Court File and Parties

COURT FILE NO.: CV-21-00667273-0000 DATE: 20230623 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

QUANTRIX PLASTICS INC. Plaintiff – and – 2818881 ONTARIO INC. Defendant

COUNSEL: Syed Abid Hussain and Saba Viraney, for the Plaintiff/Responding Party Demetrios Yiokaris and Leona Kung for the Defendant/Moving Party

HEARD: OCTOBER 04, 2022

Vella J.

Reasons for Decision

[1] This motion for partial summary judgment arises out of a commercial landlord and tenant dispute, in which the Defendant (successor) landlord relied on a change of ownership clause to terminate the lease with the Plaintiff tenant prior to the expiry of its fixed term.

[2] The Defendant landlord, 2818881 Ontario Inc. (the “Landlord” or “281 Ont.”), seeks, inter alia, an order declaring the lease terminated in accordance with the Change of Ownership clause, and that, after the date of termination, Quantrix Plastics Inc. (the “Tenant” or “Quantrix”) has to pay rent on a month-to-month basis at twice the base rent, pursuant to the Overholding clause. In addition, the Landlord seeks rent arrears, a mandatory order requiring the Tenant to vacate the leased premises immediately, and an order granting leave to issue a Writ of Possession in its favour.

[3] The Tenant responds that the Change of Ownership clause is unenforceable as it is vague and ambiguous and reflected an agreement to agree. In the alternative, the clause is unenforceable under the doctrine of unconscionability because of misrepresentations it alleges were made by the prior landlord inducing it to sign the Lease, without properly examining the Lease.

[4] The Tenant also alleges that the Notice of Termination and to Vacate is deficient because it does not comply with s. 19(2) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7 (“CTA”) as it does not specify the alleged breach of Lease. The Tenant further alleges that, in any event, the Landlord has waived reliance on the Change of Ownership clause and created a new month to month tenancy reflecting the terms of the Lease by having accepted base rent after issuing the Notice of Termination and Eviction. In its action, the Tenant seeks, inter alia, a declaration that the Lease is in full force and effect, an order that the Notice of Termination and the Change of Ownership clause are of no force and effect and seeks damages for interference with its quiet enjoyment of the Leased Premises by virtue of construction that occurred. [1]

[5] For the reasons that follow, the Landlord’s motion is granted.

Background and Lease History – Undisputed Facts

[6] The Landlord is the current owner of 490 McGeachie Drive, Milton, Ontario (the “Property”).

[7] The Tenant is a manufacturer of plastic bottles used for hand sanitization and industrial and household chemicals. It is a family-owned business with 20 to 25 employees. In 2019, it entered into a fixed term, five-year lease (with an option to renew for a further five years) with 24818881 Ontario Inc. (the “Prior Landlord” or “248 Ont.”) to rent commercial warehousing space and a trucking terminal (the “2019 Lease”). The Tenant invested substantial capital to buy equipment and ready the space for its manufacturing business.

[8] In 2020, the Tenant wished to increase its existing leased warehousing space by renting an additional warehouse (collectively, the “Leased Premises”) and approached the Prior Landlord. The additional warehouse space was needed as the COVID-19 pandemic created an increase in demand for Quantrix’s products. The Tenant entered into a Lease Amendment Agreement, dated September 1, 2020 which set out all of the terms of the tenancy agreement (the “Lease”) with the Prior Landlord. However, during the pandemic, the Tenant had fallen into rent arrears of approximately $70,000. The arrears were reduced to approximately $59,000 under the Lease. The Lease also introduced some new terms that were different from the 2019 Lease and are at the heart of this dispute. The material new terms are a change of ownership clause and a revised overholding clause increasing the overholding rent from one and a half times the base rent to two times the base rent. After signing the Lease, the Tenant invested further capital to expand its operations, including new equipment.

[9] The Tenant provided the Prior Landlord with postdated rent cheques through to December 2021 for the base rent and further postdated cheques to pay off the arrears.

[10] In or around 2020, the Prior Landlord was investigating selling the Property to 281 Ont. Inc. Important to the proposed sale transaction was the Prior Landlord’s ability to secure an estoppel certificate from Quantrix, confirming the terms of the Lease, amongst other things.

[11] Quantrix signed an Estoppel Certificate in favour of the Prior Landlord and the Landlord, 281 Ont., on April 24, 2021. Pursuant to the Estoppel Certificate, Quantrix acknowledged the Lease to be validly executed, in full force and effect, and that it was the entire agreement between the Prior Landlord and itself. Quantrix also acknowledged that there were no existing disputes between it and the Prior Landlord. The Estoppel Certificate identified 281 Ont. as the “Purchaser” and 248 Ont. as the “Vendor” and referenced the sale of the Property in the title of the document. Quantrix was aware of the pending sale to 281 Ont. Inc. prior to signing the Estoppel Certificate and knew that 281 Ont. would be relying on it.

[12] The Property was sold by the Prior Landlord to 281 Ont. and was transferred on May 3, 2021. Quantrix admits that it received notice of this sale in April 2021 from the Prior Landlord.

[13] The Prior Landlord asked Quantrix to insert the new Landlord’s name on to the postdated base rent cheques. The Prior Landlord delivered those cheques to the Landlord, and the Landlord has deposited them.

[14] On May 31, 2021, 281 Ont. delivered a notice of termination to Quantrix, requiring Quantrix to vacate the premises by July 31, 2021. Quantrix did not vacate and continues to be in possession of the Leased Premises as at the date of the hearing.

[15] On August 17, 2021 Quantrix issued a statement of claim against 281 Ont. 281 Ont. filed a statement of defence and counterclaim. In its statement of claim, Quantrix seeks declaratory relief and damages for parking lot construction related work conducted by 281 Ont. that it says was designed to intimidate Quantrix and interfere with it’s quiet enjoyment after it received the Notice of Termination and advised 281 Ont. it had no intention of vacating.

[16] 281 Ont., as Landlord, moves under r. 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for a partial summary judgment on the action and its counterclaim. It also relies on s. 74(1), (2) and 76(2) of the Commercial Tenancies Act, which requires a court to hear the matter in relation to an allegedly overholding tenant in a “summary manner” and vests jurisdiction in the court to issue a Writ of Possession. [2]

Issues

[17] The issues for determination are:

i. Is the Change of Ownership clause void as being unconscionable? ii. Is the Change of Ownership clause void for uncertainty? iii. Did 281 Ont. breach a duty of honest performance of the Lease? iv. Is the Notice of Termination and to Vacate in Violation of the Commercial Tenancies Act? v. Has 281 Ont. waived its right to enforce the termination of the Lease and gain vacant possession by accepting base rent and taxes, maintenance and insurance (“TMI”) subsequent to the date at which it had the right to claim vacant possession? vi. What is the amount of rent owing from the date of termination? vii. Should a declaration and writ of possession be issued requiring Quantrix to vacate the Leased Premises?

Analysis

Legal Principles

[18] I have determined that there is no genuine issue requiring a trial, as I am able to reach a fair and just determination on the merits of this motion, and that it is not preferable that the fact-finding powers under rr. 20.04(2.1) and (2.2) be exercised at trial (Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87; r. 20.04(2)(a)).

[19] Furthermore, this matter is suitable for partial summary judgment because the issues I am deciding are severable from the balance of the action and will achieve the objectives set out in Malik v. Attia, 2020 ONCA 787, at para. 62. Specifically, partial summary judgment will prove cheaper for the parties because all that will be left is a determination as to whether the Landlord’s conduct after termination of the Lease results in liability and damages to the Tenant. The factual determinations I have made relate to conduct leading up to and at the date of delivery of the Lease, and the calculation of rent owed thereafter. There is no risk of inconsistent decisions since the provisions of the Lease I have interpreted are not material to a determination of whether the Landlord is liable for conduct during the notice period under a different provision of the Lease. The issues of contractual interpretation in this motion (specifically the enforceability of the Change of Ownership clause) are severable from the balance of the action. The partial summary judgment will result in the remaining action being dealt with more quickly since examinations for discovery will be much shorter and my decision does not preclude the Tenant from bringing its own motion for summary judgment on the balance of its action, should it so decide.

Contractual Interpretation Principles – Applicable to Leases

[20] The rules of interpretation for leases are the same as for other contracts. The court’s task is to determine the objective mutual intention of the parties when they entered into the lease, as reflected by the “ordinary meaning” of the words used in the material provisions, read within the context of the lease as a whole. The court will apply an objective standard to determine what the landlord and tenant reasonably intended, by the words they chose, as at the time of entry into the contract. (Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633).

[21] Furthermore, extrinsic evidence will only be admissible in the contractual interpretation exercise if the leasehold provision in question is reasonably capable of two or more interpretations and thus found to be ambiguous. However, the court will not create an ambiguity where none exists. Furthermore, the parties’ subjective beliefs are irrelevant to this exercise (Sattva, at para. 59).

[22] However, evidence of surrounding circumstances can be considered if they were reasonably known to both parties at the time of the formation of the lease, and to the extent that such circumstances can, reasonably, affect how the landlord and tenant understood the words of the lease (Sattva, at para. 58). That said evidence of surrounding circumstances will not “change or overrule the meaning of [the] words” used in the lease (Sattva, at para. 60).

The Lease

[23] By Lease Amending Agreement dated September 1, 2020, 248 Ont. as landlord, and Quantrix, as tenant, entered into a fixed term lease that succeeded the 2019 Lease. The term of the Lease was from April 1, 2019 for five years, with an option to renew for a further 5 years (clause 5).

[24] The Lease contained a change of ownership clause providing for the early termination of the Lease by the Landlord. The clause was not in the 2019 Lease. It also contained an overholding clause that is different in terms of the quantum of overholding rent from that in the 2019 Lease. These clauses are at the heart of this dispute:

Overholding clause

15. If the Tenant continues to occupy the Premises without the written consent of the Landlord after the expiration or other termination of the term, then, without any further written agreement, the Tenant will be a month-to-month tenant at a minimum monthly rental equal to twice the Base Rent and subject always to all of the other provisions of the Lease insofar as the same are applicable to a month-to-month tenancy and a tenancy from year to year will not be created by implication of law.

Change of Ownership clause

18. If and when the ownership and/or landlord changes for 2488851 Ontario Inc. via sale or the building and or share buyout, a new lease agreement would have to be negotiated with the new ownership and/or the landlord and this lease would be terminated, null & void.” (emphasis added)

[25] The Lease also has a standard no-waiver clause, that only applies, by its terms, to breaches of the Lease by the Tenant.

[26] In addition, the Lease provides, at clause 16, additional rights of re-entry to the Landlord. Clause 24 is a standard severability clause. Clause 31 requires the Tenant to quit and surrender the premises in good condition “at the expiration of the lease term”.

[27] Under the General Provisions section of the Lease, the Tenant was provided with an opportunity to have a legal representative review the Lease (clause 33).

[28] There is no dispute that the Prior Landlord and Quantrix duly executed the Lease and there is no allegation by Quantrix that it signed the Lease under duress.

The Estoppel Certificate

[29] According to Quantrix, in April of 2021, the Prior Landlord told it that the Property had been sold. The Prior Landlord brought an Estoppel Certificate and asked Mr. Kash Dharni (a principal of Quantrix) to sign it in advance of closing of the sale to the current Landlord, 281 Ont. Mr. Dharni is the patriarch of the Quantrix family-owned business.

[30] The Estoppel Certificate provides, in material part, that:

(a) The Lease is attached, and the Tenant confirms that the Lease has been validly executed and delivered (clause 1) [3]; (b) The Lease is unamended, in full force and effect and “contains the entire agreement between the Landlord” and the Tenant, and that “there are no other agreements or understandings between the undersigned [Tenant] and the Landlord relating to the Premises” (clause 2); (c) The Tenant has “not exercised any options or rights to renew, extend, amend, modify, or change the term of the Lease except as disclosed by the copy of the Lease attached” (clause 15); and (d) The Tenant confirms and acknowledges that the statements in the Estoppel Certificate “are true and accurate” and acknowledges they will be relied upon by the Vendor (248 Ont.) and the Purchaser (281 Ont.) (clause 17).

[31] It is clear on the face of this document and by Quantrix’s own admission, that, at the time of signing it, Quantrix knew of the pending sale of the Property, including the Leased Premises, by the Prior Landlord, 248 Ont., to the Landlord, 281 Ont. It is also clear that it knew that the representations contained in it would be relied upon by 281 Ont. This was also an opportunity for Quantrix to raise any concerns it may have had with the Lease, and in particular the Change of Ownership clause. However, Quantrix wasted this opportunity by deciding not to review either the Estoppel Certificate or the Lease in their entirety, and not having the Estoppel Certificate reviewed by a lawyer when it could have.

The Notice of Termination and To Vacate

[32] It is undisputed that the purchase and sale of the Property was completed on May 3, 2021.

[33] On May 31, 2021, after some discussions about Quantrix’s future as a tenant, 281 Ont. delivered a notice of termination of tenancy – notice to vacate (the “Notice”). The Notice reads, in part, “I hereby serve you with a notice to end the tenancy, hereby vacate the rental premises and hand over the possession of the premise to 2818881 Ontario Inc. on or before July 31, 2021.” The Notice also references the Lease, Estoppel Certificate, fact of the sale having been completed on May 3, 2021 and that Quantrix has been occupying the premises pursuant to the Lease, and an assertion by the Landlord of its right to possession and an intention to take possession. The Notice concludes that “In the event you wish to continue the lease agreement then as per section 18 of the lease agreement [the Change of Ownership clause] the new lease agreement would have to be negotiated with the new ownership and/or the landlord and this lease would be terminated, null & void.” It is signed on behalf of 281 Ont. by Pargat Singh Brar as President.

[34] There is no dispute that this Notice was received by Quantrix on May 31, 2021.

Events Around and Following Delivery of Notice of Termination

[35] Over the long weekend of May 22, 2021, 281 Ont., apparently without notice to Quantrix, dug up an area in the parking lot of the Property, replaced the existing fence around the Property, and locked the main entrance to the Property. It also removed the business sign and mailbox of Quantrix. However, there was another entrance for Quantrix to access the Leased Premises which it used.

[36] There is a dispute over how long this construction work lasted: either over the weekend or a few days. However, the length and fact of the construction is not material to the issue of whether or not the Change of Ownership clause under the Lease and the Notice are enforceable. This dispute will be the subject of ongoing litigation.

[37] Of relevance to the issues in this motion, Quantrix did not assert in writing that the Change of Ownership clause had been surreptitiously inserted by the Prior Landlord until it issued its Statement of Claim. To the contrary, in its letter dated June 1, 2021, in response to receiving the Notice relying on the Change of Ownership clause, Quantrix wrote that it was its understanding, after consulting with counsel, that “the change of ownership does not terminate my lease”. In a letter dated June 8, 2021, Quantrix’s lawyer wrote that 281 Ont.’s depositing of postdated cheques for the Base Rent gave Quantrix the right to stay in the Leased Premises until December 2021. He then stated that Quantrix “is ready to negotiate the new lease as required by Clause 18” (the Change of Ownership clause) thereby seemingly affirming that this clause is valid and enforceable. Then by letter dated June 11, 2021, Quantrix’s lawyer wrote, in part, that the Change of Ownership clause was drafted negligently. Nowhere in this course of correspondence did Quantrix, or its lawyer, allege that it was induced to sign the Lease by any alleged misrepresentations by the Prior Landlord.

[38] The thrust of Quantrix’s contention is that as 281 Ont. deposited the postdated Base Rent cheques from May to December 31, 2021, 281 Ont. affirmed the Lease is in place at least to that date, under the same terms including the amount of rent owing. However, Quantrix’s correspondence expressly relies on the validity of the Overholding clause as requiring the parties to attempt to negotiate a new tenancy agreement. Indeed, in the letter dated June 11, 2021, the lawyer for Quantrix states that Quantrix “would like to have a 6 month period without prejudice to relocate”.

[39] In response to this line of correspondence, 281 Ont.’s lawyers sent correspondence emphasizing that 1) the Lease has been terminated pursuant to the Change of Ownership clause, 2) 281 Ont. was going to deposit these cheques without prejudice to its position that the Lease was terminated, and 3) it was entitled to double the Base Rent under the Overholding clause in the interim. 281 Ont. continuously demanded that Quantrix vacate, and was required to have vacated, the Leased Premises by July 31, 2021.

[40] By letter dated August 6, 2021, 281 Ont.’s lawyer wrote that Quantrix has still not vacated the Leased Premises, and that “any steps taken by the writer or our clients is not meant to be a waiver of termination, nor is it meant to waive our client’s rights to immediately and without further notice change the locks, nor is it meant to waive any other rights or remedies in the lease”. By this time litigation was being contemplated.

[41] As stated, the action was commenced August 17, 2021 by Quantrix.

[42] Then by letter dated August 20, 2021, 281 Ont.’s lawyer wrote, in response to receiving the statement of claim, that the Landlord would be depositing the postdated Base Rent cheques without prejudice to its rights “to seek full payment of the overhold rent” and “without prejudice to the position that the lease was validly terminated and/or that your client is required to leave the premises”. It also disclaims that any conduct by 281 Ont. be construed as creating a new tenancy or permission to stay and reiterates that it is relying on the Change of Ownership clause and the Notice of Termination.

[43] There is no suggestion that 281 Ont. provided written consent to Quantrix allowing it to stay in the Leased Premises after the Notice expired or that the parties entered into a new written tenancy agreement. This fact was conceded by Mr. Dharni in cross examination.

Issue 1: Is the Change of Ownership Clause Void under the Doctrine of Unconscionability?

[44] As stated, Quantrix alleges that the Prior Landlord “surreptitiously” inserted the Change of Ownership clause into the Lease without drawing its attention to this change. Quantrix claims that it was induced into signing the Lease by the Prior Landlord’s alleged representations that there were no changes to the Lease from the Prior Lease save for the rental and arrears provisions. Therefore, the Change of Ownership clause is unconscionable and ought not to be enforced. In oral submissions, Quantrix added that the Overholding clause should also be severed from the Lease because the change in the amount of overholding rent was not drawn to its attention (from one-and-one-half times the Base Rent to double the Base Rent).

[45] In affidavit evidence adduced by 281 Ont. from representatives of the Prior Landlord who have direct knowledge, any such alleged misrepresentations are denied.

[46] The evidence on behalf of the representatives of the Prior Landlord is that before signing the Lease, Mr. Dharni specifically requested that the Change of Ownership Clause be removed. Mr. Dharni denies this and said the first time he became aware of this clause was when the Landlord purported to rely on it.

[47] On the other hand, Mr. Dharni admitted under cross examination that he did not take the time to review the entire Lease and chose not to have it reviewed by a lawyer before signing the Lease on behalf of Quantrix.

[48] Mr. Dharni also admitted on cross examination that he did not take the opportunity to review the Estoppel Certificate with a lawyer, nor does he recall whether or not he reviewed the Estoppel Certificate in its entirety. He added that even if he had read the entire Certificate, he would not likely have understood it. He admitted that he “did not bother asking” the Landlord any questions about the Estoppel Certificate before he signed it on behalf of Quantrix. The inference is that he did not appreciate that there was an entire agreement clause or that in confirming the terms of the Lease and denying there were any disputes, he was confirming the validity of the Change of Ownership clause and denying that Quantrix relied on any representations not reflected in the Lease.

[49] It is undisputed that the number of pages of the 2019 Lease is different from the Lease, suggesting that there were additional changes to the Lease other than the handwritten insertions of Base Rent and rent arrears figures.

[50] Quantrix submits that the alleged misrepresentations meet the test for unconscionability set out in Titus v. William F. Cooke Enterprises Inc., 2007 ONCA 573, at para. 38 and Phoenix Interactive Design Inc. v. Alterinvest II Fund L.P., 2018 ONCA 98, 420 D.L.R. (4th) 335, at para. 18:

(a) A grossly unfair and improvident transaction; (b) A victim’s lack of independent legal advice or other suitable advice; (c) An overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and (d) The other party’s knowingly taking advantage of this vulnerability.

[51] The evidence falls far short of establishing any of these factors and fails to raise a genuine issue for trial. The Change of Ownership clause does not reflect a “grossly unfair and improvident transaction”. It is a common leasehold clause in commercial tenancies.

[52] There was no “overwhelming imbalance of bargaining power” caused by any of the above listed factors, nor was there any evidence to support that submission. The bargaining power reflected in this commercial landlord and tenant relationship was typical. However, this power imbalance does not meet the bar for unconscionability. Quantrix was in arrears of rent under the 2019 Lease when the new Lease was negotiated. Therefore, the Prior Landlord was in a strong bargaining position. The ability of a landlord to assert a lawful contractual right (such as exercising a right to terminate for rental arrears) in the context of a negotiation does not constitute an “overwhelming imbalance of bargaining power” within the meaning of the doctrine of unconscionability. It means that Quantrix was in a poor bargaining position if it wanted to remain a tenant and acquire a further warehouse. Furthermore, the fact that Quantrix was able to negotiate a reduction in the arrears of rent belies its assertion.

[53] In any event, Quantrix did not suggest that the Prior Landlord abused its bargaining position to force it to sign a lease with the addition of the change of ownership clause (and the revised overholding rent figure). Indeed, Quantrix claims it was unaware of the existence of this clause when it signed the Lease.

[54] It appears that Quantrix’s reliance on the doctrine of unconscionability is misguided in this matter. In any event, this is not a genuine issue requiring a trial.

[55] There is an obligation on the parties to a contract to read the contract in its entirety and to seek legal advice where deemed appropriate. The fact that Quantrix decided it did not need to read the Lease in its entirety, and further chose not to consult with a lawyer before executing the Lease or the Estoppel Certificate does not permit Quantrix to take the position now that it would not have signed the Lease had it known about the Change of Ownership clause, in the circumstances of this case. This remains true notwithstanding its position that it did not read the Lease based on alleged misrepresentations by the Prior Landlord that there were no other changes from the 2019 Lease. Its “ignorance” resulting from its own decision not to read the Lease in its entirety or seek legal advice when afforded the opportunity does not excuse Quantrix from discharging its contractual obligations owed to 281 Ont. under the Lease or claiming now that it did not appreciate the impact of the (new) provision.

[56] As stated by the Supreme Court of Canada, in Marvco Colour Research Ltd. v. Harris, [1982] 2 S.C.R. 774, at p. 779, “any person who fails to exercise reasonable care in signing a document is precluded from relying on the plea of non est factum.” [4] The Supreme Court also added that “the application of the principle that carelessness will disentitle a party to the document of the right to disown the document in law must depend upon the circumstances of each case” (at p. 787).

[57] There are relevant circumstances in this case to assist in the application of this principle. First, there is no suggestion that the Prior Landlord pressured Quantrix to sign the Lease without taking the opportunity to read it in full. Second, there is no suggestion that the Prior Landlord prevented Quantrix from seeking legal advice. Third, Quantrix subsequently signed the Estoppel Certificate knowing that 281 Ont. would be relying on its written representations concerning the validity of the Lease. In addition, the Estoppel Certificate contained an entire agreement clause in which Quantrix represents, inter alia, that there are no representations relating to the Lease other than what is written in the Lease. Again, Quantrix did not seek legal counsel when it had an opportunity, and Mr. Dharni, the signing officer of Quantrix, testified that he could not remember whether he read the entire Estoppel Certificate or not. In the circumstances of this case, Quantrix cannot rely on its own carelessness, which it committed twice in terms of the Lease and then the Estoppel Certificate, to escape its obligations under the Lease.

[58] In light of the entire agreement clause, which I find to be binding and enforceable, I need not resolve the issue of credibility relating to Quantrix’s allegations that it was induced to sign the Lease (but not the Estoppel Certificate) by misrepresentations made by the Prior Landlord.

[59] Accordingly, there is no genuine issue requiring a trial with respect to Quantrix’s contention that the Change of Ownership clause is void as unconscionable.

[60] I observe that Quantrix has not added the Prior Landlord as a party to its action or as a third party to the Counterclaim issued by 281 Ont. Quantrix offered no authority and did not advance the position that 281 Ont. is bound to any alleged misrepresentations made by the Prior Landlord and did not advance that submission before me. It was 281 Ont. that tendered affidavit evidence from representatives of the Prior Landlord, and they were cross examined by Quantrix. Rather Quantrix’s position is that due to the alleged misrepresentation, the subject provisions on the Lease are unenforceable as being unconscionable. I reject this position for the above reasons.

[61] However, in making this finding, I am not deciding whether or not the Prior Landlord, in fact, made any misrepresentations.

Issue 2: Is the Change of Ownership Clause Vague or Ambiguous?

[62] The Change of Ownership clause is not ambiguous or vague when read in the context of the Lease, with particular reference to the Overholding clause. Quantrix’s proposed interpretation, that upon change of ownership the Lease continues unless and until a new lease is negotiated at which time the Lease then terminates, is not a commercially viable interpretation since this would render the Change of Ownership clause meaningless.

[63] Under Quantrix’s proposed interpretation, if a tenant does not wish to negotiate a new lease, then the new owner has no remedy and is stuck with the lease. Quantrix’s interpretation would lead to a situation in which the tenant can unilaterally decide to stay in the leased premises, in the face of a change of ownership clause and overholding clause. This type of scenario was rejected in AIM Health Group v. 40 Finchgate, 2012 ONCA 795, 113 O.R. (3d) 187 (albeit in the context of an overholding clause). Rather, the only commercially reasonable interpretation of this clause is that upon a change of ownership or landlord, the lease terminates, and a new lease agreement must be negotiated with the new ownership/landlord in order for the tenant to remain in possession. This interpretation makes commercial sense and promotes harmony in the context of the Lease as a whole with particular reference to the Overholding clause that provides for the scenario in which the Lease has been terminated by the landlord but the tenant remains in possession without the landlord’s written agreement.

[64] Put another way, “if and when the ownership…changes…a new lease agreement would have to be negotiated… and this lease would be terminated” (underlining added for emphaisis). In this sentence, the word “and” means that two distinct events follow the change in ownership (the triggering event): a new lease has to be negotiated and the lease is terminated. While this phrase could perhaps have been better worded, this is the only feasible interpretation since if the lease was only terminated upon negotiation of the new lease, as opposed to on sale of the Property, the termination phrase is again rendered meaningless. Therefore, upon sale of the Property, two events occur under this clause. First, the Lease is terminated, and second the Tenant must give vacant possession unless a new lease agreement is negotiated.

[65] As this clause is not ambiguous when read in the context of the Lease as a whole, I need not resort to extrinsic evidence to determine the objective mutual intentions of Quantrix and the Prior Landlord when they entered into the Lease.

[66] Quantrix submits that the Change of Ownership is really an agreement to agree and therefore is not enforceable (Cedar Group Inc. v. Stelco Inc., [1995] O.J. No. 3998). It notes that the clause states that “a new lease agreement would have to be negotiated with the new ownership”. It relies on the Merriam-Webster.com Dictionary meaning of “would-be” as “desiring, intending, professing, or having the potential to be a ‘would-be actor’”.

[67] I do not agree that the Change of Ownership clause is an agreement to agree. The clause clearly states that upon a sale of the Property, a new lease agreement “would have to be” negotiated and “this lease would be terminated”. “Would be” is not being used as an adjective. Rather, when read together with the Overholding clause, it means that the sale is an event that terminates the Lease. There is no reference to a “would-be lease” as suggested by Quantrix. Then, under the Overholding clause, if Quantrix continues to occupy the Leased Premises, without the written consent of 281 Ont., Quantrix becomes a month-to-month tenant at double the Base Rent and on the same terms (other than the base rent) as reflected by the Lease. The Lease is terminated, but the relevant terms from it apply to the month-to-month tenancy under the Overholding clause.

Issue 3: Duty of Good Faith and Honest Performance of the Lease

[68] In the alternative, Quantrix submits that 281 Ont. was obliged to enter into negotiations to establish a new tenancy under the Change of Ownership clause in good faith. It reasons that 281 Ont. acted in bad faith because it had already determined it would terminate the Lease and wanted vacant possession through the Change of Ownership clause with a view to being able to either occupy it for its own use, or secure a new tenant at much higher rents. Quantrix admits that 281 Ont. offered to consider a new lease agreement with rent increased to double the Base Rent (i.e., the equivalent of the Overholding rent) but Quantrix rejected this as unreasonable and took the position, in any event, it was entitled to remain at the Base Rent established by the Lease unless and until a new tenancy agreement was reached.

[69] Quantrix relies on C.M. Callow Inc., v. Zollinger, 2020 SCC 45, 452 D.L.R. (4th) 44, and Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, 454 D.L.R. (4th) 1.

[70] I accept the general proposition that there is a duty on parties to a contract to negotiate in good faith and for the honest performance of a contract. However, I am not persuaded by Quantrix’s argument. The Lease did not require 281 Ont. or Quantrix to attempt to negotiate a new tenancy upon sale of the Property. It provides that in order for Quantrix to remain as a tenant, a new lease agreement must be negotiated. Furthermore, the Lease was terminated upon the sale of the Property under the Change of Ownership clause. This event did not give rise to a breach of good faith or of honest performance of the Lease. Similarly, this clause, does not impose upon 281 Ont. (or Quantrix for that matter) a contractual obligation to enter into negotiations. There is also no suggestion that the sale of the Property was not genuine, unlawful, or done for an improper purpose. No genuine issue requiring a trial is raised by this argument.

Issue 4: Is the Notice of Termination in violation of the Commercial Tenancies Act?

[71] Quantrix submits that the Notice of Termination and To Vacate was invalid as it does not comply with s. 19(2) of the Commercial Tenancies Act. This section provides that a notice of termination for breach of a lease must specify the breach and give an opportunity to the tenant to remedy it. As the Notice to Termination does not specify a breach, therefore, Quantrix says it was invalid.

[72] It is not disputed that the Notice of Termination given to Quantrix fails to specify any breach of the Lease, much less an opportunity to remedy it. However, Quantrix’s reliance on s. 19(2) of the CTA is misguided. Section 19 applies to “a right of re-entry…under any proviso or stipulation in a lease for a breach of any covenant or condition in the lease”. 281 Ont. is not relying on any alleged breach of the Lease as the basis for termination. It is relying on the Change of Ownership provision as the basis for termination. It is a faultless basis of termination and cannot be remedied by the Tenant. [5]

[73] Section 74(1) of the CTA states that in the case of overholding tenants, where the right of occupation has been determined by a notice to quit or notice pursuant to a proviso in a lease, or has been determined by any other act whereby a tenancy may be determined or put an end to, the landlord may “apply upon affidavit to a judge of the Superior Court of Justice to make the inquiry hereinafter provided for…”. Therefore, the court must look at the Lease to see what notice of termination, if any, is requires under the Change of Ownership clause.

[74] The Lease does not set out that a notice of termination and/or to vacate must be provided under the Change of Ownership clause. However, under s. 28 of the CTA, a minimum of one month’s notice to quit or vacate must be given to terminate a monthly tenancy. As 281 Ont. provided a written notice of termination providing 60 days’ notice to vacate what became a month-to-month tenancy after the sale of the Property, citing the provision of the Lease it was relying on as the ground for termination, the date of the sale and the date that vacant possession was required 281 Ont. met the notice requirements and the Notice is valid and enforceable.

Issue 5: Defence of Waiver

[75] Quantrix asserts that, by depositing its postdated monthly rent cheques in the amount of the Base Rent and the TMI due under the Lease from May through to December 2021, 281 Ont. waived reliance on the Change of Ownership clause and the Overholding clause and created a month-to-month tenancy on the same terms as reflected in the Lease. It relies on Malva Enterprises Inc. v. Rosgate Holdings Ltd. (1993), 14 O.R. (3d) 481 (C.A.).

[76] In Malva Enterprises Inc., the Court of Appeal examined the doctrine of waiver in a landlord and tenant context. In order to establish waiver, the landlord must know of a default by the tenant, be faced with competing options of affirming the tenancy or enforcing the forfeiture, and then act “in a manner which is consistent only with his having chosen to rely on one of them” and in a way that “recognizes the relationship of the landlord and tenant as still continuing”. Malva Enterprises Inc. was a forfeiture case where the landlord’s right to terminate was based on a breach of the lease by the tenant. This is not the situation at bar.

[77] In Re Imperial Oil Ltd. & Robertson, [1959] O.R. 655, the Supreme Court of Canada made a distinction concerning the legal effect of a landlord accepting rent between cases of forfeiture and those where the tenancy had come to an end. At para. 8, the Court held,

In my opinion there is a fundamental difference between the acceptance of rent after the landlord’s knowledge of his right to forfeit and the acceptance of the money equivalent of rent after the lease has come to an end. In the first case the authorities are uniform in holding that acceptance by the landlord, even with conditions or qualifications, is a waiver of the right to forfeit. By acceptance he is deemed unequivocally to have recognized the continuance of the existing lease. In contrast, where the lease has expired either by its terms, as in the present case, or by operation of a valid notice to quit, the payment and receipt thereafter of money for rent is “evidence to be left to a jury that a tenancy is subsisting” …But, when a lease has terminated either by its terms or by the operation of a valid notice to quit, the tenancy is at an end and if the tenant is thereafter to retain possession he must show that there was a new tenancy.

[78] In this case, the Lease came to an end by virtue of the Change of Ownership clause. Accordingly, the onus is on Quantrix to show that a new tenancy was created. Quantrix must show that there is a genuine issue requiring a trial regarding whether there was a mutual intention on the part of both parties to create a new tenancy (Imperial Oil, at paras. 8 and 10).

[79] Quantrix relies merely on the acceptance of Base Rent by 281 Ont. from May 2021 to December 2021. Throughout the period from May 2021 to December 2021, 281 Ont. made it clear to Quantrix that it rejected its position that it had a right to stay in the Leased Premises under the Lease and had to negotiate a new lease agreement in order to remain. Quantrix repeatedly rejected this position and continued paying the Base Rent. Later, when 281 Ont. deposited the Base Rent postdated cheques after Quantrix failed to vacate the Leased Premises on July 31, 2021, 281 Ont. stated, in writing, that it was accepting the rent on a without prejudice basis to its position that it was entitled to double the Base Rent under the Overholding clause and that such acceptance did not create a new tenancy. 281 Ont. also repeated that Quantrix was required to vacate the Leased Premises pursuant to the Notice. Quantrix does not dispute receiving the correspondence nor did it adduce any evidence, other than the receipt of rent by 281 Ont., suggesting that it had a new lease or tenancy agreement to rebut 281 Ont.’s evidence.

[80] Again, 281 Ont. does not rely on an alleged breach of the Lease to terminate it before the expiry of its fixed term. The Lease’s term was brought to an end based on the Change of Ownership clause. The mere acceptance of rent to establish that these parties intended to create a new tenancy is insufficient to give rise to a genuine issue requiring a trial in the face of the strong and unequivocal undisputed evidence of 281 Ont. to the contrary. There was no forfeiture of the Lease, and therefore no option to waive the forfeiture as was the case in Malva Enterprises Inc.

[81] The evidentiary record does not give rise to a genuine issue requiring trial. There was no mutual intention to continue the Lease or create a new tenancy on the same terms as the terminated Lease based on 281 Ont.’s deposit of the postdated cheques through December 2021.

Issue 6: What is the amount of rent owing from the date of termination?

The Overholding Clause

[82] In AIM Health Group, Feldman J. reviewed the principles applicable to the interpretation of overholding clauses. Feldman J. described the four types of legal relationships that were possible when a tenant remained in possession following the expiry or other determination of the term of the tenancy agreement. She then engaged in a thorough analysis of overholding tenancies both at common law and under overholding clauses typical in commercial lease agreements. The main points from that case of relevance to the subject overholding clause and Quantrix’s status upon and after the sale of the Property are as follows:

i. When a tenant remains in possession following termination of the lease (an overholding tenant), and the landlord accepts rent or otherwise consents, then at common law, and subject to evidence to the contrary, in the case where the original lease term was fixed for one year or longer, a yearly tenancy would be created and, unless other terms were expressly agreed upon, the terms of the expired lease would be implied to the new year-to-year tenancy. Under this scenario, “the payment and acceptance of rent is considered evidence of the parties’ intent to enter into a new tenancy arrangement” (AIM at para. 95). ii. To avoid the creation of a year-to-year tenancy agreement at common law in overholding tenant situations, landlords inserted an overholding clause into leases typically specifying that upon termination of the lease, a month-to-month tenancy would be created, typically at a higher rent than was paid under the original term of the lease (AIM, at para. 96). iii. A notice to quit is not necessary where the tenancy has come to an end under the terms of the lease (AIM, at para. 103). iv. While the payment and intentional acceptance of rent following termination of a tenancy may be sufficient on its own to evidence a mutual intention to create a new tenancy in the absence of any other evidence, if there is strong evidence that the landlord made it clear that the landlord was accepting the rent while maintaining the right to eject the tenant, then the court is entitled to find that the tenant has not proven the requisite mutual intention to create a new tenancy (AIM, at para. 103). v. An overholding clause does not give the tenant the right to unilaterally remain in the leased premises without the landlord’s consent as long as it pays rent. Such an interpretation would make the clause “commercially unreasonable” (AIM, at paras. 108, 112). vi. It is important that contractual clauses, such as overholding clauses, “be consistently interpreted in order to foster certainty and predictability in the law”. This will also accord “with principles of commercial efficacy and good business sense” (AIM, at paras. 114 and 115). vii. Interpreting overholding clauses should be in harmony with their associated surrender clauses which generally require the tenant to deliver vacant possession at the end of the lease (AIM, at para. 115).

[83] Ultimately, in AIM, based on the overholding clause before the court, the court decided that the landlord had made it clear by its notice to quit that it required the premises at the end of the lease term. The tenant remained in possession past the term without consent of the landlord. In that case, the landlord had already signed a lease with another tenant. Of note, the tenant did not tender the increased rent required under the overholding clause but only the original rent, and yet purported to rely on the overholding clause as the basis for remaining after termination. The court concluded that the tenant breached its obligation to deliver vacant possession under the surrender clause, and therefore became a trespasser (AIM, at paras. 117 – 119).

[84] As previously stated, the Change of Ownership clause in the Lease is also clear and unambiguous in this case. The clause states that in the event of sale, “a new lease agreement” must be negotiated with the new landlord and the Lease “would be terminated, null & void”. The only commercially reasonable interpretation of this clause is that the Lease was ended prior to natural expiry of its term (or any renewed term) upon sale of the Leased Premises. [6] A notice to quit was therefore not necessary (AIM, at para. 103). However, 281 Ont. chose to deliver a notice providing Quantrix with over 60 days’ notice to vacate, in order to provide Quantrix with an opportunity to find other premises to lease.

[85] After Quantrix refused to surrender the premises on July 31, 2021 (in accordance with the Notice and clause 31 of the Lease), [7] the Overholding clause governed its relationship with 281 Ont.

What was the status of Quantrix from May 3, 2021 to July 31, 2021?

[86] The Lease was terminated on May 3, 2021 upon the completion of the sale of the Property. 218 Ont. provided Quantrix with over 60 days’ notice to vacate. By virtue of the Notice, 281 Ont. effectively agreed in writing to Quantrix remaining in possession until July 31, 2021. Therefore, the Overholding clause did not apply during this notice period, and Quantrix had the right to occupy the Leased Premises as a month-to-month tenant under the terms reflected by the Lease and pay Base Rent and TMI for the duration of the notice period.

What was the status of Quantrix from August 1, 2021 to December 31, 2021?

[87] Quantrix continued to occupy the Leased Premises after the notice period expired. There was no new written lease/tenancy agreement and no written consent from the Landlord to continue in possession. Rather, the Landlord reiterated in writing that Quantrix was to vacate the Leased Premises on or before July 31, 2021.

[88] On August 1, 2021, Quantrix became an overholding tenant under the Overholding clause.

[89] The acceptance of the Base Rent by the Landlord following the expiry of the notice period did not evince an intention by the Landlord to create a new tenancy, or constitute a waiver of reliance on the Change of Ownership clause, for the reasons already stated.

[90] After taking a hard look at the evidence, it is my finding that the parties did not reach a mutual intention to establish a month-to-month tenancy that reflected the terms of the terminated Lease after July 31, 2021. In addition to the reasons stated, Quantrix’s position consistently was that the Lease was not terminated, and it had the right to occupy the Leased Premises until the end of the five-year term or at least until December 31, 2021. On the other hand, 281 Ont. advised that it was accepting the post-dated rent cheques on a without prejudice basis, reaffirmed that the Lease was terminated, it had the right to vacant possession as at the end of the notice period pursuant to the Change of Ownership clause, was owed double the Base Rent under the Overholding clause, and was accepting the Base Rent to mitigate its damages.

[91] There was no meeting of the minds with respect to a new tenancy agreement.

[92] Therefore, Quantrix breached its obligation to surrender and vacate the Leased Premises and was obliged to pay the overholding rent during the period of its wrongful possession of the Leased Premises.

What is the current status of Quantrix?

[93] From January 1, 2022 to the date of the hearing, Quantrix has not paid any rent. 281 Ont. has a right of vacant possession to the Leased Premises. Quantrix is a trespasser, and 281 Ont. is entitled to double the Base Rent under the Overholding clause and TMI under the Lease and is entitled to vacant possession forthwith.

[94] The objective mutual intention of the parties when they entered into the Lease in 2020 was that if ownership of the Property changed from 248 Ont., as it did in this case, a new lease agreement would have to be negotiated with the new ownership in order for Quantrix to remain as a tenant and, furthermore, the Lease would be terminated.

[95] When read together, there is only one commercially reasonable interpretation of the Overholding clause and the Change in Ownership clause read in harmony with the Lease as a whole. The Lease terminated upon the completion of the sale from 248 Ont. to 281 Ont. on May 3, 2021. 281 Ont. provided more than 60 days’ notice to vacate. During the notice period, Quantrix and 281 Ont. held some discussions towards a new tenancy agreement which failed. Thereafter, Quantrix became an overholding tenant under a month-to-month tenancy under the surviving terms of the Lease. As an overholding tenant, the rent due from Quantrix was double the Base Rent as per the Overholding Tenant clause. The Landlord had the right of re-entry on August 1, 2021.

[96] The Base Rent under the Lease was $12,034.50 (inclusive of HST) and therefore the Overholding rent was double that effective August 1, 2021. From this monthly amount will be deducted the rent paid by Quantrix by way of the postdated cheques through to December 2021. The full amount is due thereafter. The issue of alleged overpayment by Quantrix of Gas and Utility bills is deferred to the trial of this action.

[97] Under clause 22 of the Lease, rent arrears attract an annual interest rate of 12%. [8]

[98] Quantrix has made a claim that it overpaid the TMI. However, it did not advance a claim for set-off against rent arrears in this motion. Accordingly, that issue is deferred to a trial of the remaining issues in the action.

Issue 7: Should a Writ of Possession Issue?

[99] Pursuant to s. 76(2) of the CTA a judge has jurisdiction to order the issuance of a writ of possession.

[100] The Landlord, 281 Ont., has demonstrated that it has the right to vacant possession. The Tenant, Quantrix, is a trespasser.

[101] It is appropriate that I exercise my discretion to order that a writ of possession be issued to 281 Ont. with respect to the Leased Premises.

Disposition

[102] The motion for partial summary judgment is granted.

[103] If the parties cannot agree on the calculation of the rent outstanding, they may seek direction from me.

[104] In addition, I make the following orders:

a) A declaration that the Lease was terminated effective May 3, 2021. b) A mandatory order that Quantrix vacate the Property. c) Leave is granted to 281 Ont. Inc. to issue a Writ of Possession with respect to the Leased Premises. d) An order granting 281 Ont. possession of the Leased Premises. e) Payment in the sum of $12,034.50 per month as unpaid overholding rent from August 1, 2021 to December 31, 2021; f) Payment in the sum of $24,069 plus any other amounts due under the Overholding clause from January 1, 2022 until the date 281 Ont. gains vacant possession of the Leased Premises from Quantrix; g) Pre-judgment and post-judgment interest. I will receive brief written submissions regarding the appropriate rate of interest, having regard to the terms of the Lease.

Costs

[105] In the event that the parties cannot settle costs, then I will receive submissions. 281 Ont.’s written submissions are due within 15 days from the release of this decision, and Quantrix’s responding submissions will be due 10 days thereafter. This provides the parties with five days to attempt to settle costs. The written submissions shall not exceed 3 pages double spaced from each party.

Justice S. Vella

Released: June 23, 2023

Footnotes

[1] The Statement of Claim also pleads relief from forfeiture under the CTA and the Courts of Justice Act, R.S.O. 1990, c. C.43, but the Tenant did not advance this position at the motion.

[2] 74 (1) Where a tenant after the tenant’s lease or right of occupation, whether created by writing or by parol, has expired or been determined, either by the landlord or by the tenant, by a notice to quit or notice pursuant to a proviso in a lease or agreement in that behalf, or has been determined by any other act whereby a tenancy or right of occupancy may be determined or put an end to, wrongfully refuses or neglects to go out of possession of the land demised to the tenant, or which the tenant has been permitted to occupy, the tenant’s landlord may apply upon affidavit to a judge of the Superior Court of Justice to make the inquiry hereinafter provided for and the application shall be made, heard and determined in the county or district in which the land lies. (2) The court shall in writing appoint a time and place at which a judge will inquire and determine whether the person complained of was tenant to the complainant for a term or period that has expired or has been determined by a notice to quit or for default in payment of rent or otherwise, and whether the tenant holds the possession against the right of the landlord, and whether the tenant, having no right to continue in possession, wrongfully refuses to go out of possession.

76 (2) If the tenant appears, the judge shall, in a summary manner, hear the parties and their witnesses, and examine into the matter, and, if it appears to the judge that the tenant wrongfully holds against the right of the landlord, he or she may order the issue of the writ. S. 100 of the Courts of Justice Act also vests jurisdiction to issue a writ of possession/vesting order.

[3] In fact, the attachment is not the Lease but rather a summary sheet entitled “Details of Lease”. It does not reference the change of ownership or overholding clause. However, this was not raised as an issue and I did not attach any significance to this detail as it is irrelevant to the overall analysis of the enforceability of the change in ownership clause.

[4] See also Gold Leaf Garden Products Ltd. v Pioneer Flower Farms Ltd., 2015 ONCA 365, at para. 8.

[5] The cases relied upon by Quantrix are all distinguishable and make clear that s. 19(2) of the CTA only applies where there is a breach of covenant that is capable of being remedied by the tenant: see e.g.; 780046 Ontario Inc. v. Columbus Arts Building Inc. (1994), 74 O.A.C. 383 (C.A.) at para. 2; Jay-Pee Drycleaners Inc. v. 2321324 Ontario Inc., 2017 ONCA 798, at para. 19; Target Park (No. 10) Inc. v. 1164757 Ontario Inc., 2019 ONSC 6301, at para. 31.

[6] See definition of “Building” at clause 1b of the Lease.

[7] Clause 16 of the Lease provides additional rights in re-entry, including at 16a., which states that notwithstanding termination of the Lease, the provisions relating to the consequences of termination will survive. Therefore, the overholding clause survived termination of the Lease.

[8] Coincidentally, under s. 59 of the CTA, a landlord is entitled to double the monthly base rent where a tenant “willfully holds over the land…after notice in writing is given for delivering the possession thereof by the tenant’s landlord”. Therefore, the overholding clause’s increased rent is in line with the CTA and supports the commercial feasibility of this clause.