Court File and Parties

COURT FILE NO.: CV-22-00679534-0000 DATE: 20230809 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MEL PEARL CONSTRUCTION LIMITED and DENLAND INTERIORS LIMITED Plaintiffs – and – CUBERT INC. Defendant

Counsel: Matthew B. Lerner and Jonathan D. Langley, for the Plaintiffs

READ: August 8, 2023

Papageorgiou J.

Overview

1The plaintiffs are commercial landlords (the “Landlords”).

2The defendant was their tenant (the “Tenant”).

3The Landlords bring a motion for default judgment for breach of a lease agreement.

The Issues

4The main issues are:

• Issue 1: Do the materials provide a basis for a finding of liability?
• Issue 2: If so, what are the damages to which the Landlords are entitled?

Analysis

Issue 1: Do the materials provide a basis for a finding of liability?

Consequences of noting in default

5Pursuant to r. 19.02, having not defended the proceeding, a defendant is deemed to admit the truth of all allegations of fact made in the Statement of Claim.

6However, pursuant to r. 19.06 a plaintiff is not entitled to judgment on a motion for judgment or at a trial merely because the facts alleged in the statement of claim are deemed to be admitted, unless the facts entitle the Landlords to judgment.

The test on a motion for default judgment

[7] The test on a motion for default judgement was set out in Elekta Ltd. v. Rodkin, 2012 CarswellOnt 2928 (ONSC) as follows: A. What deemed admissions of fact flow from the facts pleaded in the Statement of Claim? B. Do those deemed admissions of fact entitle the plaintiff, as a matter of law, to judgement on the claim? C. If they do not, has the plaintiff adduced admissible evidence which, when combined with the deemed admissions, entitle it to judgement?

8I am satisfied that the following deemed admissions in the Statement of Claim entitle the Landlords to judgment:

• The Landlords and Tenant entered into a commercial lease dated April 21, 2020 for a term of ten years commencing January 1, 2021 and ending December 31, 2031 (the “Lease”): para 7.
• Throughout the term of the Lease, the Tenant routinely failed to satisfy its payment obligations: paras 14-16.
• On October 19, 2021, the Landlords issued a notice of default together with a statement of account of rental arrears and demanded payment: para 21.
• The Landlords made additional demands for payment: para 22.
• On February 22, 2022, the Landlords elected to terminate the Lease pursuant to s. 10.1: para 24.

Issue 2: What are the damages to which the Landlords are entitled?

9The Landlords are entitled to be compensated for their loss of bargain which means they are entitled to be put in the same position they would have been in if the Tenant had not breached the Lease: Morguard Corporation v. Bramalea City Centre Equities, 2013 ONSC 7213.

10There are a number of claimed heads of damages.

Arrears of rent

11The evidence establishes that the arrears of rent are $190,448.11. I am awarding this amount.

Future rent payable for the unexpired term of the rent.

12In Morguard, at para 34, Perell J. described the quantum of recovery for lost future rent as “the present value of the unpaid future rent for the unexpired period of the lease, less the actual rental value of the premises for that period plus reasonably foreseeable consequential losses.”

13Where there is evidence of the actual rental rate being paid by a new tenant it may be used to demonstrate the actual rental value of premises for the purposes of assessing the quantum of lost future rent: Morguard at paras 39-40.

14The Landlords re-listed the premises and ultimately found a new tenant, PointsBet Canada Operations 1 Inc., (“PointsBet”) who entered into a lease for a two year period commencing January 1, 2023 (the “PointsBet Lease”). The per month rental amount in the PointsBet Lease is lower than the amount which was payable pursuant to the Lease.

15The following is a comparison of these amounts for the two years of the PointsBet Lease:

	Base rent per square footage	Additional rent (based upon Landlords’ costs of operating and servicing the leased premises)
Tenant	$35.50	$23.35
PointsBet	$20.00	$24.91

16The Landlords have provided evidence from CBRE Canada (a commercial real estate services firm and broker) which shows that vacancy rates for office spaces in the relevant geographic area for Q1 of 2023 were 23.2 % compared to only 2 % prior to the COVID-19 pandemic.

17The commercial leasing sector has been the subject of significant volatility and uncertainty as a result of shut-downs due to COVID-19 and the ability of workers to work remotely. It took the Landlords approximately 9 months to re-lease the premises. This further supports the toll that COVID-19 has had on the industry.

18The PointsBet Lease gives it two options to renew, each for a further five-year term at then prevailing market rates.

19The Landlords would prefer to rent to PointsBet at the conclusion of the two year lease term rather than advertise and seek another tenant because they may have difficulty finding another tenant. Further, there will be additional commissions payable.

20Although the Landlords have not received any confirmation from PointsBet that it will renew its lease, the Landlords have calculated their damages for the unexpired portion of the Lease based upon the net present value of the unexpired portion of the Lease less the rental income which they will receive from the PointsBet Lease or another tenant at the current rate if PointsBet does not renew. This calculation results in a loss of $1,548,121.24.

21I agree with the Landlords that the valuation date for the Landlords’ damages is the date of the hearing of this motion. This was the approach in Morguard and also the approach of Lederman J. in Falwyn Investors Group Ltd. v. GPM Real Property (6) Ltd, (1998) 22 R.P.R. (3d) 1.

22I am satisfied that as at the date of this motion, the current value of the PointsBet Lease best represents the current rental value for the premises and is comparable to the rental amounts for other comparable properties in the same location.

23I am satisfied on a balance of probabilities that the present value calculation provided is a fair representation of the Landlords’ loss of bargain for the future rental period. I am also satisfied that they have mitigated their damages even though the burden of failing to mitigate would be on the Tenant.

24I add that the Tenant was served with this motion. If it wanted to argue that the Landlords had failed to mitigate or that the PointsBet Lease does not represent a reasonable rental rate, it could have sought to attend and argue the issue or seek to set aside the noting in default.

Commission costs to release the premises.

25Landlords are also entitled to recover expenditures to attract new tenants: Morguard at para 38.

26The Landlords paid commission of $67,828.82 to find PointsBet as a tenant. I am awarding these as they are a reasonably foreseeable consequence of the breach.

27The Landlords have also claimed the $256,242.19 in commission which they paid to secure the lease with the Tenant. They argue that these commission costs have been thrown away since the Landlords have been deprived of the substantial benefit of the Lease with the Tenant.

28I am not awarding these because these commission payments were not caused by the breach. The damages which I am awarding here will compensate the Landlords for the losses occasioned by the Tenant’s breach. Awarding the amount it paid as commission to lease the premises to the Tenant in the first place as well would constitute a windfall.

Amounts to discharge the lien.

29On or about December 17, 2021, the Landlords received notification that the Tenant had failed to pay a contractor, Jancon Construction Ltd. (“Jancon”), who had been retained by the Tenant to provide materials and services in respect of the leased premises. Jancon had registered a lien on the premises in the amount of $69,671.64.

30The Landlords paid Jancon the sum of $30,146.16 in satisfaction of its portion of the lien.

31I am satisfied that the Landlords are entitled to recover this amount as damages for breach of s. 5.5 of the Lease which required the Tenant to pay for any improvements to the lease premises. I am awarding this amount.

Amounts paid by the Landlords to the Tenant as a leasehold improvement allowance.

32The Lease entitled the Tenant to a leasehold improvement allowance.

33The Landlords paid $266,780 to the Tenant as a result. They seek recovery of this amount.

34In my view, this allowance is not recoverable as damages for the breach. This amount was paid by the Landlords pursuant to the Lease as part of the benefit which the Tenant received. Payment of this amount was not caused by the breach. Again, since the Landlords will be recovering damages for the unexpired portion of the Lease, which will address its claim for the loss of bargain, awarding this amount in addition would constitute a windfall to the Landlords.

Amounts paid by the Landlords to a secured creditor.

35On March 1, 2022 the Landlords received notification that 9859870 Canada Inc. held a general security agreement which had been registered in respect of certain future assets and receivables of the Tenant including property which remained at the leased premises.

36The Landlords have a right to distrain pursuant to s. 10.4 of the Lease which was impacted by this notification.

37The Landlords ultimately negotiated a payment of $107,000 to the secured creditor in an effort to maintain the premises in a rentable condition to assist with its efforts to re-lease the premises.

38These expenses are reasonable costs incurred by the Landlords in order to find a new tenant and mitigate its damages. Therefore I am awarding them.

Conclusion re damages

39Therefore, the damages to which the Landlords are entitled are:

• Arrears of rent in the amount of $190,448.11;
• Unexpired portion of the Lease in the amount of $1,548,121.24;
• Payment to discharge a lien in the amount of $30,146.16;
• Commission costs in the amount of $67,828.82; and
• Payment to a secured creditor in the amount of $107,000.

40These total $1,943,584.33.

41The Landlords also claim pre-judgment interest at the contractual rate [1] of prime rate charged by schedule I Chartered Banks plus 5 % which results in an interest rate of 11.7 %. I am awarding this from February 2, 2022 which is the date when the Landlords elected to terminate the Lease.

42The Landlords claim costs in the amount of $17,602.29 on a partial indemnity basis. The Landlords have provided a Bill of Costs which sets out their rates and time spent.

43I find the costs claimed fair and reasonable and within the reasonable contemplation of the Tenant.

44The Landlords may provide me with a draft Judgment for my execution.

Papageorgiou J. Released: August 9, 2023

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MEL PEARL CONSTRUCTION LIMITED and DENLAND INTERIORS LIMITED Plaintiffs – and – CUBERT INC. Defendant

REASONS FOR JUDGMENT

Papageorgiou J. Released: August 9, 2023

Footnotes

1This is set out in paragraph 3.8 of the Lease.