International Fitness Holdings Inc (Re), 2021 ABQB 469

Court of Queen’s Bench of Alberta Citation: International Fitness Holdings Inc (Re), 2021 ABQB 469 Date: 20210616 Docket: B201 731795; B201 731797; B201 731799 Registry: Calgary Docket No. B201 731795 In the Matter of the Notice of Intention to Make a Proposal Under the Bankruptcy and Insolvency Act , RSC 1985, c B-3 , as amended, of International Fitness Holdings Inc. Between: International Fitness Holdings Inc. Applicant - and - Docket No.

B201 731797 In the Matter of the Notice of Intention to Make a Proposal Under the Bankruptcy and Insolvency Act , RSC 1985, c B-3 , as amended, of International Fitness Holdings LP Between: International Fitness Holdings LP Applicant - and - Docket No. B201 731799 In the Matter of the Notice of Intention to Make a Proposal Under the Bankruptcy and Insolvency Act , RSC 1985, c B-3 , as amended, of World Health North LP

Between: World Health North LP Applicant _______________________________________________________ Endorsement of the Honourable Mr. Justice M.J. Lema _______________________________________________________ A.

Introduction [1] Was a commercial lease equitably assigned to a corporation, bringing the lease within the scope of the corporation’sBankruptcy and Insolvency Act (“BIA”) proposal proceedings? [2] The corporation says yes, pointing to its occupation of the premises (formally leased to another party), its rent payments forthe last few years, and other factors signaling (in its view) that it became the tenant under the lease. [3] The landlord disagrees, pointing to the absence of a formal lease assignment, the corporation’s frequent denials of liabilityunder the formal lease, and other counter-factors. [4] I find that the lease in question is still in effect, that the original tenant retains that status, that no equitable assignment arosehere, and that the corporation’s interest is limited to a month-by-month arrangement (continued occupancy in exchange for ongoing rent).

B.

Background [5] The formal lease here, for a fitness centre in the Glenora neighbourhood in Edmonton, was made in 2012 between thelandlord (or a related predecessor) and World Health Edmonton Inc. (“WHEI”). [6] In 2018, International Fitness Holdings Inc. or related entities acquired WHEI’s assets, not including the lease in question. [7] Everyone here agrees that, while an assignment of the lease to IFH (or a related entity) was contemplated, and negotiationswere pursued to that end, no formal assignment was ever executed by IFH. (I will review some of the key steps in those negotiationsbelow.) [8] More recently, IFH began proposal proceedings under the Bankruptcy and Insolvency Act. [9] A purchaser for some, but not all, of IFH’s fitness centres has emerged.

It sees the Glenora operation as a key hub of itsfuture business plans. IFH, the proposed purchaser and the proposal trustee seek an order (per s. 84.1 BIA) directing the assignment ofthe lease in question to the purchaser. [10] The landlord argued that, before considering that request, we must determine the precise lease interest IFH has at the Glenorapremises i.e. decide what interest is “on the table” for possible assignment per s. 84.1. [11] IFH agreed that this is a threshold issue.

The application focused, accordingly, on whether IFH at some point became the per-2012-lease tenant of those premises. [12] The parties also agreed that, in the absence of a formal assignment, the threshold issue translates to whether equitableassignment operated here, making IFH the (or

a) tenant under the 2012 lease. C. Law [13] The landlord relied primarily on Bentall Properties Ltd v Control Data Systems, Inc, (BCSC) (affirmed1999 BCCA 413) (“CDS”) and the cases reviewed in that decision.

[14] In that case, Cohen J. discussed the requirements for equitable assignment (which the landlord there sought): CDS [occupant] contended that it was merely a tenant at will or a licensee. The plaintiff [landlord] contended that if there was noprivity of contract, then in the alternative there was an implied or equitable assignment of the Lease to CDS. Plaintiff's counselrelied on several authorities: Kits Development Ltd. v. Sanford Construction Ltd. et al (17 June 1987), Vancouver F870762 (Co. Ct.);Williams and Another v. Heales (1874), L.R. 9 C.P. 177; Holtby Holdings Ltd. v.

Mill-Rite Supply Ltd. et al (7 April 1992), Peace River9109 00219 (Alta Q.B.); Price v. American Investments et al (18 June 1992), Powell River 87042 (B.C.S.C.); and Me-N-Eds PizzaParlour Ltd. v. Franterra Developments Ltd., (BC SC), [1975] 6 W.W.R. 752 (B.C.S.C.). If an equitable assignment has occurred in the instant case then there is privity of estate between the parties. In this manner,CDS would be liable to the plaintiff for the covenants which ran with the land, including rent.

Based on the finding in Three Road,the privity of estate between the plaintiff and CDS would have ceased at the date of the notice of termination, namely November 1995,rather than the date that CDS vacated the Premises (the date urged upon the court by CDS). I have concluded that there was no equitable assignment of the Lease. Plaintiff's counsel argued that the facts in the case at bar were compelling in finding that there was privity of estate between CDS and theplaintiff.

CDS paid rent directly to the plaintiff, it contacted a representative of the plaintiff to discuss downsizing and it deliverednotice to vacate directly to the plaintiff. Further, according to clause 10.3 of the Agreement, Antares [original tenant] wasprohibited from interfering with any access and use of the premises by CDS after closing of the Agreement. Therefore, followingclosing, Antares had nothing to say about what CDS did at, or to the Premises. However, I am satisfied that there was no privity of estate between the parties arising out of an equitable assignment of the Lease toCDS.

In each of the cases cited by plaintiff's counsel, there were factors indicating that the parties knowingly decided to treat eachother as tenant and landlord in addition to the elements of occupation and payment of rent. In Kits Development, supra, there werenegotiations relating to the assignment. Furthermore the subtenant originally wrote post-dated cheques for the entire term of thelease which indicated that an assignment of the entire lease was intended.

In Williams and Another, supra, the 'assignee' hadremained in possession and paid the rent (with the exception of the time periods in issue in the action) until the expiry of thelease. This was an indication that he intended there to be an assignment of the entire term of the lease. In Mill-Rite, supra, Mill-Rite hadpurchased the assets of the tenant and took over occupation of the leased premises. However, it also made efforts to renegotiate the rentand discussed subletting with the landlord.

Further, it made oral statements to the landlord (when it agreed to pay the same rentas the tenant) that it would be staying at least until the end of the term of the lease. In Price, supra, there were written and oralcommunications between the parties which indicated that the parties operated as landlord and tenant. In Me-N-Eds Pizza, supra,the fact that the purchaser of property had notice of the unregistered lease and acknowledged it in various ways, includingaccepting rent according to the terms of the lease, showed that there had been an equitable assignment. Furthermore MelcoDevelopments Ltd. v.

Skedd, (30 May, 1996), Vancouver C927913 (B.C.S.C.), a case relied on by CDS, establishes that although alandlord may deal with an occupant as a tenant by writing letters addressed to it and by accepting rent from it, this alone is notevidence that there was an assignment of a lease to the occupant. In my opinion, the factors necessary to establish an equitable assignment are not present in the case at bar. The plaintiff was unawarethat CDS was in occupation. Despite plaintiff's counsel's assertion that CDS attempted to re-negotiate the Lease, the evidence ofMr.

Astles falls far short of this characterization of the telephone contact between him and Mr. Outhwaite. In my view, occupationand payment of rent alone do not support a conclusion by me that CDS held an equitable assignment of the Lease, and wastherefore in possession of the Premises with all of the privileges and benefits, as well as the obligations, of a tenant under theLease. The plaintiff and CDS never evidenced any intention to operate as tenant and landlord. Further, in my opinion, CDS' occupation of the Premises did not amount to legal possession of the Premises.

The plaintiff couldhave demanded that it vacate the premises at any time. CDS could not have asserted an enforceable assignment of the Lease anddid not hold any rights that such an assignment would have afforded to it. I think the proper characterization of CDS'occupation of the Premises is that it was a mere licensee with no enforceable estate in the land as against the plaintiff. Carmichaelv. Dolmage and MacInnes, (BC CA), [1947] 1 D.L.R. 559 (B.C.C.A.) states in the headnote, "'[a]ssigning' or'subletting' involves giving legal possession which may or may not include actual occupancy.

The giving of actual occupancy, however,does not necessarily confer legal possession." [paras 26-32] [emphasis added] See also Celadon Canada, Inc v Hoss Cartage &Distribution Systems Inc, 2015 ONSC 4089 (Broad J.) at paras 51-53 (need more than occupancy and rent payments). [15] See also the ONCA decision in Smiles First Corporation v 2377087 Ontario Ltd, 2018 ONCA 524, where the (partial) focuswas on rent payments made by the would-be assignee in the context of lease negotiations: The application judge held that the Head Lease Assignment did not operate to assign 244’s [original tenant] interest in the Head Lease toSmiles First [sub-lessee] and was not effective as against the Landlord for several reasons: (

i) Neither Smiles First nor 244 had sought or obtained the Landlord’s consent to the Head Lease Assignment, as required bythe specific terms of that assignment. As a result, they failed to fulfill a condition precedent to the assignment of the Head Lease from244 to Smiles First; (ii) 244 was not entitled to assign the Head Lease without the Landlord’s consent.

Section 7 of the Head Lease stated 244 couldassign the Head Lease “[s]o long as the Tenant is not in default under the terms of the [Head Lease].” The application judge held thatwhen 244 purported to assign the Head Lease to Smiles First, it was in default of the payment of rent to the Landlord; and (iii) the correspondence amongst the parties in October 2016 did not constitute actual or constructive notice to the Landlord of theHead Lease Assignment. Those findings were based on a reasonable

interpretation by the application judge of the terms of the Head Lease Assignment andHead Lease, informed by an appropriate consideration of the factual matrix, and they were open to the application judge to make based

on the record before him: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633. I see no basis upon which tointerfere with them. The application judge further held that the Landlord’s acceptance of rent from Smiles First after November 2016 did not: (

i) amount toits recognition of an equitable assignment of the Head Lease; (ii) constitute a waiver of its rights; or (iii) estop the Landlord fromasserting those rights. At paras. 71, 75 and 76 of his reasons, the application judge wrote, in part: I do not agree that Smiles First has shown that, by accepting rent and allowing Smiles First to remain in possession ofthe Leased premises, the Landlord intended that the assignment of the Head Lease to Smiles First was valid and effective. I donot agree that accepting the Assignment of Lease as an equitable assignment would give effect to the intentions of the parties.

Idecline to treat the Assignment of Lease as a valid assignment in equity. … The onus is on Smiles First to show, through evidence, that acceptance by the Landlord of rent paid by Smiles First reflected theLandlord’s intention to treat the Assignment of Lease as [] valid and effective. Smiles First has failed to discharge its onus ofproving that the Landlord, by accepting payment of rent, intended to accept the validity of the assignment of the Head Lease to SmilesFirst.

The acceptance of rent by the Landlord during the period when the parties were engaged in settlement negotiations does not, inthese circumstances, represent an implicit assertion by the Landlord that Smiles First is in possession of the Leased Premises asan assignee of the Head Lease from 244. I see no reversible error in that analysis. The evidence showed that the Landlord’s acceptance of the rent was done during a period oftime when it had made clear that Smiles First needed to enter into a new head lease directly with it. Smiles First was notprepared to do so on terms acceptable to the Landlord.

In those circumstances, it was open to the application judge to find thatthe Landlord’s acceptance of rent while Smiles First continued to occupy the Premises did not amount to the recognition ofan equitable assignment of the Head Lease or a waiver of its rights, or estop it from asserting its rights. [paras 15-18] [allemphases added] [16] And H De Groot Real Estate v Scribes Inc, 2018 ONSC 870 (Flynn J.), where a landlord pursued a corporation related to thetenant for rental arrears, following certain rental payments, but no occupation, by that corporation: The Plaintiff [landlord] relies on equitable assignment of the NHCC assumed leased to NIC and/or part performance of thetenant’s obligations by NIC to render NIC liable for the amount sought.

But, in order for a contract for an interest in land to beactionable, the alleged agreement must be in writing. Here there is no such writing. Nor is there any guarantee by NIC. The Plaintiff’s reliance on equitable assignment is merely by way of argument. There are no facts underpinning this argument, butfor the Plaintiff’s claim that NIC partly performed the tenant’s role so as to create an assignment out of thin air. The Plaintiff first relies on the fact that NIC requested the Plaintiff to perform work on the premises. But a close scrutiny of theevidence does not support this. I find that such request(

s) were made by the real tenant, NHCC. Then the Plaintiff relies more strongly on the fact that, after NHCC got into financial trouble, its parent, NIC, stepped in to pay its rentfor about a year. This had never happened before during the 6-year tenancy. I find such assistance by NIC to fall short of acts of partperformance which would burden NIC with all the obligations of the tenant. Finally, there is the issue of the overholding of the keys by the Nightingale Defendants.

The evidence is not clear as to why those keyswere not returned when NHCC vacated the premises, and NHCC’s liability for the rent may very well extend until the landlord has thekeys back and could regain absolute possession, but there is no compelling reason to use this conduct as a means to convert NICfrom parent of the tenant to tenant itself. In

summary, there was nothing in writing that would “stick” NIC with NHCC’s obligations under the lease. NIC did not occupy thepremises, pay rent, except for about a year after NHCC’s business failed, seek authorization for alteration or repairs, deal withthe utilities or engage in efforts to sublet.

There simply is no basis to conclude that the lease was equitably assigned to NIC. [paras32-37] [emphasis added] [17] In Spring Garden Holdings Ltd v Ryan Duffy’s Restaurants Ltd, 2010 NSSC 71, ACJ Smith found no equitable assignmentin light of no actual intention to assign: That takes me to the issue of whether there was an equitable assignment of the Lease. Holdings acknowledges that there was not awritten assignment of the Lease but submits to the court that the facts support the suggestion that there was an equitable assignment ofthe Lease.

Neither counsel has provided me with any authority in relation to this issue. In Levine v. Davies (1998), (ON CA), 37 O.R. (3d) 252 the Ontario Court of Appeal confirmed that partperformance can support an equitable assignment of a lease and stated that “equity looks to what the parties intended”. In thatcase the parties clearly intended that the lease in question be assigned. The lease itself referred to the fact that it was going to beassigned and that the Lessee had the right to assign the lease to a certain non-profit corporation. However, the proper paperwork wasnot completed.

The court concluded that it was appropriate to give effect to the parties’ intentions and held that the lease wasvalidly assigned in equity. In the case before me, I am not satisfied that there is evidence of any intention to assign this Lease from Restaurants toManagement.

While Management [a corporation affiliated with the original tenant] paid the rent owing under the Lease, I am not persuadedthat this is sufficient to show an intention to assign the Lease. During the course of the hearing counsel for Management posed aquestion which I found fitting. If a university student signs a lease but his parents pay the rent to the landlord – has there been anequitable assignment of the lease to the parents? I think not. In my view, there must be an actual intention of the parties to assignthe lease in order for an equitable assignment to occur.

In the case before me, I am not satisfied that there is evidence to support thesuggestion that there was an equitable assignment of this Lease. If I am in error in this regard, I am nevertheless of the view that the Lease itself prevents an equitable assignment.

Clause 19.02 ofthe Lease provides: The Tenant shall not assign or sub-let or part with the possession of all or part of the Demised Premises without the prior writtenconsent of the Landlord, which consent may be arbitrarily withheld; provided, however, such consent to any assignment or sub-letting shall not relieve the Tenant from its obligations for the payment of Rent and for the full and faithful observance and performanceof the covenants, terms and conditions herein contained.

In the case at bar, there is no evidence that the written consent of the landlord (Holdings) was sought or obtained in relation to anassignment of the Lease. [paras 74-79] [emphasis added] [18] See also Matharu v Mid-West Sportswear Ltd, 2002 SKQB 522 (Wimmer J.), where an equitable assignment was found onthe bolded factors below: The plaintiffs contend that Mid-West Sportswear Ltd. occupied the leased premises as an assignee or sub-lessee of Astle Holdings Ltd.and is thus liable as a tenant directly to the landlord.

The defendants argue that there was no privity of contract between Mid-West andthe plaintiffs and thus no liability. As a general rule, a contract cannot confer rights or impose obligations on persons who are not parties to the contract. However,exceptions to the general rule have evolved to allow covenants in leases to be enforceable between successors in title of the original lessor and the lessee. See: Halsbury's Laws of England, (4th ed.) Vol. 27 at 299.

A sub-lessee who acquires an interest by eitherexpress or equitable assignment is bound by covenants running with the land, including covenants to pay rent and taxes. Herethere was no express assignment of the lease to Mid-West and whether there was any equitable assignment depends upon theintention of the parties. See: Levine v. Davies (1998), (ONCA), 37 O.R. (3d) 252 (Ont. C.A.). As I see it, the acts and conduct of Mid-West and Astle Holdings point irrevocably toward the existence of an equitableassignment. Both corporations were controlled by the same directing minds.

Mid-West occupied the premises, paid the rent andgave the notice that it was vacating. In every respect it managed its affairs as though it was an assignee of the lease and I hold itto be equally liable along with the other defendants. [paras 20-22] [emphasis added] [19] In Levine v Davies (cited in Matharu), the Ontario Court of Appeal found an equitable assignment, squaring with the parties’core intentions: The question whether the lease was validly assigned is more troublesome.

West Island Schools of Ontario Inc., a non-profit corporationwithout share capital authorized to operate a private school under the name West Island College, was incorporated in July 1984, soonafter the lease was signed. However, no formal assignment to West Island College ever took place. Assuming that the minutes of themeeting of the Board of Directors of the corporation on November 3, 1987, did not satisfy the requirements of s. 4 of the Statute ofFrauds, R.S.O. 1990, c. S.19, and s. 9 of the Conveyancing of Law and Property Act, R.S.O. 1990, c.

C.34, we think that the trial judgeerred in failing to consider whether acts of part performance could support an equitable assignment: see Starlite Variety StoresLtd. v. Cloverlawn Investments Ltd. (1978), (ON CA), 22 O.R. (2d) 104, 92 D.L.R. (3d) 270 (H.C.J.), affirmed(1980), 26 O.R. (2d) 394, 103 D.L.R. (3d) 192 (C.A.). Once West Island College was incorporated, the school took possession of the property and operated under that name. Davies neverpaid rent personally.

Rent cheques for the period up to December 1986 bore the name West Island College and, from January1987 to November 1989, the name of the non-profit corporation. Levine accepted all these cheques. Moreover, afterincorporation, Levine sent correspondence concerning the property not to Davies personally, but to West Island College or to thenon-profit corporation. These acts of performance are consistent with an assignment having taken place and inconsistent with Davies remainingpersonally liable on the lease. Although the paperwork was sloppy, equity looks to what the parties intended.

Here, the partiesintended that the non-profit corporation, once incorporated, would become the lessee. CEA Ltd. would guarantee the lease andDavies would have no personal liability.

Giving effect to the parties' intention, we conclude that the lease was validly assigned inequity and, accordingly, that Davies is not liable for unpaid rent. [fifth to seventh paras] [emphasis added] [20] Finally, see Lankester & Son Ltd v Rennie [2014 EWCA Civ 1515, where the English Court of Appeal, while focusing onwhether original tenants remained liable on lease, identified various factors signalling against the existence of an equitable assignment toa third party.

The original tenants had hoped to assign their lease to the third party, who took possession of the premises and paid therequired rent for a time before vacating, all without any formal assignment being executed. [21] A key element is the Court of Appeal’s treatment of the third party’s rental payments, described as “sums referable to the rentpayable by [the original tenants] under the lease” i.e. the third party’s payments were treated effectively as those of the original tenants. [22] Here is the Court of Appeal’s analysis of the other equitable-assignment factors: … In relation to TCA [the third party], [the original tenants’ counsel] points to the fact that TCA went into occupation of thepremises in November 2008 and thereafter used the premises for the purposes of its business until 2010.

Further, TCA paid therent and insurance rent reserved by the lease throughout the period of occupation; procured Lankester to carry out various

repairs to the premises; secured a new monthly rent payment regime; and carried out various improvement works to the premises . Moreover, it did so without the benefit of a break clause. As for Lankester [the landlord], Mr Allston says that it accepted that TCA was in occupation in place of Mr and Mrs Rennie; accepted the rent and insurance rent from TCA; carried out the repairs to which I have referred and permitted TCA to make the various improvements to the premises. Further, it allowed TCA to take up occupation without the provision of personal guarantees from its directors .

Finally, says Mr Allston, the conclusion that Lankester is estopped from contending that TCA is not the assignee of the lease is strongly supported by its conduct after TCA vacated the premises, and here he points to the correspondence from Warner Goodman in March and April 2010. … it is necessary to have regard to the following further findings which the Recorder made, namely that Mr House told Mr Rennie (and Mr Rennie accepted) that Lankester would be prepared to allow an assignment of the lease if, and only if, personal guarantees from TCA's directors were forthcoming, but they never were and further, that if Mr Rennie allowed TCA into possession of the premises without there being a formal assignment then Mr and Mrs Rennie would remain liable in respect of all the tenant covenants under the lease; that Lankester never consented to TCA entering into occupation but were presented with a fait accompli; that TCA went into occupation without the knowledge or permission of Lankester; and that there was never a formal assignment of the lease .

In these circumstances, and whatever may have been the position as between Lankester and TCA, I find myself quite unable to accept there was ever any representation by Lankester to Mr and Mrs Rennie that it had accepted TCA as the assignee of the lease , and the Recorder was right to so hold. Nor, it seems to me, is the position improved by a consideration of the correspondence in March and April 2010.

True it is that Warner Goodman [landlord’s counsel] wrote to TCA and to Mr Pestell and Mr O'Regan asserting that TCA had taken an assignment of the lease and was bound by the various tenant covenants, but Warner Goodman also wrote to Mr and Mrs Rennie [original tenants] asserting that they remained liable under all the terms of the lease, that Lankester had never given them permission to assign it, and that there was never an effective assignment in any event .

As the Recorder put it, any representation to TCA that it was the assignee was countered by a representation to Mr and Mrs Rennie that they remained the tenants under the lease and that the assignment had never taken effect . [paras 29-31] [emphasis added] [ 23 ] I turn next to application of those helpful analyses to the facts here. D. Equitable-assignment factors here [ 24 ] Here are the key factors in this case: 1. [payment of rent] : IFH emphasized that it paid the required rent under the 2012 lease, including a bumped-up rent (per the 2012 lease) starting recently.

I see payment of rent as neutral, with those payments being equally consistent with the landlord’s position that IFH wanted to “keep its options open”, disclaiming any responsibility under that lease (see further below) but wishing to use the premises for the time being, until a formal assignment could be made on terms satisfactory to both the landlord and it.

Viewed differently, rent payments, even if “referable” to the lease’s rent provisions (i.e. made in the required amounts and frequencies), do not, on their own, signal an assignment of the unexpired lease term (through 2026), versus a month-to-month tenancy, versus some kind of license. 2. [occupancy] : IFH went into occupancy circa 2018 and remains in occupancy. However, that too is not necessarily reflective of a remaining-lease-term assignment, being equally consistent with the month-to-month or license scenarios painted by the landlord.

The cases confirm that occupancy is, or even occupancy plus rent payments are, insufficient, on its or their own, to justify an equitable- assignment finding 3. [“no evidence of a month-to-month tenancy”] : IFH asserted that no evidence supported the landlord’s “month-to-month” position. But that is off-target: the landlord’s principal swore that he and an authorized IFH representative so agreed, in late May 2018. IFH offered no counter-evidence from that representative, who is no longer with IFH, or any other witness.

IFH did cross-examine the landlord’s principal on this point, but the examination was limited: Q: [Your affidavit on the month-to-month arrangement] says you spoke to Mr. Brodmann after his email of May 13 th , and prior to June 28 th , 2018. Do you have any records, sir, in relation to that conversation or can you tell me when that conversation occurred? A: I can’t really tell when it occurred. It was – you know, based on my memory recall of the conversation, you know, I don’t have any – anything else I can really tell about that. Q: Okay.

While it might have been better for the conversation in question to have been memorialized somehow, this questioning exchange did not materially undercut the landlord’s evidence here. In any case, the fall-back position, if no month-to-month tenancy is found, is not necessarily that IFH acquired the 2012 lease for its full expired term, as discussed later. 4. [landlord’s “about-face”] : IFH said it was dismayed by what it saw as a very-late-in-the-day and opportunistic turn-about in the landlord’s stance on the Glenora lease.

It sees the landlord as trying to exploit its current financial straits (largely arising from pandemic-

fanned headwinds). However, I note the landlord’s evidence of IFH’s various communications to the landlord that IFH did not consider itself bound by the 2012 lease (i.e. no about-face occurred at all), starting with this May 23, 2018 email from one of its principals: As you know the assets of World Health Edmonton Inc (WHE) were substantially purchased by [IFH]. We are operating those assets through World Health North LP (WHN).

We will make the May 1 st rent payment on behalf of WHE as a gesture of goodwill while we can hopefully negotiate a lease amendment that reflects the market for big-box fitness spaces today. We want to be clear in making this payment, that: 1. we are not assuming any liability for the [2012] lease that you have with WHE [and] 2. a condition of this payment is that you do not terminate the lease on WHE. [reference to certified cheque being prepared] As part of the sale, David Hardy conducted successful lease negotiations in almost all the other locations.

However, he has indicated that you seem unwilling to move from the current lease rates because your view of the market is different than ours. I do imagine that if money was put into the building and it was further demised that you would be able to achieve greater rent than we are able to pay based on the economics of the club.

Having said that, if we can either bring the rate down a bit or get some consideration towards capital improvements that we would need to make at the club to bring the brand standard while paying the currently scheduled rent, we main open to working out something longer term . [emphasis added] The landlord’s representative reported an account from his sister (another principal of the landlord) of an August 13, 2019 meeting with certain IFH representatives or agents where the latter persons “ repeatedly told [the landlord’s agent] that IFH was under no obligation to stay in the [Glenora premises] and had no binding long-term lease in place with [the landlord]. ” IFH cross-examined the landlord’s representative about this, to similar effect (see the transcript, page 12).

As with the earlier exchange on IFH’s “not liable” position, the discussions were not memorialized. As well, the landlord’s representative had no direct window into the August 2019 discussions. But IFH did not undercut the landlord’s evidence here to any material degree. On February 13, 2020, an IFH representative wrote to the landlord’s agent addressing various subjects, including the nature of its occupancy of the Glenora premises and the ongoing need (per IFH) for a new lease: As you know, we are not obligated to the World Health Edmonton Inc lease.

We have been paying rent on the lease on behalf of World Health Edmonton Inc since we purchased select assets from the group [i.e. in 2018]. To continue, we need to get the new lease rates in place and [an] acceptable exterior work clause – indeed a lease that reflects [a certain letter of intent].

Negotiating the clause has proven ineffective … I suggest we simply use the exact language that was agreed to in the LOI for that clause of the lease. … [emphasis added] I accept the landlord’s evidence that, from the start, and as late as mid-February 2020, IFH explicitly disavowed any responsibility under the 2012 lease. 5. [the landlord signed on to a proposed lease amendment and extension agreement] : IFH stresses that, after IFH had circulated a (non-binding) letter of intent concerning possible lease terms for the Glenora premises, the landlord actually signed and returned to IFH a lease amendment and extension agreement.

Per IFH, this represented an acknowledgement that IFH had already come under the 2012 lease, with the focus shifting to adjustments going forward (different rent structure and lease term). I disagree. This is another neutral factor, at best (for IFH). Whether it had become the (or

a) tenant under the 2012 lease, or a month-to- month tenant, or only a licensee, IFH plainly saw the existing 2012 lease as an unsatisfactory vehicle for going forward. The landlord responded to IFH’s concerns (at least in part, or at least in ways it saw fit) by laying out proposed new lease terms. Its proposal does not imply anything about IFH having coming under the 2012 lease. As it turned out, IFH did not sign on to the proposed new terms or otherwise signal any acceptance of them. In fact, the proposed agreement signals the other way: it was actually drafted as a “lease assignment , amendment and extension agreement” i.e. it did not take “IFH already in as the (or

a) tenant” as the starting point and then simply amend its terms and extend its life. Instead, the starting point was the recognition that WHEI remained the tenant under the 2012 lease and that no assignment in IFH’s favour had been accomplished, let alone proposed. This involved, in part, WHEI (now with a new, number-company name) being a party to the proposed agreement, provisions for WHEI assigning its lease interest to IFH, and the landlord consenting to the proposed assignment.

In other words, the proposed agreement was constructed to respond to the “reality on the ground”, per IFH’s consistent position that it was “not liable under the 2012” lease, absent a formal assignment of the kind proposed by the landlord. Keep in mind that IFH started out, in May 2018, saying it was making a “gesture of goodwill” rent payment on WHEI’s behalf . No evidence showed that IFH ever sought to characterize its ongoing rent payments differently (e.g. “We are now paying, or proposing to pay, on our own behalf , as the equitable assignee of the lease, the following rent …”).

IFH clearly saw the 2012 lease as unworkable in the long term, hence its obvious position that it was not bound by it and was simply paying rent while it continued to negotiate with the landlord for a better deal. It wanted to keep its options open, in case of eventual defaults and the landlord looking to it for accumulated arrears and future rents i.e. to be able to say “we never came onto the hook for

anything.” 6. [pandemic rent-support programs] : IFH also points to the landlord signing up for federal and provincial rent-support programs as confirming IFH’s position as equitable assignee of the 2012 lease. It argued that, with a certain portion of rent to be deferred (versus simply forgiven), and with the arrears-clearance period reaching into the future (six months or more), the landlord was implicitly confirming that IFH “had a future” in the Glenora premises, in the sense of having coming in under the 2012 lease.

I again disagree: nothing in the program-application or associated materials reflected any particular “lease length”, only that, to the extent IFH was making its “on behalf of WHEI” payments, and to the extent the program would apply in that scenario, the landlord stepped up and drew on the programs’ benefits for the benefit of both itself and IFH. This was another neutral action or set of actions.

In fact, the application materials seem to signal in the opposite direction i.e. that IFH was not the “2012 lease tenant.” Here I note that, when signing the standard-form “rent reduction agreement”, IFH’s representative signed under the tenant name “World Health Edmonton” i.e. the name of the original tenant. IFH’s counsel argued that this agreement was “riddled with errors” and that this was simply one of them.

However, it seems more likely to me that IFH’s rep recognized that IFH had no particular standing or status under the 2012 lease (which it had disavowed) and so signed the rent-reduction agreement, somehow, on behalf of the original tenant. As the CEO of IFH, this person certainly would have recognized what corporate entities he had signing authority for, and which he did not (e.g. WHEI). Same again in a program document called “tenant’s or sub-tenant’s attestation”, which he simply signed in his personal name, with no corporate-tenant reference at all.

In response to IFH’s counsel’s question: “Why did the relief programs refer to the 2012 lease?”, the answer may be (as discussed more later): that is the lease still in effect, albeit with WHEI still as the long-term tenant i.e. with IFH having no particular status or standing in respect of that lease i.e. such references do not imply IFH as the (or even a) 2012 lease tenant. 7. [signs] : the landlord also emphasized that it expended considerable amounts putting up a new (two-fronted) “pylon sign” (in the name “Club Fit”) at the Glenora premises.

It said it would not have done this without believing that it had a long-term stake at that location (i.e. that it had come under the 2012 lease, which ran until 2026) and that this leasehold improvement could not have been made without landlord approval. To the extent it applies, s. 8.3 of the 2012 lease indeed requires the landlord’s (written) consent for all signs, including on the parking-lot pylon (tower).

While the landlord’s representative’s evidence was not clear on whether he or someone else at the landlord had approved the sign change, he did depose that the sign change “wasn’t a concern” i.e. was not a major issue, presumably even if consent had not been obtained. As far as I can tell, IFH did not provide evidence of the cost of the change to the parking-lot sign. I do not see this evidence as particularly illuminating on whether IFH had come under the 2012 lease.

It strikes me as a relatively modest (few-thousand-dollar?) expense incurred by IFH to boost its presence even in the face of uncertainty over whether it would end up making a long-term lease with the landlord i.e. it is not necessarily indicative of a belief that IFH was sheltering under the existing (2012-2026) lease. E.

Conclusion [ 25 ] IFH had the onus of proving an equitable assignment of the 2012 lease to it. [ 26 ] I find it has not discharged that onus. [ 27 ] As explained above, the various equitable-assignment markers asserted by IFH are either neutral on the existence of such an assignment or point in the other direction. [ 28 ] The fundamental test for equitable assignment is: despite formal-lease deficiencies or shortcomings, did the parties actually intend to assign the lease? [ 29 ] Here, IFH made it plain throughout that it did not want the 2012 lease for the long haul.

The landlord initially insisted on “same terms”, and then suggested altered terms, which IFH declined to accept. These parties did not come to any long-term agreement, formal or informal, landing only on “interim occupancy, for now, paid for one month at a time”, with an apparent escape hatch for IFH to step away at any time. [ 30 ] I conclude that the 2012 lease is still in effect, with the landlord having never terminated it.

The tenant and party primary responsible for rent under that lease is still WHEI, even if that entity is no longer in the “operating picture.” [ 31 ] No inequity arises here: IFH wanted a straddle position i.e. to be in occupancy, to a limited degree, keeping the Glenora operation running albeit expressly staying “at arm’s length” from the long-time-to-run balance of the lease term (through 2026). It kept its options open, taking each month as it came, and paying for its occupancy each month, but always (I infer) pressing, from its “no

liability” perch, for better terms, and (I infer also) with one eye on the exit. If arrears had arisen, and if the landlord had launched enforcement steps, I infer that IFH wanted to be able to step to the side, leaving WHEI as the party solely responsible for any unexpired- lease-term damages. [ 32 ] IFH got what it paid for: occupancy, for the time being, as it tried to negotiate a brand-new lease for the Glenora premises.

As noted, those negotiations did not come to fruition. [ 33 ] No inequity arises from IFH not having the unexpired portion of the 2012 lease as part of its array of its assets “on the menu” for the prospective purchaser here. That is what IFH wanted (“no liability”), until it ended up in proposal proceedings and now sees the benefit, after the fact, of having that unexpired term. [ 34 ] IFH decided not to sign up to the landlord’s proposed new lease and to press on with its efforts to negotiate a better deal.

But it ran out of road. [ 35 ] As for the precise status of IFH’s present interest in the lease, I see nothing inconsistent, implausible or impossible in the simultaneous running of WHEI’s 2012 lease, on the one hand, and, on the other, the landlord and IFH having come to terms on a kind of “under-arrangement” i.e. an interim-occupancy arrangement, paid for month by month, with no long-term commitment by IFH, and with payments being credited against WHEI’s rent obligations on the “over-arrangement.” [ 36 ] This “under-arrangement” is what the landlord described: a month-to-month arrangement, dependent on IFH meeting the per- WHEI-lease rent payments, on which it has apparently defaulted (with arrears to be (potentially) addressed by the prospective purchaser in IFH’s proposal). [ 37 ] As for the impact of IFH’s proposal proceedings on the landlord’s and IFH’s rights under that month-to-month arrangement and the landlord’s request that the proposal stay be lifted, the parties requested the opportunity to make further submissions. [ 38 ] I invite them to contact me via my assistant (Stacy Adams) to arrange for further submissions, if necessary. [ 39 ] I thank the parties for their helpful submissions.

Heard on the 11 th day of June, 2021. Dated at the City of Calgary, Alberta this 16 th day of June, 2021. M.J. Lema J.C.Q.B.A. Appearances: Karen Fellowes, Q.C. Stikeman Elliott LLP for the Applicant IFH parties Howie J. Sniderman, Q.C. and Landon Haynes Witten LLP Barrister & Solicitors for the Respondent landlord Matti Lemmens and Garrett Finegan Borden Ladner Gervais LLP for the prospective purchaser