Executive Summary: Key Legal and Evidentiary Issues

• Interpretation of a landlord’s discretion under article 6.3 of a commercial lease to determine the tenant’s share of realty taxes

• Whether a landlord can use inconsistent methods to calculate realty taxes for different components of a property

• Application of the doctrine of promissory estoppel regarding deferred rent payments and eviction attempts

• The reasonableness of the landlord’s conduct in seeking to terminate the lease and replace the tenant

• The proper exercise of discretion in awarding substantial indemnity costs for litigation conduct

• The proportionality of legal fees and their potential chilling effect on access to justice (Barry’s Bootcamp Canada Inc. won on the lease interpretation appeal; 100 Bloor Street West Corporation succeeded in reducing the costs award)

Background and facts of the case

Barry’s Bootcamp Canada Inc. leased a high-end fitness studio space at 100 Bloor Street West in Toronto under a ten-year triple-net lease from 100 Bloor Street West Corporation. The lease required Barry’s to pay base rent, operating costs, and a portion of realty taxes. The dispute arose over how the landlord calculated Barry’s share of realty taxes, particularly concerning taxes allocated to a two-storey underground parking garage not part of the leased premises.

Initially, the landlord calculated Barry’s tax share using a proportionate share based on square footage. After disagreements over the appropriate method and a pandemic-related rent adjustment period, the landlord issued a notice of default demanding nearly $1 million, with the apparent motive of replacing Barry’s with a more lucrative tenant. Barry’s successfully sought an injunction to prevent eviction and initiated legal proceedings challenging the tax calculations and the attempted lease termination.

Legal analysis and findings

The courts found that under article 6.3 of the lease, the landlord had to use a single consistent method to allocate realty taxes. It was unreasonable for the landlord to use one method for the retail premises and a different method for the parking garage taxes, which would have unfairly inflated Barry’s tax liability. The court also determined that the landlord’s abrupt eviction attempt, after deferring rent payments and encouraging reliance, engaged the doctrine of promissory estoppel and that Barry’s was not in arrears.

At the appellate level, the Ontario Court of Appeal upheld the motion judge’s interpretation of the lease and rejection of the landlord’s mixed-method approach. The court agreed that the landlord acted unreasonably in its tax calculations and litigation conduct. However, it found that the motion judge erred in awarding excessive substantial indemnity costs, which risked chilling future litigation.

Outcome and costs

The Court of Appeal dismissed the landlord’s appeal on the merits of the tax calculation issue, ruling in favour of Barry’s Bootcamp Canada Inc. However, the court allowed 100 Bloor Street West Corporation’s appeal on costs, reducing the substantial indemnity award from $709,017.39 to $425,706.30. The court emphasized that while the landlord’s actions were high-handed and self-serving, the case involved legitimate lease interpretation disputes, and disproportionate costs awards should not discourage parties from pursuing bona fide legal claims.