2024 ONSC 7388

COURT FILE NO.: CV-24-2667-00

SUPERIOR COURT OF JUSTICE – ONTARIO 7755 Hurontario Street, Brampton ON L6W 4T6

RE: JALILI, Esmaeil, c.o.b. Remi’s Place, applicant AND: KAT FLORENCE CANADA COMPANY LIMITED and JEANETTE MURIEL SLATER-NORMINTON, respondent

BEFORE: Justice McGee

COUNSEL: Paul Dollak, for the applicant Email: pdollak@dollaklaw.ca Danielle Marks, for the respondents Email: dmarks@svlaw.ca Nelson Wan, for the respondents Email: nwan@svlaw.ca

HEARD: August 28, 2024, by video conference

JUDGMENT

Application Granted and Counter Application Dismissed

[1] The applicant (“the tenant”) is a family owned and operated ice cream store and grill held as a sole proprietorship. Since April 27, 2012 it has quietly and continuously operated out of the same premises, specifically, two adjoining units of a commercial building located in the West Mill Street tourist area of Elora, Ontario (“the premises.”)

[2] The respondents (“the landlords”) purchased the West Mill Street commercial building in February of 2022. Their purchase was subject to an assignment of the leases which govern the premises, primarily, an August 30, 2021 Lease Extension Agreement (“LEA”) to August 31, 2024. The LEA forms part of the original Lease Agreement dated September 8, 1987 and within its terms provides for a further three-year period of renewal from September 1, 2024 to August 31, 2027.

[3] On March 1, 2022 the landlords delivered a document titled, “Elora Mews Rules & Regulations.” Since April 13, 2022 the landlords have issued a series of Notices to the tenant declaring that they are in breach of various, and often undefined lease terms as set out in their Rules & Regulations. Escalating letters from their solicitor have followed.

[4] On March 28, 2024 the solicitor for the landlord declared that the lease was terminated as of September 1, 2024, that the tenant would no longer be permitted to access the premises as of that date and any items remaining would become the property of the Landlord. The rent is not in arrears. The security deposit is in good standing.

[5] The tenant brings this Application seeking an Order confirming the renewal of their leases in accordance with the LEA and for an Order that an arbitrator be appointed to determine the rent that ought to be paid for the balance of the renewal period and any other term arising from the renewal that is in dispute.

[6] The landlord asks within their Counter Application that the Court confirm that the lease is terminated as of August 31, 2024 and that a Writ of Possession be granted.

[7] Neither party has asked that the Application or the Counter Application be converted into an Action, and both parties characterize the determination of their respective Applications as urgent.

[8] On the record before me and for the reasons set out below, I find that the lease renewal terms have been properly exercised for the additional period to August 31, 2027 and I grant the tenant’s claim for the appointment of an arbitrator, subject to a further hearing before me should the parties be unable to agree on the arbitrator to be named. I further find that there is no basis on which I can grant the Judgment sought by the landlords. I therefore dismiss their Counter Application.

The Lease Extension Agreement

[9] The tenant and the previous owner of the premises entered into the LEA on August 30, 2021. [1] The LEA is a simple, two-page typed document, signed by the parties, and witnessed. Its six paragraphs provide for the following terms, matched to the numbering below:

1. The first paragraph sets out a history of the original lease dated September 8, 1987, renewed August 24, 1992, amended January 8, 1993 and again amended on March 12, 1993. On the latter date the amended lease was assigned to a new (second) tenant. The assigned lease was then extended on July 30, 1997, June 1, 2002, July 25, 2007, and again on September 8, 2010. On April 27, 2012 the lease was assigned to the present tenant, the applicant herein, and extended to expire on August 31, 2014. On August 7, 2014 the leases for the two units were extended for a further three years, and on June 30, 2017 extended for a further four years, to expire August 31, 2021.
2. The second paragraph confirms the extension of the lease from September 1, 2021 to August 31, 2024 on the same terms, but for an increase in rent.
3. The third paragraph requires the tenant to provide 16 postdated cheques from September 1, 2021 to December 1, 2022.
4. The fourth paragraph requires the tenant to maintain proscribed insurance in good standing, to have the HVAC equipment, grill and the CO2 system on the premises regularly serviced and in good repair and to provide service records and contracts upon request.
5. The fifth paragraph is at the heart of this dispute, so I set it out exactly as drafted: The Lessee will have the option to extend these leases for a further period of 3 years [2] , provided that the Lessee pays rent on time and complies with all of the Leases’ terms, and that negotiations are commenced at least six months prior to the expiration of the within leases, namely by February 29, 2024. The amount of rent to be paid for any extension term, terms and conditions shall be determined at the time of the negotiating of the Leases’ extension.
6. The sixth and final paragraph addresses the security deposit of $2,599 to be held by the Lessor and returned upon the termination of the leases and satisfaction of all the requirements of the leases.

[10] The parties’ signatures follow, duly witnessed. Below the signatures is the following in italics which acts to bind the LEA to the original terms:

This Lease Extension forms part of, and is to be attached to, the Original Lease Agreements for Units #1 & 2 at 45 West Mill Street in Elora dated 8 September 1987 and subsequent Amendments, Addenda, Renewals and Extension Agreements.

[11] I find that the provisions in the original lease continue to operate because the italicized paragraph above specifically states that the “Lease Extension forms part of and is to be attached to the Original Lease Agreement.” Moreover, I find that the renewal provisions in the subsequent extension agreements do not remove or modify any of the original terms in a manner that materially affect this dispute.

Agreed Facts

[12] The form and content of the LEA is not in dispute.

[13] All tenancies were assigned to the landlords when they purchased the premises in February of 2022. A formal Assignment of Lease(s) dated February 8, 2022 transfers all right, title and interest in the tenancies to and in favour of the purchaser.

[14] On February 8, 2022 the tenant was directed to make all rental payments to Kat Florence Canada Company limited and Jeanette Muriel Slater-Norminton commencing March 1, 2022. Rent has been so paid and there are no arrears.

[15] A document dated March 1, 2022 was delivered to the tenant on or about that date. It was titled, “Elora Mews Rules & Regulations,” (“the Rules”) and includes the statement, “These Rules and Regulations are incorporated into and form part of your lease and any amendments or extensions thereof. Failure to adhere to the Rules and regulations will be a breach of your lease. These Rules & Regulations are effective immediately.”

[16] The document is not signed by the landlords. It is not signed by the tenant. Relevant to the troubles to come, the terms include minimal operational days and a first come, first serve policy for the use of the shared courtyard. The document ends with “the [l]essor reserves the right to rescind any of these rules and make such other and further reasonable rules and regulations as in its judgment shall from time to time be needed for the operation of the Elora Mews.”

Series of Demands from the New Landlords

[17] On April 13, 2022 the landlords delivered a document titled “Notice to Tenant of Breach of Covenant Under Lease.” The tenant’s counsel immediately replied in a letter of the same date, responding to the two alleged breaches within the Notice: (1) failure to maintain the imposed operating hours given the seasonal nature of the business and (2) allowing a squirrel on the premises.

[18] On April 22, 2022 the landlord’s counsel sent a letter titled ‘Notice of Default” reserving its rights, including re-entry and termination of the lease should the tenant fail to remain open over the winter. In response, counsel for the tenant confirmed that the tenant had always been seasonal, (as had been the ice cream shop in the premises prior to April 27, 2012) and had always operated in that manner with the consent of the prior Landlords, per Article 18 of the original lease.

[19] The landlords’ letter of May 16, 2022 restated their demands, and in a letter dated July 12, 2022, a further breach of the Rules & Regulations was asserted: alleged “aggressive verbal confrontations by the tenant.” Counsel for the landlords wrote “if my client is made aware of any negative or aggressive behaviour towards a visitor, customer or tenant of the Elora Mews by your client, my client will, without notice , terminate the lease and change the locks on your client’s units.” (Underlining as per his letter.)

[20] The tenant denies any such behaviour, pointing to favourable on-line reviews. They countered that the on-line complainants, when they could be identified, were clearly allied with the landlords.

[21] Over the summer of 2022 emails continued to be exchanged between counsels. The tenant’s lawyer’s ability to meet and resolve the various demands of the landlords was often frustrated by the evolving nature of their demands. Some demands were simply not reasonable. At one point the landlords declared that “one squirrel is too many squirrels” while asserting that the tenant was in breach of the lease as a result of a squirrel gaining entry into the premises.

[22] At another point, tenant’s counsel raised a genuine question as to whether her tenant’s ethnicity was driving this dispute. On July 14, 2022, in response to a particularly vitriolic written missive from the landlords’ counsel, she called out the landlords for trying to create a false record in an increasingly transparent effort to evict the ice cream shop for financial gain. She again asked the landlords to identify what provisions of the lease had been breached and she cautioned the landlords that they were not at liberty to interfere with the day-to-day operations of the tenant’s business.

[23] The landlords’ counsel sent another “Re: Notice of Default” notice, bolded and underlined, dated July 20, 2022. It declared that the tenant had placed patio furniture in the common space of the Mews after his letter of July 12, 2022 which had decreed that the tenant had lost that privilege for alleged rudeness.

[24] Over the fall and winter of 2022/2023 the tenant increased their operating hours so as to avoid any conflict with the new landlords. If there was correspondence between counsels during this period, it was not provided to me.

[25] On February 3, 2024 a representative of the landlords opened up discussions on a renewal of the lease for a period of 2-10 years within a WhatsApp message to the representative of the tenant and then later, in a phone conversation. The WhatsApp message is an agreed exhibit tendered by each party within the respective Application and Counter Application.

[26] In their telephone call, the landlords’ representative sought assurances from the tenant’s representative that the ice cream shop would be open year-round and would cease engaging in abusive behaviour with the other tenants. The tenant’s representative confirmed that they were now open all year, and he denied any abusive behaviour.

[27] The tenant states that there were further discussions between the parties as to terms and conditions of renewal, such as the amount of rent; that terms could not be agreed, and that negotiations continued between their respective lawyers.

[28] In their Responding Application and Counter Application the landlords deny having engaged in any lease negotiation.

The Landlords Press for Termination of Lease

[29] In a letter dated March 28, 2024 with a Re: line of “Notice of Non-Renewal of Lease” the lawyer for the landlords states in the second paragraph, ‘[t]he lease contains an option to renew for an additional term, provided that you were in compliance with the lease. As you have not complied with the terms of the Lease, you will not be granted the opportunity to extend the lease for an additional period.”

[30] The letter concludes with the sentence “as of September 1, 2024, you will no longer be permitted to access the premises and any items remaining will become the property of the Landlord.”

[31] No specific breach of the lease is described in the letter, nor the basis for distress. Rent was fully paid, and a security deposit was on hand.

[32] Counsel for the tenant sent a lengthy email on April 15, 2024 attempting to provide some context to the dispute, concluding that “the recent attempt to prevent our client from exercising their option to renew the lease based on alleged breaches is unfounded and legally untenable.” On behalf of her client she denied any breach and asked the landlords to provide specifics of their allegations.

[33] Throughout, the tone of each of the solicitor’s correspondence that was provided to me was consistent. Counsel for the tenant was civil, collaborative and resolution focussed. Crrespondence from the landlord’s counsel was autarchic.

[34] On June 10, 2024, the tenant issued this 5-page Notice of Application seeking the following substantive terms:

a. the appointment of an arbitrator to determine the rent and any other terms and conditions of the lease renewal, or alternatively an order directing a reference to determine same, or that this court determine the terms at a trial of an issue; b. orders restraining the landlords from terminating the leases or taking any steps to prevent their continued occupancy pending an arbitrator’s or referee’s award/report, or a trial that determines the amount of rent, the renewal period; c. damages to be adjudicated by the arbitrator or the Court in the event that the landlords take any actions that cause the tenant to suffer losses while the adjudication is pending, including damages for discrimination.

[35] The landlords answered the Notice of Application at some length and then served a 287-page Notice of Counter-Application Record dated July 12, 2024 seeking:

a. An Order joining the Counter Application with the tenant’s Application. b. A declaration that the leases between the parties are terminated effective August 31, 2024; c. An order that the Applicants be granted immediate possession of the premises and that the Respondents immediately vacate; d. Leave to issue a Writ of Possession to be enforced by the Guelph Sherriff’s office.

[36] Responding and Supplemental Application records were served. Replies were filed. On August 6, 2024, Kamyar Jalili, Don Kogan, and two witnesses, Aileen Jenkins and Emma Smith were cross examined. The transcripts of those examinations were before me within the two records.

Hearing of the Application and Counter Application

[37] On August 17, 2024 the parties attended before Justice Emery to schedule the hearing of this Application and Counter Application which both sides characterized as urgent. The hearing was set to a two-hour attendance on an already heavily scheduled day in the last week of August, three days before the expiry of the current lease.

[38] The positions of the parties can be succinctly summarized:

a. The tenant submits that it validly renewed the lease in accordance with paragraph 5 of the LEA, and that there were no applicable material defaults that vitiated that exercise. Therefore, it submits, the term of the lease has been renewed for a further three years to August 31, 2027 and he asks for the appointment of an arbitrator to determine the renewal terms. b. The landlords argue that the applicant was in default of various provisions of the Lease at the time that it exercised the option to renew such that the exercise was invalid. Therefore, it submits, there was no proper renewal and that the lease has been “validly terminated” and that the tenant is “precluded from exercising his option to renew.” They seek immediate vacant possession of the premises.

Terms for the Renewal of the Lease Are Met

[39] Paragraph 5 of the LEA requires three conditions to be met in order for the lease to be extended for a further three years:

a. that rent be paid on time, b. that the tenant complies with all of the leases’ terms, and c. that negotiations are commenced at least six months prior to the expiration of the lease, namely by February 29, 2024.

[40] The LEA as a whole is a simple, six paragraph document, drafted within the context of a longstanding, harmonious, and dare-I-say small-town relationship between landlord and tenant.

[41] The LEA does not require the parties to agree on the renewal terms, consistent with paragraph 8 of the original September 8, 1987 Lease which reads:

The Lessee shall have the option to renew the within Lease for a further term of 5 years provided negotiations are commenced two months prior to the expiration of the within Lease. The amount of rent to be paid for any renewal term, terms and conditions shall be determined at the time of the negotiating of the renewal, by mutual agreement, or failing mutual agreement by an arbitrator in accordance with the provisions of the Ontario Arbitration Act.

[42] I find no ambiguity in a plain reading of the original lease agreement, its subsequent terms of renewal and the 2021 LEA. As summarized by Justice Chang in Roof Tile Management v. Pieternick Properties, 2023 ONSC 5586, the overriding consideration in contract interpretation is giving effect to the parties' objective intent at the time of contract formation based on a reading of the contract as a whole; while giving the words used their ordinary and grammatical meaning consistent with the surrounding circumstances that were objectively known to the parties at the time of contracting, see: Harvey Kalles Realty Inc. v BSAR (Eglinton) LP, 2021 ONCA 426, at para. 5.

[43] Justice Chang goes on in Roof Tile Management, to emphasis that a commercial contract is to be interpreted as a whole document, i.e., "in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective" citing 2651171 Ontario Inc. v Brey, 2022 ONCA 148, at para. 16 adding that a commercial contract should be interpreted in a manner that is commercially reasonable and avoids commercial absurdity as set out at paragraph 6 of Harvey Kalles, supra.

[44] The italicized paragraph at the bottom of the LEA places the LEA terms within the whole of the contract which requires only three provisions for a renewal. If those terms are met but the parties are unable to agree to the amount of rent and related terms, those terms shall be determined by an arbitrator. To read the LEA otherwise would delete the right of recourse to an arbitrator as provided in the original lease. Such a result would be absurd because it would permit a landlord to simply refuse to come to terms in order to run the clock out on a lease.

[45] For the reasons set out below, I find that each of the three terms for a lease renewal have been met.

The Payment of Rent Confirmed

[46] It is not disputed that rent has been paid on time and it was not raised as an issue within the Application or Counter Application.

The Tenant has Complied with all the Lease’s Terms

[47] The landlords point to paragraph 14(c)(3)(f) of the September 8, 1987 Lease for their authority to impose Rules and Regulations that are deemed to be incorporated into the lease. That section reads:

That the Lessee and its clerks, servants and agents will at all times during the occupancy of the demised premises observe and conform to such reasonable rules and regulations as shall be made by the Lessor from time to time hereto and of which the Lessee shall be notified, such rules and regulations being deemed to be incorporated in and form part of these presents. (Emphasis added)

[48] The landlords ask that the Rules be deemed to be terms incorporated into the Lease, and that the tenant be found to be in breach of those terms.

[49] The landlords do not address the reasonableness of the Rules within their Responding Application or Counter Application. When they have identified breaches of the Rules & Regulations, they have been inconsistent in their assertions of what terms are in breach.

[50] It was only upon service of the landlords’ Factum on August 16, 2024 that the tenant learned what breaches were being relied upon in this hearing. The tenant’s breaches were identified at paragraph 3 of the landlords’ factum as follows:

(a) the tenant failed to open for business according to the leases' requirements; (b) the tenant caused a nuisance for the other tenants by playing loud music from the leased premises; (c) the tenant continued to use the communal patio space after his access was revoked; and (d) the tenant neglected to repair his furnace for no less than 2 years.

[51] As summarized in 1201466 Ontario Inc. v 1799144 Ontario Inc., 2024 ONSC 1511, a material default under a lease agreement is a significant failure to perform an obligation. The default must be more than minor or technical (see: DocuPartners, Inc. v Keele Copy Centre Inc., at para. 13; Lviv Ltd. v 2240574 Ontario Inc., 2021 ONSC 183, at para. 16).

[52] Where performance of lease covenants is a precondition to renewal, a tenant bears the burden of proving that it was not in default at the relevant time (see: 1383421 Ontario Inc. v Ole Miss Place Inc. (2003), 67 O.R. (3d) 161, at para. 54; Mapleview–Veterans Drive Investments Inc. v Papa Kerollus VI Inc. (Mr. Sub), 2016 ONCA 93, at para. 38).

[53] I am satisfied that the tenant has proven on a balance of probabilities that it was not in material default at any time relevant to the exercise of the lease renewal.

Failure to Be Open Year-Round Remedied

[54] The tenant’s ice cream shop had operated seasonally since its start in May of 2012, as did the predecessor ice cream shop. Nonetheless, Kamyar, who operates the business with his parents deposed in his affidavit and his cross examination that the ice cream shop and grill is now open all year. He testified that the shop changed its hours over the winter of 2023/2024 in order to comply with the March 1, 2022 notice, prior to his lease renewal discussions with Don.

[55] I begin by observing that I am not satisfied that this term in the March 1, 2022 Rules and Regulations is reasonable. I received no submissions from the landlords in this regard but for general assertions that any closed shop within the Mews is bad for business. The tenant pays no lesser rent for its reduced hours in the colder months, and there is no evidence that customers would not enter the other shops in the Elora Mews but for the lure of an ice cream shop.

[56] Neither was I persuaded by the landlords’ submissions that the September 8, 1987 lease was a sufficient basis to interpret such a term.

[57] At the same time, irrespective of whether the term requiring year-round occupancy of an ice cream shop is reasonable, I am satisfied by the evidence tendered by the tenant that the ice cream shop and grill is now operating year-round.

[58] I have reviewed the landlords’ witnesses’ testimony about the winter hours of the ice cream shop being inconsistent and examined the Winter 2024 point of sale banking records from the ice cream machine that Kamyar placed into the record. On the whole of the record I am satisfied that throughout the fall of 2023 and the winter of 2024 the tenant has complied with the March 1, 2022 term that the tenant operates a minimum number of days, all year.

Causing a Nuisance by Playing Loud Music Not Made Out

[59] The evidence supporting this allegation does not rise to a balance of probabilities. It is not even clear to me what incident is being referenced or how it might constitute a nuisance. Neither the loud music complaint (nor for that matter the squirrel incident) were substantively addressed during oral submissions. Neither can I make out any basis for a breach in the written record.

[60] Even if an incident was made out, I do not find that a singular incident, or even a series of incidents constitutes a material breach in these circumstances. As above, a material default under a lease agreement must be a significant failure to perform an obligation. It and must be more than minor or technical.

Using the Communal Patio Space after Access was Revoked Not Valid

[61] The common area of the Elora Mews is open to the customers of all its tenants. It is commonly used as an area of respite and shade while patrons enjoy their food and beverages. The March 1, 2022 Rules & Regulations permit the use of the common space by the tenant on a first-come, first-use basis.

[62] At no time did the landlords amend the provision of the Rules & Regulations that permit such use. Instead, the Landlords seem to argue that their solicitor’s July 2022 letter revoking the tenant’s use of the common area acted to amend the terms of the lease, so that subsequent use of the common area would constitute a breach of the lease.

[63] I do not find any merit in this submission, which more closely accords with a view that the landlords in this instance were interfering with the tenants’ quiet enjoyment of the premises. In any event, no such breach is alleged by the landlords to have occurred after July of 2022.

Neglecting to repair the Furnace for 2 Years Not Made Out

[64] There is no obligation on the tenant to maintain and repair the furnace within the lease. In fact, the prior owner of the premises included in the terms of the February 2022 sale a term that holds back a credit amount be put towards the landlords’ obligation to repair the heating unit in the premises. The landlords have not completed that repair.

Negotiations Were Commenced by February 29, 2024

[65] On the following evidence, being the evidence of the landlords, I am satisfied that negotiations to extend the lease were commenced by February 29, 2024 in accordance with paragraph 5 of the LEA.

[66] A representative of the landlords, Don Kogen (“Don”) sent a WhatsApp message to the representative of the tenant, Kamyar Jalili (“Kamyar”) on Saturday, February 3, 2024. Don is the spouse of Kristy Ann Florence Hillis, President of Kat Florence Canada Company Limited. Kamyar is the son of the tenant, who is now elderly. (The operating name: Remi’s Place is named after his mother.) It is not disputed that each representative had an actual or represented ability to bind a party to the lease that was relied upon by the other party.

[67] The February 3, 2024 WhatsApp message reads:

“Hello Kamal [3] Is your plan to extend your lease? The price is $73 per square foot and you can do 2-10 years up to you. I currently have several people willing to take this space as soon as your lease expires. Let me know. Thanks Don.”

[68] Kamyar sent the following text in reply on Wednesday, February 7, 2024:

“I called you a few times but your phone [was] unavailable. Please let me know when you are available.”

[69] Don deposes in his affidavit that he and Kamyar had a phone call later that same day, February 7, 2024, and that he required Kamyar and the tenant to provide written assurances that they intended to comply with all the lease’s terms, “including opening the business 4 days a week and ceasing all abusive behaviour towards customers and other tenant.”

[70] Kamyar denied any abusive behaviour and confirmed that despite being a historically seasonal business, the family ice cream and grill was now open all year.

[71] There were no further discussions between Don and Kamyar and after their phone call of February 7, 2024, the parties directly, and or their counsels had a series of exchanges.

[72] The landlords now argue that they did not participate in any negotiations. The tenant states that the parties negotiated directly into April of 2024 and that negotiations between their counsels continued up to the end of May 2024.

[73] I will note here that para 24 of the landlords’ factum states “[f]urther, the landlords deny that the renewal negotiations continued well into April 2024 directly between the parties, and into the middle of May 2024 between the parties’ lawyers. The evidence is clear that those allegations did not, in fact, continue.” The source of this fact is identified as para 29 of Don’s July 10,2024 affidavit; but upon my review, he deposes only that he did not have further discussions with Kamyar or the Tenant.

[74] I do not need to further address the landlords’ denial of any negotiations because I find that the February 2024 WhatsApp exchange and the follow up conversation between Don and Kamyar on February 7, 2024 are sufficient to meet the requirement in paragraph 5 of the LEA.

[75] If I am wrong in this, then I prefer the evidence of the tenant that negotiations had commenced because the subsequent correspondence between counsels filed within this record satisfies me that negotiations had opened and were ongoing. The fact that the landlords’ counsel primarily expressed himself in the form of ultimatums does not vitiate the presence of ongoing negotiations.

Result

[76] More specifically, I do not find that the tenant was, or is in breach of a term in a manner that bars him from complying with paragraph 5 of the LEA. As a result, I am satisfied on the record before me, without the need to make any credibility findings or further resolve any discrepancies in the record, that the renewal terms of the LEA, properly interpreted in the context in which they were drafted have been properly exercised by the tenant. I am further satisfied that the tenant was not in breach of the Lease at any time relevant to its option to renew the lease.

Appointment of An Arbitrator

[77] Having found that the terms for a renewal of the lease have been met, I now turn to paragraph 8 of the original lease which provides that the amount of rent to be paid for any renewal term, along with any other terms and conditions, is to be determined by an arbitrator in accordance with the provisions of the Ontario Arbitration Act should the parties fail to reach a mutual agreement. I read that paragraph as incorporating its successor legislation, the Arbitration Act, 1991, S.O. 1991, c. 17.

[78] As a general rule, Courts respect the autonomy of parties to determine how to deal with disagreements by upholding contractual terms for an arbitration. If the terms for an arbitration do not name the arbitrator or outline a selection process, it is up to the parties to agree on the choice of an arbitrator. If they are unable to agree, a party can ask the Court to appoint an arbitrator pursuant to section 10(1) which reads:

Appointment of arbitral tribunal

10 (1) The court may appoint the arbitral tribunal, on a party’s application, if,

(a) the arbitration agreement provides no procedure for appointing the arbitral tribunal; or (b) a person with power to appoint the arbitral tribunal has not done so after a party has given the person seven days notice to do so.

[79] As set out by Justice Zarnett in paragraph 23 of Toronto Standard Condominium Corporation No. 2299 v. Distillery SE Development Corp., 2024 ONCA 712 the power of the court to appoint an arbitrator under s. 10 of the Act exists when parties jointly have the power to appoint an arbitrator and they either fail to agree on the arbitrator or having reached an agreement, one party then refuses to follow through on it. The Court’s authority derives from the statutory obligation to assist in the conduct of an arbitration and to ensure that the arbitration is conducted in accordance with the agreement to arbitrate and the law.

[80] The tenant proposes Gary Caplan as the arbitrator to assist the parties and to ultimately determine the amount of rent to be paid and any related terms in dispute. To date, the landlords have concentrated their efforts on an eviction and have not engaged in the naming of an arbitrator. I wish to give them an opportunity to do so.

[81] If the parties cannot agree to an arbitrator, they may contact my assistant at Samantha.Alves@ontatio.ca to arrange for a further hearing before me to appoint the arbitrator pursuant to section 10 (1) of the Ontario Arbitration Act.

Judgment on Application

[82] Judgment to issue as follows:

1. The tenant has validly exercised its option to renew the lease in accordance with the LEA dated August 30, 2021, so that the lease is extended for a further three-year period, ending August 31, 2027.
2. The amount of rent to be paid after August 31, 2024 and any related terms in dispute are hereby referred to arbitration.
3. The arbitrator shall determine the procedures to be followed by the parties in respect of the said arbitration in accordance with the Arbitration Act, 1991.
4. The tenant shall continue to pay rent at the rate currently being paid to the landlords pending the completion of the arbitration, subject to revision by the arbitrator.
5. The landlord is enjoined from interfering with the tenant’s right of quiet possession of the leased premises pending the completion of the arbitration.

Counter Application Dismissed

[83] The landlords’ claim to terminate the leases effective August 31, 2024, and to secure vacant possession of the two units is advanced pursuant to section 74 (1) of the Commercial Tenancies Act R.S.O. 1990, c. L. 7 which reads as follows:

Application to judge against overholding tenant

74. (1) Where a tenant after the tenant’s lease or right of occupation, whether created by writing or by parol, has expired or been determined, either by the landlord or by the tenant, by a notice to quit or notice pursuant to a proviso in a lease or agreement in that behalf, or has been determined by any other act whereby a tenancy or right of occupancy may be determined or put an end to, wrongfully refuses or neglects to go out of possession of the land demised to the tenant, or which the tenant has been permitted to occupy, the tenant’s landlord may apply upon affidavit to a judge of the Ontario Court (General Division) to make the inquiry hereinafter provided for and the application shall be made, heard and determined in the county or district in which the land lies. R.S.O. 1990, c. L.7, s. 74 (1) ; 1993, c. 27, Sched.

[84] Section 74 of the Commercial Tenancies Act operates to remove an overholding tenant who wrongfully refuses or neglects to go out of possession. The landlords argue that section 74 is available to the Court because the tenant did not or cannot renew the lease because they were in breach of the terms of the lease; and that the requirement to comply with the terms of the lease were never waived.

[85] Having granted judgment that the tenant has validly exercised its option to renew the lease, section 74(1) of the Commercial Tenancies Act is inapplicable. No other statutory basis for the removal of the tenant was advanced, nor is there a basis for removal. The Counter Application is dismissed.

Costs

[86] If the parties are unable to resolve the issue of costs, which may include an agreement to have costs decided by the arbitrator; they are to set a timetable to exchange written submissions and then forward that timetable to my assistant at the email address above.

[87] Costs submissions are to be no more than five pages in writing, exclusive of a Costs Outline and any Offers to Settle. Caselaw is to be hyperlinked in the body of the submission.

Signed Justice McGee

Released: October 28, 2024

Footnotes

[1] The LEA is drafted in the singular, binding on the original two leases, (one for each of the adjoined units,) which are described throughout in in the plural, i.e. the “leases”. For the purposes of this decision I will refer throughout to the LEA as it is drafted in the singular, understanding that it is an extension to two leases.

[2] The highlighting reflects the highlighting in the copy of the LEA provided to me by the parties. Both parties relied on this copy and did not argue that it differed from the original, so I include the bolding. I do not take anything from the bolding.

[3] This was a misspelling and it is not asserted that the exchange was with another person.