Jul 27, 2020

Blaneys Appeals July 20 to 24, 2020

Martin v. Mailhot, 2020 ONCA 480 (CanLII)

[Tulloch, Huscroft and Harvison Young JJ.A.]

Counsel:

Benoit Richer, for the appellant

Patrick R. Simon, for the respondents

Keywords: Real Property, Commercial Leases, Termination, Right of Re-entry, Failure to Provide Proof of Insurance, Relief from Forfeiture, Commercial Tenancies Act, R.S.O. 1990, c. L.7, s. 19(2), 780046 Ontario Inc. v. Columbus Medical Arts Building Inc. (1994), 20 O.R. (3d) 457 (C.A.), Jay-Pee Drycleaners Inc. v. 2321324 Ontario Inc., 2017 ONCA 798, Chick ‘N Treats Inc. v. Woodside Square Ltd. (1990), 38 O.A.C. 138 (C.A.)

Facts:

The appellant served notice on the respondents that they were in breach of their commercial lease for, among other things, failing to pay the required rent for the month of September, and failing to provide the landlord copies of all policies or certificates of insurance required by the Lease. The notice advised that the lease would be terminated in the event that the various breaches were not remedied. The notice did not include a demand for monetary compensation. Eight days later, the respondents paid $3,300 to the appellant for September rent.

The appellant then served the respondents with a notice of termination of the parties’ commercial lease as a result of their failure to provide copies of all policies and certificates of insurance. When the policies were not forthcoming, the appellant re-entered the premises.

The respondents brought an application for a declaration that the appellant had breached the lease through wrongful termination and illegal re-entry. The application judge granted the application, finding that the notice of breach was deficient as it was not in compliance with s. 19(2) of the Commercial Tenancies Act, which requires that a notice of re-entry include a demand for monetary compensation. He found that the failure of the appellant to stipulate a precise monetary remedy to any alleged breach was fatal to the notice. He also found that rent was paid. The appellant’s re-entry had thus been unlawful. The landlord appealed.

Issues:

1. Whether the application judge erred by requiring the appellant to provide a demand for monetary compensation in her notice to the respondents.

2. Whether the application judge erred by failing to find that the respondents had not paid rent and, consequently, that the appellant was justified in terminating the lease.

Holding:

Appeal allowed.

Reasoning:

1. Yes.

Section 19(2) of the Commercial Tenancies Act provides that: A right of re-entry or forfeiture under any proviso or stipulation in a lease for a breach of any covenant or condition in the lease, other than a proviso in respect of the payment of rent, is not enforceable by action, entry, or otherwise, unless the lessor serves on the lessee a notice specifying the particular breach complained of, and, if the breach is capable of remedy, requiring the lessee to remedy the breach, and, in any case, requiring the lessee to make compensation in money for the breach, and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money to the satisfaction of the lessor for the breach. [Emphasis added.]

The purpose of the notice requirement in s. 19(2) is to warn the tenant that its leasehold interest is at risk and to give the tenant an opportunity to preserve that interest by remedying the breaches complained of and, where necessary, by compensating the landlord. Courts have insisted on strict compliance with this notice requirement.

A demand for monetary compensation is never required for valid notice under s. 19(2). Rather, the requirement may be waived at the discretion of the landlord. A demand for monetary compensation is only necessary where, as a result of the breach, the landlord has suffered damages compensable in money and intends to insist on recovery, failing which, the landlord will exercise its right of re-entry or forfeiture. In other words, where a landlord has suffered damages compensable in money and fails to include a demand for monetary compensation in its notice of breach, the landlord will be barred from relying on a tenant’s failure to compensate the landlord for those damages as a justification for re-entry or forfeiture. In this way, a tenant will only be required to provide monetary compensation to preserve its leasehold interest where it is deemed necessary by the landlord in the notice of breach.

The notice in this case warned the respondents that their leasehold interest was at risk. It specified the breaches complained of and requested that they be remedied. It was within the purview of the appellant to decide to waive the requirement for a demand for monetary compensation. Her decision to refrain from including such a demand did not invalidate the notice. It merely foreclosed the option of insisting on recovery for any damages that flowed from the breach as a necessary condition for the preservation of the respondents’ leasehold interest. The notice was valid and the application judge erred in finding otherwise.

2. In light of the Court’s determination on the first ground of appeal, there was no need to address the second issue.