end to re-submit the CECRA because of its displeasure with the Tenant. It is understandable why the Tenant would harbour bad feelings as a result of this incident. The Tenant likely lost out on a substantial rent subsidy. Any misunderstanding could have been worked out but instead the Landlord just refused to resubmit the application and told the Tenant after the fact.
[120] However, the Tenant did not prove the elements of detrimental reliance. The Tenant relied on two paragraphs in Marwan’s affidavit indicating that the Tenant lost $48,238.65 in rent subsidies under CECRA, and that it planned its business operations based on receiving this subsidy and consequent savings. However, the Tenant provided no details of how it altered its business plan based on the assumption it would receive the benefit of the CECRA, relying instead on a bald allegation.
[121] Furthermore, and in any event, applying for the CECRA is not a leasehold covenant and therefore cannot support a finding of a breach of the Lease.
[122] In H.A.S. Novelties Limited v. 1508269 Ontario Limited, 2021 ONSC 642, 30 R.P.R. (6th) 285, J. Steele J. had to consider a similar situation. Steele J. confirmed, at para. 21, that a landlord was not obliged to apply to CECRA, even if it had initially undertaken to do so.
[123] The Tenant relies on 2487261 Ontario Corp. v. 2612123 Ontario Inc., 2021 ONSC 336 for the proposition that where a landlord “lulls” a tenant into the belief that it will only be liable for reduced rent as a result of the landlord’s commitment to apply for the CERCA, the court will hold the landlord to that promise of a reduced rent. However, in that case the landlord had sent mixed messages regarding what rent was owing by, for example, giving inconsistent rent notices, some based on the reduced (subsidized) rent. Furthermore, the landlord had the tenant sign a rent reduction agreement and the landlord accepted the reduced rent without complaint for the initial months of the program. This is distinguishable from the case at bar where the Landlord has always insisted on payment from the Tenant of the full rent due under the Lease, and the Tenant has paid that amount.
The Default Letter
[124] As stated, the Landlord sent a detailed demand/default letter from its lawyer to the Tenant dated December 14, 2020.
[125] In this letter, the Landlord alleges eight separate breaches of the Lease, and five alleged breaches of various by-laws. The letter demands payment of rent (for the Patio), reimbursement for legal costs allegedly incurred by the landlord on account of the Tenant and threatens “immediate” eviction and legal action if all of the demands are not met. Some of the allegations are made for the first time (e.g. a complaint about the lack of snow removal by the Tenant).
[126] The Tenant claims that this letter is a form of serious harassment and further evidence of the untenability of the landlord and tenant relationship created by the Landlord. The Tenant submits that the default letter together with the prior pattern of extensive communications in which the Landlord repeatedly made complaints and demands upon the Tenant, is not only a fundamental and material breach, but also a breach of its right to quiet enjoyment of the premises, justifying its plea for a declaration of constructive eviction. In short the default letter is the “last straw” (HPWC 9707 110 Street Limited Partnership v. Funds Administrative Service Inc., 2019 ABQB 167, 88 Alta. L.R. (6th) 126, at para. 38).
[127] At the hearing, the Landlord took the position that it never acted on the threat of eviction made in its demand letter and was only trying to make the Tenant take its “numerous” complaints seriously.
[128] There is no covenant for quiet enjoyment contained in the Lease. However, the covenant of quiet enjoyment is implied by virtue of s. 23 of the Conveyance and Law of Property Act, R.S.O. 1990, c. C.34.
[129] In order to be actionable, a tenant must establish that the landlord’s interference was “grave and permanent” and render the premises substantially unusable for the purposes for which it was leased (Stearman v. Powers, 2014 BCCA 206, 61 B.C.L.R. (5th) 261 at paras. 18-19).
[130] The Tenant placed considerable reliance on Arangio for the proposition that inappropriate behaviour amounting to persistent harassment by a landlord constitutes a breach of the covenant of quiet enjoyment. In other words, conduct short of a physical interference with the use and enjoyment of the property is not required. However, that case featured an extreme fact situation. The male sublandlord was found to have engaged in a persistent targeted course of personalized conduct against the female subtenant that adversely affected her ability to carry on business. The conduct included sexual touching of the sublandlord’s own employees in front of the subtenant and her clients, sexual (verbal) harassment against the subtenant, using profane language that could be heard by the subtenant’s clients, instructing his staff to advise the subtenant’s clients that she had no availability for appointments when that was not true, playing loud rock music that disturbed the calm atmosphere required for the tenant’s esthetician business, and other conduct that physically interfered with the tenant’s ability to carry on her business. To provide context, in order to reach the tenant’s esthetic salon, customers had to walk through the sublandlord’s hair salon. The tenant vacated the premises and refused to pay any further rent.
[131] The judge described that the subtenant adduced a “virtual avalanche of evidence” from the subtenant’s clients, a former employee of the sublandlord and others that supported the subtenant’s claims.
[132] The judge in Arangio, at p. 7, characterized the sublandlord’s conduct as constituting circumstances that made it “impossible for the defendant to continue using the premises” and his sexualized behaviour comprising a “state of affairs that would have had the same effect on any reasonable woman.”
[133] The pattern of communications culminating in the default letter does not meet the bar of fundamental or material breach of the Lease or a breach of quiet enjoyment or bad faith. There is no evidence that the Landlord did anything that resulted in a physical interference with the restaurant business or created a state of affairs that made it impossible for the Tenant to carry on its restaurant business. The Tenant has adduced no evidence to support any claim of a loss of business due to the Landlord’s actions. There is no evidence that the restaurant was closed or that its business was temporarily interrupted or interfered with as a result of the Landlord’s conduct. The communications have been largely in writing. The communications while, no doubt, stressful and annoying to the Tenant, do not constitute a grave and permanent interference with its ability to carry on the business of a restaurant nor did it substantially deprive the Tenant of the whole benefit of the Lease.
Conclusion and Disposition
[134] The parties have engaged in conduct that can be fairly characterized as stressful and annoying to the other. Some of the Tenant’s conduct annoyed the Landlord’s residential tenants who are and/or were the Tenant’s neighbours, as evidenced by the affidavit evidence submitted by several such former and current residential tenants.
[135] The Landlord’s last-minute refusal to apply for the CECRA, even if thought to be justified in the Landlord’s mind, was not considerate of the Tenant’s financial reality.
[136] The Landlord’s regret in having agreed to the Tenant’s demand that the term of the indemnity agreement be reduced from ten years to three years has aggravated the Landlord’s attitude towards the Tenant.
[137] The Tenant’s view that some of the Landlord’s demands, even if strictly consistent with the Lease, were nonsensical, aggravated its attitude towards the Landlord.
[138] The evidentiary record is replete with allegations that taken together demonstrate that this Tenant and Landlord have not behaved well.
[139] However, does the conduct of the Landlord, taken as a whole, meet the test of fundamental breach, breach of quiet enjoyment, bad faith, or conduct that otherwise warrants the extraordinary remedy of constructive eviction?
[140] Based on the evidence, taken as a whole, the conduct alleged by the Tenant does not amount to a fundamental or material breach of the Lease. The interference alleged did not substantially deprive the Tenant of the ability to carry on the restaurant business. Throughout this turmoil, the Tenant has carried on its restaurant business, including using the patio, insofar as public health guidelines and the weather has permitted. The Tenant is concerned that the Landlord might do something in the future that may then constitute a fundamental breach of the Lease, however, that has not happened.
[141] In order to establish a breach of quiet enjoyment, the Tenant must also have brought the specifics of the alleged breach to the attention of the Landlord and given the Landlord an opportunity to remedy it (Dr. Matthews P.C. at para 141, LaBuick Investments Inc. v. Carpet Gallery of Moose Jaw Ltd., 2017 SKQB 341 at para. 55). This did not happen. Further and in any event on the evidence, again taken as a whole, does not amount to have rendered the premises substantially unfit for the intended purpose, nor has the Landlord created an untenable atmosphere for the Tenant in the sense of the extreme non-physical circumstances reflected in Arangio.
[142] As the Landlord is not in fundamental breach of the Lease, the remedy of constructive eviction is not warranted, and there is no basis for damages in the form of loss of profit and cost of the tenant improvements.
[143] In the alternative, the Tenant sought an abatement of rent in the equivalent of the amount of subsidy the Tenant would have received in the event that the CERCA had been successfully applied for by the Landlord. As I have found that the Landlord was not obliged to apply for the CERCA, this ground must also fail. The Tenant led no evidence in relation to quantifying an alternative amount of rent abatement. In any event, no rent abatement is warranted in light of my findings.
[144] On the other hand, has the Tenant committed a fundamental breach of the lease, when viewing its conduct as a whole, justifying a finding that it forfeited the Lease?
[145] For the reasons stated in my analysis and summarized above, the Tenant is not in fundamental or material breach of the Lease and does not warrant a finding that the Tenant has forfeited the Lease. Any ostensible breach of the Lease has either been minor or acquiesced in by the Landlord. While rent may ultimately be determined to be owed for use of the Patio space by way of an amendment to the Lease, there are currently no rent arrears under the Lease. The Tenant is directed to abide by its undertaking to reinstitute a weekly pick up of the garbage bin or apply to the yellow tag garbage collection service provided by the city. The Landlord is not entitled to re-enter the leased premises.
[146] What this relationship requires is appropriate accommodation and civility from both parties. The fact that the parties entered into a consent interim injunction (without prejudice to asserting the positions they took in the application shows that a truce is possible.
[147] The Tenant has options to deal with the concerns it has regarding the garbage issue, such as the yellow tag program. This may not be ideal, and indeed, may not make financial sense even from the landlord’s perspective, but it is available.
[148] The one outstanding issue is the patio. In my view, it is commercially unfeasible to suggest that the Landlord intended to provide rent free space to the Tenant for the balance of the leasehold term. The Tenant ought to have addressed the patio space in the Lease since that is what it intended. The Landlord ought to have been up front about the fact that it would insist on rent prior to allowing the patio to be built and operated. Accordingly, I will hear submissions on what process makes sense to determine a fair rent rate and an appropriate start date. While I have found that the Landlord acquiesced in an initial rent-free period, I do not have sufficient evidence to determine the length of that initial rent-free period. The parties are to request a case conference before me to provide me with further written and oral submissions limited to this discreet issue.
[149] Ideally, the Landlord and Tenant are in a position to negotiate a fair rental rate and start date for the patio space by way of an amendment to the Lease
[150] Presumably it is in both the Landlord and Tenant’s interest to reach resolution. The Tenant has invested a significant amount of money in improvements that will be left behind upon termination of the Lease. The Landlord has the upside of a secure commercial tenant for the next several years and has already had the benefit of a tenant who has paid rent under the Lease during the course of a pandemic that has had harsh economic consequences for the restaurant industry.
[151] The Landlord sought a declaration that the co-respondent, Arthur Comlekcier, is not the landlord and accordingly not liable for any amounts found due from the Landlord to the Tenant. In light of my findings, I need not rule on this issue.
[152] This court declares the following:
a) The Landlord is not in breach of its covenant of quiet enjoyment; b) The Landlord is not in breach of its duty of good faith; c) The Landlord is not in fundamental breach of the Lease; d) The remedies of constructive eviction and damages are not warranted; e) The Tenant is not in material breach of the Lease; f) The Tenant has not forfeited the Lease; and g) The Landlord is not entitled to damages, subject to this Court’s ruling regarding potential rent in relation to the Patio space.
[153] In the circumstances of this disposition, it may be appropriate to order no costs. However, I will accept written submissions from the Landlord and Tenant, not to exceed 3 pages in length, plus the respective cost outlines, within 20 days from the release of these reasons. The parties ought to have exchanged and uploaded to CaseLines their respective cost outlines prior to the hearing of these applications.
Justice Vella
Date: January 28, 2022
COURT FILE NO.: CV-21-656214-0000 and CV-21-00659849-0000
DATE: 20220128
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2613787 ONTARIO INC.
Applicant
– and
ISKENDER COMLEKCIER and ARTHUR COMLEKCIER
Respondents
BETWEEN:
ISKENDER COMLEKCIER
Applicant
– and –
2613787 ONTARIO INC., MARWAN CARMI and OSAMA KHALAF
Respondents
REASONS FOR DECISION
Vella J.
Released: January 28, 2022