written on behalf of Feigenbaum Law
When one party unilaterally decides to stop fulfilling their obligations in a contract, it can be detrimental to their ultimate position. In commercial matters, the stakes can be high, and decisions to act contrary to a contract can create a risk of litigation between the parties. In a recent case from the Ontario Superior Court, a party who was renting a property stopped paying rent and commenced legal action against the commercial landlord for failing to perform their obligations under the lease. The landlord counterclaimed for rent arrears from the tenant.
The tenant’s original motion sought damages from the landlord for allegedly breaking the terms of their lease and breaching their duty of good faith in following their contractual obligations. The tenants told the court that the landlord amended and extended their lease agreement in 2018 without disclosing that they had plans to redevelop the area where the commercial property was located. The tenant went on to say that in the leadup to this planned redevelopment, the landlord had effectively abandoned its obligations to maintain the property, adding that the landlord had terminated leases for other tenants at the property, leaving the tenant isolated.
In its counterclaim, the landlord sought an order declaring termination of the lease, due to the tenant’s failure of the tenant to pay rent, as arrears had amounted to approximately $387,992.77. The landlord also sought to regain possession of the property.
The landlord argued that there was no justified reason for the tenant to withhold rent, stating that the tenant has made excuses for non-payment previously. The landlord claimed that they have maintained open communication with the tenant, including correspondence regarding their plans to redevelop the property, and that they tried to work with the tenant in the months prior.
The tenant claimed that the damages they sought far exceed the amount of rent owed to the landlord. The tenant stated that the landlord did not negotiate the extension agreement in good faith, nor did they share their intention to terminate other leases in the building. The tenant stated that the lack of maintenance to the property prevented them from operating their business.
The Superior Court ultimately found that the parties entered into a lease in 2007 which was extended throughout the years, with the most recent extension in March 2018. The lease stated that a failure to pay rent, or failure to remedy the default within five days after written notice, would allow the landlord to terminate the lease and re-enter the property.
The court reviewed the landlord’s redevelopment plans for the property and could not find evidence to conclude whether the tenant knew about the plans, but did note that the tenant fell into rental arrears before any plans to redevelop the area were submitted in 2017. By 2018, the landlord had told the tenant that it did not have any intention to redevelop the unit they were renting. From 2018 to 2020, the parties negotiated a number of terms, including a lease buyout by the landlord, but those negotiations stopped in 2020 after the tenant issued a Statement of Claim seeking $5 million for the landlord’s breach of duty of good faith in performance of its contractual obligations.
The tenant stopped paying rent in April 2020, three months after it filed a Statement of Claim. Subsequently, the COVID-19 pandemic began, and for eight months the landlord did not pursue rent. Nevertheless, the tenant did not apply for the Canada Emergency Rent Subsidy.
In November 2020, the landlord delivered a Notice of Default to the tenant, demanding payment of the outstanding rent. After almost one year, a second Notice of Default was sent to the tenant in September 2021. At this time, the tenant invited the landlord to apply to court to terminate the lease.
The Court confirmed that the tenant could not claim constructive eviction, which they did not attempt to claim, since they still had possession of the property at the time of trial. The tenant also did not claim an entitlement to an abatement of the rent they missed, which they could have. Instead, the Court found that the landlord was entitled to terminate the lease, stating:
“In addition to the Tenant’s unmeritorious allegations, it acted unilaterally in withholding rent even after it re-opened the nightclub. There is no evidence that it sought government subsidies that may have been available to fund partial payment on the arrears, and it declined the Landlord’s invitation to work cooperatively to address the arrears.”
This contrasted what the Court described as the landlord’s patient approach to the matter. Ultimately, the Court found in favour of the landlord by terminating the lease and allowing the landlord to take possession of the property.
Business litigation can be a costly and time-consuming process. At Feigenbaum Consulting, our experienced team regularly provides advice and services to clients in the United States and Canada relating to commercial disputes and litigation. With extensive experience in law and finance, our team is in a unique position to help protect our clients’ rights and assets and can advise on a variety of matters. If you require assistance in a commercial or corporate dispute, contact our office online or by phone at 877-275-4792 to speak with a lawyer.