Metro Ontario Real Estate Ltd. v. Hillmond Investments Ltd., 2024 ONSC 2625

COURT FILE NO.: CV-09-375202

DATE: 20240506

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Metro Ontario Real Estate Limited

Plaintiff

– and –

Hillmond Investments Ltd. carrying on business as Central Parkway Mall

Defendant

Linda Galessiere, for the plaintiff

James McReynolds and Mel Solmon, for the defendant

AND BETWEEN:

Hillmond Investments Ltd. carrying on business as Central Parkway Mall

Defendant

Plaintiff by counterclaim

– and –

Metro Ontario Inc. and Metro Ontario Real Estate Limited

Defendants by counterclaim

James McReynolds and Mel Solmon, for the plaintiff by counterclaim

Linda Galessiere, for the defendants by counterclaim

HEARD: February 26, 27, 28, 29, March 1, 4, 5, 6, 7, 11, and April 11, 2024.

Robert CentA J.

1. Overview

[1] From 1978 to 2023, a grocery store served as the anchor tenant of a shopping mall in Mississauga. The lease for the premises had an initial term of 20 years and was renewed five times, each for an additional five-year term.

[2] In 2009, a major dispute arose between the parties regarding how the rent should be calculated. Once that happened, both sides identified a laundry list of historical grievances with each other. The relationship soured as each side repeatedly sought to utilize its economic power to advance its position at the expense of the other.

[3] The tenant started an action in 2009. The landlord counterclaimed. By the time the action reached trial in 2024, the pleadings and their repeated amendments spanned tabs A to Q of the trial record. The parties obtained leave to amend further their pleadings on the first day of trial. As the trial progressed over eight days of evidence, the parties abandoned several of the issues in dispute.

[4] Having considered all of the evidence and submissions, I make the following findings.

[5] First, I find that the tenant’s decision to assign the lease to a related company in 1987 is irrelevant to any of the issues in dispute. Even if the tenant did not immediately advise the landlord of this fact, I find that the landlord knew about the assignment and did nothing about it long before the 2009 rent dispute emerged between the parties. The landlord’s concern over the assignment appears to me to be driven primarily by a desire to obtain a strategic or tactical advantage in the litigation, not by genuine concern over whether or not the tenant followed all of the required formalities.

[6] Second, I find that the landlord knowingly inflated the invoices that it sent to the tenant for common area maintenance charges. The landlord inflated the CAM invoices in three ways:

a. The landlord included the cost of a contractor to clean the passport office, which was a private office leased by another tenant. The landlord knew that the cleaning charges were not for a common area and could not properly be included in the CAM charges. Yet even after the tenant brought this matter to the landlord’s attention, the landlord continued to charge for this amount in violation of the terms of the lease;

b. The landlord artificially reduced the gross leasable area of the shopping centre, which had the effect of increasing the proportion of the CAM charges for which it billed the tenant. I find that the landlord knew that its calculations were incorrect, indefensible, and in violation of an agreement it reached with the tenant in 1990;

c. The landlord charged a management fee that was not properly recoverable under the provisions of the lease.

[7] The landlord’s CAM charges must be recalculated in accordance with these reasons. Moreover, as I have found that the landlord knowingly delivered false invoices to the tenant, I find that that landlord is not entitled to interest on any unpaid CAM amounts.

[8] Third, I find that by June 2009, it was necessary to replace, not simply repair, the roof over the leased premises. I also find that the lease permitted to the tenant to effect the replacement and that the lease allocated this expense to the landlord, not to the tenant. The tenant is entitled to be reimbursed for the entire cost of the roof replacement.

[9] Fourth, I find that the provisions of s. 38 of the lease modified the calculation of rent contained in Article III of the lease. Put simply, I agree with the tenant’s interpretation of the lease and the method of calculating rent starting with the first lease renewal (December 1, 1998, to November 30, 2003) and thereafter. The landlord’s counterclaim for unpaid rent that is based on its interpretation of the rent provision is dismissed.

[10] Fifth, I find that the tenant has unjustly enriched the landlord by overpaying the rent under the lease for the two years prior to the initiation of its claim. The landlord was enriched by $493,269.66 and the tenant suffered a corresponding deprivation. In my view, there is no juristic reason for the landlord’s enrichment and no equitable principles justify denying recovery to the tenant.

2. The parties and the evidence

[11] The lease at issue in this action spanned 45 years comprising the following terms:

a. Initial term, 20 years: December 1, 1978, to November 30, 1998;

b. First renewal, five years: December 1, 1998, to November 30, 2003;

c. Second renewal, five years: December 1, 2003, to November 30, 2008;

d. Third renewal, five years: December 1, 2008, to November 30, 2013;

e. Fourth renewal, five years: December 1, 2013, to November 30, 2018; and

f. Fifth renewal, five years: December 1, 2018, to November 30, 2023.

[12] Over the entire 55 years, the landlord remained Hillmond Investments Limited, which is the defendant to the main action and the plaintiff by counterclaim. Hillmond is a closely held corporation owned by the Sorokolit family. The family patriarch, William Sorokolit, was the President of Hillmond Investments at the time the lease was signed. William’s three children are involved in the business. William A. Sorokolit and John Sorokolit are Vice-Presidents of Hillmond. Susan O’Brien also works for Hillmond.

[13] The corporate history of the counterparty to the lease is more complicated. The original tenant under the lease was Dominion Stores Limited. On April 29, 1985, with the knowledge and consent of the landlord, Dominion Stores Limited assigned the lease to New Dominion Stores Inc. The notice of assignment of lease was registered on title.

[14] On February 23, 1986, New Dominion Stores Inc. amalgamated with The Great Atlantic & Pacific Company of Canada, Limited.

[15] On June 1, 1987, The Great Atlantic & Pacific Company of Canada, Limited assigned the lease to A & P Properties Limited which immediately entered into a sublease with The Great Atlantic & Pacific Company of Canada Limited, which operated the store. The landlord submits that this assignment was without its knowledge or consent and breached the lease. I will address this issue below.

[16] The Great Atlantic & Pacific Company of Canada, Limited (which was the sub-tenant and store operator) went through a series of name changes until, in September 2007, it became known as A & P Canada Inc. On August 2, 2008, A & P Canada Inc. changed its name to Metro Ontario Inc. This entity, MOI, is a defendant to the landlord’s counterclaim and issued its own counterclaim against the landlord.

[17] Meanwhile, A & P Properties Limited (which was tenant) changed its name to Metro Ontario Real Estate Limited on October 1, 2008. MOREL issued a notice of action and then a statement of claim in 2009.

[18] As I will explain below, I will use the term “tenant” to include both MOREL and MOI, unless it is necessary to distinguish between them.

The witnesses

[19] The tenant called four witnesses:

a. Dennis O’Neil worked in a variety of senior real estate positions with MOREL and MOI. He started working for Dominion Stores Limited from 1974 to 1980 and then at A&P in 1990. He gave evidence related to the signing of the lease, the negotiation of the lease amending agreements, the calculation of rents owing under the lease, and his realization that the tenant had been paying more rent than required under the lease.

b. Aaron Marr was the financial controller with MOREL and MOI. He gave evidence regarding the payments, invoices, and journal entries associated with the roof replacement.

c. Solaine Montambeault is the national property tax and CAM manager at Metro Richelieu, a Quebec entity that, among other things, offers CAM and property tax services for MOREL and MOI. Metro Richelieu issues the cheques for those entities. She gave evidence relevant to the dispute over the CAM charges and property taxes.

d. Robert Miljure, an employee of Ontario Roof Consultants and Associates, gave evidence about the replacement of the roof over the leased premises in 2009.

[20] The landlord called one witness, John Sorokolit, the Vice-President of Hillmond. He is responsible for the oversight of financial, legal, tax, and CAM issues for Hillmond.

Requests for adverse inferences

[21] The landlord asks that I draw a series of adverse inferences because the tenant did not call Tim Lawlor (who appeared on the list of witnesses on the report to trial judge), Jennifer Bellile (a real estate administrator), Michel Dion (Analyst, real estate taxes), Martin Allaire (Vice-President, real estate and engineering), Simion Rivet (Vice-President, legal services and corporate secretary), Brigitte St. Jacques (Director, real estate management), Marika Kolou (Director, real estate management), or Normand Champoux (Analyst, real estate and taxes expenses).

[22] In a civil proceeding, an adverse inference can be drawn when a party does not call a witness who would have knowledge of the facts and would be assumed to be willing to assist that party. An adverse inference may be drawn against a party who does not call a material witness over whom he or she has exclusive control and who does not explain it away. The inference should only be drawn if the evidence of the person who was not called would have been superior to other similar evidence.[^1] An adverse inference should not be drawn if either party could have called the witness if they thought it was important.[^2]

[23] I do not exercise my discretion to draw an adverse inference arising from the tenant’s failure to call the witnesses listed above. In my view, the landlord did not demonstrate that any of these witnesses could have given superior evidence to the witnesses called at trial. I am not satisfied that any of the potential witnesses had material evidence to provide or that they would have any recollection of the events that transpired long ago. Moreover, the potential witnesses were not exclusively available to the tenant. If the landlord thought these witnesses had important evidence to give, the landlord could have obtained their contact information during the examination for discovery and called them as witnesses.[^3] In addition, calling an additional eight witnesses would have significantly lengthened this already long trial. The landlord has not provided any basis for me to conclude that quality of the evidence would have been improved by calling these witnesses.

[24] I wish to make further comments about two persons who did not testify.

Tim Lawlor

[25] The tenant did not call Mr. Lawlor as a witness. As I will explain below in the section dealing with the rent provision, Mr. Sorokolit testified that Mr. Lawlor was present for a very important telephone call regarding the negotiation of the lease amending agreement. Mr. Sorokolit testified that during this call the tenant made a series of crucial representations to the landlord about how rent would be calculated in the future and that those representations were inconsistent with the position the tenant now takes regarding the interpretation of the lease provision.

[26] I do not think it is appropriate to draw an adverse inference from the tenant’s failure to call Mr. Lawlor as a witness at trial. First, Mr. Lawlor was the tenant’s representative at the examination for discovery. The landlord, however, did not read in any of Mr. Lawlor’s answers from that examination for discovery as part of its case. Second, Mr. Sorokolit never mentioned this alleged telephone call until he testified at trial, after the tenant closed its case. In these circumstances, I do not think it is appropriate to draw an adverse inference from the failure of the tenant to call Mr. Lawlor. I address this issue in more detail at paragraphs [269] to [270], below.

Trevor Bellas

[27] Second, the landlord did not call Trevor Bellas, the financial controller for Hillmond. As will be clear below, Mr. Bellas was directly involved in a great many of the issues in dispute. His evidence would have been highly relevant and material on a range of issues including the CAM charges, the replacement of the roof, and on a particular issue related to the calculation of the rent.

[28] Mr. Bellas was listed on the report to trial judge as a witness the landlord intended to call. However, Mr. Bellas did not attend at trial and the landlord did not ask that I compel his attendance. Instead, on the first day of trial (February 26, 2024), counsel for the landlord informed me that Mr. Bellas was ill and “on the advice of his medical care-provider, we are not putting him forward for trial.”

[29] Counsel provided me with a letter dated February 14, 2024, from Loreta Doga, RN-BN, Psychotherapist, which I marked as a lettered exhibit. The letter concluded:

I kindly request the court to take into consideration Mr. Trevor Bellas’ mental health condition when determining the appropriate course of action in his [sic] case. It is my professional opinion that, at this time, subjecting him to the stresses of a court proceeding may not be in his best interest and could potentially compromise his overall well-being.

[30] Mr. Bellas was still working in some capacity at Hillmond and was involved, to some degree, in assisting the landlord with the trial. For example, on February 28, 2024, the landlord requested permission to have Mr. Bellas check over certain financial documents before they were marked as an exhibit because “he’s the person who does the financial review of these kinds of documents. And I think we should review it first before I agree to anything.”

[31] However, the landlord did not seek any accommodations that might have allowed Mr. Bellas to give his evidence in a manner that would have permitted him to testify, which was somewhat unusual given the centrality of Mr. Bellas’ evidence.

[32] Nevertheless, in these circumstances, I do not think it is appropriate to draw an adverse inference from Mr. Bellas’ failure to testify. Instead, because of its decision not to call Mr. Bellas, the landlord will be left with some holes in its evidence. I will find facts and draw inferences based on the evidence before me.

Assessing credibility and reliability

[33] There are a several significant factual disputes in this case. Resolving those disputes will require me, in part, to assess the credibility and reliability of the witnesses at trial.

[34] Credibility and reliability are different. Credibility has to do with the honesty, sincerity, or veracity of a witness. Reliability describes the other factors that can influence the accuracy of testimony, such as the witness’s ability to observe, recall, and recount events in issue.[^4]

[35] Witnesses can sincerely believe their evidence is true, but that does not mean that what they are saying is reliable. Memory is fallible and becomes increasingly frail over time. Even an apparently convincing, confident, and credible witness may not be an accurate or reliable reporter. There is significant risk in placing too much emphasis on demeanour or the confidence with which a witness speaks where there are contradictions and inconsistencies inherent in their evidence or where that testimony is inconsistent with contemporaneous records.[^5]

[36] One of the leading decisions on assessing credibility is Faryna v. Chorny, where the court explained that:

The credibility of interested witnesses, particularly in cases of conflict of evidence, cannot be gauged solely by the test of whether the personal demeanour of the particular witness carried conviction of the truth. The test must reasonably subject his story to an examination of its consistency with the probabilities that surround the currently existing conditions. In short, the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions.[^6]

[37] Taking into account my assessment of reliability and credibility, I will assess the evidence before me according to many factors including:

a. if the evidence makes sense by being internally consistent, logical or plausible;

b. if there are inconsistencies or weaknesses in the evidence of the witness such as internal inconsistencies, prior inconsistent statements, or inconsistencies with the evidence if other witnesses;

c. if there is independent evidence to confirm or contradict the witness’s evidence, or a lack of such evidence;

d. if the witness’s demeanour, including their sincerity and use of language, although this must be considered with caution; and

e. if the witness, particularly one that is a party in a case, may have a motive to fabricate.[^7]

3. Principles of contract interpretation

[38] Both parties agreed on the principles of contract interpretation to be applied to commercial leases, which require the court to:

a. determine the intention of the parties in accordance with the language they have used in the written document, based upon the “cardinal presumption” that they intended what they said;

b. read the text of the written agreement as a whole, giving the words used their ordinary and grammatical meaning, in a manner that gives meaning to all of the agreement’s terms and avoids an interpretation that would render one or more of its terms ineffective;

c. read the contract in the context of the surrounding circumstances known to the parties at the time of its formation. The surrounding circumstances, or factual matrix, include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement, such as facts concerning the genesis of the agreement, its purpose, and the commercial context in which it was made. However, the factual matrix cannot include evidence about the subjective intention of the parties; and

d. read the text in a fashion that accords with sound commercial principles and good business sense, avoiding a commercially absurd result, objectively assessed.[^8]

[39] As Laskin J.A. noted in City of Thunder Bay, the “overriding principle is that the meaning of an agreement and the intent of the parties in entering into it must be derived from the words the parties used and the context in which they used those words.” For this reason, context (sometimes described as “the surrounding circumstances” or “the factual matrix”) almost always matters because words rarely have meaning apart from their context.[^9]

[40] In Dumbrell v. Regional Group of Companies Inc., Doherty J.A. emphasized that it is important to read the agreement as a whole and in the context of the circumstances known or reasonably capable of being known by the parties when they entered into the agreement.[^10]

[41] Where the parties entered into more than one contract as part of an overall transaction, the contracts must be read in light of each other to achieve interpretive accuracy and to give effect to the parties’ intentions.[^11] To ascertain the parties’ intentions in the case before me, therefore, it will be necessary to read the lease as well as the applicable lease amending agreements.

[42] Finally, when determining the intentions of the parties, the court is not concerned with the parties’ subjective intentions at the time they drafted the contract, but rather with the intent expressed in the written words of the contract and the context in which they used them.[^12]

[43] The landlord urges me to construe the lease against the interests of the tenant because the tenant drafted the lease. This is known as the principle of contra proferentem. I disagree with the landlord’s submission.

[44] First, contra proferentem only applies as a tool of last resort in the interpretation of a truly ambiguous contract.[^13] As I will explain, I do not think the lease is ambiguous. The meaning of the lease is readily determined by using the traditional tools of contract interpretation and there is no need to fall back on the interpretive tools of last resort.

[45] Second, even if the lease was ambiguous, the doctrine has no application on the facts of this case. Even if I accept that the lease is based on the form of lease used by the tenant for its other grocery stores, this is not a typical contract of adhesion. I do not think that contra proferentem has any application where, as here, the lease was negotiated between sophisticated parties with an ability to modify the wording of the lease.[^14]

4. The 1987 lease assignment

[46] The landlord submits that the tenant breached the lease in 1987 when it assigned the lease in an impermissible manner. In its opening statement, the landlord submitted that this breach “goes to the behaviour of the parties in terms of equitable remedies.” For the reasons set out below, I do not accept this submission.

[47] Section 36 of the lease permits the lessee to assign the lease in certain limited circumstances:

Assignment and Subletting

The Lessee may assign this lease or sublet the leased premises to a subsidiary or to a company affiliated with the Lessee without the consent of the Lessor, provided that such subsidiary or affiliated company agrees to carry on in the leased premises a business of the same nature as the Lessee's business and provided that the Lessee continues to be bound by all the terms and conditions of this lease. Except as aforesaid, the Lessee shall not assign this lease or sublet the leased premises without the consent in writing of the Lessor which shall not be unreasonably withheld.

[48] The landlord submits that the 1987 assignment and subletting agreement did not comply with the terms of the lease. First, the landlord submits that even if the lessee (Great Atlantic & Pacific Company of Canada, Limited) was permitted to assign the lease to the assignee (A & P Properties Limited) because it was a subsidiary or a related party, A & P Properties Limited was obliged to carry on the grocery business. The landlord submits that the A& P Properties Limited was not permitted to enter into an immediate sublease back to Great Atlantic & Pacific Company to permit it to operate the grocery store. Second, the landlord submits that it did not provide its consent in writing to this non-compliant arrangement.

[49] Mr. Sorokolit testified that the lessee never told him about the 1987 assignment. He stated that he always thought A & P Properties Limited (later called Metro Ontario Real Estate Limited) operated the store. He stated that he only learned otherwise when he read the statement of claim in 2009 or early 2010. He also testified that, if the lessee had asked him to consent to this assignment and sub-lease arrangement, he would have refused to do so because it would have interfered with the landlord’s ability to distrain on the tenant’s goods.

[50] Mr. O’Neil testified that the tenant had not located any documents indicating that it wrote to the landlord about the 1987 assignment. He believed that he would have advised the landlord of the 1987 assignment, even if it was orally, because it was his practice to do so. Mr. O’Neil also points to the lease amending agreement dated June 29, 2001, which listed A & P Properties Limited as the tenant, and the Application for Registration of Notice of Lease, which was dated September 26, 2001, which was prepared by the lawyers for the landlord, and listed A & P Properties Limited as the tenant. These documents, however, are well after the assignment, even if they pre-date Mr. Sorokolit’s recollection of when he learned of the assignment.

[51] I do not accept Mr. Sorokolit’s evidence regarding the importance of this issue to the landlord. I find that the landlord only became concerned about the issue of the 1987 assignment after the commencement of the litigation and did so only because and to the extent it thought it could obtain tactical or strategic advantages by raising the issue. I reach this conclusion for four reasons.

[52] First, in 1996, the landlord knew that the Dominion store occupying the leased premises was closed for three months while it was converted to a Food Basics store. The landlord also knew that the Food Basics store would be run by a franchisee, not by the tenant. Indeed, the parties entered into a lease amending agreement dated September 12, 1996, in light of this development. There is no evidence that the landlord was concerned about a franchisee operating the Food Basics rather than A & P Properties Limited, which was the party to the lease amending agreement. If there was a time to for the landlord to be very concerned about its rights of distraint, it was in 1996, when the store was converted to a Food Basics. The fact that the landlord raised no concerns about this sub-tenancy in 1996 causes me to doubt the Mr. Sorokolit’s evidence at trial that the landlord would have been very concerned about the 1987 sub-tenancy arrangement.

[53] Second, I do not accept the landlord’s submission that the tenant intentionally did not get the landlord’s written consent to sublease to the franchisee so that the tenant did not have to give a copy of the sublease to the landlord. There is no evidence to support this submission. Moreover, I do not accept the logic underpinning it. The lease requires the tenant to obtain the consent of the landlord for the assignment. The tenant is not obliged to give a copy of the sublease to the landlord. Some landlords might ask to see the sublease as part of its consideration of whether or not to approve the subtenancy. However, this landlord knew about the subtenancy and did not ask to the see the sublease. Given this reality, I do not accept the landlord’s submissions on this point.

[54] Third, on September 26, 2001, the landlord’s lawyers prepared the Application for Registration of Notice of Lease. That document listed A & P Properties Limited as the tenant. There is no evidence that the tenant tried to hide the identity of the lease counter-party from the landlord. In 2001, Certainly, counsel for the landlord could have made any inquiries they or the landlord thought necessary when they were preparing the application for registration.

[55] Fourth, the landlord’s behaviour once fixed with knowledge of the sub-tenancy does not support its submission that this was a matter of great importance. Mr. Sorokolit testified that he only learned that the tenant was not operating the store in August 2009, when he reviewed the statement of claim. Thereafter, however, the landlord did not declare that the tenant had breached the lease, declare the lease terminated, or exercise any of its rights under the lease. Indeed, the landlord permitted the lease to be renewed for two additional five-year periods. All of this conduct, considered together, confirms for me that the landlord saw the assignment as a strategic and tactical issue in the litigation, not a breach of the lease that imperilled its ability to recover.

[56] In addition, any risk the landlord faced is purely hypothetical. It did not exercise its rights under the lease, attempt to distrain assets, or lose any rights of value. It is not even clear that the assets of MOREL (the successor to the party that signed the lease) would not have been available for the landlord to seize as necessary.

[57] Given the tenant’s stated practice of advising the landlord of such assignments, I find that the tenant provided the landlord with notice of the assignment. Even if the landlord did not know immediately of the assignment, I find that the landlord knew of the assignment no later than 1996 and did not raise a concern at that time. If it had the right to object, it waived that right. In any event, this issue was of no concern to the landlord, except to the extent that it could use the issue to its advantage in the litigation. I find that the assignment issue does not affect my analysis of any of the issues in dispute.

[58] Except where it is necessary to do so, I will use the word “tenant” to refer compendiously to both Metro Ontario Real Estate Limited and Metro Ontario Inc.

5. Common area maintenance

Overview

[59] The parties have a significant dispute over the CAM payments. The landlord submits that the tenant owes a significant amount of unpaid CAM charges, even if it now concedes that certain amounts that it included in the CAM invoices need to be excluded. The tenant submits that not only does it not owe the landlord any unpaid CAM, it has in fact overpaid CAM and is entitled to be repaid for these amounts.

[60] As I explain below, I find that the landlord has not proven that the tenant owes it any unpaid CAM charges. I do not accept much of Mr. Sorokolit’s evidence regarding the landlord’s practices with respect to billing for CAM charges. I reject his evidence that the landlord’s goal was to minimize CAM expenses for tenants. Indeed, it appears that the landlord treated the CAM charges as a convenient tool to shift costs that it properly should have borne to the tenant. The landlord does not appear to have been concerned about the accuracy of its CAM billings. Indeed, as set out below, I find that the landlord took deliberate steps to inflate artificially the tenant’s CAM costs in at least three ways:

a. the landlord knowingly included cleaning fees for the passport office that did not fall within CAM and continued to do so even after the tenant brought this matter to the landlord’s attention;

b. the landlord knowingly and intentionally understated the gross leasable area of the shopping mall, which artificially increased the tenant’s proportionate share of the CAM expenses;

c. the landlord knowingly did not make a good faith estimate of the management salaries to be allocated to the tenant and has not proved its entitlement to claim the amounts billed to the tenant.

[61] The parties will need to recalculate the CAM charges based on these findings. Based on the figures filed by counsel, I anticipate that the tenant will not owe any unpaid CAM to the landlord. If the tenant does owe unpaid CAM to the landlord after this recalculation, I deny the landlord the right to claim any interest on CAM amounts owing because I find that the landlord knowingly issued false invoices to the tenant.

Section 22 of the lease

[62] Section 22 of the lease requires the tenant to contribute to the landlord’s costs of maintaining and operating the common area of the mall. It is a long clause that serves six purposes.

[63] First, s. 22 obliges the tenant to pay a “proportionate share” of the landlord’s costs of maintaining and operating the common areas and facilities. The “Lessee’s proportionate share” is a defined term in the lease. It means the quotient obtained by dividing the “Rentable Area of the Leased Premises” (itself a defined term, but not in dispute), by the “Rentable Area of the Shopping Centre.” The latter term, which is important to one of the disputes between the parties, is defined to mean “the total area expressed in square feet as certified by an Architect or Land Surveyor of all leasable floor spaces of all buildings and structures in the Shopping Centre whether leased or not.” Section 22 contains a long list of expenses that the landlord may include in the CAM charges. This portion of the clause reads as follows:

The Lessee shall pay to the Lessor the Lessee's proportionate share of the Lessor's costs of maintaining and operating the common areas and facilities (including parking areas), including without limitation,

(a) annual premiums for insurance policies in respect of the common areas, including general comprehensive public liability insurance;

(b) cleaning, including snow and ice removal;

(d) operation, repair and ordinary maintenance of lighting fixtures, loudspeakers, public address and music broadcasting systems;

(e) policing and supervising parking area traffic; operation, repair and ordinary maintenance of heating, air-conditioning and ventilation system serving enclosed mall;

(f) operation, repair and ordinary maintenance of heating, air-conditioning and ventilation system serving enclosed mall;

(g) wages and salaries of personnel, including management staff, reasonably employed to carry out common area maintenance less such portion of wages and salaries as may be reasonably allotted to activities, if any, performed by such personnel which are not common area maintenance, including contributions for usual fringe benefits;

(h) care and ordinary maintenance of grass, flower beds, planting strips in common areas, including replacement of plants;

(i) operation, repair and ordinary maintenance of signs installed in or on the Shopping Centre, whether owned or rented by the Lessor, provided that any such sign is used only to advertise and/or promote the Shopping Centre as a whole.

[64] Second, s.22 addresses the operation of the parking lot, which is not a matter in dispute in this action.

[65] Third, s. 22 limits the landlord’s recovery to sums “actually and directly” spent by the landlord as CAM, plus a 10% premium, in lieu of other administrative expenses. That portion of the section provides as follows:

Provided further that the term "cost" within the meaning hereof shall mean and include only such sums as are actually and directly expended by the Lessor to provide the aforesaid services, plus ten percent (10%) of the net cost to cover and in lieu of any other administrative, indirect or overhead expenses, but shall not include expenditures which are of a capital nature, nor depreciation.

[66] Fourth, s. 22 requires the landlord to provide an itemized statement of account, supported by such evidence as the tenant may reasonably require, and requires the tenant to pay its share of the costs to the landlord. The parties each assert that the other failed to comply with its obligations under this part of the section. It provides as follows:

The Lessor shall forward to the Lessee at the end of each twelve (12) month period during the term hereof, an itemized statement of account showing the cost of said services for the previous period, the total thereof, the parking charges, if any collected, the net cost of said services, the areas used to calculate the Lessee's proportionate share thereof, and the proportion and amount of the Lessee's share thereof, supported by such evidence in verification thereof as the Lessee may reasonably require, and upon receipt of each such statement the Lessee shall pay its share of such net costs to the Lessor.

[67] Fifth, s. 22 permits the landlord to estimate the tenant’s share of CAM expenses and require the tenant to pay that estimated amount in monthly instalments in advance:

Provided that the Lessor may estimate the amount of the Lessee's share of such net costs for the first twelve (12) month period of the term hereof, in which case the Lessee shall pay to the Lessor one-twelfth of such estimated amount each month in advance, subject to adjustment at the end of said twelve (12) month period after receipt by the Lessee of said statement when the Lessee shall pay any underpayment or the Lessor shall refund any overpayment to the Lessee within thirty (30) days of delivery of such statement, and thereafter the Lessee shall during each succeeding twelve" (12) month period pay to the Lessor one-twelfth of the Lessee's share of such net cost during the preceeding [sic] twelve (12) month period in monthly instalments in advance subject to adjustment at the end of each such twelve (12) month period as aforesaid.

[68] Sixth, s. 22 permits the tenant to have access once per year to view the underlying records supporting the calculation of CAM on certain terms:

The Lessee and its officers and agents or auditors shall have access, not more than once in any one year of the term hereof, at any and all reasonable times during regular business hours to view the records and supporting data that the Lessor shall keep in the Shopping Centre or at its Head Office in Ontario of the Lessor's costs of maintaining and operating the common areas and facilities for the purpose of examination or audit. All such records and data shall be kept, retained and preserved for at least six (6) months from the expiration of the year to which they relate.

The landlord invoiced for unrecoverable expenses to clean the passport office

[69] The parties dispute the inclusion of certain cleaning expenses related to the passport office at the shopping centre. The tenant claims damages or a credit for amounts paid to the landlord equal to the amount of the CAM charges attributable to the cleaning of the passport office from 2009 to 2016.

[70] The Government of Canada has operated a passport office in the shopping centre since 2000. The passport office occupied approximately 8,600 sq ft of space. The interior of the passport office needed to be cleaned so the landlord contracted with a third party to clean the passport office. At no time did this expense relate to a common area, so it was never a cost “actually and directly expended by the [landlord] to provide” the common area services.

[71] In addition, the passport office was classified as an office space tenant, not a retail tenant. On October 1, 1990, the landlord and the tenant agreed that the tenant would only pay for CAM costs associated with the retail leasable area, not the office leasable area. I will address this issue in more detail below. For these two reasons, the landlord should have excluded all costs related to the passport office from the tenant’s CAM charges.

[72] In 2009, however, the landlord began to include the cost of cleaning the passport office in the CAM invoices sent to the tenant. There is no evidence the landlord clearly disclosed this charge to the tenant or that the tenant could have discovered this charge from any of the information provided by the landlord. It is plain and obvious that the cost of cleaning should never have been included in CAM charges billed to the tenant. I find that the landlord knew from the very first invoice that that the passport offices should never have been included in the CAM charges billed to the tenant.

[73] I note that the inclusion of the costs of cleaning the passport office causes me to have grave doubts about the accuracy of the landlord’s audited financial statements for CAM.

[74] On January 24, 2014, the landlord wrote to the tenant and explained that the landlord was revising the 2009 CAM invoice “as a result of allocating the Acumyst contract amount between retail and office.” The landlord then explained that Acumyst was an outside contractor cleaning the passport office.

[75] On September 5, 2014, the tenant wrote to the landlord and indicated that the 2009 CAM invoice included $12,320 for the cleaning contract for the Passport Office. The tenant explained that this bill related to a specific tenant and, therefore, was not a common expense for which the tenant should be charged.

[76] Notwithstanding its own knowledge, and the tenant’s protest, the landlord continued to charge the cost of cleaning the passport office as a common area expense for eight more years. Indeed, it was only during trial that the landlord finally conceded the obvious point that the costs of cleaning the passport office could not form part of CAM billed to the tenant.

[77] I find that landlord knowingly issued false invoices to the tenant for CAM in the years from 2009 to 2022. The landlord also attempted to compel the tenant to pay these false invoices by threatening to exercise its rights under the lease unless they were paid. As the tenant has limited its request for damages or repayment to the years spanning 2009 to 2016, I find that:

a. the tenant is entitled to damages or a set-off for the portion of the CAM charge attributable to the cleaning of the passport office from 2009 to 2016; and

b. the tenant is entitled to damages or a set off for the additional 10% administrative fee the landlord charged on portion of the CAM charge attributable to the cleaning of the passport office from 2009 to 2016.

The landlord deliberately manipulated and understated the GLA

[78] At trial, the parties agreed that the tenant’s share of CAM should be calculated based on a gross leasable area of 116,399 square feet. However, it is important to explore how the landlord manipulated the GLA between 2009 and 2023.

[79] As noted above, the lease permitted the landlord to invoice the tenant for its proportionate share of the CAM charges. The “Lessee’s proportionate share” is a defined term in the lease. It means quotient obtained by dividing the “Rentable Area of the Leased Premises” (itself a defined term), by the “Rentable Area of the Shopping Centre.” The latter term is defined to mean “the total area expressed in square feet as certified by an Architect or Land Surveyor of all leasable floor spaces of all buildings and structures in the Shopping Centre whether leased or not.”

[80] In practice, this meant that the tenant would pay a larger proportion of CAM expenses for the shopping centre if there was a reduction in the Rentable Area of the Shopping Centre (the denominator of the fraction).

In 1990 the parties agreed that the minimum GLA always be no less than 116,399 square feet

[81] As mentioned above, in 1990, the parties agreed to amend the calculation of CAM. The landlord would separate retail leasable area from office leasable area and the tenant would pay its share of the retail leasable area only. The parties also agreed that the denominator of the new fraction, referred to at trial as the gross leasable area or GLA, would never be less than 116,399 square feet. This agreement was reduced to writing in a letter dated October 1, 1990, which provided:

Further to our telephone conversation of September 28th, I am summarizing the settlement on common area expenses we agreed upon.

Square Footage of Shopping Centre - The denominator used for our common area proportionate share calculation will remain at 116,399 for the length of the lease including option periods. There will be no adjustment in the past to change this number. The denominator will always include the basement storage areas in the shopping centre. The denominator will only be subject to change with enlargements to the centre. The common area costs will continue to be prorated as was done for example on the 1988 statement where costs are split between retail leasable area versus office leasable area. Our store will pay its share based on the costs associated only with the retail leasable area.

[82] The parties agree that this letter is binding on them. The tenant’s evidence was that it lost this letter some time before 2009 and that it did not see this letter again until it was produced by the landlord during the litigation.

[83] There appears to have been no issue regarding the GLA until July 17, 2009, when the landlord wrote to the tenant regarding several issues, including outstanding CAM. The landlord attached a spreadsheet that used 113,368 as the GLA for the years 2004 to 2008. This GLA figure was inconsistent with the parties’ 1990 agreement. Because the landlord’s figure of 113,368 was smaller than the agreed upon figure of 116,399, using the landlord’s figure would cause the tenant to pay a higher proportion of the total CAM charges for the shopping mall than required by the agreement.

[84] On July 24, 2009, the landlord wrote to the tenant and enclosed revised CAM billings for 2004, 2005, and 2006, and CAM adjustment billings for 2007 and 2008. For each of the five years, the landlord represented on the revised invoices that the GLA was 106,486 square feet. The original invoices stated that the building area was 116,399, which was the minimum number set by the 1990 agreement. The landlord advised that the “revised billings for 2004 to 2006 were necessary because of a change in building area.”

[85] On August 11, 2009, the tenant agreed to make a partial payment towards the revised CAM invoices. The tenant recalculated the amounts owing based on a GLA of 116,399 that was used in the original invoices. The tenant explained why it believed that was the correct number and asked the landlord to provide an explanation of why the GLA had decreased by almost 10,000 square feet:

You will note that we have used the original Building Area in our calculations. Please explain the 9,913 s.f. decrease and why it is effective January 1, 2004. Also, please provide us with site plans (before and after the change in area) along with the Architect (or Land Surveyor) certifications (before and after change in area). The lease states, at Article V(b), that the Rentable Area of the Shopping centre is to be certified by either an Architect or Land Surveyor. Upon our review and if so required, we will make the necessary adjustments.

[86] On December 4, 2009, the landlord advised the tenant that the retail GLA was actually 103,811 square feet. The landlord stated that when it calculated the CAM invoice sent on July 24, 2009, it used 106,486 sq ft. The landlord advised that it was “prepared to leave the revised billings as is” and start to use the 103,811 square foot figure commencing on January 1, 2009. In fact, the landlord never calculated the tenant’s share CAM charges based on the 103,811 square foot GLA.

[87] The landlord’s decision to reduce the GLA to 106,486 feet and then 103,811 square feet is obviously a breach of its 1990 agreement with the tenant to set a minimum GLA of 116,399 square feet. At trial, Mr. Sorokolit testified that he had not reviewed the 1990 letter and that the landlord did not intentionally breach the agreement when it sent those invoices. That may or may not be true. For the reasons that follow, however, I find that the landlord intentionally misrepresented the GLA and delivered knowingly false invoices to the tenant.

[88] On December 14, 2009, the tenant wrote and asked the landlord to provide a detailed explanation of the basis for the decrease in the GLA. The landlord offered no explanation for over four years.

[89] On January 24, 2014, the landlord advised that the GLA decreased from 116,399 to 106,486 because the landlord excluded the basement space formerly occupied by Bi-Way and a McDonalds restaurant:

The old GLA denominator was 116,399 s.f. After deduction of 5,944 s.f. for the old Biway space, and 3,969 s.f. for the McDonald's basement, the revised number used is 106,486 s.f. Attached is a breakdown by rental unit.

[90] As I will explain below, the landlord had no basis to exclude the basement space for McDonalds and BiWay.

The landlord misrepresented the GLA by excluding the McDonalds basement space

[91] The breakdown by rental unit that the landlord provided to the tenant in January 2014 was dated April 1, 2012. It listed McDonalds as occupying 3,772 square feet, which did not include any space in the basement. I find that the landlord deliberately misrepresented of the space rented by McDonalds.

[92] In Spring 2009, the landlord and McDonalds Restaurants of Canada Limited negotiated over the terms of a renewal lease. At that time, McDonalds rented 3,772 square feet of retail space at $33.00 per square foot and 3,969 square feet of space in the basement at $5.00 per square foot. This was the lease that was in place when the landlord delivered the July 24, 2009 CAM invoices with the reduced GLA.

[93] On August 10, 2009, the landlord and McDonalds entered into a ten-year renewal lease, with one additional 10-year option. Under the terms of the renewal lease, McDonalds would pay $30.00 per square foot (for years 1 to 5) and then $32.00 per square foot (for years 6 to 10) for the 3,772 square feet it leased on the ground floor and $7.00 per square foot for the 3,969 square feet it leased in the basement. Therefore, not only was the McDonalds basement leasable space (which was the test for inclusion in the calculation of the GLA), the space was actually leased at a new, higher rent. The landlord knew that it had rented the basement space to McDonalds when it wrote to the tenant in January 14, 2014 and explained that it reduced the GLA, in part, because it excluded the McDonald’s basement space on the basis that it was not leasable.

[94] The landlord’s decision to exclude the McDonalds basement was impermissible under the 1990 agreement and under the lease. The landlord knew that it had leased the basement space to McDonalds. Mr. Sorokolit offered no coherent explanation for the landlord’s decision to exclude the basement space that it had rented to McDonalds. I draw the inference that the landlord made a conscious decision to exclude the McDonalds basement from the calculation of the GLA knowing that it had no right to do so and did so for the sole purpose of increasing the amount of the CAM invoice it delivered to the tenant.

The landlord misrepresented the GLA by excluding the BiWay basement space

[95] The breakdown by rental unit dated April 1, 2012, delivered to the tenant in January 2014, listed the BiWay space, unit 40, as “Storage.” The landlord included zero square feet for unit 40 in its calculation of the GLA. In doing so, I find that the landlord deliberately misrepresented the status of the BiWay space to the tenant. To understand why this was a misrepresentation, it is necessary to trace the history of that space and how it was used.

[96] Starting in 1994, BiWay leased 5,944 square feet of space in the basement of the shopping centre. By 2001, BiWay’s lease was on a month-to-month basis and, eventually, the store closed. The landlord subdivided unit 40 into six different spaces, which it designated as units 40a through 40f. By July 1, 2003, the landlord had rented each of the six spaces to tenants under leases that would expire sometime between 2004 and 2007.

[97] In February 2007, the landlord had rented four of the six basement spaces. In February 2008, the landlord had rented three of the six units. On June 15, 2009, just before the landlord delivered the amended CAM invoices to the tenant, it delivered a rent roll dated April 1, 2009, to its lender, the Royal Bank. That rent roll showed that unit 40 had been subdivided into six leasable units and listed six current or former tenants. At that time, one of the units was leased.

[98] The landlord’s decision to exclude the “old BiWay space” from the GLA when it had been subdivided into rentable units was impermissible under the 1990 agreement and under the lease. Again, I have no doubt that the landlord made a conscious decision to exclude the leasable space in unit 40 knowing that it had no right to do so. Mr. Sorokolit offered no credible explanation for why the landlord made different reports to its bank and to the tenant.

The reduction in GLA is not explained by the rental status of the movie theatre

[99] At trial, the landlord attempted to justify the reduction in the GLA on the basis of the closing and prolonged emptiness of the basement movie theatre. This was not the explanation the landlord offered to the tenant at the time. The landlord’s explanation regarding the movie theatre is not supported by the evidence. On August 14, 2008, the landlord advised its banker that CINE-STARZ was now renting the cinema on a 10-year lease. The rent was free for the first two years, and then increased to $4.00 a square foot for the next three years, and then $5.00 a square foot for the final five years. The theatre was leasable and leased. There was no basis to exclude it from the calculation of the GLA.

The landlord knew that it was providing CAM invoices to the tenant that breached the 1990 agreement

[100] On August 14, 2014, the landlord demanded that the tenant pay $274,186.41 in unpaid CAM charges. The landlord advised that unless it received payment within seven days, it would exercise its rights under the lease up to and including the termination of the lease. At this time, the landlord was demanding that the tenant pay CAM invoices that the landlord knew that it had generated based on a false GLA calculation.

[101] On September 5, 2014, the tenant wrote to the landlord and explained that it calculated the GLA to be 138,614 square feet, not 106,486 square feet. This calculation included both the retail and office space, which was inconsistent with the 1990 agreement. The tenant took the position that the lease did not permit the basement space for McDonalds or BiWay to be deducted from the GLA. Nevertheless, the landlord continued to deliver CAM invoices calculated on a GLA of 106,846 square feet.

[102] On August 2, 2017, the landlord again wrote to the tenant to demand payment of the outstanding CAM charges, which were calculated on the incorrect GLA of 106,846 square feet. The landlord rejected the tenant’s calculation of CAM because it included both office and retail space, contrary to the terms of the 1990 agreement. The landlord’s letter read, in part, as follows:

The issue of "proportionate share" of Retail CAM based upon the Retail GLA in the Shopping Centre has been confirmed by your staff on numerous occasions, including correspondence received by us from Mr. Joe Siman, Manager, Real Estate Accounting in 1990. In a letter dated October 1, 1990, Mr Siman states the following:

"The common area costs will continue to be prorated as was done for example on the 1988 statement where costs are split between retail leasable areas versus office leasable area. Our store will pay its share based on the costs associated only with the retail leasable area."

[103] The landlord’s letter quotes selectively from the 1990 letter agreement between the parties and is disingenuous and misleading. For ease of reference, the text of the letter is set out below. I have underlined the parts of the 1990 letter that the landlord chose not to include in its 2017 letter justifying a GLA of 106,486 square feet:

[104] To recap, the landlord issued invoices based on a GLA of 106,846 square feet. The tenant advised that it thought the GLA should be 138,614 square feet, including both retail and office. The landlord disputed the tenant’s inclusion of the office space by pointing to the 1990 letter but failed to mention the agreed upon minimum GLA of 116,399 square feet set out in the very same paragraph of the letter that it quoted to the tenant.

[105] The landlord’s letter dated August 2, 2017, was signed by Trevor Bellas. The landlord did not call Mr. Bellas as a witness at trial, so there is no direct evidence regarding how this letter came to be written. In any event, when the landlord quoted from the final two sentences of the 1990 agreement, I do not accept that the landlord could have innocently overlooked the first part of the paragraph from which it quoted and which completely contradicted the position taken by the landlord since 2009.

[106] As of August 2, 2017, not only did the landlord subjectively know that it was providing false GLA calculations to the tenant (as it had known for eight years), it also subjectively knew that its calculations breached the 1990 agreement with the tenant. Notwithstanding this knowledge, the landlord continued to demand payment of CAM charges calculated on a GLA figure that the landlord knew to be false.

[107] The tenant made a payment to the landlord because of the landlord’s statement that it would exercise its rights under the lease unless a payment was made. This payment comprised the tenant claiming tax credits to which it believed it was entitled and making a cash payment to the landlord.

[108] On March 5, 2018, the landlord sent a further letter to the tenant that repeated the selective quote from the 1990 letter.

Conclusion

[109] The landlord continued to assert that the GLA should be calculated on the basis of 106,486 square feet until two weeks before the first day of trial, when it finally agreed that the GLA should be calculated on the basis of 116,399 square feet. This concession, while appropriate, came far too late to assuage my concerns regarding how the landlord manipulated the GLA and the CAM charges.

[110] The landlord deliberately manipulated its calculation of the GLA to its own benefit and to the detriment of the tenant for many years. Starting in 2009, the landlord submitted CAM invoices to the tenant based on a GLA that it knew to be false. In 2017, having reviewed the 1990 agreement between the parties, I find that the landlord knowingly and deliberately quoted selectively from the letter to support a GLA figure to which it knew it was not entitled. The landlord threatened the tenant that if it did not pay the invoices that the landlord knew to be false, the landlord would lock them out of the store.

[111] I do not accept any of Mr. Sorokolit’s evidence about the landlord’s calculation of the GLA. His explanation that the landlord just made a mistake is not believable. The landlord was telling the bank one GLA number and the tenant another number. The landlord was removing the McDonald’s basement from the calculation of the GLA at the very time that it was negotiating a renewal lease over that space at a higher rent. I find that the landlord was lying to its tenant about the proper GLA figure. The landlord’s conduct with respect to the GLA causes me to doubt the integrity of all of the landlord’s billing practices for the CAM charges, including the management fees, which I will discuss next.

[112] The CAM charges owed by the tenant must be calculated on a GLA of 116,399 square feet.

The landlord did not charge permissible management fees

[113] The parties dispute amounts charged by the landlord as management fees from 2003 to 2016.

[114] The landlord points to section 22 of the lease as justifying its decision to charge a management fee to the tenant. Section 22 provides that the landlord many include in the CAM charges allocated to the tenant an amount for wages and salaries of employees and management staff reasonably employed to carry out common area maintenance:

[115] Section 22 also states, however, that the landlord may not include in the CAM charges any amounts associated with administrative, indirect, or overhead expenses. Instead, the landlord may only charge a 10% mark-up on its net costs in lieu of claiming administrative and overhead expenses:

[116] The management fee had been a longstanding irritant between the parties. In 1996, the tenant expressed concern over the management fee. The landlord took the position that the management fee was reasonable and it had considered increasing the fee:

Mall management fee: we consider it to be very reasonable. In fact, we were considering increasing it since it has been at $60,000.00 for quite a few years period we would be hard pressed to find another property supervisor to work a 70 hour week at that salary.

[117] The tenant exercised its audit rights and conducted an audit of CAM expenses for the years ended 1998 and 1999. The audit identified a significant number of expenditures that did not appear to fit within the definition of allowable expenses under s. 22 of the lease. The audit also reviewed the “year-end adjusting journal entries” for the $60,000 management fee. The tenant’s auditor estimated that 50% of the amount was properly attributable to management staff carrying out common area maintenance and 50% was attributable to time spent by management staff to administer tenant issues, leasing and non-common area maintenance activities that was not recoverable under CAM. The audit concluded:

Section 22G of the lease requires the lessee to pay its proportionate share of the wages and salaries of personnel, including management staff, reasonably employed to carry out common area maintenance less any portion of wages and salaries as may be reasonably allotted to activities, if any, performed by such personnel which are not common area maintenance.

The above calculation is an estimate of the non common area maintenance functions performed by the management company personnel only. Wages and salaries paid to the maintenance and security staff are recoverable and are not included in the above adjustments.

[118] From that point forward, the tenant remitted only one-half of the management fee charged by the landlord. In 2000, the landlord increased the amount of the management fee to $75,000. The tenant continued to take the position that only one-half of the $75,000 management fee was properly included in the CAM charges and paid that amount. This dispute was not even over $37,500, it was over the tenant’s proportionate share of the management fee. The landlord did not appear to treat this issue as a significant one, which is reasonable and unsurprising given the small amount at issue.

[119] On August 25, 2004, in response to a request from the tenant for additional information, the landlord provided an explanation for the amounts claimed as wages and benefits in the 2003 CAM expenses. It indicated that it was charging $144,290 in salaries for maintenance staff, $0 for supervisors, and $75,000 for management staff.

[120] The landlord eventually produced the general ledgers and supporting documents for its CAM billings. The management fee was unsupported by any invoices or back-ups. There was no breakdown or explanation of the fee and the $75,000 did not appear on the general ledgers. The landlord added this fee outside the usual general ledger process. The parties appeared content to leave the dispute unresolved.

[121] On December 6, 2007, the tenant wrote to the landlord and indicated that it wished to conduct an audit of common area costs. The tenant requested that the landlord provide “the invoice related to CAM 2004, 2005, 2006” and documents including a general ledger and certain contracts.

[122] On January 25, 2008, the landlord stated that it had not sent the CAM invoices because the management fee issue remained unresolved:

The Common Area Operating Expenses adjustment invoices were never previously sent out because of the difference in opinion relating to management fees. The intention was to first meet to resolve this and then send out the invoices. But this meeting was never held and thus this issue remains to be solved.

[123] The landlord included two sets of invoices with its letter. One set of invoices used a $75,000 management fee and the other used $37,500. The landlord also included a general ledger and other documents. The landlord also included a chart that set out its position that the tenant had underpaid management fees in the total amount of $80,231 for the years 2000 to 2006. The chart did not include any claim for interest.

[124] On March 26, 2009, the tenant wrote to the landlord to advise that it was revising its rent calculations. On April 7, 2009, the tenant explained how its calculations had changed. The question of the correct calculation of rent, which I address below, was a much bigger dispute than the parties’ difference of opinion on management fees. In my view, the dispute over rent drove the parties’ position over management fees.

[125] On June 2, 2009, the tenant responded to the landlord’s letter dated January 25, 2008. The tenant indicated that it would only pay one-half the management fee:

We maintain the position held in the past. [The tenant] had agreed, following an audit conducted for years ended 1998 and 1999, to accept one half of the Management Staff expense.”

[126] The parties met on July 2, 2009, but were unable to resolve disputes between them.

[127] On July 17, 2009, as discussed above, the landlord sent a demand for $293,000 in unpaid CAM for the years 2004 to 2008.

[128] On July 24, 2009, the landlord significantly escalated the CAM dispute. On that date, it delivered revised CAM invoices for 2004, 2005, and 2006, and delivered CAM invoices for 2007 and 2008. It also claimed CAM shortfalls going back as far as 2000. As I explained above, the landlord knew that these invoices were false as they were based on a GLA that the landlord knew to be too low. The landlord claimed, for the first time, that the tenant owed more than $365,000 in CAM adjustments:

Also enclosed is a summary detailing the total amount of $365,887 now owing for CAM adjustments (including shortpayments for 2000 to 2003). These shortpayments were due to A&P's position to accept only one-half of the $75,000 p.a. Management Fee expense. We are not agreeable to this, and request that you include the shortpayments amount of $43,909 with your cheque; and that you refrain from making any deduction for this reasonable Management Fee for the years 2004 to 2008.

The revised billings for 2004 to 2006 were necessary because of a change in the Building Area.

[129] The tenant’s evidence at trial was that this letter was the first time the landlord stated that it did not accept the tenant’s view that only half of the claimed management fee should be included in the CAM charges.

[130] The landlord attached general ledgers for 2004, 2005, and 2006, to the letter dated July 24, 2009. The general ledgers did not contain any entries that supported the $75,000 the landlord claimed as the management fee.

[131] On August 11, 2009, the tenant reiterated its position regarding the management fee and indicated that it was prepared to make a partial payment towards CAM owing, after reducing the management fee to $37,500 and using 116,399 as the GLA. The tenant also asked the landlord to provide the general ledger for each of 2007 and 2008. When the tenant did not receive the general ledgers, it reiterated its request on October 21, and December 7, 2009.

[132] On August 12, 2009, the landlord provided general ledger entries for the repair and maintenance expenses to support the CAM adjustment billing invoices for 2007 and 2008. The landlord did not include the other general entries the tenant requested and needed to assess all of the expenses.

[133] On December 14, 2009, the tenant wrote the landlord. It indicated that it had now reviewed the information provided with respect to the 2004 to 2008 CAM charges. The tenant stated that the landlord was charging for maintenance supervision, which the tenant submitted should be covered by the management fee and excluded from common area costs. It maintained its position with respect to the management fee and requested additional information to understand the charges at issue:

As mentioned in our previous correspondence, we maintain the position taken by A&P back in 2000 concerning the Management Fee. At that time, A&P relied on Lease Audit Report prepared by J.J. Barnicke Limited on the 1998 & 1999 Common Area Costs. The report stated that 50% represented the "estimated portion of fee for management staff to carry out common area maintenance per section 22(g) of Food Basics lease." For us to further understand the nature of this expense, could you please provide us with a breakdown of the services that are rendered in regards to these fees.

[134] The tenant took the position that with the adjustments it believed were appropriate, the landlord owed $295 to the tenant because the tenant had overpaid CAM. The landlord did not respond to this letter.

[135] On June 11, 2010, Mr. Bellas, the landlord’s financial controller wrote an email to William Sorokolit, with a copy to John Sorokolit, about the management fee. He wrote as follows:

On the $75,000, I’ll check with Eric on what his point is. It’s always been $75,000, although we talked about increasing it? But then you’ve got [the tenant] only accepting 50% of the $75,000; and were only actually paying CML (to you directly $60,000 [sic] So the whole thing is a mess.

[136] CML is a reference to Consulate Management Ltd., a non-arm’s length property management company that I will discuss below. Mr. Bellas did not testify at the hearing. It is difficult to reconcile this email with the landlord’s claim that it was incurring $75,000 in expenses properly described as a management fee. Certainly, this email does not support the landlord’s position.

[137] In its schedule of common area gross costs for the year ending December 30, 2010, the landlord included $75,000 as a management fee. The adjusted journal entry was described as “to record Consulate fees.”

[138] On August 22, 2013, the tenant wrote to the landlord after it received the adjusted CAM billings for 2009 to 2012. The tenant asked for general ledgers for 2009 to 2012. The tenant also indicated that it had not received a response to its letter from December 14, 2009, and reiterated its request for the documents set out in that letter.

[139] The first time that the general ledger includes an entry that appeared to relate to the management fee was 2014. In that year, a new account appeared in the ledger: “5207-000 CAM Mngmt Supervision Fee.” The entry of $60,000, which was entered on January 8, 2015, had the following description: “2/3 of Trevor’s salary for 2014.” That appears to refer to Trevor Bellas, the financial controller for the landlord. It appears, however, that the landlord included $75,000 as the management fee, even though the journal entry only included $60,000.

[140] For 2015, account 5207-000 was debited $75,000 on January 11, 2016. The description for that entry was “82.4% Trevor’s salary for ‘15”. Again, this appears to refer to Mr. Bellas and, I infer, a representation that 82.4% of his time was spent on activities that are properly recoverable under s. 22 of the lease.

[141] For 2016, account 5207-000 was debited $75,000 on January 4, 2017. The description for that entry was “trevor $75k maint supervision”. This is another reference to Mr. Bellas.

[142] I will explain below why I do not accept the landlord’s submission that it would be appropriate to include 66.6% or 82.4% of Mr. Bellas’ salary in the management fee and why I do not accept that Mr. Bellas, Hillmond’s financial controller, did $75,000 worth of work supervising common area maintenance that was recoverable as a legal CAM charge.

[143] On September 16, 2013, the landlord wrote to the tenant and advised that “the powers that be on my side have instructed me not to send anything to you. What they want is for you to come to our office to examine things.” In my view, this was an unreasonable position for the landlord to take. First, the landlord waited four years to take this position. Second, producing and sending many of the documents, most importantly the general ledgers, to the tenant would have been easy. I do not accept the Mr. Sorokolit’s evidence that the landlord took this position because producing the requested documents was time consuming. Instead, I conclude that this was a further attempt by the landlord to frustrate the ability of the tenant to conduct any meaningful review of the CAM charges.

[144] The tenant’s employees travelled to the landlord’s office on December 12, 2013. It made several follow-up requests to assist it to understand the CAM charges for which the landlord invoiced the tenant.

[145] On January 24, 2014, the landlord addressed the tenant’s December 12, 2013 office visit and its prior request of August 22, 2013. Among other documents, the letter attached a list of duties for the maintenance employees and “a copy of the Agreement for Property Management between Hillmond Investment Ltd. and Consulate Management Ltd.” The agreement provided that Consulate would provide property management services to Hillmond for the period January 1, 2010 to December 31, 2012, for $400,000 escalating to $600,000.

[146] Mr. Sorokolit explained that Consulate Management Ltd. is a real estate or property management company that he owns with his brother and sister.

[147] This contract is interesting, but irrelevant to the management fees charged by the landlord before January 1, 2010. There is no evidence that Consulate ever invoiced the landlord for providing recoverable management fees. There is no evidence that there were entries in the general ledger to reflect actual payments to Consulate. In my view, it is not sufficient for the landlord simply to allocate a portion of the money it paid to Consulate to CAM and thereby shift those costs to the tenants. The absence of paperwork, back-up, and justification for this allocation is striking.

[148] This is particularly the case because Consulate Management Ltd. is not arm’s-length to Hillmond Investment Ltd. It is owned by Mr. Sorokolit, his brother, and his sister. Consulate Management employed the three siblings. There was no evidence before me that the property management contract was at market rates or that the family members it employed were earning market salaries for their work. Indeed, in 2004, the landlord explained to its bank that when it was valuing Hillmond, it could disregard the payments to Consulate Management because they were intercompany transfers and merely served the purpose of allocating income to family members. Mr. Sorokolit conceded this point on cross-examination:

Q. So, you’re saying you can set that aside [because] it’s intercompany when you’re valuing Hillmond disregard the payment to Central Consulate Management Services?

A. Well, we -- we -- we only allocate a portion to -- to CAM, a very small portion.

Q. The point is this -- this contract you sent saying we have all this work and all this amount it’s actually the management fees associated with allocating income to family members.

A. Well, we take, what 15,000 out of the 600,000, we put it into CAM supervision.

[149] Finally, the landlord did not provide invoices or general ledger entries to demonstrate how Consulate billed the landlord for work that properly fell within CAM.

[150] Thereafter, the parties continued to exchange information about the outstanding CAM arrears.

[151] On May 27, 2014, the landlord sent an updated request for payment. The landlord was claiming amounts owing on account of CAM, including those referable to management fees, all the way back to 1997.

[152] On August 6, 2014, the tenant wrote to the landlord to confirm that it had received the 2013 CAM invoice and to request some backup information to assess that invoice. The landlord advised that it would get back to the tenant “within a week to 10 days.” Before the landlord provided the information, however, on August 14, 2014, the landlord sent a demand letter to the tenant demanding payment of $274,186.41. The landlord advised that unless it received payment within seven days, it would exercise its rights under the lease up to and including the termination of the lease. As of the date of this demand, the landlord had not provided a response to the tenant’s December 2009 request for information.

[153] On September 5, 2014, the tenant responded to the landlord’s letter and indicated that, from its perspective, once Metro was credited for overpaid taxes and the GLA was adjusted to 138,614, the landlord owed money to the tenant. The tenant asked for an explanation of how the landlord calculated the GLA and for the landlord to provide other documents. The tenant’s charts attached to this email message reiterated the tenant’s position that it would only agree to including $37,500 as a management fee in the CAM. The explanatory note to the chart read as follows:

According to Trevor Bellas (controller), these fees are charged by the owners. We are awaiting written agreement and description of services provided. Agreement for property management received. In our estimation, only $30,000 of the services relate to the common areas. However, as in the past, we would agree to pay a maximum of $37,500 for this expense.

[154] On October 30, 2014, January 15, 2015, and October 3, 2016, the tenant reiterated its request for the general ledgers from 2013, 2014, and 2015.

[155] On September 16, 2021, the tenant repeated its request for general ledgers from 2013 to 2019. On December 21, 2021, the landlord advised the tenant that the “records and supporting data for the fiscal years 2013 thru 2020 are no longer available for examination or audit.” Remarkably, the landlord produced the general ledgers from 2013 to 2016 in two tranches: December 2023 and two weeks before trial. Late production like this is not acceptable.

Conclusion

[156] In my view, the landlord has not proven that it is entitled to charge a management fee of more than $37,500 per year.

[157] Under s. 22(g) of the lease, the landlord is only entitled to recover costs associated with the performance of common area maintenance including that maintenance performed by management staff:

[158] The landlord is only entitled to recover the amounts actually and directly expended and it is not entitled to recover for its administrative, indirect, or overhead expenses:

[159] The landlord has not proven on a balance of probabilities that it incurred $75,000 in expenses that are properly recoverable as “wages and salaries of personnel, including management staff, reasonably employed to carry out common area maintenance.”

[160] First, the absence of any general ledger entries for this expense before 2014 is strong evidence that the landlord did not “actually and directly” expend any money for recoverable expenses related to management fees in any year prior to 2014.

[161] Second, the landlord provided no invoices for any year for expenses actually incurred for recoverable management fees. If the landlord had actually incurred those expenses, I would have expected the landlord to lead evidence that it was invoiced and paid the amounts it subsequently charged to the tenant.

[162] Third, the journal entries for 2014, 2015, and 2016 for account 5207-000 are not credible or believable. For example, I do not accept that in 2015, Mr. Bellas spent precisely 82.4% of his time carrying out or supervising the carrying out of common area maintenance. I find that, instead, the landlord reverse engineered that percentage of time. It wanted to bill the tenant $75,000, an amount that represented 82.4% of the salary of Mr. Bellas.

[163] As noted above, Mr. Bellas did not testify. He would have been a fruitful source of information for the full range of his job duties. Mr. Bellas could have explained how and why the landlord’s financial controller was spending 82.4% of this time on recoverable common area maintenance. It seems far more likely that the salary of Mr. Bellas would be properly characterized as an “administrative, indirect or overhead” expense of the landlord, which is not recoverable under s. 22. Mr. Bellas could have provided evidence in support of the landlord’s position, but he did not testify. In the absence of such evidence, I do not accept the landlord’s position.

[164] Mr. Sorokolit testified that Mr. Bellas was paid directly by the landlord, Hillmond, and was not an employee of Consulate Management Ltd. The general ledgers in 2014, 2015, 2016, that include portions of Mr. Bellas salary, therefore, are allocating a Hillmond expense to the management fees. This expense has nothing to do with Consulate Management Ltd., which does not employ Mr. Bellas. If the landlord was incurring recoverable management fees charged by Consulate, I would expect the general ledger to reflect that fact.

[165] Put differently, if Consulate Management was actually providing property management services, and the three Sorokolit siblings were actually engaged in recoverable CAM management, why do the general ledger entries for CAM management relate to the salary of Mr. Bellas, the one person who was not employed by Consulate? I do not accept Mr. Sorokolit’s evidence regarding the amount of time that the siblings spent on recoverable CAM management:

Q. Yeah. And roughly, how much of the time and effort expended by the management team would you indicate was part of this common area maintenance requirement?

A. At least - at least half. It varies per person, but between the three of us who are paid by Consulate Management. Like for Susan O'Brien, it would be - my sister would be 100 percent of her time. For William Sorokolit, it would be 50 percent of a time. And for me who focusses more on oversight of budgeting and all the various contracts associated with the property management or the common area maintenance management, I'd say 10 to 15 percent of my time.

Q. So $75,000 out of the $600,000 that is paid is a relatively small fraction allocated to CAM.

A. Yes, it is.

[166] I find that Mr. Sorokolit is conflating non-recoverable overhead expenses with recoverable CAM maintenance charges. Indeed, on his telling 1.65 FTE of the management team are devoted to CAM supervision, and that is before taking into account Mr. Bellas, who allegedly spent 82% of his time on the same tasks. I do not accept any of Mr. Sorokolit’s evidence on this point, which is entirely uncorroborated.

[167] Mr. Sorokolit testified that he was always trying to save the tenants money, and that is why they did not hire a person to perform the recoverable CAM supervision expenses. I disagree. The evidence is to the contrary. The landlord preferred to simply affix an arbitrary $75,000 expense the CAM charges. In the absence of invoices or proof of work, I do not accept this claim.

[168] Fourth, I do not accept the evidence of Mr. Sorokolit regarding Mr. Bellas’ activities related to CAM. Mr. Sorokolit testified that Mr. Bellas was the financial controller and that his primary duties related to accounting. That much I accept. Mr. Sorokolit went on to testify that Mr. Bellas would provide assistance with CAM matters, “whether they be security matters, cleaning matters, snowplowing and salting matters, repair, matters with contractors, he would…jump in every now and then to assist.” He also testified that Mr. Bellas would review all of the contracts for the companies providing CAM services and would also deal with other matters, like security and the cleaning staff. In my view, this evidence was not consistent with how Mr. Sorokolit described Mr. Bellas’ activities during his examination for discovery:

Q. And okay. So whey I say “overlooking the leases”, what exactly does [Mr. Bellas] do as the financial controller, because I note that there is correspondence dealing with CAM and other issues back and forth with [Mr. Bellas]. Is that because he is the primary contact?

A. Yes, he would be responsible for anything related to accounting and, you know, from time to time the accounting would intersperse with the lease.

[169] In my view, the discovery evidence contradicts Mr. Sorokolit’s testimony that Mr. Bellas was involved in recoverable CAM management work.

[170] I also do not accept the defendant’s submission that the audited statements are proof of legitimate CAM expenses. There is no evidence before me regarding how the audit was conducted and the auditors were not called to give evidence. The fact that the cleaning services for the passport office were included in the common area expenses gives me very little confidence in the audited statements as a true indicator of expenses properly charged to this tenant for this lease.

[171] I conclude that the landlord has not proven that it actually and directly expended any amounts that are properly recoverable as management fees beyond the $37,500 that the tenant has agreed to pay. I disallow all claims by the landlord for any management fees over and above $37,500 per year and, of course, any administrative fees charged on any amounts over $37,500. The landlord is also not entitled to any interest on any amounts invoiced as management fees over and above $37,500.

Interest

[172] A significant proportion of the landlord’s damages claim relates to interest charges on rent and additional rent that the tenant did not pay. Section 51 of the lease provides for interest charges:

If the Lessee shall fail to pay when due and payable any rent or additional rent, such unpaid amount shall bear interest at the rate of 10% per annum from and including the 11th day after written notice requiring payment thereof has been given by the Lessor to the Lessee to the date of payment thereof.

[173] The landlord submits that the tenant failed to pay its invoices for CAM charges and claims interest charges on unpaid CAM charges back to 2003. In my view, the landlord is not entitled to any interest. In my view, the tenant is only required to pay interest on amounts that are “due and payable.” In my view, because the landlord knowingly delivered false CAM invoices, those amounts cannot be fairly described as due or payable.

[174] I have made the following findings:

a. from 2009 onward, the landlord issued invoices containing charges for cleaning the passport when it knew that it was not entitled to include those charges in the CAM invoices;

b. from 2004 onward, the landlord issued revised CAM invoices that were calculated on a GLA that the landlord knew it had manipulated and artificially reduced to the disadvantage of the tenant; and

c. from 2004 onward, the landlord issued CAM invoices including a management fee that was not recorded correctly in its general ledger and the landlord has not proved that it ever actually and directly expended those funds to provide services properly chargeable to the tenant as CAM.

[175] In its opening statement, the landlord acknowledged that the court had the discretion not to award interest on invoices that were calculated on an incorrect GLA. I agree.

[176] Taking all of this into account, I disallow the landlord to claim any interest on any unpaid CAM charges. Those amounts were not due and payable at a time that the landlord knowingly issued false invoices. Neither law nor equity permit the landlord to charge 10% compounded interest on an invoice in these circumstances.

6. The landlord is responsible for the cost of replacing the roof

[177] The parties dispute who is responsible for the cost of replacing the roof over the grocery store in 2009. For the reasons set out below, I find that the roof needed to be replaced and that the lease allocated this expense to the landlord. Because the landlord did not respond to the tenant’s request in a timely way, the lease permitted the tenant to replace the roof at the landlord’s expense. I conclude that MOREL is entitled to damages equal to the amount paid to have roof replaced, namely, $331,746.03, including taxes, plus prejudgment interest from October 20, 2009.

By November 2008 the landlord accepted that the leaky roof needed to be replaced

[178] The tenant frequently complained to the landlord about the frequency and severity of the roof leaks at the grocery store.

[179] As early as November 17, 1995, the tenant wrote to complain that the landlord was not responding to the tenant’s requests to repair the roof. The landlord responded to that letter and advised that the repair was completed by its roofer. There was no evidence in the record to suggest that the landlord billed the tenant directly for the cost of that roof repair.

[180] By 2008-2009, both parties recognized that the 30-year-old roof was badly compromised. The tenant introduced a series of emails into evidence that documented its many complaints about the recurring leaks. The evidence also demonstrated that the landlord had its contractor patch the leaks.

[181] In an email dated November 17, 2008, the landlord acknowledged that the roof was old, and had suffered a “rash of leaks over the past year.” The landlord referenced an upcoming renovation to the store that was planned for 2009 and stated, “that would be the appropriate time for us to do a complete roof replacement.” At this time, at least, the landlord accepted that the roof needed to be replaced (not repaired) and there was no suggestion that the tenant had to pay for it.

After the rent dispute arises in April 2009, the landlord changes its position

[182] In late March 2009, the tenant changed its calculation of rent owing under the lease. That dispute, discussed below, appears to have caused the landlord to change its position on the necessity of replacing the roof and which party was responsible for that cost.

[183] On May 13, 2009, the tenant advised the landlord that it intended to renovate the store that August. The tenant expressed concerns about starting the renovation before the roof was watertight, and asked the landlord for an update on the roof replacement:

As you may be aware, we are planning a major remodel at the subject location to commence in August. The roof has been leaking for many years, and as a result the cosmetic damage to the interior of the Store is extensive. We would like to ensure the roof is water tight prior to commencing our remodel.

Through our many communications over the months with respect to the roof, it had been mentioned that the Landlord would tie in the roof work with the timing of our remodel. Now that the plans for our remodel are in full swing, please advise of the Landlord’s intentions/timing to complete the required replacement to the roof.

[184] On May 19, 2009, the landlord agreed that it made “sense to complete the roof renovation simultaneously with the store renovation” and asked the tenant to provide the renovation schedule. The landlord noted that, from its perspective, there were “some issues related to property taxes and rent that need to be worked out beforehand.”

[185] On May 29, 2009, the tenant advised the landlord that its renovations to the store would run from July 6 to September 18, 2009, and asked for confirmation that the landlord would complete the roof replacement in advance of the renovation. The tenant made clear that it interpreted the lease to require the landlord to replace the roof:

In order for us to commence our renovation we must be assured that we have a water-tight roof. As you are aware, the roof has far exceeded its useful life span, and subsequently in need of a complete replacement. The replacement of the roof is the Landlord's responsibility under the Lease. In accordance with the Lease, the Lessor is to carry out the repairs and replacements for which they are responsible in a "good and workmanlike manner and with due diligence and despatch".

[186] The landlord did not respond to this letter, despite the tenant’s stated need for an urgent response.

[187] On June 17, 2009, the tenant wrote to the landlord and enclosed a roof report prepared by Ontario Roof Consultants & Associates. The plaintiff called Robert Miljure from Ontario Roof Consultants to testify at trial. He stated that while he had not personally prepared the report, it was reviewed by many persons at Ontario Roof Consultants. He stood by the report and its conclusion that the roof over the store had achieved its life expectancy. The report expressed significant concern about the degree of membrane separation and blistering. The report expressed the opinion that “sound weatherproofing protection” could not be achieved given the current condition of the roof and recommended a complete roof replacement.

[188] In its letter attaching the roof report, the tenant reiterated its view that the landlord was responsible for replacing the roof. The tenant advised that, because the landlord had not advised when it would start the roof replacement, the tenant was prepared to exercise its rights under s. 14 of the lease, pay for the roof replacement at an estimated costs of $250,000, and to deduct that amount from its rent.

[189] On June 22, 2022, the landlord responded that “we accept our responsibility to repair the roof as needed but not to replace it entirely.” The landlord then linked the roof issues to the resolution of the landlord’s complaints about rent, CAM charges, and property taxes owing and suggested a meeting to resolve the outstanding issues. This meeting took place on July 2, 2009.

[190] On July 15, 2009, the tenant indicated that because of the uncertainty surrounding the roof replacement issue, the tenant was postponing the start of the renovation. The tenant explained that there had been “six major roof leaks” at the store that year and reminded the landlord that the roof report recommended that the roof be replaced. The letter noted that during the meeting on July 2, the landlord admitted that it had replaced sections of the roof elsewhere in the shopping centre, which was not surprising since the roof was 31 years old. The tenant reiterated its position that it was the landlord’s responsibility to replace the roof, “failing which the tenant may pay for the replacement and set off the costs against our rent payments.” The tenant advised that it was obtaining quotes to replace the roof with an exact replica of the existing four-ply roof.

[191] On July 17, 2009, the landlord advised that it would not give permission to the tenant to replace the roof and deduct the cost from rent and that it preferred to minimize its expenses by repairing the roof “until such time as the leaking problem worsens.” The landlord also referenced its ongoing concerns about rent and CAM arrears.

[192] On July 22, 2009, the landlord obtained a quote for $194,500 to replace the roof with a less expensive type of roof. The parties agree that the landlord never shared this estimate or its proposal to install a less expensive roof with the tenant. Mr. Miljure stated that, in his opinion, this inferior method of replacing the roof was not satisfactory and he would neither recommend nor use this replacement technique.

[193] The evidence demonstrates that the roof continued to leak frequently and in a manner that interfered with the tenant’s use and enjoyment of the leased premises. For example, on July 23, 2009, the store manager advised that the roof was leaking in several spots, including the grocery backroom, the produce backroom, two places inside the dairy cooler, the stairs leading to the office, and two places in the men’s washroom.

[194] On August 7, 2009, the store suffered additional leaks. The tenant advised the landlord of the problem and asked the landlord to provide the timeline for the permanent replacement of the roof. The landlord’s response explicitly tied the replacement of the roof to the resolution (to its satisfaction) of the issues surrounding the CAM charges:

As soon as we receive your cheque for the unpaid CAM charges we will book the roofer. The invoice and statements were sent to Metro around July 24.

[195] As set out above, at this time the landlord knew that its invoices for CAM charges were false and inflated. On August 12, 2009, the landlord reiterated its demand for payment and linked the roof issue to the unpaid amounts:

Could you please advise when we can expect to receive payment for the CAM Adjustment invoices for 2000 to 2008? As you may be aware, we will not be in a position to proceed with the much needed roof repairs for the store until we receive some kind of payment from Metro.

[196] On August 25, 2009, the tenant advised that it would replace the roof without further delay. On August 26, 2009, the landlord wrote to the tenant about the various amounts it claimed were owing under the lease and, for the first time, took the position that under the lease it was not responsible for the cost of repairing or replacing the roof. On August 31, 2009, the landlord wrote to explain its change in position with respect to the lease:

We recently had a lawyer review the Lease and he determined that I wrongly took the position that the Landlord was responsible for maintenance & repair of your store roof. The Landlord is only responsible for repairs " ... by reason of Land subsidence and structural defects or weaknesses", The roof is worn out and its deterioration is not due to settlement of the building or any other structural defect.

[197] The tenant then replaced the roof at a cost of $331,746.03, including taxes.

Findings of fact with respect to the roof

[198] Based on the evidence before me, I make the following findings of fact.

[199] First, the roof of the leased premises needed to be replaced, not repaired, no later than June 17, 2009. I accept the opinion contained in the Ontario Roof Consultants’ report as confirmed by the testimony of Mr. Miljure. That report is thorough and, because the landlord filed no competing report, stands unchallenged. Moreover, as early as November 17, 2008, the landlord acknowledged that the roof was old, had suffered a “rash of leaks over the past year,” and that 2009 “would be the appropriate time for us to do a complete roof replacement.” The landlord’s repairs to the roof in 2008 and 2009 did not solve the problems with the roof. I find that the 31-year-old roof needed to be replaced in 2009.

[200] Second, the state of the roof was interfering with the tenant’s use and enjoyment of the leased premises. The evidence demonstrated that the roof leaks were frequent, extensive, destructive, and dangerous. The landlord’s efforts to repair the roof did not address the underlying problems. Any relief enjoyed by the tenant following the repairs, assuming they were successful at all, was short-lived.

[201] Third, I find that the landlord knew and accepted that the roof needed to be replaced. The landlord confirmed this fact in writing as early as November 17, 2008. I find that the landlord’s subsequent resistance to replacing the roof was driven by its desire to put pressure on the tenant to settle the dispute over CAM and rent on terms acceptable to the landlord, not by its good faith assessment of the state of the roof or the viability of repairs. The landlord knew that the tenant could not renovate the store if the roof was not water-tight and used this as an attempt to resolve other disputes to its satisfaction. I find that the landlord sought to leverage the urgency caused by the tenant’s planned 2009 renovation to achieve a satisfactory result on the issues in dispute between the parties.

[202] Fourth, I find that the landlord accepted that it was responsible for the cost of repairing or replacing the roof until August 26, 2009, when it first took the position that it was not responsible for replacing the roof or for any repairs to the roof. As I explain below, the landlord’s interpretation of the lease was incorrect.

Section 10 of the lease assigns cost of replacing the roof to the landlord

[203] The starting point for determining the parties’ rights and obligations under a commercial lease is the lease itself, read as a whole.[^15] In my view, the parties agreed in the lease that the landlord would be responsible for the cost of repairs to the roof, up to and including the replacement of the roof.

[204] The parties agree that the tenant leased the market building, which is defined in the lease as the “Leased Premises,” and that this included the roof of that building.

[205] Section 9 of the lease requires the tenant to maintain the interior of the leased premises, and repair and replace various internal systems and equipment. The landlord concedes that s. 9 does not make the tenant responsible for any repairs to the exterior of the leased premises, including the roof. Section 9 provides as follows:

Lessee's Responsibility for Repairs:

Subject to the provisions of this lease relating to damage or destruction by insured perils, the Lessee shall maintain the interior of the leased premises in a good and substantial state of repair to the standards of a first class shopping centre, and all fixtures machinery and equipment contained therein or forming part thereof, and make good all damage caused by the negligence of the Lessee, its servants, licencees, agents or employees, and without limiting the generality of the foregoing the Lessee shall, save and except for reasonable wear and tear, damage or destruction caused by force majeure, and repairs or replacements which are the Lessor's responsibility herein, make all needed repairs and replacements thereto and thereof including, without limiting the generality of the foregoing:

(i) interior painting and decorating,

(ii) all ordinary maintenance and running repairs of and to the plumbing, electrical, heating and air-conditioning systems and equipment,

(iii) the replacement of all asphalt, vinyl asbestos, vinyl, cork, rubber or linoleum floor tiles or coverings or other resilient floor coverings adhesively affixed to floors,

(iv) plate glass.

[206] Section 10 of the lease requires the landlord to make certain repairs to the leased premises. As I will explain, I interpret section 10 to require the landlord to make all needed repairs and replacements to the exterior of the leased premises and for the specific items set out in s. 10(i) to (iv). I have emphasized the language the landlord relies on in support of its submission that it is not obliged to pay for the replacement the roof. Section 10 provides as follows:

Lessor's Responsibility for Repairs:

Subject to the provisions of this lease relating to damage or destruction caused by insured perils, the Lessor shall make all repairs to the leased premises necessary by reason of land subsidence and structural defects or weaknesses, and without limiting the generality of the foregoing the Lessor shall make all needed repairs and replacements to and of

(i) the exterior of the leased premises including the exterior walls, roof, canopies, skylights, foundations and bearing structure of the leased premises,

(ii) all sub-floors and ceramic, concrete or quarry tile floor surfaces,

(iii) terrazzo floor surfaces for the first two (2) years of the term and any time thereafter if such repair and replacement is required by reason of land subsidence or structural defects or weaknesses,

(iv) the plumbing, drainage, electrical, heating and air conditioning systems and equipment of a major character such as would in good accounting practice, be charged by an owner as capital expenditure.

[207] The landlord submits that s. 10(i) makes it responsible to repair and replace the roof if and only if the need for the repair or replacement is caused by land subsidence, structural defects or weaknesses. The landlord submits that the words “and without limiting the generality of the foregoing” mean that its obligation to repair and replace the roof only arises if the need for the repair is caused by the first obligation in section 10, which is to make repairs to the leased premises necessitated by land subsidence or structural defect.

[208] The tenant disagrees with the landlord’s interpretation and submits that the use of the word “and” before the words “without limiting the generality of the foregoing” enlarges the scope of the landlord’s responsibility to repair and adds the items listed in s. 10(1) to 10(iv) to the landlord’s responsibilities to repair and replace.

[209] I agree with the tenant’s interpretation, but for slightly different reasons. In my view, section 10 of the lease assigns responsibility for repairs and replacement of the roof to the landlord. Although the drafting of the clause could be improved, I have no doubt that the lease requires the landlord to make all repairs to the roof of the leased premises including, if necessary, replacing the roof.

[210] First, it is important to read section 10 in light of section 9 and the balance of the lease. In my view, the most sensible interpretation of sections 9 and 10 is that they form two parts of a harmonious and complete scheme to allocate the costs of all possible repairs and replacements in or to the leased premises either to the tenant or to the landlord. The most sensible interpretation of the lease is as follows:

a. The tenant is responsible for repairs to the interior of the leased premises, including the items specified in s. 9(i) to (iv), except for certain exclusions that are not relevant to this dispute; and

b. The landlord is responsible for:

i. all repairs to the leased premises necessitated by land subsidence, structural defects, and structural weaknesses;

ii. all repairs to the exterior of the leased premises, including the roof (s. 10(i)) and sub-floors (s. 10(iii));

iii. all repairs and replacements to terrazzo floor surfaces, but only for the first two years of the lease and thereafter only if caused by subsidence; and

iv. if and only if they would be charged as a capital expenditure, repairs and replacement of certain systems and equipment that would otherwise be the responsibility of the tenant.

[211] Although the parties could have agreed that the lease would not allocate responsibility to repair the exterior of the leased premises in any circumstance except land subsidence and structural defect, such sophisticated parties would have used much clearer language to achieve that result. I also do not accept that two parties as sophisticated as the landlord and tenant simply missed this issue in a 25-year lease where repairs to the roof were readily foreseeable. The surrounding circumstances suggest otherwise.

[212] On January 12, 1977, the tenant’s predecessor made an offer to lease that was accepted by the landlord. In that document Dominion Stores Limited offered to lease the store on terms including that the landlord would be responsible for roof repairs. The letter read as follows:

Dominion Stores Limited (Dominion) offers to lease from Central Parkway Developments Limited (Central Parkway) and Central Parkway offers to lease to Dominion premises in the subject development. …

REPAIRS: Central Parkway shall be responsible for repairs necessary by reason of land subsidence, structural repairs including roofs and sub-floors, and repairs of a capital nature to the electrical, plumbing, drainage, heating and air-conditioning systems. All other repairs to the demised premises shall be Dominion's responsibility.

The foregoing terms have received the approval of our Management and Board of Directors but are, of course, subject to a form of lease acceptable to our respective legal counsels.

Please indicate your acceptance of this offer by signing and returning to us the extra copy of this letter prior to February 15th, 1977.

[213] Although the lease does not contain an entire agreement clause, I do not suggest that the offer to lease forms part of the lease. I also acknowledge that almost two years passed between the offer to lease and the signing of the lease. Nevertheless, the terms of the offer to lease are crystal clear, were known to both parties, and remain a part of the factual matrix that I must use to interpret the meaning of the contract.

[214] Second, I do not accept the landlord’s interpretation of s. 10 because it renders the section internally incoherent. If the landlord’s interpretation is correct, it is responsible to repair all of the items listed in the s. 10(i) to (iv) if and only if the damage is caused by land subsidence, structural defects or weaknesses. Such an interpretation, however, is inconsistent with the text and meaning of provisions (iii) and (iv). For convenience, s. 10(iii) reads as follows:

[215] Clause (iii) makes no sense if section 10 only obliges the landlord to repair items that are caused by land subsidence and structural defects or weaknesses. On the landlord’s interpretation the s. 10(3) would read as follows:

The Lessor shall make all repairs to the leased premises necessary by reason of land subsidence and structural defects or weaknesses including terrazzo floor surfaces for the first two (2) years of the term and any time thereafter if such repair and replacement is required by reason of land subsidence or structural defects or weaknesses.

[216] The landlord’s interpretation of s. 10 renders meaningless or redundant all of the words “for the first two (2) years of the term and any time thereafter if such repair and replacement is required by reason of land subsidence or structural defects or weaknesses”. However, s. 10(iii) makes perfect sense if s. 10(iii) imposes an additional but time-limited two-year obligation on the landlord to repair and replace terrazzo floors. Once the expanded two-year duty to repair terrazzo floors for any reason expires, the landlord is only required to repair the terrazzo floors because of land subsidence. In my view, the better interpretation is that s. 10(iii) imposes an unqualified but time limited obligation on the landlord to repair the terrazzo floors followed by the landlord’s general obligation to repair damage caused by land subsidence.

[217] Section 10(iv) also makes little sense under the landlord’s theory of s. 10. It provides:

[218] If the landlord is responsible for all repairs and replacements caused by land subsidence, structural defect or weakness, and s. 10(iv) is just an example of the things for which the landlord is responsible, then the limitation of that obligation to repairs chargeable as a capital expenditure does not make sense.

[219] Section 10(iv), however makes far more sense if it is seen as a parallel obligation to the tenant’s obligations under s. 9(ii). Recall that the plaintiff is obliged to complete all repairs to the interior of the leased premises including all “ordinary maintenance and running repairs of and to the plumbing, electrical, heating and air-conditioning systems and equipment.” Section 10(iv) shifts that obligation to the landlord if, and only if, the expense could properly be booked as a capital expenditure.

[220] In my view, both s. 10(iii) and 10(iv) only make sense if they impose repair and replacement obligations on the landlord beyond those caused by land subsidence, structural defect or weakness. This supports my interpretation that each of s. 10(i) to (iv) imposes additional repair obligations on the landlord beyond those caused by land subsidence.

[221] In my view, the parties agreed in s. 10 that the landlord was responsible to make all needed repairs and replacements to and of the exterior of the leased premises including the roof.

[222] In these circumstances, the landlord cannot avail itself of s. 46 of the lease, which provides that the lease shall be a completely carefree net lease. By its terms, s. 46 does not apply to express obligations the lease imposes on the landlord. The inclusion of the net lease provision does not remove the explicit obligation imposed by s. 10 of the lease for the landlord to pay for the replacement of the roof.[^16] This case, therefore, is unlike the Brennan case relied on by the landlord.[^17] In this lease the parties specifically assigned the cost of roof repair to the landlord, which takes that expense out of the scope of s. 46.

[223] Finally, I do not accept the landlord’s submissions that the past conduct of the landlord with respect to the roof in other parts of the mall is relevant to my interpretation of this lease. The landlord submits that the mall roof is shared by many tenants, each with their own lease. As a result, when the landlord repaired the roof that covered the spaces leased by other tenants, it charged the costs back through CAM. The landlord, however, did not lead evidence about the terms of the leases it held with other tenants. I have no idea how those leases allocated the costs of roof repair. The landlord’s past practice with respect to other parts of the roof does not assist me to interpret how the lease with this tenant allocated the cost of repairs to the roof.

Damages

[224] I find that MOREL is entitled to recover the cost of the roof as damages.

[225] Section 14 of the lease gave the tenant the right to carry out the replacement of the roof at the landlord’s expense:

Repair According to Notice: The Lessor and Lessee shall carry out and make the repairs and replacements for which they are respectively responsible as aforesaid in a good and workmanlike manner and with due diligence and despatch, subject to delays caused by force majeure, strikes, short supply of labour or materials, and other causes reasonably beyond the control of the party responsible therefor; in default whereof the other party may, immediately in the case of emergency and otherwise after such default has continued for fifteen (15) days after receipt of written notice by the defaulting party carry out and make such repairs and replacements at the expense of the defaulting party and add or deduct the cost thereof to or from rent as the case may be.

[226] I have found that the roof needed to be replaced (not repaired) and that landlord was responsible for replacing the roof by virtue of s. 10 of the lease. Despite the tenant’s repeated, insistent requests for the landlord to replace the roof, the landlord did not act with due diligence and despatch to the complete the repairs. The tenant provided the landlord with ample notice of its default and was, therefore, entitled to carry out the repairs at the expense of the landlord.

[227] The tenant did not deduct the cost of the roof from its rent payments. Instead, since this litigation was underway, it added a claim for damages to its claim.

[228] I find that the cost to repair the roof was reasonable. It was prudent to replace the roof with one of similar characteristics and durability as the original roof. If the landlord only wanted the tenant to replace the original roof with a cheaper roof that was watertight, but would have a shorter life-span, the landlord should have advised the tenant of its view at the time. It is not reasonable for the landlord not to share its views (or its quote for the cheaper roof) and then complain that the tenant replaced the original roof with one of similar quality. I do not accept the landlord’s submission that the tenant should only recover up to the amount of the quote obtained (but not shared) by the landlord.

[229] The tenant sought bids for the job and the landlord did not challenge the validity of the tender process or the cost of the replacement roof.

[230] The landlord submitted that MOREL was not entitled to recover the costs of the roof replacement because another entity within the Metro group had written the cheque to pay for the costs of the repair. I do not accept this submission.

[231] The tenant called evidence from Aaron Marr, the controller for Metro Ontario Inc. and MOREL. He explained, with reference to detailed accounting records, that although Metro Ontario Services wrote the cheque to pay the roof replacement company, the cost of the replacement was allocated internally to MOREL.

[232] The landlord did not challenge the accounting records and did not press this point in closing argument. I am satisfied that MOREL was responsible for the cost of the roof repairs and is entitled to recover those costs as damages from the landlord.

[233] Finally, I do not accept that landlord’s submission that it should be permitted to charge the tenant its portion of the roof repair costs as if it was properly allocated to CAM. Section 22 of the lease provides as follows:

The Lessee shall pay to the Lessor the Lessee's proportionate share of the Lessor's costs of maintaining and operating the common areas and facilities (including parking areas), including without limitation,…

[234] I do not accept the landlord’s submission that replacing the roof of the “Leased Premises” falls within the landlord’s costs of “maintaining and operating the common areas and facilities.” In my view, no part of the landlord’s obligation to replace the roof of the leased premises is recoverable from the tenant through s. 22 of the lease.

[235] In conclusion, I award damages to MOREL equal to $331,746.03, plus prejudgment interest running from October 20, 2009.

7. The proper calculation of rent for the period from 2003 to 2023

[236] The parties disagree over the proper calculation of rent from the beginning of the second renewal period in 2003 to the end of the lease in 2023. This dispute turns on if and how the provisions of the lease that set out the calculation of certain kinds of rent were affected by the provisions of the lease that provided for the renewal of the agreement.

[237] I will first set out the applicable provisions of the lease. I will then set out the position taken by each party.

[238] Following that introduction, I will explain why I conclude that the tenant’s interpretation of the provisions is correct. In reaching this conclusion, I will interpret the provisions of the lease and the subsequent lease amending agreements using the principles of contract interpretation set out above in paragraphs [38] to [45] above. This includes considering evidence of the surrounding circumstances during the negotiation of the second lease amending agreement. Finally, I will explain why the evidence that the tenant paid the lease in a manner consistent with the landlord’s interpretation of the lease is of no assistance to me in interpreting the lease.

Applicable rent provisions in lease and amending agreements

[239] I think it is helpful to set out the applicable provisions from the lease and amending agreements before outlining the position of the parties.

Provisions in original lease

[240] As explained in the second recital to the lease, the landlord entered into the lease “in consideration of the rents, covenants, and agreements” contained in the lease. Section 2 of the lease states that the tenant “shall pay rent in the amounts at the times and in the manner” required by the lease during its term, which is defined to mean 20 years. There are several sections of the lease that explain the amounts that the tenant is to pay to the landlord.

[241] First, Article II of the lease creates one category of payment called “minimum rent,” which is $265,039.50 per year plus “the additional rent calculated on percentage of sales” as provided in the lease:

II. MINIMUM RENT

YIELDING AND PAYING THEREFOR, unto the Lessor during the term hereof, a minimum annual rent calculated as follows: $8.25 per square foot of rentable area of the leased premises for each and every year during the term hereof, in the amount of $265,039.50 per annum, payable in equal monthly instalments on the first day of each and every month in advance, in the amount of $22,086.63 during the term hereof, plus the additional rent calculated on percentage of sales, if any, which may be payable by the Lessee as hereinafter provided.

[242] Second, Article III of the lease explains how to calculate the additional rent calculated on percentage of sales. At a high level, this required the tenant to pay to the landlord each year an amount equal to 1.25% of the value of sales above $10 million. The product of this calculation is referred to as “percentage rent.” The dispute between the parties turns largely on how “percentage rent” is to be calculated from 2003 onward. Article III provides as follows:

III. ADDITIONAL RENT CALCULATED ON PERCENTAGE OF SALES

Within thirty (30) days after the termination of each fiscal year of the Lessee, the Lessee shall furnish the Lessor with a statement certified by one of its officers showing the amount of sales as hereinafter defined made from the leased premises during such fiscal year, and contemporaneously therewith the Lessee shall pay to the Lessor as additional rent, 1.25% of the amount, if any, by which all such sales for such fiscal year exceeds the sum of Ten Million Dollars ($10,000,000) (hereinafter referred to as the "percentage rent"); provided that the first calculation of such percentage rent shall be made for the period from the commencement date of the term hereof to the immediately following fiscal year end of the Lessee and the last calculation of such percentage rent shall be made for the period from the last fiscal year end of the Lessee occurring during the term hereof to the expiration date of the term hereof.

[243] Section 38 of the lease gives the tenant the option to renew the lease on certain terms. Most importantly, section 38 provides for changes to the calculation of “minimal rental” and “percentage rent” during the renewal periods:

Options for Renewal

The Lessee shall have options to extend the term hereof for not more than four successive additional terms of five years each. The Lessee may exercise its option by giving written notice to the Lessor during the term hereof or any successive additional term at least six (6) months prior to the expiration thereof extending the expiring term for one or more successive additional terms, upon the same terms and conditions as herein provided save as to the right of further extention [sic] beyond the fourth successive additional term, and save as to minimum rental which during each successive additional term shall be the average of the total minimum rent and percentage rent paid by the Lessee during the three (3) fiscal years of the Lessee preceding the commencement of each successive additional term; and save as to additional rent calculated on percentage of sales which during each successive additional term shall be 1.25% of the amount, if any, by which annual sales from the leased premises exceeds the greater of the average annual sales during the three (3) fiscal years of the Lessee preceding the commencement of each successive additional term or TEN MILLION ($10,000,00) DOLLARS.

First lease amending agreement – September 1996

[244] The initial term of the lease ran from 1978 to 1998. In 1996, however, the parties signed a lease amending agreement. In the lease amending agreement, the tenant exercised early its first option to renew the lease and the term of the lease was extended to November 30, 2003.

[245] The parties also modified the effect of s. 38 for the period of the first renewal by changing the period of time over which the average of the total minimum rent and percentage rent would be calculated:

Option Rent

Notwithstanding the provisions of paragraph 38 of the Lease, it is understood and agreed that the minimum annual rent for the period of December 1, 1998 to November 30, 2003, shall be the annual average of the total minimum rent and percentage rent paid by the Tenant during the period September 15, 1996 to November 30, 1998.

Existing Lease

Save as amended hereby, the Landlord and Tenant confirm that the terms and provisions of the Lease remain in full force and effect.

[246] Pausing here, in my view the effect of s. 2 is to change the period of time over which the annual average is calculated but does not insulate the calculation of percentage rent from the amending effect of s. 38.

Second lease amending agreement

[247] On June 29, 2001, the parties signed a second lease amending agreement. In this agreement, the tenant early exercised its second option to renew the lease, which was extended for a further five years from December 1, 2003, to November 30, 2008. The agreement dealt with property tax issues that are not relevant to this part of my reasons and the landlord gave the tenant one additional option, a fifth option, to renew the lease:

Existing Lease

Save as amended hereby, and save and except for one (1) further option to renew granted to the Tenant so that the Tenant will retain the right to exercise options to renew for three (3) further five (5) year option terms extending beyond November 30, 2008, the Landlord and Tenant confirm that the terms and provisions of the Lease remain in full force and effect.

The position of the parties

[248] Having set out the applicable provisions of the lease, I will now summarize the positions of each party.

The tenant’s position

[249] The tenant submits that the renewal provisions in s. 38 of the lease modified the calculation of minimum rent and percentage rent so during the renewal periods that the tenant was only required to pay 1.25% of the amount, if any, by which annual sales from the leased premises exceed the greater of the average annual sales during the three fiscal years preceding the commencement of each successive term or $10 million.

[250] During the first lease renewal period (December 1, 1998, to November 30, 2003), the tenant submits that each year it paid $109,670.70 more percentage rent than required by the lease. This amounted to a total overpayment of $548,353.50.

[251] The tenant submits that in respect of the second lease renewal (December 1, 2003, to November 30, 2008), it overpaid rent in two ways. First, because it overpaid percentage rent during the first renewal period, that excess amount was incorporated into the calculation of the “minimum rental” to be paid to the landlord. The tenant submits that during each year of the second renewal period, it overpaid the minimum rental by $109,622.25. Second, it overpaid “percentage rent” in each year by an amount that varied from approximately $110,000 to $146,059 per year.

[252] In total, the tenant submits that it paid $1,880,426.25 too much rent over the ten years from December 1, 1998, until it caught the error around March 30, 2009. The tenant submits that it paid the correct rent from April 2009 until December 2023.

The landlord’s position

[253] The landlord submits that the calculation of “percentage rent” was not amended by the renewal provisions in s. 38 and that, at all times, the tenant was obliged to pay to the landlord 1.25% of all sales in excess of $10 million and to fold those amounts in to minimum rental at the beginning of each renewal period. In essence, the landlord argues that the renewal provisions in s. 38 did not modify the existing “percentage rent,” but rather created a new type of rent, “premium rent”, which was to be paid on top of the existing percentage rent.

[254] The landlord submits that the tenant correctly calculated and paid the minimum rent and percentage rent until April 1, 2009. After that date, the tenant adopted an incorrect interpretation of the lease and began to pay lower amounts of rent than required by the lease.

[255] The landlord submits that from April 1, 2009, until the end of the lease on November 30, 2023, the tenant should have paid an additional $5,902,867 in minimum rent and $2,207,835 in percentage rent (both amounts inclusive of HST). The total amount owing in unpaid rent, according to the landlord, is $8,058,015. The landlord also claims $7,377,160 in interest on those amounts for a total amount owing of $15,487,412.

[256] In support of its position, the landlord submits the factual matrix evidence of the negotiation and execution of the first and second lease amending agreements assists with the interpretation of the lease.

The correct interpretation of the lease

[257] Resolving the dispute between the parties requires me to interpret the lease using the principles of contract interpretation set out above in paragraphs [38] to [45] above. To summarize, the overriding principle is that the meaning of the lease and the intent of the parties in entering into it must be derived from the words the parties used and the context in which they used those words.[^18] I will read the agreement as a whole and in the context of the circumstances known or reasonably capable of being known by the parties when they entered into the agreement.[^19]

[258] While I will consider these factors holistically, I must address them one at a time in the reasons for decision. I will first set out the evidence of the surrounding circumstances and then turn to the words the parties used and the context in which they used them. I will address the evidence of the tenant’s subsequent conduct last because it is necessary to first determine whether or not the meaning of the lease is clear.

[259] I interpret the lease to mean that the renewal provisions in s. 38 of the lease modified the calculation of minimum rent and percentage rent so that the tenant was only required to pay 1.25% of the amount, if any, by which annual sales from the leased premises exceed the greater of the average annual sales during the three fiscal years preceding the commencement of each successive term or $10 million.

The evidence of surrounding circumstances

[260] The landlord submits that there is important evidence of the surrounding circumstances that were known to the parties at the time they signed the second lease amending agreement. While I accept that factual matrix evidence is always admissible to interpret the contract, that evidence cannot include evidence about the subjective intention of the parties.[^20]

[261] On April 2, 2001, Mr. Sorokolit spoke with Mr. O’Neil regarding the landlord’s request that the tenant sign an early renewal of the lease for the period from December 1, 2003, to November 30, 2008. This telephone conversation was memorialized in a letter dated that same day sent by Mr. Sorokolit to Mr. O’Neil. There is no dispute that this call took place.

[262] Mr. Sorokolit testified that he recalled a further conversation with Mr. O’Neil and Mr. Lawlor regarding the lease renewal in spring 2001. He testified that the representatives of the tenant wanted to ensure that “the minimum rent and percentage rent would stay the same” and that the landlord “would continue to receive percentage rent.” Mr. O’Neil did not recall any such call and denied that the tenant ever promised the landlord that it would continue to receive percentage rent calculated as in the original lease.

[263] Mr. Sorokolit produced an undated handwritten note that he says reflected the conversation. The note is titled “A&P early lease renewal – 3 things that they would like.” Number three on the note read as follows:

Minimum rent would be the same as it currently is for the option term (we would still get the % rent).

[264] On its own, the note is deeply ambiguous. On either party’s interpretation of the lease, the landlord does receive additional rent calculated on percentage of sales during the renewal term. This note does not assist significantly with the interpretation of the lease. Moreover, the significance and meaning of this document is shrouded by the passage of time.[^21]

[265] More importantly, I do not accept Mr. Sorokolit’s recollection of this call. Although this call formed the cornerstone of the landlord’s case at trial, this was the first time Mr. Sorokolit mentioned it. In 2011, Mr. Sorokolit swore two affidavits for use on a motion for summary judgment in this proceeding. Neither affidavit referred to this crucial telephone call. Counsel for the tenant cross-examined Mr. Sorokolit on both affidavits and, while he mentioned two other telephone calls with Mr. O’Neill, he did not recall any other conversations, including this crucial call containing the key representations. I do not accept that Mr. Sorokolit did not review this supposedly crucial note before he swore his affidavit.

[266] In addition, during his examination for discovery on February 26, 2021, Mr. Sorokolit was asked to advise of all information, knowledge, and belief regarding his conversations with Mr. O’Neil. The landlord refused to answer that question. Associate Justice McGraw ordered the landlord to answer that question on June 10, 2022. On December 7, 2023, the landlord answered that question as follows:

Mr. Sorokolit has provided his recollection of that conversation in his affidavit evidence, productions, and cross-examinations that have taken place in that proceeding to date.

[267] If that answer was truthful, then as of December 7, 2023, Mr. Sorokolit did not recall this crucial telephone call. The landlord never corrected this answer.

[268] Mr. Sorokolit’s late-breaking description of this telephone call causes me to doubt the reliability and credibility of his recollection. Moreover, as set out above, I did not find Mr. Sorokolit a credible witness regarding the CAM and roof issues. In my view, on several occasions, Mr. Sorokolit tailored his evidence to try and put the landlord in the best possible light. He was unwilling to admit obvious discrepancies between his evidence and the contemporaneous documents. I do not accept his evidence on issue of the telephone call, what the tenant supposedly requested, or any of the things the tenant supposedly said about the rent. His evidence was neither reliable nor credible. I do not accept the landlord’s evidence that the parties agreed to maintain the minimum rent or percentage rent in the renewal agreement.

[269] The landlord submits that I should draw an adverse inference from the failure of the tenant to call Mr. Lawlor to give his evidence about the phone call that Mr. Sorokolit described. I decline to do so. Mr. Lawlor was discovery representative for the tenant. If the landlord had questions it wished to ask Mr. Lawlor about the call, it could have asked those questions at that time. If the landlord received helpful answers from Mr. Lawlor, the landlord could have read those questions and answers in to the record as part of its case.

[270] Although the tenant could have called Mr. Lawlor (and chose not to do so), at the time it made the decision to close its case Mr. Sorokolit had never mentioned what is now described as the crucial conversation. When the tenant made the decision not to call Mr. Lawlor, it had no idea that Mr. Sorokolit was going to testify about this telephone call. In the circumstances, I decline to draw any adverse interest against the tenant for failing to call Mr. Lawlor.

[271] Similarly, I do not accept the landlord’s submission that I should disbelieve the evidence of Mr. O’Neill. I found Mr. O’Neill to be a credible witness who attempted to do his best to assist the court with what happened quite a few years ago. I accept Mr. O’Neill’s evidence that he was shocked when he saw the rent number in 2009 and that is when he realized that the tenant had been overpaying rent due to a mistaken interpretation of the lease.

[272] I give little to no weight to the evidence of surrounding circumstances on which the landlord relies to assist with the interpretation of the lease or the second lease amending agreement.

The words used by the parties in the lease, understood in context

[273] I find that the parties’ intentions are clearly expressed through the objective language they chose to use in the lease. In s. 38, the parties agreed that if the tenant renewed the lease, it would be on the same terms, with three changes. Each of those changes is introduced by the word “save”. For convenience, section 38 reads as follows (I have separated out the three changes for ease of reading only):

Options for Renewal

save as to the right of further extention [sic] beyond the fourth successive additional term, and

save as to minimum rental which during each successive additional term shall be the average of the total minimum rent and percentage rent paid by the Lessee during the three (3) fiscal years of the Lessee preceding the commencement of each successive additional term; and

save as to additional rent calculated on percentage of sales which during each successive additional term shall be 1.25% of the amount, if any, by which annual sales from the leased premises exceeds the greater of the average annual sales during the three (3) fiscal years of the Lessee preceding the commencement of each successive additional term or TEN MILLION ($10,000,00) DOLLARS.

[274] The three “save as” provisions have the following effects if and when the tenant exercised an option to extend the term of the lease.

[275] First, the parties agreed that exercising an option to extend exhausted that right to extend. This makes perfect commercial sense. The parties agreed to a lease with a 20-year term and four options to renew. They did not agree that the tenant could convert the lease into an evergreen or perpetual lease by extending the term of the lease and each time obtaining four further renewals. The first “save as” clause of s. 38, therefore, amended the first sentence of s. 38 for the renewal term and subsequent terms.

[276] Second, the parties agreed that Article II of the lease would be amended to provide the landlord with a minimum level of rental income during that renewal term. The text of the second “save as” clause would be read into Article II to ensure that, during the renewal term, the landlord received a minimum amount equal to the average minimum rent and additional rent on percentage sales calculated over a period of time. In my view, the second “save as” amends Article II in the following way:

II. MINIMUM RENT

YIELDING AND PAYING THEREFOR, unto the Lessor during the term hereof, the average of the total minimum rent and percentage rent paid by the Lessee during the three (3) fiscal years of the Lessee preceding the commencement of each successive additional term ~~a minimum annual rent calculated as follows: $8.25 per square foot of rentable area of the leased premises for each and every year during the term hereof, in the amount of $265,039.50 per annum~~, payable in equal monthly instalments on the first day of each and every month in advance~~, in the amount of $22,086.63 during the term hereof, plus the additional rent calculated on percentage of sales, if any, which may be payable by the Lessee as hereinafter provided~~

[277] Contrary to the submissions of the landlord, I do not see any magic in the words “minimum rental.” It is clear to me that the parties used the phrase “minimum rental” to distinguish it from the phrase “minimum rent,” which was only the base rent per square foot multiplied by the rentable area of the leased premises. The phrase “minimum rental” in s. 38 is simply a compendious phrase to describe the sum of the minimum rent and the percentage rent in each year of the prior term. Those amounts are averaged and used to set the amount to be paid under Article II for the renewal term of the lease. The use of the words “minimum rental” does not support the landlord’s interpretation of the lease.

[278] For the first renewal term the language of amendment was adjusted slightly by the lease amending agreement signed on September 12, 1996. Because of that agreement, for the first renewal period Article II was amended as follows:

II. MINIMUM RENT

YIELDING AND PAYING THEREFOR, unto the Lessor during the term hereof, the annual average of the total minimum rent and percentage rent paid by the Tenant during the period September 15, 1996 to November 30, 1998, ~~a minimum annual rent calculated as follows: $8.25 per square foot of rentable area of the leased premises for each and every year during the term hereof, in the amount of $265,039.50 per annum~~, payable in equal monthly instalments on the first day of each and every month in advance~~, in the amount of $22,086.63 during the term hereof, plus the additional rent calculated on percentage of sales, if any, which may be payable by the Lessee as hereinafter provided~~

[279] For the second and subsequent renewals, Article II read as set out above in paragraph [276].

[280] Third, Article III would be amended to modify the manner by which the tenant would calculate and pay additional rent calculated on percentage sales. This is made clear by the introductory words of the third “save as” clause, which read “save as to additional rent calculated on percentage of sales which during each successive additional term shall be…” The text of the third “save as” clause would be read into Article III to adjust how the additional rent calculated on a percentage of sales would be calculated. In my view, the third “save as” clause amends Article III in the following way:

III. ADDITIONAL RENT CALCULATED ON PERCENTAGE OF SALES

Within thirty (30) days after the termination of each fiscal year of the Lessee, the Lessee shall furnish the Lessor with a statement certified by one of its officers showing the amount of sales as hereinafter defined made from the leased premises during such fiscal year, and contemporaneously therewith the Lessee shall pay to the Lessor as additional rent, 1.25% of the amount, if any, by which annual sales from the leased premises exceeds the greater of the average annual sales during the three (3) fiscal years of the Lessee preceding the commencement of each successive additional term or TEN MILLION ($10,000,00) DOLLARS ~~1.25% of the amount, if any, by which all such sales for such fiscal year exceeds the sum of Ten Million Dollars ($10,000,000)~~ (hereinafter referred to as the "percentage rent"); provided that the first calculation of such percentage rent shall be made for the period from the commencement date of the term hereof to the immediately following fiscal year end of the Lessee and the last calculation of such percentage rent shall be made for the period from the last fiscal year end of the Lessee occurring during the term hereof to the expiration date of the term hereof.

[281] The landlord disagrees with this interpretation. The landlord submits that during the renewal term the tenant is still required to pay 1.25% of all sales above $10 million and is also required to pay a further 1.25% of all sales above the greater of $10 million and the average annual sales for the prior three years. I do not accept the landlord’s submissions on this point.

[282] First, the landlord submits that “percentage rent” is a defined term in the lease and its meaning must remain the same throughout the renewal periods. I accept that the phrase “percentage rent” is a defined term in the lease and that it appears in various places in the lease. For example, the phrase “percentage rent” appears in Article IV, s. 1 (lessee’s records), article V, sections 28 (abatement of rent), 44 (force majeure), and 50 (overholding). However, the use of the term “percentage rent” elsewhere in the lease says nothing about its meaning.

[283] In my view the language of the amending clause is clear. In a renewal term, the terms of the lease will be identical, save as to the three amendments discussed above. Most importantly for this argument the additional rent calculated on percentage of sales shall be calculated differently during the renewal term than in the original term. That new calculation is then defined as “percentage rent” and the result of that new calculation is to be used during the renewal term each time the phrase “percentage rent” appears in the lease.

[284] I do not accept the landlord’s submission that in a renewal term it is entitled to a third type of rent a “premium rent” in addition to minimum rent and additional rent calculated on the percentage of sales. This claim was advanced in paragraph 79 of the plaintiff’s “Thrice Amended Statement of Defence and Counterclaim,” but was deleted from the “Fourth Amended Statement of Defence and Counterclaim.” The thrice amended pleading read as follows:

Hillmond states in the alternative that the Lease should be interpreted in a manner such that [the tenant] is obliged to pay some further additional rent during each successive extension of the Lease renewal terms calculated on a percentage of sales as follows:

additional rent calculated on percentage of sales which during each successive additional term shall be 1.25% of the amount, if any, by which annual sales from the leased premises exceeds the greater of the average annual sales during the three (3) fiscal years of the Lessee preceding the commencement of each successive additional term or TEN MILLION ($10,000,00) DOLLARS. (“Premium Rent”)

[285] The text of s. 38 does not support an entitlement to a third type of rent. The text and structure of the clause strongly support the conclusion that the agreement, viewed objectively, intended to modify the method by which additional rent calculated on a percentage of sales.

[286] The landlord submits that the tenant’s interpretation would require adding the words “and definition of percentage rent, after the exercise of the first renewal will be greater than formula.” I disagree. I see no reason why those words need to be added. In my view, as set out above, integrating the changes from s. 38 into Articles II and III is straightforward and produces a coherent and sensible result.

The evidence of the tenant’s subsequent conduct evidence is inadmissible and equivocal

[287] The landlord submits that the tenant’s subsequent conduct, paying the percentage rent in the manner suggested by the landlord for 10 years, is admissible to interpret the contract if I find that the lease is ambiguous.

[288] Evidence of the parties’ subsequent conduct is admissible to assist in contractual interpretation only if a court concludes, after considering the contract’s written text and its factual matrix, that the contract is ambiguous.[^22] As explained above, I do not think the contract is ambiguous. Therefore, the evidence of subsequent conduct is not admissible for the purpose of interpreting the meaning of the lease. The subsequent acts of the tenant cannot alter or qualify those words.[^23]

[289] Moreover, even if the lease was ambiguous, I think the tenant’s conduct is equivocal and would not assist with the interpretive exercise. The weight and cogency of evidence of post contractual conduct depends on the circumstances and will vary from case to case. The dangers of evidence of subsequent conduct mean that where it is admitted, it must be used cautiously.[^24] The Court of Appeal has observed that evidence of subsequent conduct is more reliable if the acts are intentional and are acts of individuals, rather than agents of corporations:

In the usual course, evidence of subsequent conduct will be more reliable if the acts it considers are the acts of both parties, are intentional, are consistent over time, and are acts of individuals rather than agents of corporations: see Canadian National Railways, at p. 262. I agree with Kerans J.A. that “subsequent conduct by individual employees in a large corporation are not always reliable indicators of corporate policy, intention, or understanding”: Mesa Operating Ltd. Partnership v. Amoco Canada Resources Ltd. (1994), 1994 ABCA 94, 19 Alta. L.R. (3d) 38 (C.A.), at para. 52.[^25]

[290] The evidence is uncontradicted that from February 1999 to March 2009, the tenant paid percentage rent in a manner perfectly consistent with the landlord’s interpretation of the lease. This includes the first three months of the third renewal period. The evidence is uncontradicted that from February 2004 to March 2009, the tenant paid “minimal rent” that included percentage rent calculated in a manner perfectly consistent with the landlord’s interpretation of the lease.

[291] Each year, the tenant sent a letter advising the landlord of the annual calculation of percentage rent. The letters were clear and signed by senior staff members at the tenant. For example, the letter sent on March 8, 2000, was signed by F.G. Torrie, Vice-President, Controller and Corporate Secretary of The Great Atlantic & Pacific Company of Canada Ltd. It read:

In accordance with the lease covering the above premises, we have calculated The Great Atlantic & Pacific Company’s 1999 percentage sales clause liability as follows:

A&P 1999 Fiscal Year of 52 weeks ended February 26, 2000.

Gross sales

$20,585,928.35

1 ¼% of sales in excess of 10 million

$132,324.10

Plus GST

$ 9,262.69

Total due:

$141,586.79

[292] I also accept the landlord’s observation that the tenant had access to the lease summary and the lease itself each year when it made these calculations. I accept the evidence of the tenant that the leases were physically kept in a different building than where the people doing these calculations and sending these letters worked. That, however, is irrelevant. The tenant is responsible for all of the information in its possession, and it is no answer for the tenant to suggest that office logistics could somehow excuse its failure to review the lease carefully or to interpret it correctly each and every year.

[293] I accept the landlord’s submission that when the tenant’s executives decided to exercise the options to renew, they would have had access to the information necessary to carry out a full economic analysis of the decision to renew. I also accept that the tenant may have conducted calculations in accordance with the landlord’s interpretation of the lease.

[294] I do not accept the landlord’s submission that the actions of the tenant were driven by the economics of its relationship with its franchisee. There was no evidence at trial to support this submission, which is nothing more than speculation absent any evidentiary foundation. I reject this submission entirely.

[295] In my view, however, all of the tenant’s conduct is ambiguous or equivocal and would not assist with the interpretation of the lease. Evidence of subsequent conduct will have greater weight if it is unequivocal in the sense of being consistent with only one of the two alternative interpretations of the contract that generated the ambiguity triggering its admissibility.[^26]

[296] First, in this case, I am not satisfied that the tenant’s conduct was intentional as opposed to erroneous. Second, the conduct was the conduct of the tenant’s corporate agents, not individuals on their own account. Third, the conduct is equivocal in the sense that it is as consistent with an error by the tenant as with the intention of the tenant at the time the lease was signed or amended. Whether the tenant subjectively agreed with the landlord’s interpretation of the clause or if it calculated the payments based on a misreading of the lease, the tenant would have acted the same way. The fact that the tenant did not enforce its legal rights does not mean that it never had them.[^27] The tenant’s subsequent conduct does not provide firm guidance to establish inferentially their intentions at the time they executed the contract.[^28]

[297] In conclusion, after considering the contract’s written text and its factual matrix, I have concluded that its meaning is not ambiguous. Therefore, evidence of the parties’ subsequent conduct is not admissible to assist in contractual interpretation. If I am wrong, and the contract is ambiguous, I would give the evidence of subsequent conduct very little weight in the interpretive exercise.

Conclusion

[298] For the reasons set out above, I agree with the tenant’s interpretation of the lease. For that reason, I dismiss the landlord’s claim for damages arising from the tenant’s payments of minimal rent and percentage rent from 2009 to 2023.

[299] In the next section, I will consider whether or not the tenant is entitled to damages or restitution of any of the amounts it paid to the landlord in excess of those required by the lease.

8. The tenant’s claims for repayment of rent

[300] The tenant claims that it should be entitled to restitution of $493,269.66, plus HST, representing the amount it mistakenly overpaid as rent (between April 1, 2007 and March 2009) and percentage rent (March 25, 2007, to March 2009). The tenant advances two theories that would permit it to recover the overpaid rent:

a. unjust enrichment; and

b. money paid under mistake of fact.

Unjust enrichment

[301] Unjust enrichment occurs when one party is enriched, the other party suffers a corresponding deprivation, and there is an absence of a juristic reason for the deprivation.[^29]

An enrichment and a corresponding deprivation

[302] With respect to the first two factors, a straightforward economic approach easily demonstrates the tangible benefit that passed from the tenant to the landlord.[^30] I find that the landlord has been enriched by the tenant’s overpayment of rent in the amount of $493,269.66, plus HST. The tenant has suffered a corresponding deprivation of the same amount. This is a case where the enrichment and the deprivation are the same thing from different perspectives.[^31] The tenant has directly enriched the landlord.[^32]

[303] The tenant has, therefore, demonstrated its deprivation and the corresponding enrichment of the landlord.

Absence of juristic reason

[304] The tenant must still show there is no justification in law or equity for the fact that the landlord was enriched at the tenant’s expense. This analysis takes place in two stages.

[305] The first stage requires the tenant to demonstrate that the landlord’s retention of the benefit at the tenant’s expense cannot be justified on the basis of any of the established categories of juristic reasons: a contract, a disposition of law, a donative intent, and other valid common law, equitable or statutory obligation.[^33] If the tenant succeeds, then it has established a prima facie case and the analysis proceeds to the second stage where the landlord has the opportunity to demonstrate that there is a residual reason to deny recovery.[^34]

[306] At the first stage, I find that the tenant has demonstrated that the landlord’s retention of the benefit cannot be justified on any of the established categories. The lease, properly interpreted, did not require the tenant to pay these excess amounts. The lease, therefore, cannot amount to a juristic reason for the deprivation. I see no other valid common law, equitable, or statutory obligation that justifies the landlord retaining the funds. The tenant has succeeded at the first stage.

[307] At the second stage of the juristic reason analysis, the landlord has an opportunity to rebut the tenant’s prima facie case by establishing that there is some residual reason to deny the tenant’s recovery. At this stage, various other considerations come into play, like the parties’ reasonable expectations and moral and policy-based arguments — including considerations relating to the way in which the parties organized their relationship.[^35]

[308] The landlord submits that that the tenant should not be permitted to recover because it does not come to court with clean hands.

[309] First, the landlord submits that the tenant did not produce other leases from other grocery stores. In my view, whether or not the language of this lease is replicated in other leases is not relevant to either the proper interpretation of this lease or the justice of denying recovery to the tenant. Moreover, the landlord produced many extremely relevant documents, for example general ledgers, only weeks before the trial of this 14-year-old proceeding. The tenant’s failure to produce other leases is not a residual reason to deny recovery to the tenant.

[310] Second, the landlord submits that the tenant was required to pay the rent under protest and because it failed to do so, it cannot recover amounts it paid. I disagree. The tenant was only required to pay amounts that were due and owing under the lease as properly interpreted. As I have set out above, I agree with the tenant’s interpretation of the lease. The tenant’s refusal to pay rent in excess of the amount owed under the lease is not a residual to deny recovery to the tenant.

[311] Third, the landlord submits that the doctrine of laches should prohibit the tenant’s recovery. The landlord points to the tenant’s payment of rent for 11 years before it adopted a different interpretation of the lease on April 1, 2009. I disagree that the doctrine of laches applies to deny the tenant recovery. Delay on its own is not enough for the doctrine of laches to apply.[^36] The Supreme Court of Canada has cited with approval the following explanation of the doctrine of laches:

It is a defence which requires that a defendant can successfully resist an equitable (although not a legal) claim made against him if he can demonstrate that the plaintiff, by delaying the institution or prosecution of his case, has either (a) acquiesced in the defendant's conduct or (b) caused the defendant to alter his position in reasonable reliance on the plaintiff's acceptance of the status quo, or otherwise permitted a situation to arise which it would be unjust to disturb.[^37]

[312] In my view the landlord has not satisfied branch (a) of the test because it has not proven that the tenant acquiesced in the landlord’s conduct. The Supreme Court identified three different meanings for acquiescence:

a. a synonym for estoppel, wherein the plaintiff stands by and watches the deprivation of her rights and yet does nothing;

b. after the deprivation of her rights and in full knowledge of their existence, the plaintiff delays leading to an inference that she has waived her rights; and

c. a meaning related to the second definition, where there has been an alteration of the defendant’s position in reliance on the plaintiff’s inaction.[^38]

[313] For both the primary and secondary definitions of acquiescence, an important aspect of the concept is a plaintiff’s knowledge of her rights. Here, that would involve the tenant knowing both the facts that support a claim in equity and that those facts give rise to that claim. I find that the tenant did not know of the facts supporting its claim until it re-examined the lease in March 2009. Once it realized that it was paying more rent than required under the lease, it moved very promptly to reduce its payments and to initiate the action. In light of the tenant’s knowledge, I do not infer that the tenant acquiesced in the landlord’s conduct. In my view, the landlord has not satisfied branch (a) or proved that the tenant acquiesced in the landlord’s conduct.

[314] The landlord submits that it has satisfied branch (b) of the test and has proved that the tenant caused the landlord to alter its position in reasonable reliance on the tenant’s acceptance of the status quo.

[315] First, the landlord submits that the landlord and SunLife relied on the tenant’s representations about the rent payable during the next renewal discussions. As I have set out above, I find that the tenant did not make those representations and I do not accept Mr. Sorokolit’s evidence to the contrary.

[316] At trial, Mr. Sorokolit testified that Sun Life required the tenant to renew its lease early as a condition of the SunLife loan to the landlord. The landlord did not tender any documents that establish that the tenant’s renewal (much less a renewal at a guaranteed level of rent) was a condition of the loan. Moreover, during trial Mr. Sorokolit was confronted with a prior statement wherein he confirmed that Sun Life did not make the tenant’s renewal a condition of the loan. The tenant effectively impeached Mr. Sorokolit. I do not accept his trial evidence on this point, and I do not find that Sun Life insisted on the tenant’s renewal of the lease (much less a renewal at a guaranteed level of rent) as a condition of the loan.

[317] Second, the landlord submits that it altered its position by agreeing to a loan with Sun Life that contained a debt service ratio predicated on the tenant continuing to pay rent at the higher levels. When, in April 2009, the tenant reduced the amount of rent it was paying, it put the landlord offside its covenants to the lender and, it is submitted, could have resulted in Sun Life calling the loan. The landlord’s evidence on this point is not entirely satisfactory.

[318] It is difficult to reconcile the landlord’s position with the fact that it increased its second mortgage by $1 million in November 2009, after the tenant reduced its rent payments, and advised Sun Life that the additional million dollars of debt would still leave the landlord well-within its debt service ratio. Moreover, the landlord used this money for corporate purposes other than running the mall in which the tenant operated the grocery store, which suggests that the shopping mall was not cash-strapped. The financial controller sent the following email to Sun Life on November 27, 2009:

We have requested Royal Bank to increase the 2nd Mortgage from $6 to $7 Million.

Attached is the Debt Service Ratio Calculation showing that with the new $7M Mortgage at 4.00%, the ratio is at ~1.3486, which is well above the minimum of 1.3000%.

We are hoping for RBC to get back to us today with confirmation. Could you please let us know whether you foresee any problems with this from Sun Life?

[319] Based on this evidence, I do not find that the landlord altered its position to its detriment when it agreed to a loan with Sun Life that contained a covenant to maintain a certain debt service ratio. Moreover, I do not find that the landlord suffered any detriment to its position with Sun Life because of the tenant’s reduced rent payments. Although the landlord submits that Sun Life could have called the loan, it never did.

[320] The landlord submits that it was required to refinance the Sun Life debt and to pay a $348,8896 penalty for discharging the mortgage one year before it matured. I am not prepared to find that the landlord chose to refinance its Sun Life facility because it was afraid that Sun Life would call the loan because of the tenant’s reduction in rent.

[321] In December 2010, the landlord entered into a new facility with RBC. The tenant obtained a larger mortgage ($9 million up from a principal balance of $6.827 million on November 1, 2010) at a much lower rate (down from 6.99% to 4.464% for a further five years). Thus, by refinancing, the landlord obtained a larger facility at a much lower rate of interest. Given the economic benefits to the landlord from the refinancing, I am not satisfied that the landlord took this step because of the tenant’s rent calculations or that the landlord suffered any detriment from this refinancing.

[322] It is true that the landlord incurred a penalty for the early discharge of the Sun Life mortgage, but there was no evidence that the new facility was not, on balance, economically advantageous for the landlord despite the early discharge fee. The evidence demonstrated that, in 2001, the landlord paid a prepayment premium of $242,098 to discharge a prior mortgage with Canada Life Mortgage Services Inc. as part of an earlier refinancing. Prepayment penalties are the cost of doing business. The landlord demonstrated in the past that it was prepared to behave in an economically rational manner and I see no difference in its behaviour in this refinancing.

[323] The landlord has not proved that the tenant permitted a situation to arise which would be unjust to disturb.

[324] The landlord has not demonstrated that there is a residual reason to deny recovery.

Conclusion

[325] The tenant is entitled to restitution in the amount of $493,269.66, plus HST, for its unjust enrichment of the landlord.

9. Taxes

[326] The tenant concedes that the landlord is owed $8,128.20 after property tax adjustments. That amount should be credited to the landlord from amounts otherwise owed to the tenant under this judgment.

[327] I find that no other adjustments are appropriate in respect of taxes. Neither side led evidence to prove that they are entitled to any further adjustments.

10. Conclusion and costs

[328] In closing submissions, the landlord confirmed that the parties had not provided me with damages schedules that would permit me to calculate that exact amounts owing, given the number of moving parts.

[329] The accounting of who owes what to whom is to be determined and adjusted in accordance with my findings. The parties should work together over the next 14 days to see if they can agree on the amounts owing in light of these findings. If they are not able to reach an agreement in that time, they may contact my judicial assistant to arrange a further attendance and I will decide the issue.

[330] If the parties are not able to resolve the costs of the proceeding, I will set a timetable for the exchange of costs submissions once the final amounts owing are determined.

Robert Centa J.

Released: May 6, 2024

[^1]: John Sopinka, Sidney N. Lederman & Alan W. Bryant, The Law of Evidence in Canada, 6th ed. (Lederman, Fuerst, Stewart) (LexisNexis, 2022), at para. 6.509; RidgeCrest Developments Ltd. v. Westcor Construction Ltd., 2019 ABQB 843, at para. 20; Chabot v. Chaube, 2014 BCSC 300, at para. 143.

[^2]: Woods (Litigaton Guardian) v. Jackiewicz, 2020 ONCA 458, at para. 27; Lambert v. Quinn (1994), 1994 CanLII 978 (ON CA), 110 D.L.R. (4th) 284 (Ont. C.A.), at pp. 287-88.

[^3]: See rule 31.06(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194; Métis National Council Secretariat Inc. v. Chartier, 2023 ONSC 5469, at paras. 88, 300-305.

[^4]: R. v. C.(H.), 2009 ONCA 56, at para. 41; R. v. Morrissey (1995), 1995 CanLII 3498 (ON CA), 22 O.R. (3d) 514 (C.A.), at para. 33; R. v. Sanichar, 2012 ONCA 117, at paras. 36, per Blair J.A., and at paras. 69 and 70, per Laskin J.A. (dissenting, but not on this point), rev’d, 2013 SCC 4, [2013] 1 S.C.R. 54; Fitzpatrick v. Orwin, 2012 ONSC 3492, at paras. 62-68.

[^5]: Sanichar, at para. 35; R. v. McGrath, [2000] O.J. No. 5735 (S.C.), at paras. 10-14; R. v. Stewart (1994), 1994 CanLII 7208 (ON CA), 18 O.R. (3d) 509 (C.A.), at pp. 515-18; R. v. Norman (1993), 1993 CanLII 3387 (ON CA), 16 O.R. (3d) 295 (C.A.), at pp. 311-15.

[^6]: 1951 CanLII 252 (BC CA), [1952] 2 D.L.R. 354 (B.C.C.A.), at para. 10; Phillips et al. v. Ford Motor Co. of Canada Ltd. et al., 1971 CanLII 389 (ON CA), [1971] 2 O.R. 637 (C.A.).

[^7]: Caroti v. Vuletic, 2022 ONSC 4695, at para. 436; 1088558 Ontario Inc. v. Musial, 2022 ONSC 5239, at para. 83.

[^8]: Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007, at para. 65, rev’d on other grounds, Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, [2019] 4 S.C.R. 394; Thunder Bay (City) v. Canadian National Railway Company, 2018 ONCA 517, 424 D.L.R. (4th) 588 (“City of Thunder Bay”), at paras. 30, 46; Ottawa (City) v. ClubLink Corporation ULC, 2021 ONCA 847 (“City of Ottawa”), at para. 52; Horn Ventures International Inc. v. Xylem Canada LP, 2022 ONSC 4158, at para. 35, aff’d 2023 ONCA 408.

[^9]: City of Thunder Bay, at para. 30.

[^10]: 2007 ONCA 59, 85 O.R. (3d) 616, at para. 53.

[^11]: City of Ottawa, at para. 54.

[^12]: Dumbrell, at para. 50.

[^13]: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 51; HSBC Bank Canada v. 1481396 Ontario Inc., 2023 ONCA 762, at para. 5.

[^14]: Nova Growth Corp. et al v. Andrzej Roman Kepinski et al., 2014 ONSC 2763, at para. 65; Canadian National Railway Co. v. Royal and Sun Alliance Insurance Co. of Canada, 2008 SCC 66, [2008] 3 S.C.R. 453, at para. 33; Hills Oil v. Wynn’s Canada Ltd., 1986 CanLII 44 (SCC), [1986] 1 S.C.R. 57 at para. 17; and Clark’s-Gamble of Canada Ltd. v. Grant Park Plaza Ltd. et al., 1967 CanLII 113 (SCC), [1967] S.C.R. 614, at p. 617.

[^15]: Orillia (City) v. Metro Ontario Real Estate Ltd., 2021 ONCA 291, at para. 43.

[^16]: 1645111 Ontario Ltd v. 1169136 Ontario Inc., 2008 CanLII 32820 (Ont. S.C.), at paras. 27 to 31.

[^17]: Brennan v. Brennan Educational Supply Ltd., 2006 SKCA 9, 285 Sask. R. 47.

[^18]: City of Thunder Bay, at para. 30.

[^19]: 2007 ONCA 59, 85 O.R. (3d) 616, at para. 53.

[^20]: See cases cited above at paras. [38] and [42].

[^21]: Beshay v. Labib, 2024 ONCA 186, at para. 27, citing 1196158 Ontario Inc. v. 6274013 Canada Ltd., 2012 ONCA 544, 112 O.R. (3d) 67, at para. 43.

[^22]: Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, 404 D.L.R. (4th) 512, at para. 56; Briggs v. Durham (Police Services Board), 2022 ONCA 823, at para. 41; Trillium Motor World Ltd. v. Cassels Brock & Blackwell LLP, 2017 ONCA 544, at para. 172.

[^23]: North Eastern Railway Co. v. Hastings, [1900] A.C. 260 at 206.

[^24]: Danforth-Woodbine Theatre Ltd. v. Loblaws Inc, [1999] O.J. No. 2059 (Gen. Div.), at para. 55; Shewchuk, at para. 52.

[^25]: Shewchuk, at para. 53.

[^26]: Shewchuk, at para. 54; Lewis v. Union of B.C. Performers (1996), 1996 CanLII 661 (BC CA), 18 B.C.L.R. (3d) 382 (C.A.), at para. 14, leave to appeal to S.C.C. refused, [1996] S.C.C.A. No. 182; Scurry-Rainbow Oil Ltd. v. Kasha, 1996 ABCA 206, 39 Alta. L.R. (3d) 153, at para. 44, leave to appeal to S.C.C. refused, [1996] S.C.C.A. No. 391; Chippewas of Mnjikang First Nation v. Ontario (Minister of Native Affairs), 2010 ONCA 47, at para. 162, leave to appeal to S.C.C. refused, [2010] S.C.C.A. No. 91.

[^27]: Canada Square Corp. v. Versafood Services Ltd. (1981), 1981 CanLII 1893 (ON CA), 34 O.R. (2d) 250 (C.A.), at p. 261.

[^28]: Shewchuk, at para. 50.

[^29]: Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, at para. 37; Espartel Investments Limited v. Metropolitan Toronto Condominium Corporation No. 993, 2024 ONCA 18, at para 37.

[^30]: Moore, at para. 41; Garland v. Consumers’ Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629, at para. 31; Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at para. 37.

[^31]: Professional Institute of the Public Service of Canada v. Canada (Attorney General), 2012 SCC 71, [2012] 3 S.C.R. 660, at para. 151.

[^32]: Moore, at paras. 44 to 45.

[^33]: Moore, at para. 57; Garland, at para. 44; Kerr, at para. 41.

[^34]: Moore, at para. 58.

[^35]: Moore, at para. 83; Garland, at paras. 45-46; Kerr, at paras. 44-45.

[^36]: M.(K.) v. M.(H.), 1992 CanLII 31 (SCC), [1992] 3 S.C.R. 6, at p. 77.

[^37]: M.(K.), at p. 77.

[^38]: M.(K.), at p. 78.

Metro Ontario Real Estate Ltd. v. Hillmond Investments Ltd., 2024 ONSC 2625

1. Overview

2. The parties and the evidence

The witnesses

Requests for adverse inferences

Tim Lawlor

Trevor Bellas

Assessing credibility and reliability

3. Principles of contract interpretation

4. The 1987 lease assignment

5. Common area maintenance

Overview

Section 22 of the lease

The landlord invoiced for unrecoverable expenses to clean the passport office

The landlord deliberately manipulated and understated the GLA

In 1990 the parties agreed that the minimum GLA always be no less than 116,399 square feet

The landlord misrepresented the GLA by excluding the McDonalds basement space

The landlord misrepresented the GLA by excluding the BiWay basement space

The reduction in GLA is not explained by the rental status of the movie theatre

The landlord knew that it was providing CAM invoices to the tenant that breached the 1990 agreement

Conclusion

The landlord did not charge permissible management fees

Conclusion

Interest

6. The landlord is responsible for the cost of replacing the roof

By November 2008 the landlord accepted that the leaky roof needed to be replaced

After the rent dispute arises in April 2009, the landlord changes its position

Findings of fact with respect to the roof

Section 10 of the lease assigns cost of replacing the roof to the landlord

Damages

7. The proper calculation of rent for the period from 2003 to 2023

Applicable rent provisions in lease and amending agreements

Provisions in original lease

First lease amending agreement – September 1996

Second lease amending agreement

The position of the parties

The tenant’s position

The landlord’s position

The correct interpretation of the lease

The evidence of surrounding circumstances

The words used by the parties in the lease, understood in context

The evidence of the tenant’s subsequent conduct evidence is inadmissible and equivocal

Conclusion

8. The tenant’s claims for repayment of rent

Unjust enrichment

An enrichment and a corresponding deprivation

Absence of juristic reason

Conclusion

9. Taxes

10. Conclusion and costs

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Expert Witnesses

Financial Outcomes

Issues

Legal Tests 3

Legislation 1