Court File and Parties
COURT FILE NO.: CV-19-1114 DATE: 2023/10/17 SUPERIOR COURT OF JUSTICE-ONTARIO
RE: 2506045 ONTARIO INC., Plaintiff -and- JEFFREY THOMAS GASKELL and ATILLA RAHMATY, Defendants
BEFORE: Gibson J.
COUNSEL: Kevin Wiener, Counsel for the Plaintiff Greg Murdoch, Counsel for the Defendant Atilla Rahmaty Gregory Brimblecombe, Counsel for the Defendant Thomas Gaskell
HEARD: June 19, 2023
Endorsement
Overview
1By its Notice of Motion dated 21 December 2020, the Plaintiff 2506405 Ontario Inc. moves for summary judgment in the amount of $223,749 and seeks costs on a substantial indemnity basis.
2On 23 November 2017, the Plaintiff 2506405 Ontario Inc. (“250”) and the Defendant Atilla Rahmaty (“Rahmaty”), entered into a strip mall lease (“the Lease Agreement”) pursuant to which 250 as landlord leased to Mr. Rahmaty premises located at 210 King Street North in Waterloo, Ontario for use as a Mediterranean restaurant.
3The Lease Agreement provided for a ten-year and four-month initial term commencing on 1 December 2017 and expiring on 31 March 2028, and set out the terms and conditions of the lease, including the payments owing by Mr. Rahmaty to 250.
4Mr. Rahmaty executed the Lease Agreement as a tenant. The Defendant Jeffery Thomas Gaskell (“Gaskell”) signed the Lease Agreement in his personal capacity as an indemnifier. Mr. Gaskell also entered into an Indemnity Agreement with 250, pursuant to which Mr. Gaskell agreed to indemnify 250 for any failure by Mr. Rahmaty to perform his covenants under the Lease Agreement.
5As of 1 December 2018, Mr. Rahmaty ceased to make his monthly rental payments to 250.
6On 7 December 2018, 250 delivered a Default Notice (Non-Payment of Rent) to Mr. Rahmaty and Mr. Gaskell, advising that Rahmaty was in default of his obligations under the Lease Agreement and providing him five days to cure the default, failing which 250 would exercise its right under the Lease Agreement to terminate the agreement and Rahmaty’s tenancy at 210 King.
7Mr. Rahmaty did not cure the default within five days. On 13 December 2018, 250 terminated the Lease Agreement and Rahmaty’s tenancy at 210 King. On 7 March 2019, 250 secured a new tenant, Osmow’s Shawarma (a franchised Middle Eastern fast-food restaurant) to lease the premises at 210 King, and signed a lease for that purpose (“the Osmow Lease”).
8To date, neither Mr. Rahmaty nor Mr. Gaskell has made any payment to 250 in respect of their obligations under the Lease Agreement.
9The Plaintiff moves for summary judgment, saying that there are no genuine issues for trial and that it is appropriate to grant summary judgment in its favour. On this motion, it submits, Mr. Rahmaty and Mr. Gaskell only dispute the quantum of damages sought by 250 on the basis of their–unsubstantiated–assertions that 250 has failed to mitigate. To the contrary, it insists, 250 has taken reasonable steps to mitigate its damages and Mr. Rahmaty and Mr. Gaskell have not adduced any evidence to suggest otherwise.
10The Defendants resist this, saying that there is an insufficient evidentiary record to determine whether the landlord’s mitigation efforts were reasonable. In the alternative, Rahmaty submits that the lease is unconscionable, and that the provision in the lease regarding operating costs should be construed against the landlord based on the principle of contra proferentem. Counsel for the Defendant Gaskell has not filed a factum on the hearing of the motion. The Defendants ask that the Plaintiff’s motion be dismissed with costs.
Summary of Facts
The Agreement to Lease
11250 is an Ontario corporation which owns the property located 210 King Street North in Waterloo, Ontario (210 King). 210 King is a unit within a commercial plaza that has most commonly been used by tenants as a restaurant.
12Lexington Park Real Estate Capital Inc. (“Lexington Park”) acts as the asset manager of 210 King and, since January 1, 2020, has also performed all property management functions in respect of the property. Prior to January 2020, PM365 Inc. (“PM365”) acted as property manager of 210 King.
13In and before November 2017, 210 King was available for lease. Typically, when 250 has a commercial unit available for lease, the unit is listed and advertised on the MLS by Matthew Dickson of Coupal Markou Commercial Brokerage (“Coupal Markou”). Prospective tenants or their agents contact Mr. Dickson to obtain information about the property and, if desired, to arrange a showing of the unit.
14If the prospective tenant is interested in leasing the premises, Lexington Park prepares an “Agreement to Lease”—a term sheet summarizing the key terms and conditions of the proposed lease agreement—for Mr. Dickson to present to the agent acting on behalf of the proposed tenant. Mr. Dickson then works with the tenant’s agent to negotiate an Agreement to Lease that is agreeable to both the landlord and the tenant. Following execution of the Agreement to Lease, Lexington Park prepares a long form lease agreement setting out, in full, all of the terms and conditions of the lease, and makes arrangements with the tenant and any indemnifier for a meeting to execute the lease agreement. It is the usual practice of Lexington Park to send a copy of the lease agreement to the tenant and any indemnifier prior to the meeting in order to provide them with the opportunity to review the lease agreement, seek independent legal advice if they so choose and raise any questions or concerns with Lexington Park.
15The lease between 250 and Atilla Rahmaty in respect of 210 King proceeded in the normal course. Yasin Celik, a broker with Re/Max Twin City Realty Inc. acting as agent on behalf of Mr. Rahmaty, reached out to Mr. Dickson regarding Mr. Rahmaty’s interest in 210 King. Mr. Rahmaty wanted to use the space as a Mediterranean restaurant.
16Mr. Dickson and Mr. Celik negotiated the terms of the Agreement to Lease which provided, amongst other things, that: (a) the premises governed by the lease was comprised of approximately 1,885 square feet on the first floor and approximately 1,414 square feet in the basement of 210 King; (b) the lease would be for a term of ten years and four months, commencing on 1 December 2017 and terminating on 31 March 2028; (c) Basic Rent payable by the tenant from 1 December 2017 to 31 January 2023 would be $7,068.75 per month, or $84,825 per annum, and from 1 February 2023 to 30 March 2028 would be $7,382.92 per month, or $88,545 per annum; (d) for the remainder of 2017, Additional Rent was estimated to be $16.00 per square foot plus HST; (e) Schedules “A”, “B”, “C” and “D” attached to the Agreement to Lease formed an integral part of the agreement; (f) the Agreement to Lease was irrevocable by the tenant until 14 November 2017 after which time, if not accepted, it would be null and void; and (g) the lease would be prepared by 250 in accordance with the terms and conditions of the Agreement to Lease and would be signed and executed by the parties prior to occupancy by the tenant.
17Schedule “A” to the Agreement to Lease included, amongst other things, the following indemnification provision:
In consideration of the Landlord’s execution of this Agreement […] the Indemnifier agrees to indemnify the Landlord in relation to all of the terms, obligations and covenants of the Tenant contained herein and further agrees to execute and deliver to the Landlord (on or before the execution of the Lease) an Indemnity Agreement in the Landlord’s standard form […] with respect to the Lease and to indemnify the Landlord with respect to all undertakings, terms, covenants, conditions and provisions to be observed by the Tenant pursuant to this Agreement (on the terms and conditions set forth in the Indemnity Agreement) and the Lease.
18There are several handwritten revisions initialed by both parties on the Agreement to Lease. Section 9 of the Agreement to Lease initially said that it is an irrevocable offer by the landlord that expires on November 12, 2017. This is crossed out and initialed, replaced by a statement that it is an irrevocable offer by the tenant that expires on November 14, 2017.
19This suggests that there was an initial offer made by the landlord on November 10, 2017, which was countered by the tenant and indemnifier on November 11, 2017, and finally accepted by the landlord.
20Among the changes requested by the defendants were: (a) Decreasing the Basic Rent by $2 per square foot, representing about $4,000 per year; (b) Extending the rent-free period from two months to four months; (c) Extending the term of the lease by two months; (d) Clarifying that the basement could be used as a walk-in freezer; and (e) Reducing the landlord’s due-diligence period before the agreement became firm from 30 days to 7 days.
21The final Agreement to Lease was executed by both Mr. Rahmaty as tenant and by Mr. Gaskell in his capacity as the indemnifier.
22On November 20, 2017, Mr. Rahmaty and 250 executed an Amendment to Agreement to Lease (which was dated November 17, 2017), which revised a number of terms of the Agreement to Lease. Mr. Gaskell also executed the amendment in his capacity as an indemnifier.
The Lease Agreement and the Indemnity Agreement
23On December 4, 2017, Mr. Rahmaty and Mr. Gaskell attended at the Lexington Park offices to execute the lease agreement. The meeting was also attended by Mark Godin who was, at the time, Property Manager at PM365, and Khash Bayani, a former Asset Manager at Lexington Park.
24Mr. Rahmaty and Mr. Gaskell arrived at the meeting ready to execute the lease agreement. They did not have any major questions for Mr. Godin or Mr. Bayani and did not otherwise express any concern about the lease agreement. On that day, 250 and Mr. Rahmaty entered into a Strip Mall Lease (the Lease Agreement), pursuant to which 250 as landlord leased 210 King to Mr. Rahmaty as tenant for use as a restaurant called “Olive Tree Mediterranean Grill”.
25Consistent with the terms of the Agreement to Lease and the Amendment to Agreement to Lease, the Lease Agreement provided, amongst other things, for:
(a) a ten-year and four-month term commencing December 1, 2017 and expiring on 31 March 2028, with an option to extend for one further period of five years; (b) a four-month rent-free period commencing December 1, 2017 and expiring 31 March 2018; (c) payment by Mr. Rahmaty of a security deposit of $75,000: …to be held, without interest as security (without prejudice to the Landlord’s other rights and remedies) for the observance and performance of the Tenant’s obligations under this Lease. If the Tenant defaults in the performance of any of the terms, covenants, conditions and provisions of this Lease […] then the Landlord, at its option, may appropriate and apply all or any part of the Security Deposit on account of any losses or damages sustained by the Landlord as a result of such default; (d) from December 1, 2017 to March 31, 2023, payment by Mr. Rahmaty of Basic Rent in respect of the ground floor premises in the amount of $7,068.75 plus applicable taxes; (e) from April 1, 2023 to March 31, 2028, payment by Mr. Rahmaty of Basic Rent in respect of the ground floor premises in the amount of $7,382.92 plus applicable taxes; (f) payment by Mr. Rahmaty of an administration fee equal to 15% of all Basic and Additional Rent; and (g) leasehold improvements to be made to the premises by the tenant “from time to time at its own expense.”
26Mr. Rahmaty initialed each page of and executed the Lease Agreement as tenant. Mr. Gaskell also initialed each page of and executed the Lease Agreement, in his personal capacity as the indemnifier. In addition to signing the Lease Agreement – and consistent with the terms of the Agreement to Lease – Mr. Gaskell entered into an Indemnity Agreement with 250, pursuant to which he agreed to indemnify 250 for any failure of Mr. Rahmaty to perform his covenants under the Lease Agreement and also agreed that he is jointly and severally liable with Mr. Rahmaty for all of his obligations under the Lease Agreement.
27In particular, the Indemnity Agreement states in part:
The Indemnifier covenants with the Landlord that […] if any default is made by the Tenant, whether in payment of monies or performance of obligations, the Indemnifier shall forthwith on demand pay to the Landlord such monies and perform such obligations and pay any and all damages resulting from any non-payment or non-performance.
The Indemnifier shall be jointly and severally liable with the Tenant for all of the Tenant’s obligations under the Lease […] as if it were separately named as a tenant under the Lease. […] The Indemnifier acknowledges receipt of a copy of the Lease and covenants, represents and warrants that it has full power, capacity and authority to enter into this Agreement and to perform its obligations hereunder.
28Mr. Gaskell initialed each page of and executed the Indemnity Agreement.
The Defendants Defaulted on the Lease and Indemnity Agreements
29Between December 2017 and November 2018, Mr. Rahmaty’s tenancy at 210 King proceeded without issue. On December 4, 2018, however, Mr. Rahmaty ceased making his required monthly payments under the Lease Agreement. On December 7, 2018, after determining that Mr. Rahmaty appeared to have ceased operating his restaurant and had abandoned the premises, Mr. Godin delivered a Default Notice (Non-Payment of Rent) to Mr. Rahmaty and Mr. Gaskell advising, amongst other things, that Mr. Rahmaty was in default of his obligations under the Lease Agreement and setting out the elements of the $13,157 due and owing to 250. The Default Notice provided Mr. Rahmaty with five days to cure the default, failing which 250 would exercise its right to terminate the Lease Agreement and Mr. Rahmaty’s tenancy at 210 King.
30Neither Mr. Rahmaty nor Mr. Gaskell cured the default within five days after delivery of the Notice of Default or otherwise communicated with 250, PM365 or Lexington Park. Accordingly, on December 13, 2018, 250 terminated the Lease Agreement and Mr. Rahmaty’s tenancy at 210 King. Neither Mr. Rahmaty nor Mr. Gaskell removed or attempted to remove any items from the premises.
31Neither of the Defendants contest that they signed and entered into the Lease Agreement.
32Instead, they took the position that 250 had failed to mitigate its damages adequately and that, accordingly, 250 is not entitled to the damages it seeks in the action or on this motion.
Issues
33The issues before me in this matter are:
- Has 250 mitigated its losses? If so, has it provided sufficient evidence of its mitigation efforts, including the options available to it to re-let the premises?
- Is the lease agreement unconscionable and, therefore, unenforceable?
- Should the doctrine of contra proferentem apply to subclause (a) of section 5.5 of the Lease Agreement? and, ultimately,
- Is summary judgment appropriate in this case?
Law and Analysis
The test on a motion for summary judgment
34The test on a motion for summary judgment is well-established: Rule 20.04(2) of the Rules of Civil Procedure states that the court shall grant summary judgment if it “is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.” There is no genuine issue requiring a trial if the evidence before the court allows the judge to make the necessary findings of fact, allows the judge to apply the law to the facts and is a proportionate, more expeditious and less expensive means to achieve a just result: Calloway REIT (Westgate) Inc. v. Elita’s Perfect Touch Hair Studio, 2019 ONSC 5755, at para. 41; Hryniak v. Mauldin, 2014 SCC 7, at para. 49.
35The parties on the motion are expected to put their best foot forward when presenting their evidence. The court is entitled to presume all evidence that would be available at trial is in front of the court on the motion so that it is assured of a sufficient evidentiary record on which to make necessary findings of fact, and to apply the law.
36Further guidance on the application of these principles has recently been given by Brown J.A. for the Court in Moffitt v. TD Canada Trust, 2023 ONCA 349.
37Defendants, as responding parties on a motion for summary judgment, may not rest solely on the allegations or denials in their Statement of Defence. Rule 20.02 of the Rules of Civil Procedure requires responding parties to set out, in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial.
38Breaches of commercial lease cases are amenable to summary judgment. A breach of a commercial lease resulting in damages, such as in the case at bar, has been found to be an appropriate case for summary judgment: Caparelli v. Langevin, 2019 ONSC 3305, at para. 22; Premium Properties Limited v. 2362880 Ontario Inc. (Serious Sandwich), 2015 ONSC 4306, at para. 5.
Issues
39Mr. Rahmaty and Mr. Gaskell do not dispute that (i) they entered into the Lease and Indemnity Agreements; or that (ii) they breached their obligations under these agreements. On this motion, they appear only to dispute the quantum of damages sought by 250 on the basis of their assertions that 250 has failed to mitigate.
40The law of mitigation is well-settled: an innocent party must take reasonable steps to avoid loss; to the extent that loss is actually avoided or ought reasonably to have been avoided, it is not recoverable. As the Court held in Malatinszky v. Miri, 2020 ONSC 16, at para. 82, this is not assessed on a standard of perfection:
In assessing the innocent party’s efforts at mitigation, the courts are tolerant, and the innocent party need only be reasonable, not perfect; in deciding what is a reasonable way to mitigate the effects of a breach of contract, the innocent party is not to be held to too nice a standard; it need only act reasonably, using what it knows then, without hindsight, and it need not do anything risky.
41A defendant alleging a failure to mitigate bears the onus of proof on a balance of probabilities to demonstrate not only that the plaintiff failed to take reasonable efforts to find a substitute, but also that a reasonable profitable substitute could be found: Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 ONSC 51, at para. 45.
42Once a party shows it has taken steps to mitigate its losses, the onus shifts to the defendants to establish that those efforts were not reasonable. It is up to the defendants to provide evidence for the court to determine that question, and to prove on the balance of probabilities what result, if any, could have been achieved if the landlord had made better efforts to fill the void.
43Landlords are subject to the normal rules of mitigation when advancing a damages claim for breach of contract. In the real estate context, retaining a real estate agent, soliciting prospective tenants, showing the premises and advertising the unit for lease (by placing a sign in the window and advertising in an online marketing brochure posted on the landlord’s website) have all been found to constitute appropriate efforts to mitigate by a landlord: 1212763 Ontario Limited v. Bonjour Café, 2012 ONSC 823, at para. 65; Calloway REIT (Westgate) Inc. v. Elita’s Perfect Touch Hair Studio, 2019 ONSC 5755, at para. 30.
44In this case, 250 took ample steps to mitigate its damages and did so with success.
45As the Plaintiff submits, the time it can take to lease a vacant commercial unit is highly variable. This may require (i) preparation of the unit for lease; (ii) listing of the unit; (iii) showings to prospective tenants; (iv) negotiation and execution of an agreement to lease; (v) preparation, finalization and execution of a lease agreement; and (vi) commencement of the lease term.
46Following termination of the Lease Agreement, the evidence discloses that 250 took immediate steps to secure a new tenant to lease 210 King as soon as possible. In particular:
(a) Lexington Park prepared 210 King to be listed and the listing was processed by Coupal Markou by 8 January 2019; (b) 210 King was listed on the Kitchener-Waterloo MLS; (c) 210 King was extensively advertised for lease, including: i. on the MLS, Loopnet, Spacelist and the Coupal Markou website; ii. delivery of a brochure about 210 King directly to Lexington Park contacts; iii. direct telephone calls to prospective tenants; and iv. erection of a large double-sided sign at the site of the plaza to promote the unit for lease; and (d) Lexington Park fielded inquiries from a number of prospective tenants.
47These efforts quickly paid off: within three months of the default by Mr. Rahmaty and Mr. Gaskell on the Lease and Indemnity Agreements, 250 secured a new tenant for 210 King.
48The Defendants do not appear to argue that 250 took an inappropriately long period of time to secure a new tenant. They only contest the terms of that new tenant’s lease.
49On 7 March 2019, 250 entered into a Strip Mall Lease (“the Osmow’s Lease”) with Osmow’s Ltd. (“Osmow’s”) pursuant to which 250 as landlord leased 210 King to Osmow’s for use as a Middle Eastern restaurant. The Osmow’s Lease provides, amongst other things, for: (a) a ten-year and two-month term commencing 1 April 2019 and expiring on 31 May 2029; (b) a three-month rent free period commencing 1 April 2019 and expiring 30 June 2019 (including a Basic Rent-free period and a free fixturing period); (c) from 1 April 2019 to 31 May 2024, payment by Osmow’s of Basic Rent in the amount of $6,911.67, plus applicable taxes; (d) from 1 June 2024 to 31 May 2029, payment by Osmow’s of Basic Rent in the amount of $7,225.83, plus applicable taxes; and (e) payment by Osmow’s of an administration fee equal to 15% of Additional Rent. To date, Osmow’s continues to lease the premises at 210 King.
50Mr. Rahmaty and Mr. Gaskell both make broad assertions that 250 has failed to mitigate its damages; however, neither has proffered any evidence to establish that the efforts of 250 to mitigate its damages were not reasonable or that 250 could have achieved a more profitable result had it taken other or additional steps to mitigate.
51Market rent is determined by assessing rents recently charged for comparable commercial units in comparable or nearby locations. Lexington Park showed 210 King to, and fielded inquiries from a number of other prospective tenants, but leased the unit to Osmow’s because it was prepared to pay market price to lease the unit. Osmow’s is paying only one dollar less per square foot than Mr. Rahmaty was obligated to pay pursuant to the Lease Agreement.
52As set out above, mitigation does not require the innocent party to satisfy the defendant that its efforts to mitigate were reasonable. Once the innocent party has demonstrated that it took steps to mitigate, the onus falls on the defendant to establish that those efforts were not reasonable and to prove what better result could have been achieved if the landlord had mitigated differently.
53Neither Mr. Rahmaty nor Mr. Gaskell have provided any evidence on this motion regarding what market conditions they say existed at the time the Osmow’s Lease was entered into which would have militated in favour of a more favourable lease than the one 250 secured with Osmow’s. They have adduced no expert evidence to indicate that the lease with Osmow’s is in any way unreasonably beneficial to the new tenant. The evidence that is available indicates that the lease with Osmow’s resulted from a commercially brokered arms-length negotiation between sophisticated commercial parties. The evidence indicates that Osmow’s first reached out to 250’s realtor with an offer for the premises, and the matter was informally negotiated for three weeks before the parties agreed on an Agreement to Lease.
54250 obtained further concessions from Osmow’s during the due-diligence period. In the amendment to the Agreement to Lease waiving the landlord’s condition and making the agreement firm, Osmow’s (the franchisee) agreed to have the lease indemnified by the franchisor corporate chain for the first two years of the term.
55The Plaintiff submits, and I accept, that the negotiations and tenant selection represented 250’s careful attempts to get the best tenancy possible, balancing the need for a good mix of tenants in the project, maximizing revenues from the new lease, and ensuring a strong tenant who was likely to succeed in the plaza with a low risk of default. These were all reasonable commercial aims.
56In his affidavit, Mr. Rahmaty states his belief that the inclusion of an administration fee (particularly one calculated as 15% of Basic and Additional Rent) is unconscionable. He further states his belief that by not negotiating the same administration fee into the Osmow’s Lease, 250 failed to mitigate its damages.
57As the Plaintiff submits, and I agree, these arguments are self-contradictory—if the administration fee is so outrageous as to be unconscionable, then clearly it cannot be the case that any failure to include it in the Osmow’s lease is unreasonable. And conversely if it is something that Osmow’s would obviously have agreed to, then it can hardly be an improvident bargain for the defendants.
58Neither contention is correct. Both methods of administration fee are commercially reasonable terms that depend on the negotiating power of each side and the general desirability of a prospective tenancy aside from the level of rent paid. Unlike the defendants’ untested restaurant, which failed a year after starting, Osmow’s is an established franchise with a two-year indemnity from the franchisor that nonetheless agreed to pay a higher level of rent than other prospective inquiries.
59Mr. Gaskell asserts that he has not been provided with any explanation as to why there is a differential in the administration fee as between the Lease Agreement and the Osmow’s Lease. The evidence on this motion with respect to the differential in the administration fee is that: (a) the Lease Agreement required Mr. Rahmaty to pay an administration fee equal to 15% of Basic and Additional Rent, whereas the Osmow’s Lease requires Osmow’s to pay an administration fee equal to 15% of Additional Rent alone; (b) payment of an administration fee as a percentage of either (i) Basic Rent and Additional Rent; or (ii) Additional Rent alone, depends on market conditions at the time a lease is negotiated and on the outcome of negotiations between Lexington Park and the prospective tenants with whom it negotiates; (c) of the nine tenants leasing units at the plaza at which 210 King is located, four pay an administration fee equal to 15% of Basic and Additional Rent and five pay an administration fee equal to 15% of Additional Rent alone; and (d) the Osmow’s Lease is reflective of market conditions at the time it was entered into.
60There is no doubt that the differential in the administration fees payable under the Lease Agreement and the Osmow’s Lease represent a loss to the landlord arising from the default by Mr. Rahmaty and Mr. Gaskell on their contractual obligations. There is no evidence that Osmow’s would have been willing to pay a higher administration fee, and no indication that such evidence would be more available at trial.
61Neither Mr. Rahmaty nor Mr. Gaskell have tendered any evidence to establish that the administration fee under either lease agreement is unreasonable or that 250 had the opportunity to enter into a lease with a new tenant who would have been prepared to pay an administration fee equal to 15% of Basic and Additional Rent at the time it entered into the Osmow’s Lease.
62In his affidavit, Mr. Rahmaty asserts his belief that lost rent between 1 April to 30 June 2019 does not represent a loss to the landlord and that “to offer [Osmow’s] a rent-free period, but then purport to hold him responsible for damages on account of lost rent over this period” is evidence of the failure by 250 to mitigate its damages. The evidence on this motion is that 250 suffered a loss as a result of the rent-free period it was required to provide Osmow’s in order to enter into the Osmow’s Lease. In particular, while it is common practice in the commercial leasing context to provide tenants with a one to three month rent-free and/or fixturing period to enable tenants to prepare the space for their use, the default by Mr. Rahmaty and Mr. Gaskell caused 250 to incur two rent-free periods within the ten-year term of the Lease Agreement–for a total of seven rent-free months–as opposed to only one period of four rent-free months.
63Mr. Rahmaty does not provide any explanation as to why he, as a tenant, should have been entitled to a rent-free period incentive, but that the landlord ought to have better mitigated by refusing to provide that same incentive to another tenant. Not only did Mr. Rahmaty obtain a rent-free period, but it was his counteroffer that extended his rent-free period from two to four months.
64Mr. Rahmaty has not proffered any evidence to suggest that 250 would have been able to secure a lease with Osmow’s (or any other tenant) without providing a rent-free period or with a reduced rent-free period.
65To establish a failure to mitigate, the defendant must show, on the balance of probabilities, that the plaintiff failed to make a reasonable effort to mitigate, and that such mitigation was possible. The Defendants have failed to do so. In the context of this case, if the Defendants believe Osmow’s or another prospective tenant would have agreed to pay more money under the lease—whether through a higher administration fee or a reduced rent-free period—it is their burden to provide that evidence. The Defendants did not do so.
66The Plaintiff submits, and I agree, that the Defendants cannot now complain that there is insufficient evidence to determine whether 250’s mitigation efforts were adequate. If the Defendants do not provide evidence to satisfy their evidentiary and legal burden on summary judgment, then that is a failure to put their best foot forward and they cannot benefit by pushing judgment back to a trial.
67The evidence on this motion demonstrates that 250 has taken reasonable steps to mitigate its damages. Notably, (1) 250 secured a replacement tenant, Osmow’s, within three months of the termination of the Lease Agreement; (2) Osmow’s is paying one dollar less per square foot than Mr. Rahmaty was obligated to pay pursuant to the Lease Agreement; (3) the Osmow’s Lease is reflective of market conditions at the time it was entered into; (4) the rent-free period in the Osmow’s Lease is commercially reasonable and provided for a shorter rent-free period than Mr. Rahmaty was provided in the Lease Agreement; and (5) the real estate commissions were necessarily incurred to secure a new tenant to lease 210 King as soon as possible after the default of Mr. Rahmaty and Mr. Gaskell.
68Notwithstanding their assertions to the contrary, Mr. Rahmaty and Mr. Gaskell have failed to meet their burden and proffer any evidence to suggest that efforts of 250 to mitigate its damages were not reasonable or that 250 could have achieved a more profitable result had it taken other or additional steps to mitigate.
69With respect to any question of whether the Lease Agreement is unconscionable or vague, these issues also do not require a trial. Mr. Rahmaty was clear in his cross-examination that he does not recall the negotiation process and exchange of offers that led to the Agreement to Lease, the provisions of which were imported into the Lease Agreement. No better evidence on this point will come from a trial, when the documentary record is clear that Mr. Rahmaty reviewed the offered Agreement to Lease and signed back substantive changes relating to both the quantum of rent and the rent-free period, and given his own concessions that he was taking advice from a realtor and was able to access legal advice if he so desired. The Court can also determine from the documentary record that far from being an improvident bargain, the structure of Administration Fee in the Lease Agreement was common in the very same commercial plaza.
70With respect to the interpretation of the contract, and any question of vagueness, that is a matter of pure contractual interpretation for which no viva voce evidence is required.
71There is no basis disclosed on the evidence requiring the application of the doctrine of contra proferentem. It is very clear from the evidence that the administration fee was to be paid on top of other fees. This was a net lease, plus another 15% on top. This was the subject of negotiation and was what the parties agreed to, albeit the Defendants may now regret having done so.
Conclusion
72Applying the requisite principles, I find that 250 is entitled to summary judgment in this case. There is no genuine issue requiring a trial. Mr. Rahmaty and Mr. Gaskell do not dispute that they entered into the lease or indemnity agreements with 250 or that they breached their obligations under these agreements. Mr. Rahmaty and Mr. Gaskell only dispute the quantum of damages sought by 250 based on their assertions that 250 has failed to mitigate. Mr. Rahmaty and Mr. Gaskell breached the Lease Agreement and the Indemnity Agreement, respectively. They have not fulfilled their evidentiary burden regarding mitigation. The Lease Agreement clearly sets out liability and remedies in the event of default. They have not been able to convincingly demonstrate that the Lease Agreement is vague or unconscionable, or that there is sufficient ambiguity or internal inconsistency that contra proferentem should apply.
73The Plaintiff’s motion for summary judgment will be granted.
Order
74The Court Orders that:
- Judgment is granted against Mr. Rahmaty and Mr. Gaskell in the amount of $223,749; and,
- The Defendants shall pay prejudgment interest at the rate set out in the Lease Agreement.
Costs
75The parties are encouraged to agree upon appropriate costs. If the parties are not able to agree on costs, they may make brief written submissions to me (maximum three pages double-spaced, plus a bill of costs) by email to my judicial assistant at mona.goodwin@ontario.ca and to Kitchener.SCJJA@ontario.ca. The Plaintiff may have 14 days from the release of this decision to provide its submissions, with a copy to the Defendants; the Defendants a further 14 days to respond; and the Plaintiff a further 7 days for a reply, if any. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves. If I have not received any response or reply submissions within the specified timeframes after the Plaintiff’ initial submissions, I will consider that the parties do not wish to make any further submissions, and will decide on the basis of the material that I have received.
M. Gibson, J.
Date: October 17, 2023