



COURT OF APPEAL FOR ONTARIO

CITATION: 2501306 Ontario Inc. v. Country
    Garden Academy Inc., 2022 ONCA 177

DATE: 20220228

DOCKET: C69561

Simmons,
    Harvison Young and Zarnett JJ.A.

BETWEEN

2501306
    Ontario Inc.

Applicant (Respondent)

and

Country
    Garden Academy Inc., (o/a) Country Garden Montessori Academy

Respondent (Appellant)

Gwendolyn L. Adrian, for the appellant

Sara Erskine, for the respondent

Heard: February 22, 2022 by video conference

On
    appeal from the judgment of Justice C.F. de Sa of the Superior Court of Justice,
    dated May 19, 2021.

REASONS FOR DECISION

[1]

Following the oral hearing we dismissed this
    appeal for reasons to follow and denied the respondents request for leave to
    cross-appeal costs. These are our reasons.

[2]

The appellant operates a Montessori school in
    premises it rents from the respondent. On March 31, 2020, the appellant
    exercised its option to renew its lease for what would be a third three-year
    term running from December 1, 2020 to November 30, 2023.

[3]

Under the terms of the lease, the Minimum Rent
    during any renewal was to be negotiated 90 days prior to the commencement of
    the renewal term and "be based on the prevailing market rates at the time
    of renewal for comparable premises."

[4]

As the parties were unable to agree on the
    Minimum Rent during the renewal term, the respondent applied under rule 14.05
    for a declaration that the Minimum Rent payable would be $23 per square foot
    per year.

[5]

The Minimum Rent payable during the original
    three-year term from November 27, 2014 to November 30, 2017 was $12.36 per
    square foot; during the second three-year term from December 1, 2017 to
    November 30, 2020 it was $13.28 per square foot.

[6]

The respondent was not the landlord when the
    lease was first negotiated. It acquired the property in early 2018, after the
    Minimum Rent for the second three‑year term had been negotiated.

[7]

Both parties filed expert evidence on the
    application as to the market rate that should be apply during the third renewal
    term. The appellant's expert filed two reports. The first report as of June
    2020 estimated the market rate at $14 to $16 per square foot. The second report
    dated November 27, 2020 estimated the market rate at $12 to 14 per square foot.

[8]

The respondent's expert concluded that the
    market rate as of August 5, 2020 ranged from $20 to $25 per square foot and
    provided a best estimate of $23 per square foot.

[9]

In his reasons, the application judge reviewed
    the evidence adduced concerning the nature of the property, its history, the
    leasing history and the expert evidence. He began his analysis by observing
    that it was evident from the experts reports that the determination of the
    appropriate rate for the Minimum Rent for a comparable premise is hardly a science.
    Location, surrounding neighbourhood, size, condition, amenities, demand, zoning
    and available uses were all relevant factors to be considered.

[10]

The application judge noted that the lease specified
    that the premises should be used as an educational facility. He accepted the
    respondent's position that use was an important factor in determining the
    prevailing market rate for comparable premises at the time of renewal.

[11]

Concerning the experts reports, the application
    judge observed that the appellant's expert referenced a number of comparables
    that lacked the amenities and improvements of the subject property.

[12]

However, the application judge also recognized
    that the property's zoning permitted limited uses, namely Parks & Open
    Space, with exceptions for only five uses: commercial recreational centre;
    banquet hall; place of assembly; day nursery; and elementary/secondary school. This
    was a factor that would require a downward adjustment from the rental rates on
    some of the comparables. He said:

A property remotely located which is limited
    in uses cannot be fairly compared to properties located on busy traffic
    arteries that allow dozens of general uses without a downward adjustment
    which takes into account the superior attributes and leasing potential of the
    comparable property.

[13]

Based on the comparables put forward by both
    experts and the other evidence adduced on the application, the application
    judge concluded that the Minimum Rent for the renewal period should be $18 per
    square foot.

[14]

The appellant raises three issues on appeal.

[15]

First, the appellant submits that the
    application judge erred in law by failing to interpret the term comparable
    premises in a manner consistent with how the appellant and the original
    landlord previously interpreted that term. The appellant asserts that the
    application judge disregarded unchallenged evidence that when previously
    determining market rent for comparable premises, the original owner/former
    landlord did not focus on properties that could be used as an educational
    facility but rather focused on properties located in industrial parks and that
    were subject to zoning restrictions that had limited uses.

[16]

We did not accept this submission. Even assuming
    the parties conduct in determining previous Minimum Rent would be relevant to
    the determination of the prevailing market rates at the time of renewal for
    comparable premises, there was no evidence capable of supporting the
    appellants submission. The only evidence directed to the issue consisted of
    two paragraphs in the affidavit filed on the appellants behalf by Dan
    Hilsenteger. Mr. Hilsenteger asserted that he and the principal of the original
    landlord came to an agreement on the original rental rate based on similar
    properties in the area which were also located in industrial parks. Concerning
    the 2017 renewal, Mr. Hilsenteger deposed that he and the former landlord
    agreed on a rate based on similar properties or similar properties in the
    area. None of the similar properties used as comparables in the past were
    identified. There was no evidence of the rental rates for those properties at
    the time of the renewal in issue. The limited evidence adduced by the appellant
    concerning prior comparables that were used is simply not capable of supporting
    the position it advances.

[17]

The appellants second submission is that the
    application judge erred in law by failing to consider the very limited uses
    allowed by the propertys zoning. We rejected this submission. As we have said,
    the application judge described the permitted uses in his reasons and noted
    specifically that a downward adjustment from certain comparables would be
    required for a remotely located property with limited uses.

[18]

The appellants third submission is that the
    application judge made a palpable and overriding error by failing to consider
    evidence of bad faith/wrongful conduct on the part of the respondent
    demonstrating the respondent was motivated to force the appellant from the
    property by way of extortive pricing so he could have it for his own use. We
    rejected this submission.

[19]

The application judges decision concerning the
    Minimum Rent for the renewal period was based on evidence concerning the terms
    of the lease, the nature of the property and expert evidence concerning
    prevailing market rates for comparable premises. There was no evidence the
    respondents experts evidence was in any way influenced or tainted by alleged
    wrongful conduct or improper motivations on the part of the respondent.

[20]

As for the cross-appeal, in our view, this was
    not a case for granting leave to appeal costs.

[21]

Based on the foregoing reasons, we dismissed the
    appeal and denied the respondents request for leave to appeal costs. Costs of
    the appeal are to the respondent on a partial indemnity scale fixed in the
    agreed upon amount of $7,000 inclusive of disbursements and applicable taxes.

Janet Simmons J.A.

Harvison Young J.A.

B. Zarnett J.A.


