COURT FILE NO.: CV-25-00738656-0000

DATE: 2025-06-09
SUPERIOR COURT OF JUSTICE – ONTARIO

RE: WG Brampton Fitness Inc. and W.G.K. Fitness Inc. (Applicants)
AND: Sobeys Capital Incorporated, Woodsmere Shopping Centre Inc. (Respondents)

BEFORE: Koehnen J.

COUNSEL:
Daniel Hamson, Sara Ray Ramesh for the applicant
Mitch Koczerginski, Talya Shulman for the respondent Sobeys Capital
Maureen Whelton, Arlene Campbell for Woodsmere Shopping Centre Inc.

HEARD: April 24, 2025

Endorsement

Contents

• Overview
• I. Background Facts
• II. Habitual Default
  • i. Unauthorized Physiotherapy Services
  • ii. Pre-Covid Nonpayment of Rent
  • iii. Fire Code Deficiencies
  • iv. Covid Related Payment Defaults
• III. Did the Applicants Validly Exercise the Renewal Option?
• IV. Relief from Forfeiture
• V. Return of the Interest Payment
• VI. The Tenant’s Request for Relief against Head Landlord
• Conclusion and Costs

Overview

[1] This proceeding calls upon the court to determine whether the applicants were entitled to extend their subleasehold interest in commercial premises for a further five years and, if so, whether they validly did so.

[2] I find that the applicants were not entitled to extend their lease because the sublease explicitly states that they would forfeit that right upon habitual default. Under the sublease, habitual default is defined as three incidents of default during the 10-year term. The applicants had committed at least three such defaults before attempting to exercise the extension option.

[3] While some may view the application of this clause as harsh, it reflects the terms negotiated by two sophisticated parties. The lease clearly defines habitual default as three incidents, without qualification. This definition grants the landlord significant discretion, but it is a risk the tenant accepted. A prudent tenant could have negotiated a more lenient definition or ensured compliance to avoid exceeding two defaults. In this case, the tenant did neither.

[4] The equitable remedy of relief from forfeiture does not apply here. The standard for granting relief in the context of lease extensions is more stringent than when a landlord seeks to terminate a lease or regain possession. To obtain relief in the context of a lease extension, a tenant must demonstrate diligent efforts to comply with the lease, and demonstrate that its failure to comply was due to circumstances beyond its control. Here, the defaults resulted solely from the tenant’s lack of diligence.

I. Background Facts

[5] The applicant, WG Brampton Fitness Inc., operates a gym under the name “Crunch Fitness” out of premises located at 630 Peter Robertson Blvd., Brampton, Ontario (the “premises”). It is one of 20 Canadian Crunch Fitness locations that the principal of WG Brampton, Wesley Hodgson, operates through various corporations that he independently controls.

[6] WG Brampton occupies the premises pursuant to a sublease between itself and the head tenant (the “Sublease”), the respondent Sobeys Capital Incorporated (“Sobeys”). The Sublease commenced on April 30, 2016 and expired on April 29, 2025. Sobeys in turn occupies the premises pursuant to a lease with the owner of the premises, the respondent Woodsmere Shopping Centre Inc. The applicant, W.G.K. Fitness Inc., is an affiliate of WG Brampton and has indemnified Sobeys for the obligations of WG Brampton under the Sublease.

[7] The Sublease itself is entered into between W.G.K. Fitness Inc. in trust for a corporation to be incorporated. It appears that WG Brampton is the corporation that was incorporated to assume the Sublease. The specific legal details, if there are any, of the transfer from W.G.K. Fitness Inc. to WG Brampton are not before me.I therefore simply refer to the subtenant as the applicants throughout these reasons unless the specific context requires otherwise.

[8] At the outset of the hearing, the applicants brought a motion to add Woodsmere as a respondent. Sobeys consented to the motion. Woodsmere did not oppose the motion. Given that Woodsmere had already filed a factum in opposition to the main application, I allowed the motion and added Woodsmere as a respondent.

[9] The Sublease permitted the applicants to extend its term for a further 5 years if the applicants provided notice to do so by March 30, 2024. The right to extend the Sublease is subject to the following four conditions:

a. The applicants provide written notice of intent to extend on or before March 30, 2024 (which is 30 days before the day on which Sobeys must exercise its corresponding option under the Head Lease);

b. The applicants are not in default when they deliver the notice to extend;

c. The applicants are not in habitual default (defined as three or more defaults during the Sublease term) [1];

d. The applicants are in operation as of the date they deliver the written notice of intent to extend.

[10] The parties agree that the fourth condition was met. They disagree about whether the first three conditions were met.

[11] Any conditions associated with the exercise of an extension option must be satisfied before the option becomes enforceable. [2] Ontario courts have enforced option conditions that require tenants to avoid habitual defaults during the term of the lease. [3] Ontario courts have also held that landlords are not required to give notice of each default before being able to rely on a habitual default clause unless the lease expressly requires such notice. [4] The Sublease at issue here does not require the sub-landlord or landlord to issue any such notices of default. Finally, the onus is on the tenant to show that it was not in default. [5]

II. Habitual Default

Sobeys submits that the applicants are not entitled to extend the lease term because they committed more than two defaults during the lease term which deprives them of the ability to extend the lease. The defaults on which Sobeys relies in this regard are: (i) conducting unauthorized physiotherapy services; (ii) three defaults on payment of rent before the Covid pandemic; (iii) default in relation to fire and life safety equipment; (iv) at least 17 rental payment defaults during the Covid pandemic.

i. Unauthorized Physiotherapy Services

[13] In October 2019, Sobeys issued a notice of default alleging a breach of the Sublease due to the unauthorized subletting of a portion of the premises to a third-party provider of physiotherapy services.

[14] The Sublease explicitly prohibits the applicants from “subletting or parting with possession of all or any part of the Subleased Premises” without obtaining prior written consent from the Sublandlord. Furthermore, the Sublease incorporates the terms of the Head Lease, which prohibits the use of the premises for physiotherapy services. This restriction exists because the Head Landlord had already granted exclusive rights to another tenant within the complex to provide such services.

[15] Upon receiving the notice of default, the applicants stopped offering the disputed services within six days. Although they did not concede that their actions constituted a breach of the lease, they say they chose to discontinue the services to avoid further conflict with the landlord.

[16] In this application, the applicants argue that their conduct did not amount to a default under the lease for the following reasons: (i) No portion of the premises was sublet; (ii) The services provided were limited to orthotics and physio-training for club members only; (iii) The services were authorized under the Sublease. I do not accept those defences.

[17] With respect to the alleged absence of any sublease, the evidence indicates that an independent third-party provider, Physiomed, was granted access to a designated area within the Subleased premises. In return, the Subtenant received a fee for the services rendered by Physiomed.

[18] Regardless of the duration or informality of the arrangement—whether month-to-month or day-to-day—this constitutes a Sublease. It involved consideration and granted an arm’s-length party the right to occupy and use part of the premises. This arrangement falls within the concept of a Sublease and was implemented without the consent of Sobeys.

[19] With respect to the limitation of services to “physio-training” rather than physiotherapy, applicants’ counsel acknowledged that there was nothing in the record to distinguish the two. Moreover, a flyer distributed by Physiomed advertising its services on the premises explicitly listed “Physiotherapy” as the first of several services it offered. The advertisement clearly demonstrates that physiotherapy services were being offered, contrary to the restrictions in the Head Lease.

[20] The argument that the services provided by Physiomed were permitted is based on Section 5.1 of the Sublease, which defines the permitted uses of the premises as follows:

“...only to use the Subleased Premises for a Fitness Club with the ancillary businesses of tanning, electronic massage beds for fitness members only, juice and smoothie bar for fitness members only, and the sale of related retail items...”

[21] The applicants suggest that physiotherapy services fall under “related retail items.” This interpretation is unconvincing. The term “related retail items” more plausibly refers to tangible goods such as gym apparel and accessories (e.g., water bottles, socks, T-shirts). The Sublease specifically enumerates certain services—such as tanning and massage beds—that might not be considered retail items, yet are expressly permitted. Physiotherapy is not among them.

[22] Based on the evidence and the terms of the Sublease and Head Lease, the provision of physiotherapy services constituted: a breach of the prohibition against subletting without consent; and a violation of the use restrictions, given the express prohibition of physiotherapy services. Accordingly, the provision of physiotherapy services amounted to a default under the Sublease.

ii. Pre-Covid Nonpayment of Rent

[23] The most significant default based on the time spent in argument, was the nonpayment of rent during Covid. That is an issue that is factually contentious and which I will address in greater detail in a separate section of these reasons.

[24] What is not contentious is that the applicants made late rent payments in October 2016, April 2019, and February 2020.

[25] The applicants try to downplay those defaults by explaining them away and noting that any late payments were corrected within a month. By way of example, they described the late payment in April 2019 as being alternatively on account of cash flow issues, growing pains and financing issues. [6] They also contrast the size of the three pre-Covid rental defaults with their $2,000,000 capital investment in the premises and ask whether those are the sorts of defaults that should deprive it of the ability to renew.

[26] In my view, that is not the question. The question is whether there are three defaults under the lease. Three defaults constitute habitual default. When addressing habitual defaults, the lease does not require the defaults to be material, nor does it excuse the default if it is corrected within a certain period of time. The three late payments under the lease constitute three further defaults.

iii. Fire Code Deficiencies

[27] The Sublease required the applicants to arrange for annual inspections of fire and life safety equipment on the premises and obtain annual certifications of that equipment. The applicants acknowledge that no such inspections occurred for several years, nor had the applicants received the required annual certifications for several years. [7]

[28] Sobeys did not discover this default until after the applicants say they delivered the extension notice. Following this discovery, a fire alarm and life safety inspection was conducted which determined only 40% of the subtenant’s fire suppression and safety devices passed inspection. [8] The applicants did not fully remediate the issue until June 5, 2024, [9] almost 4 months after they delivered the extension notice.

[29] The fact that Sobeys discovered the default only after the notice of extension was delivered, is of no moment. In 1290079 Ontario Inc. v. Beltsos, 2011 ONCA 334, the Ontario Court of Appeal held that the exercise of an option is invalid if the tenant was in default at the time, even if that default is discovered after the fact. [11]

[30] The purpose of the habitual default provision is to allow the landlord to refuse to extend the lease in favour of a tenant who fails to comply with the lease. The landlord’s lack of knowledge of every default should not be determinative. If it were, it would require landlords to aggressively police lease compliance and proactively look for things the tenant may be overlooking or hiding. That is commercially unreasonable. The landlord should be able to rely on the tenant to abide by the lease.

[31] I therefore find that the fire code deficiencies constitute a further default under the lease.

iv. Covid Related Payment Defaults

[32] It is arguably unnecessary to delve into any further defaults because the combination of the defaults related to physiotherapy services, nonpayment of rent pre-Covid, and fire equipment violations amounts to five separate defaults. This satisfies the definition of habitual default under the Sublease and disqualified the applicants from extending the lease unless Sobeys agreed otherwise. I will nevertheless consider whether the nonpayment of rent during the pandemic amounts to further default(s) under the Sublease. I do so because the non-payments are relevant to: habitual default, the right to extend the lease, relief from forfeiture, and is the subject to which the parties devoted the most energy in their written and oral submissions.

[33] The premises were closed by government order during three distinct periods of the Covid pandemic: March 20 to July 31, 2020; October 9, 2020 to July 16, 2021; and January 5 to January 31, 2022. The applicants did not pay rent during these closure periods.

[34] The applicants say the nonpayment was based on an agreement with Sobeys to defer rent. Sobeys says the missed payments amount to additional defaults under the Sublease.

[35] I conclude that nonpayment of rent during the pandemic amounted to a further default of the Sublease. Although Sobeys demonstrated a cooperative attitude and did not strictly enforce immediate payment of rent, it never absolved the applicants of their obligation to pay rent. The applicants appear to have focused on the conciliatory aspects of Sobeys’ communications while ignoring the more assertive aspects. This becomes clear through a chronological examination of the most critical communications between the parties during and after the pandemic.

[36] As of March 17, 2020 all gyms in Ontario were closed by government order.

[37] On March 25, 2020 Sobeys reached out to its tenants generally saying: “Effective April 1, 2020, small businesses that feel they need assistance are asked to reach out to their Property Manager and review the opportunity for a 2 month rent deferral.”

[38] The applicants responded on April 1, 2020, requesting “a rent deferral until all government authorities have given us the right to resume our business, at which point we can review how we resume rent”. The applicants further proposed paying the deferred rent in equal payments after the end of the lease term. Put another way, the applicants proposed that rent for the closure period would be deferred until after April 30, 2025 when the initial term of the Sublease expired. No rent was paid during the first closure period, and no further correspondence was exchanged between the parties during this time. This does not constitute an agreement on Sobeys’ part. Sobeys had offered a two-month rent deferral and was now being asked to defer an unspecified amount of rent for at least five years. While Sobeys’ silence may restrict its ability to demand full payment of rent without reasonable notice, it does not mean that it had agreed to a five-year deferral or in fact any deferral beyond the two months it proposed.

[39] The applicants resumed rental payments in August 2020 when the first closure period ended, and continued to pay rent until the second closure period began.

[40] On August 1, 2020, the applicants also wrote Sobeys asking to speak that week “to go over the rent.”

[41] On August 25, 2020, the principal of the applicants, Wesley Hodgson, spoke with Sobeys’ Director of Real Estate, Mark Deans. Hodgson says they “ultimately agreed” that Sobeys would defer rent during government closures and that the payment of the deferred rent would be negotiated subsequently. Hodgson also says the applicants committed to making payments during the closure period if and when it was financially reasonable to do so.

[42] Deans denies any such agreement. In an internal email of August 25, 2020 reporting on the call, he says that Hodgson advised that he would get caught up on rent outside the closure period and would let Deans know the amount the applicants could afford to pay going-forward. Deans continued: “Once we know that we can then make a going forward plan with or without them. He will not allow me to show the space to other prospects. He did say he wants to remain in the space; they are not looking to leave. Over the next week let's see whether he follows through on his promises.” This does not suggest an agreement to do anything other than not to re-enter the premises immediately and to give the applicants a short period of time to present a proposal.

[43] Which of the two versions is more accurate is ultimately beside the point. The Sublease requires the applicants to pay rent on the first day of each month. It also stipulates that any amendment or modification must be in writing and signed by both parties. The applicants admit that no such written agreement to defer rent exists. Courts have upheld the enforceability of clauses that require amendments to be in writing to prevent disputes over alleged verbal agreements like the one at issue here. [12]

[44] On October 8, 2020, Deans wrote to Hodgson saying: “Last we spoke a few weeks ago, you [were] to get back to me concerning the arrears of rent for the closure period. It's appearing that Sobeys is back to chasing Crunch concerning the rent. You'll recall we spoke about this. This makes it very tough to have conversations on our side about this rental situation. Candidly I don't expect there will be much continued tolerance for this situation.” This is a clear indicator of a landlord who is unhappy with its tenant. There is no suggestion about a compromise on the arrears of rent but merely an indicator that the applicants were supposed to submit a proposal which they had not done and which was frustrating Sobeys.

[45] The second closure period began in October 2020 and continued to July 20, 2021.

[46] On March 10, 2021, Deans wrote to Hodgson asking when Sobeys could expect payment of the outstanding arrears and added:

As I've mentioned on several past occasions the full amount under the lease contract is to [be] paid, and, currently there's a significant portion owing that's in arrears and amounts outstanding continue to grow. As you likely know, since Crunch is not living up to its lease obligations this leaves Crunch's rights under the lease in a vulnerable position. This vulnerability will only grow more acute once restrictions ease and additional businesses are allowed to re-open. If you'd like to discuss this, please let me know and we'll schedule a call. If you'd like to advance a plan to address the arrears, please forward one to Vira and I. As a suggestion I encourage Crunch to be proactive in dealing with this matter rather than remaining silent on the matter.

[47] This is a clear indication on the part of Sobeys that the entire amount of the deferred rent is due and that the applicants are in breach of their lease. The reference to this leaving the applicants “in a vulnerable position” which will only “grow more acute once the restrictions ease and additional businesses are allowed to reopen” can only be a thinly veiled warning that Sobeys might terminate the lease when it is able to find another tenant with relative ease. Sobeys was fully entitled to take the position.

[48] On May 27, 2022, Sobeys wrote again to WG attaching a statement of account for the premises saying: “… kindly remit the outstanding balance asap. Account Balance $691,385.50.” Sobeys says the reference to paying the outstanding balance ASAP means “pay now.” The applicants focus on the spreadsheet attached to the email which sets out the history of rental payments and non-payments. Sobeys added the annotation “tbneg” (to be negotiated) beside the non-payment entries. Although the applicants try to rely on the words “to be negotiated,” those words do not form any type of agreement other than a commitment by the landlord, not to re-enter the premises immediately. At the same time, Sobeys was continuing to send emails to the applicants inviting them to submit a proposal on how to bring the arrears into good standing.

[49] Sometime after June 7, 2022, a call occurred between Hodgson and Elvira Zollerano, a Lease Administration Analyst with Sobeys. Hodgson says that during the call he proposed that the applicants pay an amount less than the total deferred rent amount over a period of time extending into the Subtenant's renewal term. Hodgson says he was then awaiting an answer to this proposal from Sobeys. I note that this offer was not consistent with what Sobeys had been requesting. The offer does not contain a specific amount, other than a suggestion, that it would be less than the full amount owing. The proposal also does not provide a specific time for payment, other than that it would extend into the subsequent lease term, which, at that point, was still three years away.

[50] Sobeys responded on September 16, 2022 with an email from Krista Wilson, Manager, Lease Administration & Property Management stating the proposal was rejected by Senior Management and that Wilson had been directed to collect all outstanding arrears by October 31, 2022. The email added, “Please note that failure to make payment in full of all outstanding amounts will be a default under the terms of the Sublease and head lease.” There can be no ambiguity that this was a demand for full payment by October 31, 2022, after which the lease would be in default. That gave the applicants approximately six weeks to pay off the arrears; a not unreasonable time for the applicants to do so if they were able. If they were unable, the lease would be in default.

[51] In response, on September 20, 2022 Hodgson asked to have the matter elevated within Sobeys. Hodgson followed up on his request on September 27, October 26, 2022 and April 18, 2023.

[52] Wilson responded on April 18, 2023 saying that if the applicants had “a repayment proposal to address the arrears in totality, I would be willing to review this with senior management for a decision, but cannot make any promises it would be approved. At this time I am mandated to collect the arrears.”

[53] Hodgson responded on April 24, 2023 with the first concrete offer proposing to pay the outstanding balance of $606,500.28 over 84 months and to extend the lease term after its expiry in April 2025.

[54] Wilson responded on July 6, 2023 advising that: the proposal had been rejected by Senior Management; the arrears are outstanding; there was no appetite to extend a payment plan beyond the current term; and that Wilson had “been mandated to collect all outstanding arrears as a lump sum payment as soon as possible to ensure your lease remains in good standing.”

[55] On July 6, 2023 Hodgson responded again, not offering to pay a lump sum as demanded, asking to pay the balance over the remaining term.

[56] On December 15, 2023 Sobeys and Woodsmere entered into an agreement whereby Sobeys would receive a longer headlease if it delivered vacant possession of the premises at the end of the lease term on April 30, 2025.

[57] On February 5, 2024, Sobeys delivered a notice of default to the applicants demanding payment of deferred rent plus interest within eight days. This appears to be the first time that interest was demanded on the arrears.

[58] I interrupt the chronology at this point to analyse the positions of the parties.

[59] The applicants argue that Sobeys’ six-month delay in responding to Hodgson’s September 20, 2022 request to escalate the issue internally, along with the lack of response to his July 6, 2023 proposal to pay the balance over the remaining term, and Sobeys’ agreement with Woodsmere on December 15, 2023, collectively constitute bad faith—or at least conduct that misled the applicants into believing that all was well. I disagree.

[60] By September 20, 2022, the applicants had still not submitted a concrete written proposal detailing the payment amount and schedule. Although Hodgson requested escalation within Sobeys on that date, he did so in response to an email stating that his earlier proposal—offering to pay less than the deferred amount over an unspecified period exceeding three years—had been rejected by Senior Management. In other words, the matter had already been escalated, and Senior Management had directed that all arrears be paid by October 31. The response Hodgson received on April 18, 2023 reiterated this position: Wilson was mandated to collect the arrears, as a lump sum, as soon as possible.

[61] Every time Sobeys insisted on payment, Hodgson responded with a request to reconsider. While there may have been “no harm in trying,” the effect of the applicants’ requests was to have the parties run around in circles.

[62] The applicants’ repeated requests for reconsideration do not entitle them to assume that Sobeys’ silence or delay in responding constituted a withdrawal of its clearly stated position. Accepting such an argument would imply that a debtor could indefinitely delay payments by continually requesting reconsideration - an untenable and illogical outcome.

[63] Any delay following Sobeys’ clear communication on September 16, 2022 - regarding the amount due, the payment deadline, and the consequences of nonpayment - is attributable to the applicants, not Sobeys.

[64] The applicants further argue that Sobeys’ December 2023 agreement with Woodsmere constituted bad faith because it undermined their right to extend the Sublease while they were waiting for a response to their July 6, 2023 offer. They argue this claim is supported by Deans’ cross-examination testimony, in which he acknowledged that Sobeys had formed a plan to terminate the subtenancy by December 2023, could not specify a deadline for payment of arrears, and identified March 2024 as the next benchmark. [13]

[65] I disagree with this characterization. Regardless of Deans’ understanding during cross-examination, it is evident that multiple representatives from Sobeys were communicating with the applicants. Sobeys had clearly stated as early as March 10, 2021, that the full arrears remained due, and stated on September 16, 2022, that payment was required by October 31, 2022. As previously noted, the applicants’ subsequent proposals did not negate Sobeys’ clear demand. Furthermore, the applicants’ potential right to extend the Sublease is unrelated to the arrears issue, except insofar as nonpayment may constitute one of the defaults necessary to establish habitual default under the lease.

[66] I now return to the chronology. In response to Sobeys’ notice of default of February 5, 2024, the applicants engaged Mark Graben, a real estate broker, to negotiate a solution with Sobeys.

[67] Disputes have arisen between the applicants and Sobeys about the treatment of the option to extend the Sublease during those negotiations. The applicants say that they raised the extension and that Sobeys gave them reason to believe that the extension option was still available. Eaton says in his affidavit that it was apparent from his discussions with Graben that Graben understood that the Sublease extension was no longer valid because of the applicants’ default history. According to Eaton, Graben sought to negotiate the reinstatement of the extension option in exchange for the payment of the rental arrears. Eaton further says he told Graben that Sobeys was not willing to entertain such a request and that it was Sobeys’ position that the extension right had already been lost due to the applicants’ default history. Graben does not address Eaton’s affidavit directly in his responding affidavit. Instead, he speaks of the importance of the option to the applicants and their insistence that it be part of the negotiation.

[68] On my reading, both affidavits are artfully crafted to speak around the issue without directly confronting the critical points of difference between them. By way of example, Eaton does not explain why he believes Graben understood that the option extension was off the table. Similarly, Graben does not directly dispute Eaton’s contentions.

[69] On my reading of the evidence, both parties recognized that the extension was a potentially delicate subject for them. I infer that neither side wanted to take an overtly hard line position but that both sides wanted to maintain their rights with respect to the extension. For Sobeys, taking a hard line on the extension might have meant that it would not have received the payment on arrears. For the applicants, taking a hard line might have meant that Sobeys would terminate the Sublease and repossess the premises immediately, thereby depriving the applicants of an additional year in which to work things out. I glean this from the artful drafting of the two affidavits and from the single contemporaneous email chain that contains the written record of the negotiations. That chain discloses that on February 8, 2024, Graben proposed to Eaton that the applicants pay the arrears over 12 months and that the applicants extend the lease term by five years. Eaton responded on February 9, 2024 indicating that he was “still working through this, but the early feedback is that we will not be able to move off the current position.” The current position was that the applicants pay the full arrears plus interest by February 13, 2024. Graben responded on February 9, 2024 asking for a date to pay the arrears beyond February 13, 2024 and stating:

Please confirm that once the arrears are cleared, that the Sub-Tenant’s extension rights under the lease are still valid, subject to the Sub-Tenant not being in default under the Sublease at that time.

[70] Graben followed up on February 12, 2024. Eaton responded on February 12, 2024 shortly before 11 AM indicating that “the direction I have been given is that we intend to stay on the current path. As per the notice delivered.” The email was silent on the extension option. In other words, the only thing that Sobeys would entertain at the moment was full payment of arrears and interest. It was not confirming anything about the extension option.

[71] On February 16, 2024, the applicants delivered two cheques to Sobeys in payment of the outstanding arrears and interest amounts.

[72] On my view of the evidence as a whole, the applicants’ failure to pay rent during the Covid closures amounted to further defaults under the lease. Although Sobeys may have been tolerant at some points about late payment of rent, it was clear by no later than September 16, 2022 that Sobeys considered the failure to pay rent during the Covid closures to be a default under the lease. There was no obligation on Sobeys to terminate the lease immediately on a rental default. Sobeys was free to act in its own interests and maintain the lease as long as it suited them and then change its position when it became preferable to do so. Even if eight days notice was too limited time in which to demand full payment of the rent and interest, there was no prejudice to the applicants because they were able to make the payment. [14]

III. Did the Applicants Validly Exercise the Renewal Option?

[73] As noted, on February 16, 2024, the applicants delivered cheques to clear the arrears. The cheques were delivered by Sharon Johnny, who described herself as the chief operating officer of an affiliate of the applicants. Johnny says the envelope she delivered to Sobeys’ mailroom contained two cheques, a letter from Hodgson indicating that the payment of the interest amount was paid under protest, and a separate document exercising the renewal option under the Sublease. Sobeys denies that that the envelope contained the renewal option.

[74] The only contemporaneous evidence about Sobeys’ delivery of the extension notice is Johnny’s email to Hodgson sent at 3:50 PM on February 16, 2024 which indicates that she had “just delivered cheque and renewal (Friday February 16th 3:45pm) to Sobeys as requested at 4980 Tahoe Blvd. Mississauga.”

[75] Sobeys highlights a number of factors which it says should lead me to infer that the extension notice was not delivered on February 16, 2025 as the applicants claim including the following:

(a) Sobeys cannot find a copy of the alleged extension notice in its records;
(b) An affidavit by the Sobeys mail clerk who received the package from Johnny states that it contained two cheques and a cover letter – and nothing else;
(c) The cover letter enclosed with the cheques speaks in detail, about the Subtenant paying the outstanding arrears to avoid the imminent termination of the Sublease but does refer to any extension notice being delivered at the same time;
(d) Unlike the cover letter, the alleged extension notice is not printed on the Subtenant’s letterhead;
(e) The Subtenant gave advance notice that it would deliver a payment on February 16, 2024, but did not indicate that it would also deliver an extension notice;
(f) The supposedly contemporaneous email from Johnny confirming delivery is in fact a PDF of an email in respect of which no metadata can be obtained.

[76] I once again interrupt the chronology here to analyse these allegations. Although these allegations raise questions, I am not persuaded that they demonstrate that the applicants or Johnny were acting dishonestly in claiming that they delivered an extension notice on February 16, 2024 as Sobeys asks me to find. The fact that the cover letter does not refer to the extension notice is not entirely surprising. The letter is not a conventional “cover letter” of the sort which says “please find enclosed…”. Rather, it is a letter of complaint that contests Sobeys’ right to demand interest and which complains about the short time afforded to pay the arrears. Hodgson has explained that the notice of extension was not printed on letterhead because he prepared it on his iPad and sent it to Johnny by text. Given the short timelines under which the parties were operating, this explanation is not implausible. With respect to Johnny’s email confirming delivery of the notice of extension being a PDF document, Johnny says that a change in email servers led her to be unable to find the original email. The applicants have produced a copy of the PDF with metadata which they suggest demonstrates that the email confirming delivery was actually prepared on February 16, 2024. I am not sufficiently proficient in the interpretation of metadata to determine whether that is in fact the case.

[77] Resuming the chronology, on March 28, 2024, Sobeys delivered a notice of default advising the applicants that they had not complied with the fire code and life safety provisions of the lease. On April 2, 2024 Sobeys delivered a further notice advising the applicants that they were in default under the lease and that they had not delivered a written notice of extension under the Sublease by March 30, 2024, as a result of which the option to extend was null and void.

[78] The applicants did not respond to that letter until May 16, 2024 when their litigation counsel sent an email to Sobeys’ litigation counsel. The applicants’ counsel sent a follow-up email on May 17, 2024. Neither of those emails refer to a notice of extension having been delivered on February 16, 2024. Both emails merely contest the details of the fire code violation.

[79] Hodgson explains that the applicants did not respond to the April 2, 2024 notice in a more timely manner, because, in light of Johnny’s delivery of the extension notice, they considered that Sobeys’ statements were merely a “pressure tactic further to the Sublandlord's apparent interest in terminating the Sublease.” Hodgson also says that the applicants asserted the validity of the exercise of its option to extend in their counsel’s emails of May 16 and May 17, 2024.

[80] I am not persuaded by Hodgson’s explanation. If the letter was “merely a pressure tactic further to [Sobeys’] interest in terminating the Sublease,” one might have thought that this would be all the more reason to respond immediately and forcefully to remind Sobeys that the Sublease had been extended on February 16, 2024. Moreover, as noted earlier, the emails of May 16 and May 17, 2024 do not refer to the past exercise of any option to extend.

[81] I note parenthetically that, although the email of May 16, 2024 also refers to the need for an emergency application to determine the applicants’ renewal rights, the applicants took no steps to bring such an application until March 11, 2025 when they attended Civil Practice Court to obtain an urgent hearing date.

[82] Each side has made serious allegations about the credibility of the other concerning the delivery of the extension notice and more generally. Sobeys attacks the plausibility of the applicants’ explanation about the notice to extend. The applicants attack the credibility and reliability of Sobeys’ affidavits because a number of them indicate that the affiant has read another affidavit and adopted its contents when in fact the affiant had never read the affidavit referred to. I do not base my decision on the credibility or lack thereof of either side. The issues are more preferably resolved based on the language of the contract between the parties.

[83] Even if I accept that the notice of extension was delivered on February 16, 2024, that does not assist the applicants. For the grounds set out earlier in these reasons, the applicants were in habitual default under the Sublease when they delivered the extension notice. That notice would only be valid if Sobeys agreed to accept it. Sobeys did not accept it. Even if I find that Sobeys received the notice of extension on February 16, 2024 and did not reject it until April 2, 2024, the applicants have not shown any prejudice that they suffered by being told on April 2, 2024 that the lease extension was null and void as opposed to having been told that on February 17, 2024. Moreover, the extension notice was further invalid because it was delivered when the applicants were in default of the Sublease with respect to annual inspections and certifications of fire and life safety equipment. The applicants could only extend the Sublease if they were not in default at the time of extension.

IV. Relief from Forfeiture

[84] If this court finds that the notice of extension was not validly exercised for whatever reason, the applicants seek equitable relief in the form of relief from forfeiture.

[85] The applicants submit that relief from forfeiture requires the court to consider all of the circumstances of the case including the history of the relationship between the parties, the gravity of the breach, the tenant’s conduct or misconduct, and the disparity or disproportion between the value of the property forfeited and the damage caused by the breach. [15]

[86] In this regard, the applicants ask the court to consider that: they invested $2,000,000 in capital improvements to the premises; they employ 52 people at the premises who will lose their employment if the lease is not extended; the applicants’ 8,500 members at the premises will lose access to their fitness facility; and given that the club at the premises is an “affordable” fitness club, members who could not otherwise afford to pay more for a fitness membership would be left with few or, in some cases, no other options, and would have to cease using any fitness facility.

[87] The applicants argue that their breaches were minor in nature compared to the loss of the premises and that all breaches have been remedied.

[88] It appears, however, that the applicants are relying on the wrong test for relief from forfeiture. The test the applicants rely on stems from the Supreme Court of Canada’s decision in Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., which applies where a tenant seeks relief from a landlord’s termination of a tenancy following a breach. [16]

[89] A different test applies to options to renew. As the Ontario Court of Appeal explained in McRae Cold Storage Inc. v. Nova Cold Logistics ULC, 2019 ONCA 452:

The application judge correctly noted that where preconditions to the renewal of a lease are in issue, the jurisdiction to grant relief from forfeiture is narrower than the three-pronged test applied in cases such as Saskatchewan River Bungalows. With respect to the renewal of a lease, a precondition for the exercise of any such equitable discretion is that the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own. [17]

[90] The Ontario Court of Appeal has repeatedly affirmed this principle [18]

[91] The rationale for applying different legal tests arises out of the different nature of the right at issue. The broader Saskatchewan River test applies when a tenant has breached a term which results in the potential loss of a proprietary or possessory interest. An option to renew is not an existing right of possession, but is rather a right to acquire a new right. While the successful exercise of such an option may give rise to a possessory interest in land, the mere failure extend does not amount to a forfeiture that equity can remedy. [19]

[92] Returning then to the test applicable here, the tenant must demonstrate that it has made diligent efforts to comply with the terms of the lease which were unavailing through no default of their own. The defaults that I have found amount to habitual are all ones that result from a lack of diligent effort to comply with the terms of the Sublease. The one possible exception to this might be the default arising out of nonpayment of rent during the forced closures of the premises during the Covid pandemic. That, however, is not truly an exception either for two reasons. First, the Ontario Court of Appeal has confirmed that financial hardship arising from the COVID-19 pandemic does not excuse non-compliance with payment obligations under a lease. [20] Second, the applicants have not demonstrated that they were unable to pay rent because of the Covid closures. On the contrary, the applicants admit that they could have paid the full amount of arrears in July 2023. [21] The applicants nevertheless defaulted on rent eight times after that.

[93] Related to the request for relief from forfeiture is the applicants’ allegation that Sobeys acted in bad faith. These allegations arise out of the suggestion that Sobeys engineered a default by entering into an agreement with Woodsmere to give Sobeys’ a longer lease if it could deliver vacant possession of the premises on April 30, 2025. I do not find any bad faith on the part of Sobeys in this regard. The factual basis for my conclusion is set out in paragraphs 59-65 above.

[94] Legally, Sobeys was not required to advise the applicants of their habitual default. Even if Sobeys was acting cooperatively by not muscularly enforcing timely rent payments or by repossessing the property, it remained free to change its position when it was commercially convenient to do so, subject to any rights of notice arising out of principles of estoppel. There is no basis on which one could say on the record before me that Sobeys lied, knowingly misled, created a false impression, or actively contributed to any misapprehension on the part of the applicants which are the cornerstones of remedies for bad faith. [22]

V. Return of the Interest Payment

[95] As noted earlier, the applicants paid the interest portion of Sobeys’ demand under protest. The applicants now claim the return of the interest payment.

[96] The applicants submit that interest cannot accrue on amounts that were not past due. They argue that the rent was not past due because Sobeys had agreed it would not be payable during the months in question and would instead be deferred pending further negotiation.

[97] I do not accept that proposition. As noted earlier, the only commitment Sobeys ever made was to defer rent for two months. Even that deferral, however, was silent on the point of interest. Although Sobeys may not have enforced timely payment of rent, it did, as noted earlier in these reasons, make clear on numerous occasions that the rent was owing. The one statement of account that Sobeys sent to the applicants indicating that certain amounts were “to be negotiated” does not mean that the full amount was not owing. Terms of negotiation could include the time over which payment would be made.

[98] The Sublease provides that any arrears bear interest at the prime interest rate plus 3% from the date such amounts are due until the date they are paid. [23] It appears that interest was charged in accordance with this provision.

[99] Although the demand for interest did not arise until February, 2024, that is not a valid ground for depriving Sobeys of the ability to demand interest. To the extent that the earlier demands for payment did not include interest, the applicants should have acceded to those earlier demands and paid what Sobeys was asking at the time. The fact that Sobeys did not demand interest at that time was part of the negotiation, even if the parties did not recognize it at the time. It amounted to an offer to settle on certain terms. If Sobeys omitted to ask for interest out of inadvertence, it would nevertheless have been bound by the offer had it been accepted. The applicants rejected those demands at which point Sobeys was free to revert to its strict legal position. The only qualification to the ability to demand interest might arise from principles of estoppel. At no time did Sobeys say that it would not charge interest. It simply did not demand interest when it was demanding payment during the course of the pandemic. The most that estoppel would do in these circumstances is impose a notice requirement to allow the applicants additional time to pay the interest. That is immaterial here because the applicants were able to pay the interest when it was demanded.

VI. The Tenant’s Request for Relief against Head Landlord

[100] As a further alternative, the applicants seek direct relief against the head landlord, Woodsmere, to compel it to enter into a further lease with the applicants. I decline to grant any such relief.

[101] In principle, a Sublease creates no direct contractual relationship between a subtenant and a landlord because there is no privity of contract between them. [24] In the absence of privity of contract, the applicants cannot enforce any obligations that arise under the Sublease against Woodsmere. Put another way, Woodsmere did not agree to be bound by the Sublease and the applicants have no contractual remedy against Woodsmere arising out of the Sublease. [25]

[102] This is subject to one exception that does not apply here. Section 7 of the lease provides that Woodsmere must offer the applicants the option to step into Sobeys’ shoes if Sobeys fails to exercise its sixth renewal option after properly exercising the fifth. Until April 30, 2025, Sobeys was in its fourth renewal period. As a result, if Sobeys did not exercise the fifth renewal effective May 1, 2025, the lease was at an end and the applicants would have no rights against Woodsmere. This consequence flows from a provision of the Sublease which stipulates that Sublease shall automatically terminate at the same time as the headlease without any obligation on the part of the Head Landlord to enter into a direct lease with the Subtenant.

[103] The parties specifically turned their minds to circumstances in which the applicants would have a right against Woodsmere. Any such right only arose if Sobeys validly exercised the fifth extension but failed to exercise the sixth extension. Given that Sobeys did not exercise the fifth extension, there is no basis for relief against Woodsmere. It is not for the court to grant the applicant’s broader rights than it negotiated under the sublease.

Conclusion and Costs

[104] For the reasons set out above, I find that the applicants were in habitual default under the Sublease and were not entitled to exercise the Extension option without Sobeys’ consent. In addition, the applicants were in default under the lease when they purported to exercise the extension option because they had not been complying with the Sublease’s requirements with respect to fire and life safety equipment for several years. I therefore dismiss the application.

[105] The parties are not far apart on costs. The applicants’ partial indemnity costs come to $83,911. Sobeys’ partial indemnity costs come to $93,727. Woodsmere’s partial indemnity costs come to $23,998.63.

[106] The applicants submit that Sobeys’ costs should be reduced by $10,000 because their counsels’ hourly rates are higher than those charged by counsel for the applicants. I am not inclined to accede to that request. Different firms have different cost structures. Those differences reflect legitimate market forces. I am satisfied that the hourly rates charged for Sobeys’ counsel reflect market rates in larger Bay Street firms. Those fees are therefore not outside of the reasonable expectation of the applicants.

[107] The applicants have raised no objections with respect to Woodsmere’s costs nor do I expect that they could raise any. Woodsmere appears to have taken a reasonable, focussed approach to the issues at hand and addressed only those issues unique to them which were not being addressed by Sobeys.

[108] I therefore fix Sobeys’ costs at $93,727 and fix Woodsmere’s costs at $23,998.63 both including disbursements and HST, both payable within 30 days.

Koehnen J.

Footnotes

[1] Section 2.1 (a) (iii) of the Sublease.
[2] Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc., 2016 ONCA 93 at paras. 36, 50; 1383421 Ontario Inc. v. OLE Miss Place Inc. at para. 54.
[3] Cardillo Entertainment Corp. v. PCM Sheridan Inc., 2011 ONSC 4426 at para. 47.
[4] 1383421 Ontario Inc. v. OLE Miss Place Inc. at para. 52; McRae Cold Storage Inc. v. Nova Cold Logistics ULC, 2018 ONSC 7494 at para. 70; Wittington Properties Ltd. v. GoodLife Fitness Centres Inc., 2017 ONSC 1426 at para. 9.
[5] 1383421 Ontario Inc. v. OLE Miss Place Inc. at para. 54.
[6] Affidavit of Mark Deans, sworn March 20, 2025, paragraph 21 and Exhibit K.
[7] Hodgson Cross-examination Transcript, Q. 112-127, p. 247-251; Undertakings Chart of Wesley Hodgson, UT 1 and UT 2, p. 318.
[8] Exhibit H of the Deans Affidavit, p. 223-237.
[9] Exhibit I of the Deans Affidavit, p. 246-251.
[10] 1290079 Ontario Inc. v. Beltsos, 2011 ONCA 334.
[11] 1290079 Ontario Inc. v. Beltsos, 2011 ONCA 334 at paras. 14, 18.
[12] RT Twenty-Sixth Pension Properties Limited v. Precise Parklink Inc., 2023 ONSC 1199 at para. 27.
[13] Being the date by which any extension notice was to be delivered.
[14] With a short extension that Sobeys agreed to.
[15] Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 SCR 490; 100 Bloor Street West Corp. v. Barry’s BootCamp et al., [2022] O.J. No. 4036 (Sup. Ct.) at para. 83.
[16] Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 SCR 490.
[17] McRae Cold Storage Inc. v. Nova Cold Logistics ULC, 2019 ONCA 452 at para. 10.
[18] McRae Cold Storage Inc. v. Nova Cold Logistics ULC, 2019 ONCA 452 at para. 10; 2324702 Ontario Inc. v. 1305 Dundas W Inc., 2020 ONCA 353 at para. 23; Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc., 2016 ONCA 93 at para. 54; 660 Sunningdale GP Inc. v. First Source Mortgage Corporation, 2024 ONCA 252 at para. 51; Ross v. T. Eaton Co.; 1383421 Ontario Inc. v. OLE Miss Place Inc. at para. 80; 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., 1993 CarswellOnt 5327 at para. 9, aff’d at 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., 1993 CarswellOnt 5327.
[19] 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., 1991 CarswellOnt 2200 at paragraph 81; aff’d at 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., 1993 CarswellOnt 5327.
[20] Hudson's Bay Company ULC Compagnie de la Baie D'Hudson SRI v. Oxford Properties Retail Holdings II Inc, 2022 ONCA 585 at para. 52.
[21] Second Hodgson Affidavit, para. 39, Hodgson Cross-examination Transcript, Q.188, p. 269.
[22] Subway Franchise Restaurants of Canada Ltd. v. BMO Life Assurance Company, 2021 ONCA 349 at paras. 14-15.
[23] Exhibit A of the Deans Affidavit (Sublease, s.17(o)), p. 42.
[24] V Hazelton Limited v. Perfect Smile Dental Inc., 2019 ONCA 423, at para. 31.
[25] 914068 Ontario Inc. v. 713949 Ontario Inc., 2022 ONSC 172, at para. 52.