Court File and Parties

Court File No.: CV-22-00689744 Date: 2023-11-28 Superior Court of Justice - Ontario

Re: KS SP Nominee Inc., KS SP1 Nominee Inc., ARI SP Nominee Inc., Plaintiffs And: I.A. Lawson Investment Holdings Inc., Defendant

Before: Justice A.P. Ramsay

Counsel: Nancy Roberts and Evan Barz, for the Plaintiffs

Heard: In Writing

Endorsement

I. Introduction

[1] The plaintiffs, KS SP Nominee Inc., KS SP1 Nominee Inc., ARI SP Nominee Inc. and ARI SP1 Nominee Inc., commenced this action against the defendant, I.A. Lawson Investment Holdings Inc., for breach of a commercial lease agreement.

[2] The parties entered into a commercial lease on November 12, 2018, for the defendant to lease Suite 2502 consisting of 4,422 square feet of space in Scotia Plaza (the “Original Premises”) for a five-year term, commencing on March 1, 2019, and expiring on February 24, 2024. The lease was amended on January 11, 2019, to include a portion of Suite 2503 in Scotia Plaza comprising approximately 2,597 square feet (the “Additional Premises”). The defendant has defaulted on paying its rent.

[3] The statement of claim was served on the defendant on November 8, 2022. An amended statement of claim was served on the defendant on December 8, 2022. The defendant did not deliver a statement of defence within the timeline prescribed by the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”), and was noted in default on January 23, 2023.

[4] An affidavit of service filed indicates that the defendant was served with plaintiffs’ motion materials for damages. The defendant has not responded to the motion.

II. Nature of the Motion

[5] The plaintiffs move for default judgment pursuant to r. 19.05 of the Rules, seeking damages in the amount of $1,332,959.39, plus prejudgment interest and costs.

III. Background

[6] On November 12, 2018, the plaintiffs entered into a commercial lease with the defendant Lawson for the Original Premises in Scotia Plaza, at 40 King Street West, Toronto. The lease term ran from March 1, 2019, to February 28, 2024. On January 11, 2019, the parties signed a lease amending agreement to add the Additional Premises to the lease for the same term.

[7] The defendant was persistently late in paying rent. As a result, on December 7, 2021, the parties entered into a second amending agreement. This agreement provided for a rent deposit, most of which was applied rent accruing due under the lease for the months of November 2021 to February 2022. The remainder of the deposit was held by the plaintiffs as security for the defendant’s ongoing adherence to the lease terms.

[8] The defendant failed to pay rent for April 2022. The plaintiffs issued a Demand Notice dated April 13, 2022. In the Demand Notice, the plaintiffs demanded payment of the rent arrears within five business days, failing which the plaintiffs would also demand immediate payment of rent for May, June and July, pursuant to the lease agreement. The Demand Notice further stipulated that if the defendant failed to satisfy this demand by April 29, 2022, the plaintiffs would terminate the lease and pursue a claim for, among other things, all arrears of rent.

[9] The defendant failed to satisfy the Demand Notice and the plaintiffs terminated the lease by letter on May 2, 2022. The total arrears owed by the defendant at the time were $227,581.02 and, after applying the remaining deposit of $53,654.71 from the second amending agreement above, the balance owing was $173,926.31.

[10] The plaintiffs gave the defendant until May 9, 2022, to comply with its end of lease obligations, which included removal of personal property and leasehold improvements. The defendant failed to comply with these obligations. The plaintiffs removed the defendant’s personal property and incurred a cost of $7,910. The plaintiffs also incurred additional costs of $41,188.50 for removing the leasehold improvements installed by the defendants.

[11] The plaintiffs contend that they have taken commercially reasonable efforts to mitigate their losses including listing the property and actively marketing the property to prospective tenants. The plaintiffs only managed to relet the Additional Premises and have not managed to relet the Original Premises. The lease on the Additional Premises is for the period August 1, 2023 to July 31, 2025. The plaintiffs submit that the monthly rent is $1,676.41 less than what they would have received from the defendants for the Additional Premises.

[12] As for the Original Premises, the plaintiffs assert that due to market changes following the COVID-19 pandemic, they do not anticipate being able to relet the Original Premises prior to the expiration date of Lawson’s lease on February 28, 2024. I will return to the claim for future loss of rental income relating to the Original Premises.

IV. Analysis

[13] Subrule 19.05(1) of the Rules provides that:

Where a defendant has been noted in default, the plaintiff may move before a judge for judgment against the defendant on the statement of claim in respect of any claim for which default judgment has not been signed.

[14] Pursuant to subrule 19.02(1)(a) of the Rules, a defendant who has been noted in default is deemed to admit the truth of all allegations of fact made in the statement of claim.

[15] On a motion for default judgment, the facts going to liability are deemed to be true but unliquidated damages cannot be said to be assumed: Umlauf v. Umlauf (2001), 53 O.R. (3d) 355 (C.A.). The plaintiffs must adduce evidence to support their claim. The court must make a judicial determination with respect to the quantum of damages to be awarded against the defendant in default: Umlauf, at paras. 8-9.

[16] The plaintiff is entitled to damages for the entire unexpired period of the lease, but the quantum of damages is not simply the balance of unpaid rent for the remainder of the lease term. The proper measure of damages for a terminated lease is the unpaid rent to the date of the breach, plus the present value of the unpaid rent for the unexpired period of the lease less the actual rental value of the premises for that period: Morguard Corporation v. 6753060 Canada Inc., 2018 ONSC 4910, at para. 22, citing Highway Properties Ltd. v. Kelly, Douglas & Co., [1971] S.C.R. 562 at p. 570; see also Morguard Corporation v. 2063881 Ontario Inc., 2013 ONSC 7213, at para. 33.

[17] A determination of the ‘actual rental value’ of the premises will depend on whether the plaintiff has found a new tenant at the date of the motion for default judgement. If the plaintiff has already found another commercial tenant, then the ‘actual rental value’ is whatever the new tenant pays: Morguard, 2018 ONSC 4910, at para. 24. In this case, the plaintiffs have found a new tenant for the Additional Premises. As this is a default motion, there is no argument by the defendant that the new tenant is underpaying. The reasonableness of any mitigation efforts “is a question of fact to be decided on the basis of all relevant market circumstances”: 100 Main Street East Ltd. v. W.B. Sullivan Construction Ltd. (1978), 20 O.R. (2d) 401 (C.A.), at para. 73.

[18] Once the plaintiff shows that they have taken some steps to mitigate their losses, the onus is on the defendant to show that those efforts were not reasonable: Michaels v. Red Deer College, [1976] S.C.R. 324. I am satisfied that the plaintiffs have made reasonable efforts to mitigate with respect to the smaller Additional Premises. However, Perell J. recognized the difficulty on a motion for default in taking into account the principle of mitigation, but in Morguard Corporation v. Bramalea City Centre Equities, at para. 4, he directed the landlord to file further materials or return with an argument on how to address the issue.

[19] I had a great deal of difficulty in determining the plaintiff’s claims for past and future rent with respect to the Original Premises. The figure provided by the plaintiffs as the arrears for the first four months of missed rent combines the rent for the Additional and Original Premises. The plaintiffs also combine the amount being sought for arrears and future rent due under the lease for the Original Premises. It is impossible for the court to determine future damages for the Original Premises, because the plaintiff provides no information about the actual rental value of the Original Premises, as discussed below. I was able to calculate the plaintiff’s past loss for both the Additional and Original Premises, and the future loss of rent related to the Additional Premises (from August 2023 to February 2024, a shortfall of $1,676.41 per month) to amount to $805,774.26. This amount does not include the cost of removing the defendant’s property and leasehold improvements, which totals $49,098.50.

[20] I would therefore grant judgment to the plaintiffs in the amount of $805,774.26 plus the costs related to removing the defendant’s property and for the leasehold improvements. Added to the complication, I note that the plaintiffs have not included the amount for HST for any of the lost rent for the additional or original premises though it is included on some of the arrears. I would be inclined to award the plaintiffs HST on the $805,774.26.

[21] The plaintiffs are also seeking $226,438.01 for future loss of rent with respect to the Original Premises. However, I am not satisfied on the evidence that the plaintiffs have proven their claim for future rental loss regarding the Original Premises. The facts going to damages must be proven: Umlauf, at para. 9, Beals v. Saldanha (1998), 42 O.R. (3d) 127 (Gen. Div.), at p. 142. Where there is no replacement tenant by the time of the motion for default judgment, the landlord will have to lead evidence regarding the “actual rental value” of the premises and evidence of how long it would take a landlord acting reasonably to find a new tenant: Morguard, 2018 ONSC 4910, at para. 28. This onus falls within the broader onus on the plaintiff to establish damages: Michaels v. Red Deer College, [1976] S.C.R. 324. In the absence of evidence from a plaintiff regarding actual rental value, courts have refused to award damages for future lost rent: A.B. Investments Ltd. v. Khan, 2011 ONSC 449; Morguard, 2018 ONSC 4910, at para. 32. The claim for damages must be proven on a civil standard of proof: Fuda v. Conn, [2009] O.J. No. 188 (S.C.).

[22] In this case, there is no replacement tenant for the Original Premises. There is no evidence before me regarding the "actual rental value" of the Original Premises. There is no evidence before me of how long it would take the plaintiffs, acting reasonably, to find a replacement tenant. The plaintiffs address the impact of the pandemic in their efforts to mitigate. An affidavit is provided by Geoff Rayner, Vice President of Office Leasing at BentallGreenOak, in support of the motion. The source of the information in paragraph 52 of the affidavit is not known. Paragraph 53 of the affidavit refers to a footnote which addresses information published by Strategic Regional Research Alliance. It is not clear to the court what use can be made of the information in Mr. Rayner’s affidavit, as he has no personal knowledge of the information. Mr. Rayner also combines the past rent owing and the balance of the rent for the unexpired term of the lease.

[23] Mr. Rayner applies a present value discount rate of 2.66% based on the Bank of Canada’s benchmark 2-year government bond rate of 2.66% as of May 2, 2022. Mr. Rayner has applied the discount rate to all amounts payable under the lease and the future amounts for the unexpired term of the lease. The plaintiffs are also seeking prejudgment interest at the contract rate under the lease. There is no explanation as to why the above discount rate is selected over any other. There is no authority provided to the court for applying a discount rate for past amounts due. It is not clear to the court that Mr. Rayner is able to provide this evidence to the court.

[24] The case law establishes that the quantum of damages for future rental loss is not the total of the rental payments for the balance of the lease term, but rather, as established by the jurisprudence, the plaintiffs are obliged to satisfy the court, on proper evidence, of their claim for future damages. In the result, I am not satisfied that the plaintiffs have provided sufficient evidence to calculate the damages for future loss for the unexpired period of the lease.

[25] The following is a summary of the damages claimed by the plaintiffs.

Original Premises Additional Premises Other Amounts Claimed

• Arrears for both premises from April – July 2022, per the Demand Notice: $227,581.02

• Remaining Deposit from December 2021 Amending Agreement: (–­­$53,654.71)

• Total Arrears for both premises from April – July 2022 after Remaining Deposit Applied (includes HST): $173,926.31

• Lost Rent from August 2022 – July 2023 (exclusive of HST):

  • Original Premises: $388,179.46
  • Additional Premises: $231,992.08

• Lost Rent from July 2023 – February 2024, less rent received under the EVA Group Lease (due to mitigation):

  • Additional Premises: $11,676.41

• Future Lost Rent from July 2023 – February 2024 (unmitigated):

  • Original Premises: $226,438.01

• Cost of removing Lawson’s property: $7,910.00

• Cost of removing Lawson’s leasehold improvements: $41,188.50

Total Claimed: $1,032,212.27 Total, excluding unmitigated future lost rent (after July 2023) for original premises: $805,774.26 [1]

[1] Amount is net of deposit and exclusive of cost for removal of defendant’s property and leasehold improvement.

V. Disposition

[26] I make the following disposition:

i. The plaintiffs are entitled to damages in the amount of $173,926.31 for rental arrears. ii. The plaintiffs are entitled to damages in the amount of $243,668.49 for past ($231,992.08) and future ($11,676.41) lost rent with respect to the Additional Premises. iii. The plaintiff is entitled to damages in the amount of $388,179.46 for the Original Premises. iv. The plaintiffs are entitled to recover $7,910.00 the cost of disposal of the defendant’s personal property from the premises. v. The plaintiffs are entitled recover the cost of restoring the premises in the amount of $41,188.50.

VI. Prejudgment Interest

[27] Section 16.2 of the Lease provides that all overdue payments required to be made by the defendant bear interest at a rate of three percent in excess of the Royal Bank of Canada’s prime rate of interest.

[28] The plaintiffs are seeking pre- and post-judgment interest at a rate of 3% per annum in excess of the Royal Bank of Canada’s Prime Rate for all amounts under the lease. It is not clear to me whether items (iv) and (v) above would attract pre-judgment interest at this rate.

[29] I also note that the plaintiffs appear to have calculated prejudgment interest on what they assert is the present value of past and future rent due under the lease. There is no authority provided for calculating pre-judgment interest on a future claim.

[30] I would award pre-judgment interest on the amounts under the lease that attract interest at the contract rate as set out in paragraph 29.

VII. Conclusion

[31] The balance of the motion for future damages may be set down for a trial of an assessment of damages in accordance with r. 19.05(3) and should be set down for a ½ day trial. I am not seized of the trial.

VIII. Costs

[32] The plaintiffs claim substantial indemnity costs in the amount of $31,395.62 pursuant to subsection 16.2(b) of the Lease. The clause indicates that the plaintiffs is entitled to legal costs on a substantial indemnity basis incurred as a result of default or any enforcement by the plaintiffs of the defendant’s obligations under the Lease.

[33] The plaintiffs have not provided a Bill of Costs or Costs Outline. While I am inclined to award costs to the plaintiff on a substantial indemnity basis in accordance with the contract, I am not inclined to decide of the quantum in the absence of a Bill of Costs or Costs Outline. Costs must still be fair and reasonable. Counsel for the plaintiff may forward same to my judicial assistant within seven days of this endorsement.

A.P. Ramsay J. Date: November 28, 2023