Court File and Parties

COURT FILE NO.: 23-00710563-0000 DATE: 2024-04-02 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Augusta Studios Inc., Plaintiff AND: 8699011 Canada Inc., Defendant

BEFORE: Merritt J.

COUNSEL: Dina Peat and Latisha Cohen, for the Plaintiff Sara Erskine, for the Defendant

HEARD: February 21, 2024

Endorsement

Overview

[1] This application concerns a dispute between the Applicant, Augusta Studios Inc. (the “Tenant”) and 8699011 Canada Inc. (the “Landlord”) regarding the lease of a two-story commercial property with three self-contained units at 146 Augusta Avenue, Toronto (the “Building”). The Tenant has a commercial subleasing business which it operates out of the Building, and the Landlord is the owner of the Building.

[2] The Tenant seeks declarations that the Landlord has not properly terminated the lease between the parties, that the lease is in effect until July 31, 2027, that the Tenant is not in default under the lease, and related relief.

[3] The Landlord relies on two alleged breaches of the lease: the Tenant’s subletting of the second floor without consent, and the Tenant’s subletting of the basement which it alleges is not part of the leased premises.

Decision

[4] The Landlord’s termination of the lease was unlawful. The lease is in effect until July 31, 2027. The Tenant is not in default and its commercial subleasing is lawful and does not require consent. The basement is included in the leased premises. In the event that I am wrong, I grant the Tenant relief from forfeiture.

Background Facts

[5] The Tenant entered into a written lease agreement dated June 18, 2017 (the “Initial Lease”) with one of the prior owners of the Building, Peter Radan (“Radan”), which applied to the whole Building (the “Leased Premises” or “Demised Premises”). The term of the Initial Lease was for five years from August 1, 2017, until July 31, 2022. The rent was described as an annual lump sum.

[6] On June 21, 2022, the Tenant and Radan entered into an agreement to amend the Initial Lease to extend the term for a further five years to July 31, 2027 (the “LAA” and, collectively with the Initial Lease, the “Lease”). Rent under the LAA is based on square footage.

[7] In 2021 and 2022, the Tenant entered into sublease agreements (all with terms expiring on July 30, 2027) with three subtenants. These subtenants agreed to use their respective subleased premises only in accordance with a purpose consistent with the permitted use allowed under the Lease. The basement was subleased to Ofield Williams (“Williams”), the first floor was subleased to Mika Bareket (“Good Egg”), and the second floor was subleased to JALI Inc. (“Jali”).

[8] In May 2021, the Tenant sought and obtained the consent of Radan to sublease the first floor to Good Egg, a retail store. The Tenant entered into a sublease agreement with Good Egg dated June 4, 2021, and renewed by a sublease renewal agreement dated August 1, 2022, with the sublease term expiring on July 30, 2027.

[9] In July 2022, the Tenant subleased the second floor to Jali by way of a sublease agreement dated July 27, 2022, with the sublease term expiring on July 30, 2027. The Tenant did not obtain Radan’s consent for this sublease.

[10] In November 2021, the Tenant subleased the basement to Williams by way of a sublease agreement dated November 22, 2021. This was renewed by a sublease renewal agreement dated August 1, 2022, with the sublease renewal term initially expiring on July 30, 2027, but terminated as of June 30, 2023. The Tenant did not obtain Radan’s consent for this sublease.

[11] In February 2023, Radan hired a real estate agent, Emon Behjati (“Behjati”), to sell the Building. Behjati did a tour of the Building on March 1, 2023. During the tour, an employee of Good Egg told Behjati about Williams’ sublease of the basement.

[12] On April 17, 2023, Radan listed the Building for sale. The MLS listing says the Building is approximately 3,400 square feet and is fully tenanted with an established retail store on the main level and office space in both the upper floor and the basement.

[13] On April 20, 2023, prior to purchasing the Building, the Landlord’s real estate agent did a tour of the Building with the vendor’s agent Behjati. During the tour, the Landlord’s agent learned of the sublease of the basement and met Williams, the basement subtenant.

[14] The Tenant terminated Williams’ sublease as of June 30, 2023, prior to the Landlord's purchase of the Building. There has been no further sublease and the Tenant occupies the basement space for its office use.

[15] The Landlord purchased the Building on August 17, 2023, from Radan.

[16] In October 2023, the parties met, and the Landlord asked the Tenant to terminate the Lease prior to the expiry of its term because it wanted to move its E-bike store from Montreal and operate it out of the Leased Premises. The Tenant did not agree to early termination of the Lease but agreed to consider it in exchange for a certain amount of compensation. The Landlord was unwilling to pay the amount of compensation requested by the Tenant.

[17] At the end of the meeting, the administrator of the Landlord, Joelle Eibach, took out her phone and emailed two notices of default to the Tenant (the “Notices”), alleging for the first time that the second floor was improperly subleased without consent and the basement sublease was illegal. She demanded that the Tenant pay the sum of $55,829.23 with respect to sublease rents collected by the Tenant from Williams for the period commencing on August 1, 2022, to July 31, 2023 (prior to the Landlord's ownership of the Building) and demanded that the Tenant obtain the Landlord's consent to the Jali sublease. The Landlord relied on these same alleged defaults in its Notice of Default and Termination dated November 24, 2023.

[18] In the Notices, the Landlord refers to an estoppel certificate signed on October 3, 2023. The Tenant first signed a different estoppel certificate on July 31, 2023, while the Landlord was in the process of purchasing the Building. The Landlord requested the second estoppel certificate in early October 2023 "for the sake of accuracy".

[19] The Landlord forwarded a copy of the Notices to the subtenants.

[20] The Tenant promptly responded to the Landlord and denied breaching the Lease. Although it was the Tenant’s position that consent was not required because it was shared space with a creative professional, out of an abundance of caution and as a sign of good faith, the Tenant requested the Landlord’s consent to the Jali sublease and advised the Landlord that Jali shared office space with the Tenant.

[21] The Landlord has never provided the Tenant with a substantive response to the request for consent. On October 14, 2023, the Landlord advised that its legal counsel was working on a "landlord consent to sublease form". No further response has been sent.

[22] On October 23, 2023, the Tenant wrote to the Landlord denying that it had breached the Lease and advising that the request for consent had been a sign of good faith. The Tenant said the Jali sublease complied with the Lease and the Lease covered the whole of the Building, including the basement, and therefore the Tenant was allowed to sublease the basement.

[23] On October 29, 2023, the Landlord replied saying it would not accept the rent due.

[24] The Tenant was concerned that the Landlord was attempting to get the Leased Premises for its own use and reiterated its position on November 2, 2023.

[25] On November 24, 2023, the Landlord delivered Notices of Default and Termination, alleging the Tenant was in default and that the Landlord was terminating the Lease and requiring the Tenant to vacate the Building as of December 11, 2023. The Landlord did not give the Tenant the opportunity to cure the alleged defaults.

Positions of the Parties

[26] The Tenant says it was always permitted to use the Building for mixed usage, including shared office space for professionals. The Lease provided the Tenant with an exception for subleasing the Leased Premises: the Landlord’s consent was not required if the sublease was part of the permitted use of the Leased Premises as shared office space. The Tenant subleased the second floor as shared office space, and no consent was required. In any event, the Tenant has requested consent and the Landlord has not replied.

[27] The Tenant says it was always entitled to lease and sublease the basement pursuant to an agreement with Radan, the prior landlord, which is binding on the Landlord. In any event, there has been no basement subtenant since the Landlord bought the Building. As such, this default, if it existed at all, has been cured and the Landlord has no right to claim rents paid prior to its purchase of the Building.

[28] Additionally, the Landlord has not complied with the notice provisions under the Lease, which require service by registered post which “shall conclusively by [sic] deemed to have been received on the third day following the date of posting”. The Tenant also says the Landlord did not provide adequate notice to cure the defaults.

[29] The Landlord says that at the Tenant’s request, the LAA amended the Leased Premises to reduce the space rented by the Tenant such that the basement would be excluded. Unbeknownst to Radan, who was then the landlord, the Tenant purported to sublease the basement unit. The Tenant secretly overheld the basement (without Radan’s consent or paying rent) until the spring of 2023, when Radan and the Landlord discovered that there was a subtenant occupying the basement when there ought not to have been.

[30] The rent collected by the Tenant from Williams was a secret profit of over $50,000. The Landlord says the Tenant is overholding the basement and subleasing the second floor without consent. The Landlord says the Tenant has been dishonest in performing its covenants under the Lease and this court ought not grant the relief sought on this application.

Issues

There are four issues:

1. Is the basement included in the Lease?
2. Did the Tenant require consent to sublease the second floor?
3. Was proper notice provided?
4. Is the Tenant entitled to relief from forfeiture?

Analysis

Issue 1: Is the basement included in the Lease?

[31] The Tenant did not breach the Lease by entering into a sublease for the basement. The basement was included in the Leased Premises.

[32] The Lease defines the “Leased Premises” as “the whole of the premises known as 156 Augusta Avenue, Toronto, Ontario, … more particularly described in Schedule ‘A’”. The description of the property in Schedule “A” is “2-storey concrete building, located at 156 August Avenue, City of Toronto, Province of Ontario.”

[33] Section 2.1 of the Initial Lease provides that the rent was to be paid on an annual basis, not per square foot, with utilities paid directly by the Tenant, as well as the BIA portion of the property taxes. There is no reference to the square footage of the Leased Premises in the Initial Lease.

[34] The LAA did not change the definition of the Leased Premises.

[35] The rent under the LAA is described as an amount per square foot and also as an annual and a monthly amount. Section 2.0 of the LAA provides that the approximate square footage of the Leased Premises is 3,400 square feet, and the rent is to be adjusted if and when professional building measurements are taken. The LAA provides that it is net and carefree to the Landlord, and that the Tenant has the option to renew for one further term of five years on the same terms and conditions as set out in the Initial Lease, save and except for the rate of rent. The other terms of the Lease remained the same.

[36] When the Tenant discussed the LAA with Radan, they discussed calculating rent based on square footage. Although the company hired to calculate the gross usable space included the basement in the calculations, Radan and the Tenant agreed to calculate rent based on the square footage of the first and second floors only.

[37] Under the Initial Lease, the rent was $66,000 for the first two years, $67,320 for the third and fourth year and $68,666.40 for the fifth year, starting on August 1, 2021. Under the LAA, the rent was $68,680 for the first two years starting August 1, 2022, $72,080 for the year starting on August 1, 2024, $73,780 for the year stating on August 1, 2025, and $75,480 for the year starting on August 1, 2026.

[38] Given the relatively modest yearly rent increases under both the Initial Lease and the LAA, it does not seem logical that the rent would be higher if the Tenant were no longer leasing the basement, which comprised approximately one third of the total space in the Building. I have no evidence to explain why the rent would not decrease significantly if the Tenant were giving up the basement under the LAA.

[39] In an affidavit filed on this application, the Landlord’s deponent Joelle Eibach says she spoke to one of the former owners, Judy Radan, and she advised that it was agreed that the basement was not for the Tenant’s use and that there were emails with the Tenant to this effect. There is no direct evidence from Judy Radan. I give little, if any, weight to the Landlord’s unsubstantiated hearsay evidence: 2567267 Ontario Inc. v. Saverio Lucia Holdings Ltd., 2023 ONSC 994, at para. 23.

[40] The Landlord relies on an email dated August 23, 2022, between Judy Radan and the Tenant, wherein Judy Radan provides the Certificate of Measurement from the company which provided the measurements of the Building. In this email, Judy Radan provides the total square footage of the main and second floors and says these measurements can be used for calculating rent. This email does not say that the Tenant is not leasing the basement.

[41] The Landlord also relies on an email dated August 24, 2022, between Judy Radan and the Tenant. The email refers to the measurements of the Building and says, “We previously agreed to exclude the basement”. The Landlord suggests that the email means that the basement is no longer being rented by the Tenant and is excluded from the Lease altogether. The Tenant says it means that the basement is excluded from the calculation of the square footage of the Building for the purpose of determining the amount of the rent, but that the Tenant was still renting the basement. The Landlord has not produced any other emails from Judy Radan to the Tenant confirming that the LAA excluded the basement from the Leased Premises.

[42] The Tenant’s deponent Michael Ellis says the correspondence referring to the basement being excluded was in response to an enquiry from him, because he wanted clarity on how the square footage would be calculated and assurance that the Tenant’s use of the basement would not be jeopardized. He specifically asked what would happen if Radan or any future owner of the Building suddenly decided to include the basement in the calculation of the square footage of the Leased Premises. He says that Judy Radan responded saying that the basement was not included in square footage calculations.

[43] I accept the Tenant’s evidence that the email from Judy Radan was clarifying that the basement was excluded from the square footage calculations for purposes of determining the rent. It makes sense that the Tenant would be concerned about the basement being included in the rent calculation if the Tenant was able to use the basement. It does not make sense that the Tenant would be concerned about the Radans or some future Landlord including the basement in the square footage calculation if the basement were not being rented by the Tenant. Also, Judy Radan says in the August 24 email that the company who measured the Building advised that the basement was shared, and she hoped that “Good Egg is subleased with that square footage included in their calculations.” I find that Judy Radan knew the basement was being used by the Tenant’s subtenant Good Egg and some other party. This statement is inconsistent with the Tenant no longer renting the basement.

[44] The Landlord also relies on the second estoppel certificate on October 3, 2023, which defines the “Premises” as 156 Augusta Ave, Toronto. It says that the Tenant has leased the Premises and says the Premises comprise of 3,861 square feet “being the first floor and the second floor of the building” and does not mention the basement.

[45] The Tenant says the Landlord’s request for the new estoppel certificate was part of its plan to evict the Tenant if it would not agree to early termination of the Lease and the Landlord had no good reason why it would need an estoppel certificate after it purchased the Building. I agree. On the hearing of the application, there was no evidence filed to explain why the Landlord required a new estoppel certificate. The certificate was signed about a week before the meeting where the Landlord asked the Tenant if it would agree to early termination of the Lease. I find that the Landlord was attempting to shore up its position that the Leased Premises did not include the basement so that the Landlord could claim that the Tenant was in breach of the Lease if the Tenant would not agree to early termination.

[46] The Landlord says the Tenant did not disclose the existing sublease with Williams when negotiating the LAA and was dishonest in doing so.

[47] The Tenant says Radan was aware of the basement sublease with Williams prior to listing the Building for sale on April 17, 2023. In or around early 2023, the Tenant considered purchasing the Building from Radan. During these discussions, the basement sublease was discussed.

[48] I am not prepared to find that the Tenant was being dishonest about its use of the basement after the LAA was in effect on the basis of the written record and in the absence of direct evidence, including cross-examination of the Radans.

[49] There is no doubt that Radan was aware of the basement sublease by the end of March 2023. Behjati toured the Building on March 1, 2023, and reported the potential basement sublease to Radan two weeks later, around March 16, 2023. There is a letter dated March 28, 2023, from the Tenant’s lawyer to Radan discussing the basement sublease and attaching a copy of it. In addition, there is an email from Judy Radan on March 30, 2023, that refers to the basement premises being shared.

[50] It would seem logical that if Radan discovered that the Tenant was illegally subleasing the basement and collecting rents, Radan would seek to recover the rent collected. However, Radan has never asked for payment of the rent the Tenant received from the basement sublease despite having a month to do so before listing the Building for sale, and five months before the Building was sold. Not only did Radan never ask for payment of the rent collected from Williams, but Radan also never took the position that the basement was improperly subleased and not part of the Leased Premises covered by the LAA.

[51] The April 17, 2023 MLS listing specifically says the Building is a “Fully Tenanted Building With Established Retail Store On The Main Level And Office Space On The Upper Floor And Basement."

[52] The Landlord also never alleged breach of the Lease between April 20, 2023, when its real estate agent toured the Building, learned of the basement sublease and met the basement subtenant Williams, or August 17, 2023, when it purchased the Building, and October 2023. It was only when the Tenant refused to agree to early termination of the Lease that the Landlord raised the alleged breaches.

[53] It is likely that the Landlord had the email providing the Notices ready to send in advance of the meeting with the Tenant in October 2023. The email is long and detailed and has many attachments. The meeting was scheduled for 10:30 a.m. and the Notices were sent by email at 10:55 a.m.

[54] I find that the Landlord wanted to terminate the Lease early to use the Building for its E-bike business. It devised a plan to get the Leased Premises one way or another. When it could not come to an agreement with the Tenant regarding early termination, it immediately sent the Notices which it had prepared in advance.

[55] Even if the Tenant was in breach of the Lease with respect to the basement sublease, the Landlord has no standing to claim the basement rents. In its Notices, the Landlord sought payment of $55,829.23, which it says the Tenant collected in respect of the basement sublease rent between August 1, 2022 and June 30, 2023. The Landlord now agrees it is not entitled to the basement sublease rent because it did not sign an assignment with Radan. Therefore, the compensation requested in the Notices was not owing. Moreover, the Tenant could not cure the alleged breach as the basement sublease was terminated for non-payment of rent as of June 30, 2023, prior to the Landlord’s purchase of the Building. There has been no basement subtenant since July 2023.

[56] The Tenant has used the basement as storage after Williams left. I find that the basement is included in the Leased Premises and the Tenant is not in breach of the Lease because it has not surrendered the basement to the Landlord.

Issue 2: Did the Tenant require consent to sublease the second floor?

[57] The Tenant did not breach the lease by not getting consent for the Jali sublease because consent was not required.

[58] The Landlord agreed that the Tenant would use the Leased Premises for the purposes of mixed usage, including but not limited to shared office space for creative professionals and other professionals. Section 4.1 of the Lease, USE OF DEMISED PREMISES, provides: “The Demised Premises may be used for the purposes of mixed usage including, but not limited to, shared office space for creative professionals and other professionals.”

[59] Section 12.1 CONSENT REQUIRED provides:

Except to an affiliate, or to a company controlled by the Tenant, or the purchaser of the Tenant's business in the Lease Premises, or in order for the Tenant to carry out the permitted use of having subtenants use the Demised Premises as shared office space under section 4.1 of this Lease, the Tenant shall not assign this Lease or transfer or sublet or license the whole or any part of the Leased Premises without the prior written consent of the Landlord, which consent shall not be unreasonably or arbitrarily withheld or delayed, provided however that the new party shall execute an acknowledgment in a form satisfactory to the Landlord, acting reasonably, that it will be bound by the provisions of this lease. The Landlord is aware of the ongoing commercial sub-leasing activity of professional shared spaces in the building and accepts its continuation withing [sic] reasonable similarity for the new term of the present lease.

[60] Consent is not required for shared office space for creative professionals and other professionals. Shared office space is not defined in the Lease. The Landlord encourages me to find that shared office space only means coworking, where multiple people working for different businesses use the same office in one space, like WeWork.

[61] The court is required to “read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of the formation of the contract”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 47. I find that shared office space includes the arrangement whereby the Tenant leased the whole Building and subleased office space to creative or other professionals, including Jali and Williams.

[62] The Co-Founder and CEO of Jali, Sarah Waitling, has provided an affidavit on this application in which she swears that Jali’s animation software is a creative endeavor and shares office space with the Tenant. She swears that the Tenant has an office desk on the second floor which is subleased by Jali, and that the Tenant works at the desk on average five days per week. Ms. Waitling was not cross-examined on her affidavit.

[63] Even if the Tenant did not have a desk in Jali’s office space, I find that the sublease to Jali did not require consent since it is an arrangement whereby the Tenant rented the whole Building from the Landlord and rented redundant space by way of subleases to others, including Jali which is a creative professional company.

[64] The Landlord did not object to the fact that the Tenant did not get consent for the Jali sublease between April 2023, when it saw the MLS listing describing the second floor and basement as fully tenanted with office space in both the upper floor and the basement, and October 2023, after it discovered that the Tenant would not agree to terminate the Lease early.

[65] I find that the Tenant is not in breach of the Lease with respect to its failure to get consent for the Jali sublease.

[66] The Landlord had no grounds to deliver a notice of default regarding the Jali sublease and no basis to terminate the Lease as a result of the Jali sublease.

[67] Alternatively, if I am wrong, I find that the Tenant cured the breach by requesting consent for the Jali sublease on October 11, 2023. Section 12.1 of the Lease provides that where consent of the Landlord is required, that the Landlord's consent "shall not be unreasonably or arbitrarily withheld or delayed". The Landlord has failed to provide any substantive answer to the Tenant’s request for consent and has unreasonably withheld its consent: 1455202 Ontario Inc. v. Welbow Holdings Ltd. (2003), 33 B.L.R. (3d) 163 (Ont. S.C.), at para. 9.

[68] The fact that the Landlord has never responded to the Tenant’s request for consent to the Jali sublease is consistent with the idea that the Landlord is creating the alleged breaches because it wants to terminate the Tenant’s Lease early, so that it can move its E-bike business from Montreal to Toronto and use the Building for this purpose.

Issue 3: Was proper notice provided?

[69] The Landlord agreed to provide 15 days’ notice to pay or perform covenants before it would be entitled to re-enter and take possession of the Leased Premises on non-payment of rent or non-performance of Lease covenants. Section 11.1 PROVISO FOR RE-ENTRY provides:

The Landlord shall be entitled to re-enter and take full possession of the Leased Premises on non-payment of Rent or non-performance of covenants, provided that the Landlord shall give the Tenant written notice of non-payment of Rent, or non-performance of covenants, and the Tenant shall have fifteen (15) days from the date the written notice is received by the Landlord to pay the said Rent or no less than 15 days from the date the notice is received by the Tenant to perform the covenants hereunder before the Landlord can exercise its rights hereunder.

[70] The Landlord agreed that any notice would be given by prepaid registered post and would be deemed received three days after posting. Section 16.3 NOTICES provides:

Any notice, demand, request or other instrument, which may be or are required to be given under this Lease shall be prepaid registered post and shall be addressed (a) if to Landlord at 89 Cumberland Dr., Mississauga ON L5G 3N2 or at such other address as Tenant may designate by written notice, any such notice, demand, request, or other instrument shall conclusively by deemed to have been received on the day of such personal service or on the day of the receipt of the delivery by facsimile transmission, or on the third day following the date of posting in the case of mailing as aforesaid, provided the postal service is not disrupted.

[71] The Notices were delivered by email on October 10, 2023, and not properly delivered as required by the Lease.

[72] The Notice of Default and Termination was delivered by email and courier on November 24, 2023, and deemed delivered on November 27, 2023. It specified that the Tenant must vacate the Leased Premises by December 11, 2023, which is less than 15 days after November 27, 2023.

[73] Section 19(2) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7 provides that a landlord’s right of re-entry for breach of any covenant or condition in the lease, other than in respect of the payment of rent, is not enforceable unless the landlord serves on the tenant a notice specifying the breach, and if the breach is capable of remedy, the tenant has failed within a reasonable time thereafter to remedy the breach: Jay-Pee Drycleaners Inc. v. 2321324 Ontario Inc., 2017 ONCA 798, at para. 18.

[74] The language of s. 19(2) is clear and mandatory. Courts require strict compliance with the notice requirement because they do not look favourably upon the remedies of re-entry, forfeiture and termination: Subramaniam v. Metamore Inc., 2024 ONSC 1189, at para. 38.

Issue 4: Is the Tenant entitled to relief from forfeiture?

[75] In the event that I am wrong, and the Tenant did breach the Lease and the Notices are valid, I find this is an appropriate case for relief from forfeiture.

[76] Section 20(1) of the Commercial Tenancies Act provides:

20 (1) Where a lessor is proceeding by action or otherwise to enforce a right of re-entry or forfeiture, whether for non-payment of rent or for other cause, the lessee may, in the lessor’s action, if any, or if there is no such action pending, then in an action or application in the Superior Court of Justice brought by the lessee, apply to the court for relief, and the court may grant such relief as, having regard to the proceeding and conduct of the parties under section 19 and to all the other circumstances, the court thinks fit, and on such terms as to payment of rent, costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future as the court considers just.

[77] Section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43 provides: “A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.”

[78] The court also has equitable jurisdiction to grant relief from forfeiture. In Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490, the Supreme Court of Canada set out the factors to be considered, including the “conduct of the applicant, the gravity of the breaches, and the disparity between the value of the property forfeited and the damage caused by the breach”: at p. 504.

[79] Relief from forfeiture is a discretionary remedy. In determining whether to exercise its discretion, the court may consider the conduct of the parties, whether the breach was deliberate, the impact on the parties of granting or refusing the request, and whether forfeiture is disproportionate to the harm suffered by the Landlord as a result of the breach: Subramaniam, at para. 66.

[80] The Tenant’s conduct has not been substantial, or reprehensible: 1328773 Ontario Inc. o/a Angling Outfitters v. 2047152 Ontario Limited, 2013 ONSC 4953, 34 R.P.R. (5th) 266, at para. 17.

[81] If the Tenant did breach the Lease, it promptly did what it could do to remedy same. The Tenant has sought consent for the Jali sublease and there is no subtenant in the basement. Any breaches took place before the Landlord purchased the Building.

[82] If the basement is not part of the Leased Premises, there is no evidence that the Tenant will not relinquish the basement to the Landlord.

[83] In The Corporation of the Town of Hawkesbury v. Le Chenail Inc., 2016 ONSC 7006, the court found that it was an act of bad faith on the part of the landlord to never intend to allow the tenant to remedy the alleged breach in its notice: at para. 79.

[84] In this case, the Landlord acted in bad faith because it never intended to allow the Tenant a reasonable opportunity to cure the alleged defaults. It sent the Notices by email during the meeting where it asked the Tenant to agree to early termination of the Lease so it could use the Building for its E-bike business. The Landlord failed to respond to the Tenant’s request for consent to the Jali sublease. The Landlord is relying on the basement sublease as an alleged breach of the Lease, even though the premises have been vacant since it purchased the Building, and the Landlord agrees it is not entitled to the rents from the Williams sublease which it demanded.

[85] The Landlord has submitted no evidence that it intended to rent the basement to someone else and has submitted no evidence of any harm or damages that it has suffered with respect to same. The Landlord will not be prejudiced by allowing the Tenant to stay until the end of the Lease.

[86] If the Tenant is evicted, the subtenants will also be evicted, harming the Tenants’ subleasing business. Forfeiture of the ten-year Lease approximately three and a half years before the end of its term would be a disproportionate remedy in the circumstances of this case.

Remedy

[87] The Tenant is entitled to the following declarations:

1. A declaration that the Leased Premises includes the basement;
2. A declaration that it is in possession of the Leased Premises, including the basement, and it is entitled to sublease the basement in keeping with its commercial subleasing activity as provided for under the Lease;
3. A declaration that it is not in default under s. 12.1 of the Lease with respect to its subleasing of the Leased Premises to Jali and Good Egg, and is lawfully engaging in its commercial subleasing activity as provided for under the Lease; and
4. Declarations that the Lease remains in full force and effect until July 31, 2027, and the Tenant is entitled to quiet enjoyment of the Leased Premises until July 31, 2027, provided that the Tenant is not in breach of the Lease before that date and if there is a breach, a reasonable time, to be determined by the parties, to remedy that breach has expired.

Costs

[88] If the parties cannot agree on the issue of costs, I will consider brief written submissions. These costs memoranda shall not exceed three pages in length (not including any bill of costs or offers to settle). The applicant shall file its costs submissions within 15 days of the date of this endorsement. The respondent shall file its costs submissions within 15 days of receipt of the applicant’s materials. The applicant may file a brief reply within five days thereafter. If submissions are not received by April 23, 2024, the file will be closed and the issue of costs considered settled.

Merritt J. Date: April 2, 2024