Relief From Forfeiture (Commercial Tenancy)

The Second Cup Ltd. v. 2410077 Ontario Ltd., 2020 ONSC 3684 (CanLII)

[56] In light of my finding that the Lease was not lawfully terminated by the landlord, there is no need to grant relief from forfeiture to Second Cup. However, even if the Lease had been lawfully terminated, I would have granted Second Cup relief from forfeiture. The court has the discretion to do so under s. 98 of the Courts of Justice Act, R.S.O. 1990 c. c.43 and s. 20 of the Commercial Tenancies Act, R.S.O. 1990, c. L.7

[57] The equities of this case would favour granting relief from forfeiture. In Jungle Lion Management Inc. v. London Life Insurance Company, 2019 ONSC 780, at para. 34, this court considered the following three criteria:

(a) the conduct of the applicant and gravity of the breaches;

(b) whether the object of the right of forfeiture in the lease was essentially to secure the payment of money; and

(c) the disparity or disproportion between the value of the property forfeited and the damage caused by the breach.

[59] The landlord defendants argue that when a party seeks to be relieved from forfeiture based on a non-payment of rent the court should consider criteria from Michele’s Italian Ristorante Inc. v. 1272259 Ontario Ltd., 2016 ONSC 4888, at paras. 35-36. In that decision, the court set out criteria for relief from forfeiture generally at para. 35, and separate, more specific criteria at para. 36, where the alleged default is based upon the non-payment of rent:

a. the tenant comes to court with clean hands;

b. whether there is an outright refusal to pay rent;

c. the extent of the rental arrears; and

d. whether the landlord has suffered serious loss due to the delay in paying rent.

See also: 2324702 Ontario Inc. v. 1305 Dundas, 2019 ONSC 1885, aff’d 2020 ONCA 353

[60] I have considered these additional factors, and they all favour the plaintiffs.

a. The fact that there was one prior dispute in 2015 about the payment of rent that led to an amendment to the Lease does not suggest a pattern of default or lack of clean hands. The rental arrears were not significant as of the beginning of May, especially when considered in light of what was happening in the world as a result of the COVID-19 pandemic.

b. Nor was the March 25 letter from Second Cup indicating that it and its franchisees would not be able to pay April rent on the first of the month an outright refusal to pay rent as the landlord defendants suggest. It was a reasonable and transparent communication to landlords by a responsible corporate tenant of numerous premises across the country.

c. Further, the landlord defendants claim that they have significant mortgage carrying costs but have not put in any evidence about actual prejudice that they have suffered as a result of not having been paid the balance of April’s rent and May’s rent under the Lease.

[63] While the landlord’s motivation may not be relevant (see 149777 Ontario Inc. v. Leon’s Furniture Ltd. (2003), 2003 CanLII 50106 (ON CA), 67 O.R. (3d) 206 (C. A.), at para. 74), its conduct may be relevant in the exercise of the court’s equitable jurisdiction to grant relief from forfeiture. The sequence of events indicates that the landlord entered into arrangements with 143 and BOD that disregarded the plaintiffs’ rights in respect of the premises, including that:

a. On May 4, 2020, after Second Cup had offered to bring the Lease into good standing, the landlord instead immediately after receiving that offer signed a lease for the premises with BOD that granted a significant rent-free period.

b. On May 6, 2020, knowing that 273 had an RSA application pending for a cannabis store at the premises and that the plaintiffs were disputing the termination of the Lease, the landlord nonetheless wrote directly to the AGCO to advise of its termination of the Lease. Since there cannot be two licences for the same premises, this would have paved the way for an RSA application by 143 for adjacent premises in the Building Envelope under the 143 Lease that the landlord then proceeded to finalize on May 7, 2020.

c. The landlord had conditionally agreed to the 143 Lease on April 7, only 5 weeks after granting Second Cup exclusive cannabis retail rights at the Building Envelope (and accepting $33,9000 in exchange for said rights). This conditional 143 Lease contemplated cannabis exclusivity being granted to another tenant in the Building Envelope only 4 days after the April 3 notice, when the landlord was in receipt of 75% of April’s rent and days after the province-wide business shutdown due to the COVID-19 pandemic.

2324702 Ontario Inc. v. 1305 Dundas W Inc., 2020 ONCA 353 (CanLII)

[22] The Commercial Tenancies Act, R.S.O. 1990, c. L.7, allows the court to grant “such relief as […] the court thinks fit”, having regard to all the circumstances, where a landlord seeks to enforce a right of re-entry or forfeiture following a tenant’s breach: ss. 19, 20(1). The Saskatchewan River Bungalows case also established the test for granting relief from forfeiture. In granting the discretionary and equitable remedy of a relief from forfeiture, a court is to consider the conduct of the applicant, the gravity of the applicant’s breaches of the lease, and the disparity between the value of the forfeited property and the damage caused by the breach: Saskatchewan River Bungalows, at p. 504.

[23] Although the failure to renew the lease is not a breach of the lease, the court may grant relief from forfeiture where a party seeks to renew the lease but has not complied with the formal requirements or preconditions for doing so. However, this relief is available only in circumstances more narrowly confined than the three-pronged test from Saskatchewan River Bungalows. As recently restated in McRae Cold Storage Inc. v. Nova Cold Logistics ULC, 2019 ONCA 452, at para. 10:

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: 120 Adelaide Leaseholds Inc., at para. 9; Ross v. T. Eaton Co. (1992), 1992 CanLII 7470 (ON CA), 11 O.R. (3d) 115 (C.A.), at pp. 124-125; 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 2003 CanLII 57436 (ON CA), 67 O.R. (3d) 161 (C.A.), at para. 80; Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc., 2016 ONCA 93, 344 O.A.C. 363, at paras. 55-56.

[24] The application judge found that equitable relief was not warranted here because of the appellant’s conduct. First, the appellant had not made diligent efforts to comply with the renewal term, but instead hedged its bets by seeking to negotiate without committing to renew. Second, the appellant’s failure to pay its rent on time, including one time when it delivered an NSF cheque, was not the type of reasonable conduct that a court looks for as the basis to grant equitable relief. Although the appellant has a large investment in the premises which it stands to lose, this consequence is effectively a result of its own decisions regarding its conduct in relation to the respondent.

[25] The appellant argues that in assessing its conduct, the application judge misapprehended the evidence by stating that the appellant had experience in exercising a renewal option for the premises. In fact, the appellant says, it had not previously exercised a renewal option but rather, entered into a lease amending agreement. We reject this argument. The application judge’s point was that the appellant had a level of sophistication in dealing with the lease of the premises, which was partly based on its prior dealings with the respondent’s predecessor in negotiating and concluding the lease amending agreement. That experience spoke against any misunderstanding of the renewal requirements.