Appeal ruling cancels substantial indemnity costs order, sees no reprehensible litigation conduct
The Ontario Court of Appeal has dismissed a landlord’s main appeal upon rejecting its argument that the judge misdirected himself regarding the lease requirements, which required a “reasonable” allocation of taxes, not a “crisp, clear explanation.”
In 100 Bloor Street West Corporation v. Barry's Bootcamp Canada Inc., 2025 ONCA 447, the respondent tenant began leasing commercial premises from the appellant lessor in September 2019. The tenant used the ground and second floors as a fitness studio.
The 10-year “triple net lease” required the tenant to pay occupancy costs consisting of base rent, a proportionate share of operating expenses, and realty taxes attributable to the leased premises. A dispute arose between the parties regarding how to calculate the tenant’s rental obligations.
In a previous appeal, the Ontario Court of Appeal handled a disagreement over the realty taxes attributable to the leased premises. The appeal court tackled the landlord’s method for calculating the tenant’s share of these taxes.
In March 2024, a motion judge of the Ontario Superior Court of Justice issued a declaration concerning the landlord’s calculation method for the proportion of realty taxes attributable to the building’s two-storey underground parking garage.
The judge considered the landlord’s litigation conduct reprehensible and awarded the tenant substantial indemnity costs of $709,017.39, representing the expenses relating to an injunction, an application, and the motion currently appealed.
In the present appeal, the landlord challenged the judge’s motion decision and requested permission to appeal the costs order.
Main appeal denied
The Court of Appeal for Ontario dismissed the landlord’s appeal of the motion decision. However, the appeal court granted leave to appeal the costs order, allowed the costs appeal, and set aside the substantial indemnity costs order. It awarded costs of $300,000, plus $125,706.30 in disbursements, including taxes.
The appeal court ruled that the motion judge did not reverse the burden or apply the wrong lease standard. The appeal court rejected the landlord’s arguments that the judge prejudiced and predetermined the issue and incorrectly put the burden on the landlord to overcome his preliminary determination.
The appeal court held that the judge fully comprehended that the lease agreement required a reasonable exercise of discretion, as provided by article 6.3, to allocate realty taxes. The appeal court saw no error in the judge’s asking the landlord to give a “crisp, clear explanation” for its “inconsistent methods to attribute taxes to various parts of the building.”
The appeal court determined that the judge made no errors in interpreting the lease. The appeal court said the landlord’s distinction between “attributing” and “calculating” realty taxes was formalistic and unhelpful because it was impossible to reasonably attribute a share of realty taxes without any calculations.
The appeal court added that the judge was justified in denying the landlord’s argument that article 6.3 of the lease did not apply to realty tax calculations for the parking garage because that provision tackled realty taxes attributable to the leased premises.
The appeal court upheld the judge’s finding that the landlord unreasonably exercised discretion. The judge noted that the tenant had agreed to the property value attributable to the parking garage but never agreed to mixing and matching valuation methods, which was the issue in the case.
Costs reduced
The appeal court accepted that the judge committed no error in characterizing the case outcome and concluding that the tenant was entirely successful in the application.
However, the appeal court found that the judge made material errors that rendered substantial indemnity costs inappropriate. The appeal court said the judge improperly deemed the landlord’s litigation conduct reprehensible.
Regarding the real motive finding, the appeal court noted that the judge found that the application was a ruse and that the true underlying issue was whether a landlord could evict a tenant with a valid lease simply because it got a better offer.
The appeal court ruled that the application was not necessarily a ruse just because the landlord’s eviction attempt was high-handed, unfair, and motivated by a desire for a better tenant. The appeal court said the real underlying issue in the application was the quantification of the taxes.
Regarding the non-disclosure finding, the appeal court held that the judge lacked an adequate evidentiary foundation or logical basis to find that the landlord failed to provide the court with a complete picture of its intentions in the application.
Lastly, regarding the pointless motion finding, the appeal court determined that the judge disregarded the fairness principle and unreasonably awarded costs in an amount that would have a chilling effect, deterring litigation and endangering the principle of access to justice.
