Hasty Landlord Liable for Tenant’s Business Losses

In a dispute arising from a commercial lease, a landlord that ousted a tenant, and then started to demolish the leased premises before giving proper Notice of Termination, was held liable to that tenant for $1.4 million in damages for business losses.

The background facts are somewhat complex, but the main points are as follow: the original commercial tenant was a numbered company which rented space used for a nightclub from the Landlord. Among the original tenant’s other assets was a liquor license and equipment, all of which it sold along with the lease rights to another numbered company which was owned by a man named Frank Piniccia (“Frank”). Frank had agreed to close the deal even though the Landlord had not yet consented to the assignment of the lease. In fact, in keeping with its ongoing policy, the Landlord was deliberately withholding consent because the original tenant still owed rent.

This prompted an injunction application, heard in August of 2007, to determine whether the consent was being unreasonably withheld and to determine whether the original tenant was in default as asserted in a Notice of Default given by the Landlord. The injunction settled some of the immediate issues, and the Landlord and Frank commenced a landlord-tenant relationship, even though there was still no formal consent to the lease assignment and they still had disputes over certain issues and rent charges.

Meanwhile, pending their resolution Frank – who was eager to prepare the premises for the new, more upscale nightclub business he was planning – advised the Landlord in April of 2008 that he wanted to make renovations to the property. Soon after, the Landlord’s representative arrived at the nightclub premises only to find that Frank’s renovations were not of the cosmetic, minor-repair variety that had been expected; rather, the nightclub was undergoing a full renovation, complete with structural changes. The representative immediately asked Frank and his construction team to leave, which they did. Frank was never again in possession.

The next day, the Landlord delivered a second Notice of Default to Frank, and again launched court proceedings to declare him in breach. In anticipation of the scheduled hearing a few months later, the parties continued to negotiate and Frank continued to refuse to pay rent, instead placing it into his lawyer’s trust account.

Ultimately, in the numerous court proceedings, it was determined that the Landlord had unreasonably withheld its consent to the assignment of the lease, and was liable for wrongfully expelling Frank from the premises. Specifically, the Landlord was held liable for $205,000 in respect of the 7-month time period after the second Notice of Default and before the deadline for appealing the first court judgment. This liability was triggered by a single event: namely the court’s prior finding that there had been no breach of the lease by Frank. Effectively, this meant the Landlord was stripped of any justification for stopping him from renovating the nightclub premises and ejecting him from the property.

The court also found, more importantly, that the Landlord was also liable for damages representing the full term of the lease, to the tune of an additional $1.5 million (a figure the parties had agreed to during one of their many negotiations). Photographic evidence had shown that the Landlord – prior to giving the final Notice of Default and purported Notice of Termination – had begun to demolish the property in preparation for its future development. Naturally, this made it impossible for Frank to renovate the premises and carry through with his business plan. As such, the Landlord was liable for Frank’s business losses for the full lease term, less $288,000 in unpaid-rent that Frank owed. See 1302207 Ontario Ltd. v. 151979 Ontario Ltd., 2012 (ONSC).