The Ontario Court of Appeal is the highest court in the province that deals with matters in Ontario. The only court that has more power than the Ontario Court of Appeal is the Supreme Court of Canada, which deals with issues that arise across the country. A matter may be heard in the Ontario Court of Appeal if an individual involved in the lawsuit disagrees with the decision that was made in a lower court. The significance of Court of Appeal decisions is that other courts, such as the Superior Court of Justice, Small Claims Court, and the Divisional Court are required to follow their decisions.
In July 2020, the Ontario Court of Appeal released two decisions that commercial landlords should be aware of as they impact notice requirements for breach of a lease and the consequences of a landlord for improperly terminating a lease.
The first case, Martin v Mailhot, involves an issue that many commercial landlords are familiar with; evicting a tenant for non-compliance with the lease. In this case, the landlord sent the tenant a notice of breach for failure to provide insurance certificates which was required by the lease. The notice of breach included a request for the tenant to provide the certificates of insurance. The tenant failed to do so. As a result, the landlord served a notice of termination and re-entered the property.
The issue was whether the landlord included the correct information in the notice of breach. Section 19(2) of the Commercial Tenancies Act provides that a notice of breach must contain:
In this case, the notice did not include a request that the tenant compensate the landlord with money for the breach. Instead, the notice only asked that the tenant provide insurance certificates to the landlord. As a result, the tenant claimed that the notice was invalid.
The Court of Appeal disagreed with the tenant and clarified that a landlord can disregard the requirement to include a demand for compensation in the notice. The request for money is only required if the landlord has suffered a financial loss and the landlord is insisting on payment of money.
The lesson for commercial landlords is that if you are requesting that a tenant provide compensation for breach of the lease, this request must be included in the notice of the breach. If you are not requesting compensation and only ask that the tenant rectify a breach, such as the failure to provide insurance documents, the notice does not need to include a request for compensation.
The second case, Tran v Bloorston Farms Ltd., identifies the consequences of a landlord who improperly terminates a commercial lease.
In this case, the tenant was an individual who owned a corporation that operated a restaurant. The tenant signed the lease in her personal name, rather than in the name of the corporation that operated the restaurant.
The landlord charged the tenant minimum rent based on the square footage of the premises. When the building was sold to a new landlord, the new landlord’s architect determined that the square footage was larger than what was indicated in the lease. The new landlord demanded that the tenant pay an increased amount of rent based on the new measurement of the premises, failing which the landlord would terminate the lease. The tenant refused to pay the new amounts for the lease. Accordingly, the landlord locked the tenant out of the premises and the tenant was unable to operate the restaurant.
The Court of Appeal determined that the lease did not give the landlord the right to recalculate the amount of rent that the tenant owed. Although the lease permitted expenses to be recalculated, the Court of Appeal decided that the landlord’s approach was unreasonable.
The more significant issue was that because the tenant signed the lease in her personal capacity instead of on behalf of the corporation that operated the restaurant, the corporate restaurant did not have a right to sue for damages for the landlord illegally terminating the lease and causing the restaurant to close.
There is a general rule in Canadian corporate law that if a wrong happens to a corporation, the corporation should start the lawsuit for damages and not the individual shareholder, being the tenant who operated the restaurant.
The Court of Appeal clarified that it is possible for both the tenant, who was the shareholder in this case, and the corporation to experience a loss based on the same facts. The Court of Appeal stated that because the lease was signed by the tenant who owned the restaurant, the corporate restaurant was able to sue the landlord.
The lesson for commercial landlords is that a commercial tenant who is the only shareholder in the business may have the right to sue personally and in the name of the corporation (although the corporation is not a party to the lease).