Landlords that wish to terminate commercial tenancies are subject to stringent legal requirements.  The failure to meet those requirements can have significant consequences, including a Court order to restore a tenant’s access to the leased premises and an award of damages.  The recent case of Subramaniam v. Metamore Inc. offers useful guidance to commercial landlords.

In July 2023, the Applicant, Subramaniam, signed a five-year lease with the Respondent landlord on behalf of his company, the Applicant J K Eats & Pub Inc.  The lease was for a unit in a shopping plaza in Napanee.  The Applicants intended to operate a restaurant at the location.  They paid the Respondent’s landlord for the first and last months’ rent and an amount for restaurant chattels already located on the premises and used by the prior tenant.  During the summer of 2023, the Applicants worked to get their new restaurant ready to open, spending more than $90,000.

Landlord Accused Tenant of Breaching Lease, Power Was Temporarily Shut Off

A dispute between the parties arose in early September of that year.  Early in the morning, when the Applicants intended to open their restaurant, their head cook and others were in the leased premises doing work.  Subramaniam received a phone call from an employee of the Respondent named Ennis, who lived in an apartment on the second floor of the shopping plaza.  Ennis was angry and alleged he had been awakened by a “drunken disturbance” in the leased premises.  A series of MMS messages were subsequently exchanged between Ennis, Subramaniam and Coughlan, a director of the Respondent landlord, during which Ennis alleged that the restaurant had “broken many parts of its lease.” The exchange did not specify the provisions of the lease that had been broken.

After that, the power was temporarily turned off to the leased premises, and attempts were made via MMS messages to set up a meeting between the parties.  Several days later, Mr. Subramanium found a chain on the door to the premises, preventing him from entering.  He entered the premises later that evening after the chain was broken.  Later, Coughlin, Ennis and others arrived and told him he had to leave.  Mr. Subramanium alleged that Coughlin “began pushing him” and that Ennis “threw a case of beer on the ground.”  Mr. Subranium telephoned the police.

The next morning, upon arriving back at the leased premises, he found the locks had been changed, and a notice of default and a notice of termination was posted on the doors for the first time.  The notices alleged that the Applicant had operated the leased premises “past the permitted hours of operation,” had permitted alcohol to be consumed outside of legal, licensed hours and had operated the leased premises “to be a nuisance to other occupants and residents.”  The notices also stated that “any further default or conduct … will result in immediate termination of the Lease …”

The Applicants sought reinstatement of their tenancy on the basis that the Respondent was in violation of the Commercial Tenancies Act and also sought relief from forfeiture.

Landlords Must Strictly Comply with the Requirements of the Commercial Tenancies Act

The Superior Court of Justice reviewed the applicable law, including section 19(2) of the Commercial Tenancies Act.  That section requires a landlord to provide notice to a tenant of a particular breach of an applicable lease before exercising a right of re-entry.

The Court noted the decision in 780046 Ontario Inc. v. Columbus Medical Arts Building Inc., in which the Court of Appeal stated that the purpose of the notice provision “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 …”  On this basis, as the Court noted in that case, strict compliance with section 19(2) of the Commercial Tenancies Act is required and “a re-entry effected without notice is invalid.”

Summary of the Requirements of the Commercial Tenancies Act

The Court then summarized the requirements a notice must meet to be valid pursuant to section 19(2) as follows:

• The notice must specify “the particular breach complained of;”
• It must require the tenant to remedy that breach, if possible;
• It must require the tenant to “make compensation in money for the breach, if it cannot be remedied;” and
• It must provide the tenant a reasonable time in which to remedy the breach (if it is capable of being remedied) or make reasonable compensation in money to the satisfaction of the landlord, if it is not.

In its analysis, the Court first considered whether a breach of the lease had occurred.  It referred to a lease term requiring the Applicant to follow laws and guidelines applicable to licensed establishments.  The Respondent alleged a breach of this term.  In reviewing the evidence, however, the Court found it largely consisted of hearsay.  Ennis had not filed an affidavit, and while Coughlin had filed an affidavit, he had not been present during the alleged incident involving alcohol.  The Court commented:

“One would reasonably think that if a commercial landlord wished to terminate a five-year lease in its infancy due to a problematic incident amounting to a foundational breach of the lease, that details of the incident would be provided to the Applicants, and certainly to the Court in the context of litigation.” 

The Court found no breach of the lease had occurred.

Regardless, the Court found that the notice provided to the Applicants in the form of the MMS messages and the notice posted on the doors of the leased premises were deficient for various reasons.  With respect to the former, the Court notably emphasized that the various exchanges suggested “an ongoing relationship on certain conditions” rather than a termination of the lease and failed to set out the potential remedies available to the Applicants.  With respect to the latter, the Court commented that a notice purporting to allow a tenant to remedy a breach (as the notice in issue did by referring to “further” defaults and “future” termination) “cannot be posted simultaneously with a notice of termination [since] a tenant is entitled to a reasonable opportunity to remedy an alleged breach.”

Relief From Forfeiture May Be Available Under the Commercial Tenancies Act

The Court considered whether section 20 of the Commercial Tenancies Act might also apply.  The section “permits a court to provide relief where termination would visit inequity on the tenant given the nature and circumstances of the proven breach.”  As the Court noted, where a tenant seeks relief from forfeiture under that section, a court may consider “the conduct of the parties, including whether the breach was deliberate, the gravity of the breach, and the relative impact on the parties of either granting or refusing the request” (see Hudson’s Bay Company ULC v. Oxford Properties Retail Holdings II Inc.).  The remedy is to be granted “sparingly;” however, the Court concluded that, in the circumstances, it was warranted, since this was not a case of a “willful or intentional breach,” the breach “was not related to the operation of the Applicants’ restaurant per se,” Subramaniam had been “collaborative and cooperative,” the Respondent had acted in a “heavy-handed, disproportional, and aggressive manner,” there was no evidence the Respondent had suffered “any financial harm relating to the incident” and the termination of the lease would have been “overtly disproportional.”

Among other things, the Court ultimately ordered that the Applicants be given “immediate and unfettered access” to the leased premises and awarded damages equivalent to two months’ worth of rent “to account for the time it may take to rehire staff, purchase inventory, and ready the [leased] premises for opening.”

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