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.

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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:

  1. the conduct of the applicant and gravity of the breaches
  2. whether the object of the forfeiture is to secure the payment of money, or
  3. 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.

6 COMMENTS

  1. Old Landlords of an older generation can have biased long since shunned by society and as Business People who are looking to protect themselves from this bias when leasing a property 100% compliance to any contractual obligation protects your interests.

    This case outlines how judicial freedom to render decisions to remediate bad outdated biases in itself creates problems had 100% compliance been followed by the Tenant.

    If your contract includes an “option” at the sole discretion of the Tenant to notify the Landlord in writing of a decision to claim the rights of that Option, a simple Registered Letter meeting the contingencies as required in the contract should be sent to the Landlord under the direction of your lawyer.

    There is an implication in the case that 100% compliance may not have been met and then the courts were left to extend the terms of the contract beyond those actually required to comply with the contract.

    This is simply bad business all around and anyone familiar with the commercial space knows both sides of this case and have probably fought against bias and against failure to comply both.

    The real value in this case is lost if we “hope” a judge will rule in our favour in business when 100% compliance to a contract is not fulfilled.

    The lesson is be 100% compliant with any contingencies included in any real estate contract. Never rely upon the courts to satisfy your desires when you have failed to comply.

    The other lesson is that Racism as implied in this article should be clearly and precisely addressed with even broaching the consideration of it. It the suspicion of Racism is there then lets be sure we call out that suspicion clearly and we don’t cloud the discussion with suppositions and partial addressing of the topic.

    BTW the mention of a Tenant’s Choice to spend $100K on leaseholds should not have been discussed other than if attached to evidence of a planned exercise of the option. Many tenants spend recklessly on leaseholds and abandon their tenancy every day. Let’s not presume or create other bias as spending $100K on Leaseholds should only demand any business ensure 100% compliance with an Options terms takes place.

    In the end what exactly did the Judge finally rule on
    Racism
    Bias
    Contractual Fulfillment
    Attempt to Fulfill
    or
    I know you didn’t do what was required but this guy is an idiot so I will rule in your favour.

  2. Well thought out decision by the Judge. Glad it worked out for the Tenant and really didn’t hurt the Landlord. Who says there isn’t justice in the world well at least in Toronto.

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