COURT FILE NOS.: CV-21-00662366-0000 CV-22-00684712-0000 DATE: 20230404 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: SILVEROAK WEALTH MANAGEMENT and RICK UMBRIO, Applicants AND: SANDRA LEONARDELLI and LEONARDELLI WEALTH MANAGEMENT, Respondents
AND BETWEEN: SANDRA LEONARDELLI and LEONARDELLI WEALTH MANAGEMENT, Applicants/Cross-Respondents AND: SILVEROAK WEALTH MANAGEMENT and RICK UMBRIO, Respondents/Cross-Applicants
BEFORE: Cavanagh J.
COUNSEL: Daniel Camenzuli and Julia Cecchetto, for the Applicants/Cross-Respondents Gregory Sidlofsky, for the Respondents/Cross-Applicants
HEARD: January 12, 2023
ENDORSEMENT
1There are two applications before me. Both applications address issues arising from the conclusion of the business relationship between Rick Umbrio and Sandra Leonardelli. Each of Mr. Umbrio and Ms. Leonardelli had held a 50% interest in Silveroak Wealth Management Inc. (“Silveroak”).
2On February 25, 2020, the parties executed a letter agreement by which Mr. Umbrio agreed to purchase the interest of Ms. Leonardelli in the capital stock of Silveroak. The transaction closed that day, with an effective date of December 31, 2019.
3I heard submissions on the two applications together. The following are my reasons with respect to the issues raised on the applications.
Factual background
4Silveroak is a wealth management company and earned income by charging clients commissions on their assets under management. Mr. Umbrio and Ms. Leonardelli are investment professionals. In 2016, they formed a Silveroak so that, together, they could manage clients under both the Investment Industry Regulatory Organization of Canada (“IIROC”) and Mutual Fund Dealers Association (“MFDA”) investment platforms. On December 1, 2017, they agreed to hold ownership of Silveroak on an equal basis with each holding 50% of the shares.
5Mr. Umbrio held a license issued by IIROC and Ms. Leonardelli held a licence issued by MFDA. Clients of Silveroak were registered to either Mr. Umbrio or Ms. Leonardelli, however, the commissions earned were split between them.
6In August 2019, Mr. Umbrio decided that he no longer wanted to work with Ms. Leonardelli and he approached her to end their arrangement. After some discussion, they agreed that Ms. Leonardelli would sell her 50% interest in the share capital of Silveroak to Mr. Umbrio.
7A binding letter agreement setting forth the principal terms and conditions under which Mr. Umbrio would purchase the interest of Ms. Leonardelli in the capital of Silveroak shareholder and assume all shareholder loans and advances made by her to Silveroak was made on February 25, 2020 (the “Letter Agreement”). The transaction closed that day. The Letter Agreement provides that its effective date is December 31, 2019.
8The Letter Agreement includes schedules and provides that the net estimated purchase price for the purchased shares and the shareholder advances shall be $225,150 that has been calculated based on a stated formula: 0.5 (A+B-C). The inputs A, B, and C are described in the Letter Agreement.
9The “A” value in the Letter Agreement is equal to 2.5 times the client month-end values of assets under management (“AUM”) for MFDA registered clients over the 12 months prior to December 31, 2019, multiplied by the applicable commission percentage on 100% of Silveroak’s business. The “B” value is calculated using the same formula for IIROC clients. The “C” value is calculated using the same formula with respect to MFDA registered clients who were excluded from the transaction because they are friends and relatives of Ms. Leonardelli and they would be not become IIROC registered clients of Silveroak and would be staying with Ms. Leonardelli.
10Schedule “A” to the Letter Agreement shows the calculation of value “A” to be $395,743.91, value “B” to be $121,046.50, and value “C” to be $66,494.51. When these values are used in the formula, (0.5 (A+B-C)) it produces $225,148 as the “Total Consideration”. This is rounded in the Letter Agreement to $225,150.
11The Letter Agreement states that the parties acknowledge and confirm that the sum of the values of “A”, “B” and “C” is equal to 100% of all AUM of Silveroak as of December 31, 2019.
12The Letter Agreement provides that $112,575 shall be paid by Mr. Umbrio to Ms. Leonardelli “on the Closing Date” and that the balance of the total consideration of $112,575 (the “VTB Amount”) shall be paid by Mr. Umbrio to Ms. Leonardelli in 24 monthly instalments commencing on March 1, 2020 and ending on February 1, 2022.
13The Letter Agreement provides for post-closing adjustments to the Total Consideration of $225,150.
14Mr. Umbrio paid Ms. Leonardelli $112,575 on February 25, 2020. Mr. Umbrio made additional payments totalling $10,406. In total, he paid $122,979 toward the Total Consideration.
15Mr. Umbrio and Silveroak have commenced an application against Ms. Leonardelli and Leonardelli Wealth Management seeking declaratory and other relief in respect of the Letter Agreement including (i) a mandatory order that Ms. Leonardelli pay to Mr. Umbrio $115,667.53 representing the amount by which Mr. Umbrio has overpaid Ms. Leonardelli after the post-closing adjustments to the Total Consideration under the Letter Agreement; (ii) a declaratory order that Ms. Leonardelli and Leonardelli Wealth Management are in breach of a sub-lease provided for by the Letter Agreement (and thereby in breach of the Letter Agreement) and that, therefore, they are liable to pay rent to the Applicants for the balance of the term of the sub-lease in the amount of $66,000 less payments made; and (iii) a mandatory order that the Respondents must pay $2,825 to Silveroak (representing two months of rent for January and February 2020 under the sublease).
16Ms. Leonardelli and Leonardelli Wealth Management commenced a cross-application against Mr. Umbrio and Silveroak Wealth Management seeking (i) a declaration that $34,094.88 remains outstanding to Ms. Leonardelli from the purchase of her 50% interest in Silveroak by Mr. Umbrio; (ii) a declaration that Mr. Umbrio and Silveroak have breached a sublease agreement pursuant to which Ms. Leonardelli and Leonardelli Wealth Management leased space from Mr. Umbrio and Silveroak; and (iii) damages for breach of the sublease in the amount of $50,000.
Analysis
17There are five issues on these applications. I address each in turn.
Issue #1 What is the amount of the post-closing adjustment under paragraph 3 of section 3(c) of the Letter Agreement?
18The parties agree that a post-closing adjustment to the total consideration is needed pursuant to paragraph 3 of section 3(c) of the Letter Agreement. They disagree about how this provision should be interpreted and applied.
19Paragraph 3 of section 3(c) of the Letter Agreement provides:
In the event any client is not transferred within the Client Re-Registration Period and that client remains with the Vendor or an entity controlled by or affiliated to the Vendor, then the consideration attributable to such client as calculated in accordance with this Agreement shall immediately be deducted from the Total Consideration and the VTB Amount then due and owing, if any, and shall be immediately reduced accordingly.
20The clients who were registered at Silveroak under the MFDA platform were serviced by Ms. Leonardelli, who was licenced to do so. The clients who were registered at Silveroak under the IIROC platform were serviced by Mr. Umbrio, who was licenced to do so. The Letter Agreement provides for a “Client Re-Registration Period” of no later than 180 calendar days “from Closing” for re-registration of client files from the MFDA platform to the IIROC platform.
21A number of Silveroak clients who were registered under the MFDA platform did not re-register from the MFDA platform to the IIROC platform. Most of these clients remained with Ms. Leonardelli.
22One issue in dispute is whether the provision in the Letter Agreement for adjustment to Total Consideration applies to one former client of Silveroak, Sandra Soknacki.
23Ms. Leonardelli’s evidence is that Ms. Soknacki, a Silveroak client when the Letter Agreement was made, left Silveroak as soon as she heard about the separation and went to a new financial advisor. Ms. Leonardelli’s evidence is that she remained as the servicing agent after the Letter Agreement and that Ms. Soknacki left Silveroak as a client in May 2020. Ms. Leonardelli submits that given this fact, the provision in the Letter Agreement for a post-closing adjustment of the Total Consideration in respect of Ms. Soknacki does not apply.
24Mr. Umbrio’s evidence is that Ms. Soknacki did not re-register with Silveroak and stayed with Ms. Leonardelli, at least for some period of time after the Letter Agreement was made on February 25, 2020. Mr. Umbrio submits that in these circumstances, the post closing adjustment provision in the Letter Agreement applies.
25The provision in the Letter Agreement for a post-closing adjustment to the Total Consideration requires that a client remain with Ms. Leonardelli or an entity controlled by or affiliated with her. The evidence is that Ms. Soknacki remained as a client of Silveroak until she left to become a client of another financial advisor in May 2020. Ms. Soknacki did not become a client of Ms. Leonardelli. In these circumstances, the provision in the Letter Agreement for adjustment of the Total Consideration does not apply to Ms. Soknacki.
26Ms. Leonardelli submits that the adjustment to the Total Consideration under the Letter Agreement is determined by the consideration attributable to every client who is not transferred within the “Client Re-Registration Period” and remains with Ms. Leonardelli (or an entity controlled by her). Ms. Leonardelli evidence is that the clients who remained with her produced a value under the formula in the Letter Agreement (2.5 times client month-end average values of AUM for the 12 months of 2019 multiplied by the applicable percentage on 100% of Silveroak’s business) of $206,852.
27The Letter Agreement provides that the amount of the adjustment is required to be calculated “in accordance with this Agreement”. Ms. Leonardelli submits that when the value of “A” is adjusted to account for clients who remained with her, the amount that should be deducted from the Total Consideration, using the formula in the Letter Agreement, is one-half of $206,852, or $103,426. This deduction would result in an adjusted Total Consideration of $121,724 ($225,150 - $103,426). Ms. Leonardelli submits that when this adjustment is made, the unpaid amount of Total Consideration is $34,098.88.
28Mr. Umbrio calculates the adjustment value for clients who did not re-register to the IIROC platform and stayed with Ms. Leonardelli to be almost the same amount as the amount calculated by Ms. Leonardelli, $206,962. Mr. Umbrio submits that this amount must be deducted as an adjustment to the Total Consideration under the Letter Agreement with the result that the Total Consideration is reduced to $18,188 ($225,150 - $206,962). Mr. Umbrio has paid $122,979 ($112,575 plus $10,406). He contends that he has overpaid Ms. Leonardelli by $104,791 (if it is determined that the post-closing adjustment does not apply to Ms. Soknacki).
29In support of the interpretation of the Letter Agreement that he advances, Mr. Umbrio explains that the total AUM that was the subject of the transaction amounted to $22,095,380 (not including the excluded AUM ($3,323,524)). He says that out of this amount, he notionally owned $11,047,690 (through his 50% ownership of the shares of Silveroak) and, through the transaction, he was purchasing the other $11,047,690 that was notionally owned by Ms. Leonardelli (through her ownership of 50% of the shares of Silveroak), for $225,150. Mr. Umbrio argues that instead of owning/managing $22,095,380 of AUM after closing of the Letter Agreement (through ownership of 100% of the shares of Silveroak), he, through his ownership of the shares of Silveroak, ended up with only $12,233,779 of AUM (assuming that Ms. Soknacki is not treated as a client retained by Ms. Leonardelli).
30Mr. Umbrio explains that this shows that, effectively, he purchased $1,186,089 of Silveroak’s AUM from Ms. Leonardelli and she retained $9,861,602 of Silveroak’s AUM. Mr. Umbrio contends that the Letter Agreement should not be interpreted such that the adjusted purchase price is $121,724 (as calculated by Ms. Leonardelli) because this would result in a contractual requirement for payment of more than one-half of the pre-adjusted Total Consideration in circumstances where Mr. Umbrio received only approximately 10% of the AUM that he expected to receive as a result of the transaction.
31The applicable principles of contractual interpretation are set out in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53. In Sattva, at para. 47, Rothstein J., writing for the Court, held:
… the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” [citations omitted]. To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:
No contracts are made in a vacuum: there is always a setting in which they have to be placed. … In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.
(Reardon Smith Line, at p. 574, per Lord Wilberforce)
32The Letter Agreement must be interpreted in a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity. See Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, at para. 24.
33Paragraph 3 of section 3(c) of the Letter Agreement must be read and understood in the context of the Letter Agreement as a whole and by considering the purpose of the transaction, objectively determined, having regard to the surrounding circumstances known to the parties when the Letter Agreement was made.
34At the time the Letter Agreement was made, both Mr. Umbrio and Ms. Leonardelli knew that the AUM of Silveroak comprised assets of clients registered under MFDA codes as listed in Schedule “A” to the Letter Agreement (these clients were serviced by Ms. Leonardelli) and assets of clients registered under IIROC codes as listed on Schedule “B” (these clients were serviced by Mr. Umbrio).
35The Letter Agreement provides for a period of re-registration of files from the MFDA platform to the IIROC platform. This is because Mr. Umbrio was not licenced to service the PFDA clients and, with Ms. Leonardelli’s departure, for Silveroak to retain these clients, they would need to re-register under the IIROC platform. If they did so, they could be serviced by Mr. Umbrio. The Letter Agreement does not provide for a re-registration period of files from the IIROC platform to the MFDA platform because this was not needed for these clients to be retained by Silveroak.
36Although the value of AUM for Silveroak clients who were registered under the MFDA platform and were serviced by Ms. Leonardelli exceeded the value of the AUM for Silveroak clients who were registered under the IIROC platform and were serviced by Mr. Umbrio, all of the clients were Silveroak clients and the shares of Silveroak were owned equally by Mr. Umbrio and by Ms. Leonardelli. This notional equal interest by the two shareholders in the value of the AUM for all Silveroak clients is reflected in the formula used in the Letter Agreement to calculate the Total Consideration. The formula provides that the values of AUM for all Silveroak clients who were expected to remain as Silveroak clients after the transaction are discounted by one-half to produce an amount that would reflect the value of 50% of Silveroak’s AUM. This shows that Mr. Umbrio, by purchasing Ms. Leonardelli’s 50% shares in Silveroak, was notionally acquiring her 50% interest (through her shareholdings) in Silveroak’s AUM for all clients.
37When Silveroak clients did not re-register to the IIROC platform and remain clients of Silveroak (the basis for calculation of the Total Consideration) and, instead, became clients of Ms. Leonardelli, the effect was that Ms. Leonardelli acquired 100% of the value of the AUM for these former Silveroak clients which, under the Letter Agreement, were expected to remain as clients of Silveroak. This included her notional 50% interest in these clients’ AUM (as a 50% shareholder of Silveroak) and Mr. Umbrio’s notional 50% interest in these clients’ AUM (as a 50% shareholder).
38The Letter Agreement provides for a post-closing adjustment of the Total Consideration to account for the circumstance that a client who was expected to re-register on the IIROC platform and remain a client of Silveroak, instead, “remains with [Ms. Leonardelli] or an entity controlled by or affiliated to [her]”. In such event, the consideration attributable to such client as calculated in accordance with the Letter Agreement shall be deducted from the Total Consideration.
39In circumstances where, after the Letter Agreement, a Silveroak client left Silveroak and became a client of Ms. Leonardelli, an adjustment for the consideration attributable to such client as calculated in accordance with the Letter Agreement must be based on 100% of the AUM of such departed client. This is because the adjustment must account for the 50% notional interest in the AUM of such client that Mr. Umbrio initially held and was expected to retain (and that he lost by the departure of this client) plus the 50% notional interest in the client’s AUM which, given the clear purpose of the transaction, he was to acquire from Ms. Leonardelli (and lost by the client’s departure).
40This interpretation of the post-closing adjustment provision in the Letter Agreement accords with the purpose of the Letter Agreement and is consistent with the Letter Agreement as a whole, including the provision for calculation of the Total Consideration based on 100% of the AUM for clients expected to stay with Silveroak and divided by two to reflect to amount to be paid by Mr. Umbrio in exchange for Ms. Leonardelli’s 50% notional interest in these clients AUM (through her 50% shareholdings).
41Ms. Leonardelli submits that acceptance of the approach advanced by Mr. Umbrio would lead to an absurd result because Ms. Leonardelli would be paying him to purchase her 50% interest in Silveroak. Ms. Leonardelli submits that such a position is untenable given (a) the value of AUM that Mr. Umbrio received under the transaction, (b) the fact that Mr. Umbrio receives the value of the goodwill of Silveroak which continues to carry on business a going concern, (c) Mr. Umbrio received other benefits from the transaction (funds in Silveroak’s bank accounts and the benefit of the sublease (described below)), and (d) Mr. Umbrio obtained ownership of leasehold improvements and furniture at Silveroak’s office space.
42I disagree with this submission. The Letter Agreement includes a formula, subject to post-closing adjustment, for the calculation of the Total Consideration that is based entirely on AUM values of Silveroak’s clients. This is how the parties chose to have the Total Consideration determined. In the Letter Agreement, there is no reference to a determination of the Total Consideration by attributing value to goodwill or other assets of Silveroak and allocating one-half of this value to Total Consideration. The formula shows that the assumption implicit in the pre-adjusted calculation of Total Consideration is that Silveroak will retain clients whose AUM is shown in the Schedules appended to the Letter Agreement. Where this assumption turns out to be incorrect, the Letter Agreement provides for a post-closing adjustment to Total Consideration. The application of this adjustment provision as I interpret it does not, in my view, lead to a commercially untenable outcome.
43I agree with Mr. Umbrio that the interpretation advanced by Ms. Leonardelli would lead to a commercially untenable result whereby Mr. Umbrio would be called on to pay more than one-half of the pre-adjusted Total Consideration for acquisition of Ms. Leonardelli’s shares in Silveroak (based on the formula in the Letter Agreement) in circumstances where Silveroak retained only approximately ten per cent of Ms. Leonardelli’s 50% notional interest in the clients’ AUM (held through her ownership of 50% of the shares of Silveroak).
44For these reasons, I conclude that the adjustment under the Letter Agreement, as I interpret it, to the Total Consideration for clients who leave Silveroak and become clients of Ms. Leonardelli should not be discounted by one-half of the AUM for such clients, as Ms. Leonardelli contends. The amount of the post-closing adjustment to Total Consideration is $206,962.
Issue #2 Is Ms. Leonardelli entitled to payment of one-half of the balance of Silveroak’s bank accounts on February 25, 2020?
45Ms. Leonardelli claims that she is entitled to payment of $17,150 representing one-half of the amount that, after adjustments for commissions that were not completed until July 30, 2020, remained in Silveroak’s bank accounts on the date that the transaction closed on February 25, 2020.
46In support of this claim, Ms. Leonardelli relies on section 3(b) of the Letter Agreement which provides:
(b) Year-end Cash Inflows (Commissions to February 14, 2020): The Parties confirm that certain cash flows of the Company to be paid into either the Company or to the Vendor or Purchaser in respect of total AUM (the “Pre-Closing Cashflows”) have been paid as required on January 12, January 28, respectively, with a further payment to be made on February 14, 2020. The Pre-Closing Cashflows shall be deposited into the accounts of the Company upon receipt, and once all transaction related expenses are fully paid (i.e. legal, tax, accounting etc.), any excess shall be divided equally, and any shortfall shall be shared equally, with such calculations to be completed within sixty (60) days of Closing. Each Party shall pay 50% of any costs and fees related to the preparation and filing of financial statements and tax returns for the Company up to the effective Closing Date.
47Ms. Leonardelli relies on an exchange of emails with Mr. Umbrio on February 20, 2020 in which Ms. Leonardelli wrote to Mr. Umbrio about Silveroak’s bank account. She wrote that she hopes they can agree about the bank account “without our lawyers”. Ms. Leonardelli set out a calculation of the balance of the bank account after some adjustments of $45,483.11. Mr. Umbrio responded: “That’s fine”.
48Mr. Umbrio submits that there is no basis in the Letter Agreement for Ms. Leonardelli’s claim to one-half of Silveroak’s bank account balance on February 25, 2020. His position is that section 3(b) of the Letter Agreement expressly references only three “cash inflows” into Silveroak’s account and that there is no provision stating that Silveroak’s entire bank account balance would be split between the parties effective February 20, 2020. Mr. Umbrio relies on answers given by Ms. Leonardelli on her cross-examination that the manner in which she believes Silveroak’s bank account must be split was intentionally left out of the Letter Agreement even though section 3(b) of the Letter Agreement provides for how to spilt incoming commissions/cash inflows that enter Silveroak’s bank accounts.
49Mr. Umbrio submits that the Letter Agreement does not provide for the parties to split Silveroak’s bank account beyond the three cash inflows dated January 12, 2020, January 28, 2020, and February 14, 2020 that are expressly noted in the Letter Agreement.
50Section 3(b) of the Letter Agreement plainly and unambiguously provides that any excess in Silveroak’s bank accounts after deposits of pre-closing cash flows “shall be divided equally”. I do not accept Mr. Umbrio’s submission that the division of the pre-closing cash flows is limited to three deposits on January 12, January 28, and February 14, 2020. The amount to be divided equally is “any excess” in Silveroak’s bank accounts.
51I conclude that Ms. Leonardelli is entitled to payment of $17,150 as claimed.
Issue #3 Is Ms. Leonardelli entitled to receive commissions received by Silveroak after closing on trades for clients she serviced?
52Ms. Leonardelli claims that she is entitled to credit for commissions that were earned for services she performed for these clients while they were clients of Silveroak and were paid to Silveroak after closing (where these clients remained as clients of Ms. Leonardelli) and during the re-registration period.
53Ms. Leonardelli’s evidence is that the correct amount of commissions to which she is entitled is $18,203.
54Mr. Umbrio denies that Ms. Leonardelli is entitled to payment of commissions as claimed. He relies on the second paragraph of section 3(c) of the Letter Agreement which reads:
With respect to all client files, it is agreed and understood that until such time as Purchaser and the Company shall have completed the full and final (and in fill (sic) regulatory compliance) re-registration of said files from the MFDA platform to the IIROC platform (each, a “Client Re-Registration”), Vendor shall act as servicing agent on behalf of the Company and Purchaser (and the underlying clients) without compensation.
55Mr. Umbrio submits that under this provision of the Letter Agreement, Ms. Leonardelli agreed to act as servicing agent on behalf of Silveroak and Mr. Umbrio, after execution of the Letter Agreement, without compensation, with respect to all files.
56Ms. Leonardelli submits that the purpose of this provision was to give effect to the parties’ intention and expectation that clients registered on the MFDA platform would re-register on the IIROC platform and remain as clients of Silveroak. For these clients who re-registered, Ms. Leonardelli agrees that she is not entitled to commissions and she does not claim commissions for clients who completed the re-registration process. Ms. Leonardelli submits that for clients who did not complete the re-registration process and did not remain as clients of Silveroak, but became her clients, the Letter Agreement, properly interpreted, does not provide that she is not entitled to receipt of commissions that she would otherwise have been entitled to receive.
57I agree with Ms. Leonardelli’s submissions in this respect. This provision in question of the Letter Agreement (Ms. Leonardelli acting as servicing agent without compensation) is premised on the clients registered on the MFDA platform being re-registered to the IIROC platform. Where this does not happen, the Letter Agreement does not preclude Ms. Leonardelli from receiving commission for her services. This interpretation of the second paragraph of section 3(c) of the Letter Agreement is consistent with my interpretation of the third paragraph of this provision because it reflects the objective intention of the parties based on my review of the Letter Agreement as a whole.
58I conclude that Ms. Leonardelli is entitled to payment of commissions in the amount of $18,203.
Issue #4 Is Ms. Leonardelli liable for rent under the Sublease for January and February 2020 and for payment of accelerated rent?
59The Letter Agreement includes a Sublease Agreement made as of January 1, 2020 at Schedule J (the “Sublease”) which provides for the terms in which Leonardelli Wealth Management (“LWM”) (as Subtenant) would rent space from Silveroak (as Sublandlord). Ms. Leonardelli was a guarantor of the obligations of the Subtenant under the Sublease.
60The term of the Sublease begins on January 1, 2020 and ends on June 29, 2024. The Sublease provides that the Subtenant shall provide post-dated cheques to the Sublandlord for each lease year during the term.
61Silveroak paid rent to the head landlord for January and February 2020 ($8,475). The amount of rent under the sublease is $2,825 for January and February. The amount of rent for the balance of the term of the Sublease is $27,680.22, excluding rent for January and February 2020.
62Mr. Umbrio claims that Ms. Leonardelli owes him rent for the months of January and February 2020 (prior to the date of execution of the Letter Agreement) under the Sublease and for payment of accelerated rent.
63Ms. Leonardelli notes that the term of the Sublease began on January 1, 2020 to give effect to the retroactive effective date of the transaction provided for by the Letter Agreement (the Letter Agreement was executed on February 25, 2020). When the Letter Agreement was executed, the rent under the head lease for January and February 2020 had already been paid by Silveroak during the time when Ms. Leonardelli was a 50% owner. Ms. Leonardelli’s evidence is that it was agreed that she would not have to pay additional rent under the Sublease for January and February 2020.
64Ms. Leonardelli relies on an email sent by Mr. Umbrio dated May 30, 2020 in which he wrote: “I am being more than fair by paying your portion of the shared office operating expenses for January and February (which is not stated in the agreement)”. On his cross-examination, Mr. Umbrio agreed that the shared office operating expenses include rent.
65Ms. Leonardelli’s evidence is that the first rent payment due under the Sublease was on March 1, 2020 and that this payment and subsequent payments under the Sublease have been paid.
66Mr. Umbrio denies that there was any side agreement by which he agreed that payment of rent due under the sublease for January and February 2020 was satisfied by payment by Silveroak of rents due under the head lease when both Mr. Umbrio and Ms. Leonardelli were equal shareholders of Silveroak.
67The evidence shows that in May 2020, after the Letter Agreement was entered into, Mr. Umbrio accepted that the rent for January and February under the Sublease was satisfied by payments made by Silveroak for office expenses for January and February 2020, including lease payments, before the Letter Agreement was made.
68On the evidence before me, I find that Mr. Umbrio agreed that the payments of rent that were retroactively provided for by the Sublease were satisfied by payment by Silveroak of shared office operating expenses, which included rent, for January and February 2020. Given this agreement, this claim was settled and Silveroak and Mr. Umbrio are not entitled to further payments under the Sublease including accelerated rent.
Issue #5 – Is Silveroak liable for damages for damages for breach of the Sublease?
69Pursuant to the terms of the Sublease, Ms. Leonardelli is required to pay during the term an amount equal to the square footage of the specific office(s) used by her and her proportionate share of the common areas of the premises.
70Ms. Leonardelli’s evidence is that in August 2000, she ran out of room in her office for client files and sought to place a single filing cabinet in the common space outside her office. Mr. Umbrio advised Ms. Leonardelli that she could not do so because this would be in breach of the Sublease. Ms. Leonardelli also alleges that the installation of a surveillance camera in the common areas by Mr. Umbrio is a breach of the Sublease.
71Ms. Leonardelli submits that she has been denied access to the common space for which she has paid rent of $23,828.87, and she seeks reimbursement of this amount from Mr. Umbrio. Ms. Leonardelli’s evidence is that she has had to pay for off-site storage for her files since August 2020 at a cost of $350 per month which, as of May 30, 2022, totalled $5,250 for which she seeks reimbursement.
72Mr. Umbrio denies that Ms. Leonardelli has a right under the Sublease to place a filing cabinet in the common areas of the premises. He denies that Silveroak is liable for damages for breach of the Sublease.
73In London Prestige Ltd. v. Wellington Harlech Centre Inc., 2019 ONSC 2364, the trial judge, at para. 31, held that a landlord’s covenant to provide quiet enjoyment, whether express or implied in lease, means that a landlord must not substantially interfere with its tenant’s enjoyment of the premises. To be actionable, a landlord’s interference must be grave and permanent such that it renders the premises substantially less fit for the purposes for which it was leased.
74I am not satisfied that Silveroak, as sublandlord, breached the Sublease by refusing to permit Ms. Leonardelli to put a filing cabinet in the common areas. The evidence does not show that this substantially interfered with Ms. Leonardelli’s enjoyment of the subleased premises and the refusal did not render the premises substantially less fit for the purposes for which they were subleased. In any case, Ms. Leonardelli has failed to show that she should be reimbursed for the entire amount of rent allocated to the common areas, and she has not shown that she was denied access to the common areas. I am not satisfied that the installation of the surveillance cameras is a breach of the sublease.
75I conclude that Silveroak is not liable for breach of the sublease.
Disposition
76For these reasons:
a. Ms. Leonardelli is ordered to pay to Mr. Umbrio the amount of $104,609 (representing reimbursement of the amount that Mr. Umbrio overpaid towards the adjusted Total Consideration under the Letter Agreement). b. Mr. Umbrio is ordered to pay to Ms. Leonardelli the amount of $17,150 representing the one-half of the excess cash in the Silveroak bank accounts on February 25, 2020. c. Mr. Umbrio is ordered to pay to Ms. Leonardelli the amount of $18,203 representing unpaid commissions. d. The other claims made by the parties are dismissed.
77If the parties are unable to resolve costs, they may make written submission (not longer than three pages, excluding costs outlines) within 20 days. Each side may make written responding submissions (not longer than 2 pages) within 10 days thereafter.
Cavanagh J.
Date: April 4, 2023