Executive Summary: Key Legal and Evidentiary Issues

• Dispute centered on whether the tenant's lease obligations were contingent upon the landlord completing renovations by a specific date.

• The court was asked to interpret the commercial lease and determine if the tenant repudiated the agreement.

• Tenant argued misrepresentation and delay by the landlord; court found no binding promises or deadlines for the landlord’s work.

• Force majeure clause shielded landlord from COVID-related construction delays.

• Tenant's post-COVID hesitation and lack of preparedness contributed to project delay.

• Landlord awarded damages for lost rent and reduced property value due to tenant’s repudiation.

Background and facts

Malleum Real Estate Management Corp. and Malleum Real Estate Partners V LP entered into a ten-year commercial lease with Donut Monster Inc. (DM) on March 1, 2020, for premises located in Hamilton, Ontario. DM intended to open a restaurant and bar in the leased space. Reuben Vanderkwaak, DM’s president, personally guaranteed the lease by signing an indemnity agreement.

The lease included a six-week rent-free fixturing period, allowing the tenant to install leasehold improvements. While the lease did not specify a deadline for completion of the landlord’s required improvements (e.g., plumbing, electrical, HVAC), it required the tenant to take occupancy and begin business operations on March 1, 2020.

The landlord began construction but encountered delays obtaining a building permit, which was further disrupted by COVID-19 shutdowns. Despite being given keys, the tenant never took possession and on May 20, 2020, sent a notice claiming frustration and abandoning the lease. The landlord eventually secured a new tenant at lower rent and sold the property.

Key legal issues and court findings

The court was asked to interpret the lease to determine the parties’ obligations. Applying principles from Sattva and Weyerhaeuser, the court found the lease was clear: it required the tenant to occupy the premises and begin business on March 1, 2020, regardless of the landlord’s construction progress. There was no contractual term or representation that made the tenant’s obligations conditional on completed renovations.

The court rejected the tenant’s arguments that there was an implied term linking occupancy to completed landlord work. The evidence showed that the tenant had not requested such a term, and that the lease included a force majeure clause covering government restrictions such as those caused by COVID-19.

The tenant’s delay in participating in the fit-out process, lack of ordered equipment, and post-pandemic reluctance to proceed undermined claims of landlord default. The court found that the tenant repudiated the lease, and that the landlord reasonably accepted this repudiation by commencing legal proceedings in response.

The tenant’s counterclaim for rescission, misrepresentation, and damages was dismissed. The court found no misrepresentation—fraudulent, innocent, or negligent—by the landlord.

Damages and outcome

The court awarded damages to the landlord under the legal framework established in Highway Properties and Morguard, based on lost rent up to the date of sale and the diminished market value of the property due to lower rental income from the replacement lease.

Lost rent damages were calculated from March 1, 2020, with adjustments for last month’s rent, utilities, interest, late fees, and the costs of securing a new tenant. Diminution in property value was set at $185,000.

The court declined to award the landlord the cost of leasehold improvements, reasoning that these improvements justified the lease’s rental value and were not independently recoverable.

Conclusion

The Ontario Superior Court of Justice found in favor of the landlord, holding the tenant liable for breaching and repudiating the lease. The landlord was awarded damages for lost income and reduced property value. The tenant’s counterclaim was dismissed in full, and the court invited costs submissions from the parties.