COVID-19 has forever changed business as usual. The most obvious way it has changed, perhaps forever, is that we have dispensed with the strict enforcement of our contracts, especially in the commercial leasing space. I believe that courts will mirror this change by refusing to enforce unfair outcomes and, in the case below, racist behaviour.
The case 8573123 Canada Inc. o/a Elias Restaurant v. Keele Sheppard Plaza Inc. et al involved a tenant’s application asking for relief from forfeiture and for an injunction preventing the landlord from evicting it from the premises. The landlord’s efforts to evict the tenant was not because the tenant was not paying rent – quite the opposite, as the tenant had been punctual throughout its entire tenancy, including the pandemic. Rather, the eviction was because the tenant, according to the landlord, failed to exercise its option to renew within the time frame provided in the lease.
The landlord, claiming that the tenant was now in overhold, wanted a “different” clientele and the tenant to vacate or face forfeiture. The plot thickens. In fact, the tenant did attempt to exercise its option to renew within the provided timeframe by calling the landlord on several occasions. The landlord just decided to ignore the tenant, which gave rise to the application and the case.
A bit of background:
The tenant operated a restaurant and bar that served African/Black/Caribbean cultural foods. The tenant invested over $100,000 to improve the space and make it an attractive place for its patrons. The tenant wanted to extend its lease and tried on numerous occasions to get in touch with the landlord and manager to advise of their intention to stay, but to no avail. After almost a year of unanswered calls, the tenant had its lawyer write to the manager advising that the tenant wanted to exercise its option. This finally got the attention of the landlord who, rather than enter into bona fide negotiations, demanded that the lawyer provide proof that it had the authority to represent the tenant. As a lawyer, I can assure you this is a very bizarre request and clearly an attempt to frustrate the tenant.
After much back and forth, the manager said that the landlord no longer wanted a tenant that attracted the people that it did – that the tenant’s patrons smoked, loitered, gambled and simply didn’t fit with the vision the landlord had to create a family centric strip mall.
The tenant found this ironic given that the restaurant was family owned and operated and that the tenants had never received a complaint about their patrons doing anything of the sort or interfering with other tenants’ enjoyment of the mall.
At the hearing, the landlord claimed that the tenant failed to provide notice of its intent to exercise the option because it didn’t send the request in writing within the given time period. Since there was evidence that the tenant attempted to exercise its option via phone calls, however, this was dismissed.
The landlord then tried to spin to an economic argument. Alas, the evidence proved otherwise. The proposed tenant for the space was to pay almost $1,000 less per month than what the current tenant was paying and what the current tenant offered in its attempts to renew its lease.
The tenant claimed that, despite any technical error on the part of the tenant by not giving notice in writing, the courts should draw upon equitable remedies to allow the application against forfeiture. Justice Morgan noted that the court’s power to provide relief from forfeiture is “discretionary and fact-specific … the power is predicated on the existence of circumstances in which enforcing a contractual right of forfeiture, although consistent with the terms of the contract, visits an inequitable consequence on the party that breached the contract.”
Given that the tenant was not in breach of the lease, the tenant invested a substantial amount to improve the premises and that the landlord would experience an economic benefit, as opposed to a financial loss, terminating the lease would simply create an inequitable consequence for the tenant. The judge took judicial notice (this allows a trier to recognize facts that are “so notorious or generally accepted as not to be the subject of debate among reasonable persons”) that racism in Canada exists and that terminating the lease risked giving force to the landlord’s prejudices: “Its owners and customers would also suffer the indignity of being excluded from the premises based on what could be seen as a form of bias which Ontario law rejected.” It was for these reasons that the strict interpretation of the lease was set aside and the relief against eviction was granted.
The moral of the story:
You cannot ignore an honest effort to exercise a right even if it’s not in the form required in the lease. You may be technically right, but not necessarily legally if the enforcement of the technicality will lead to gravely unfair outcomes. This is because courts have the power to relieve parties from an unfair outcome even if the unfair outcome is contractually permissible.
In determining whether or not relief should be granted, courts will review:
- the conduct of the applicant and gravity of the breaches
- whether the object of the forfeiture is to secure the payment of money, or
- any disproportion between the value of the property forfeited and the damage caused by the breach. So be fair and be kind.
In addition, the courts are signaling that they will look to societal factors and whether prejudices are truly the motivation behind the enforcement of technicalities. As stated by Justice Morgan: “While a single adjudication dealing with a discreet conflict between a commercial landlord and tenant cannot possibly address society’s many challenges with respect to racial justice, it equally cannot (and should not) ignore them.”
This is certainly a welcome approach. If it’s unfair, it may not be enforceable.
Natalka Falcomer is a lawyer, real estate broker and Certified Leasing Officer who started her real estate career in private equity. She created, hosted and co-produced a popular legal call-in show on Rogers TV and founded and recently sold Groundworks, a firm specializing in commercial leasing law. She is currently the Chief Real Estate Officer of Houseful.ca, leading the development and expansion of the company’s personalized home buying and selling experience for the Canadian market. She sits as an advisor on NAR REACH Canada and is the former multi-year board member of the Ontario Trillium Foundation.
