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Landlord Tries to Kick Dentist Out – And Landlord Loses!

By May 18, 2022May 23rd, 2022Leases, Michael's Operatory

Wow! We are on a real roll here with cases coming out in favour of the dentist. First, I discussed a case where a patient brought an Ontario human rights case against a dentist who was unavailable to see their daughter and the patient lost. Then I discussed a case out of British Columbia where a dentist was found at trial, and on appeal, to NOT have committed negligence or breach of contract in respect of performing an RCT on Tooth 46.

Next up: the case of a Landlord trying to kick out a dentist… and (thankfully) the Landlord loses!

Here are the facts of Matiu Dentistry v. Canadiana Towers, 2022 ONSC 2242:

  1. On May 1, 2011, Matiu Dentistry Professional Corporation (“Tenant“) entered into a lease agreement with Canadiana Towers Limited (“Landlord“) for Suite B at 2373 Bloor Street West in Toronto.
  2. The Tenant operates Bloor West Dental Care there.
  3. The Lease was for an initial 10-year period with 2 x 5-year options to renew.
  4. In October of 2020, the Tenant exercised its option to renew.
  5. BUT by that time, the Landlord had notified the Tenant of alleged $60k of unpaid tax arrears payable under the Lease.
  6. The Lease deprives the Tenant of the option to renew if it is in “material default,” which includes non-payment of any amounts owing under the Lease.

The Tenant took the position that it didn’t owe the Landlord anything. Further, the Landlord hadn’t given proper notice of any such arrears as required by the Lease. So the Court had to decide whether the Tenant was entitled to renew the Lease.

The Court concluded that the Tenant was entitled to renew the Lease for an additional 5 years. SWEET!!!

Reconciling Operating Costs

The Landlord breached its obligation to provide the Tenant with a reconciliation of Operating Costs to determine if the Tenant owed any “Additional Rent”.

The taxes at issue were found by the Court to be included in the definition of “Operating Costs” under the Lease and, therefore, must be reconciled before requiring payment from the Tenant. Specifically, they were included in the Lease in the definition of “Operating Costs“, which includes: “any governmental tax or levy imposed on the Building or any part thereof based on square footage or gross area; Capital Tax; and all Taxes, Business Taxes and all other taxes, if any, not recovered…, from tenants or occupants of the Building.

Having ruled that Taxes are included in the reconciliation process set out for Operating Costs, the Court found it also clear that the Lease makes the reconciliation a condition precedent of requiring payment from the Tenant of its Proportionate Share.

As such, the Tenant’s obligation to pay its Proportionate Share of the Taxes HAD NOT crystallized at the time it exercised its Option to Renew. The Tenant was therefore NOT in default at the time and was entitled to renew. Similarly, Dr. Matiu is NOT obliged to pay the Taxes before the Landlord reconciles the amounts owing. Having so concluded, the Court did not need to determine if the Landlord gave the Tenant proper notice as required by the Lease.

The Court noted that, despite the Landlord’s failure to reconcile Taxes owing as part of the Operating Costs, the Tenant was not relieved from its obligation to pay them as Additional Rent once reconciliation statements are provided.

Limitations

Worth mentioning is that the Tenant argues that the Landlord cannot seek rent arrears for 2014 and prior because it is past the 6-year limitation period set out by the Real Property Limitations Act. The Landlord did not oppose this submission other than to note that Taxes would still be owing from 2015 onwards. The Court agreed.

Conclusion

The Court granted the Tenant’s Application and declared that the Lease has been renewed for the period June 1, 2021, to May 31, 2026, and that the Tenant still had one remaining Option to Renew for a five-year period from June 1, 2026, to May 31, 2031. Further, Taxes form part of Operating Costs and require reconciliation before becoming due and payable by the Tenant.

The Court then ordered the Landlord to pay the Tenant’s costs of $40k within 30 days.