577129 B.C. LTD. CLAIMANT AND: URBAN LIFE ENTERPRISE LTD. v. YUAN WANG and JIUNN HAUR, 2010 BCPC 299

Citation: 577129 BC Ltd. v. Urban Life Enterprise, et al. Date: 20101124 2010 BCPC 0299 File No: 08-22619 Registry: Vancouver IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: 577129 B.C. LTD. CLAIMANT AND: URBAN LIFE ENTERPRISE LTD. and YUAN WANG and JIUNN HAUR CHENG DEFENDANTS JIUNN-HAUR CHENG THIRD PARTY REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE VALMOND ROMILLY Counsel for the Claimant: K. McKenzie Appearing for the Defendants Urban Life Enterprise Ltd. and Y. Wang: Y. Wang Appearing for Third Party: J. Cheng Place of Hearing: Vancouver , B.C. Date of Hearing: May 25, 2010 Date of Judgment: November 24, 2010

SUMMARY OF FACTS AND EVIDENCE [ 1 ] The Defendant, Yuan Wang (Mr. Wang), was a co-covenanter of a Lease of premises used as a restaurant between the Claimant and Urban Life Enterprise Ltd. (Urban Life) of which Mr. Wang is President, which said Lease was assigned, with the consent of the Claimant landlord, to the Defendant, Jiunn-Haur Cheng (Mr. Cheng) also known as Jiunn Cheng, with Mr. Wang and Urban Life Enterprise Ltd. remaining bound by the terms of the original Lease in the event that Mr. Cheng defaulted. Mr. Cheng did default and the Claimant now sues Mr. Wang, Urban Life Enterprise Ltd. and Mr.

Cheng for the balance of the rent outstanding as of May 31, 2008, in the amount of $4,286.65, together with three months future rent in the amount of $13,106.85, less the security deposit received in the amount of $4,520.10, leaving a net balance claimed to be outstanding in the amount of $12, 873.40. Apart from the future rent claimed, the Claimant claims damages for lost rent from September 1, 2008 to December 31, 2008, in the amount of $17,475.80 ($4,368.95 x 4 (months)). [ 2 ] Mr. Wang has joined Mr. Cheng as a Third Party, Mr.

Cheng having agreed under the terms of the Assignment of Lease to indemnify and save harmless Mr. Wang and Urban Life from and against any claims made with respect to the Lease against them. Mr. Wang and Urban Life have also counterclaimed for the value of the furniture and equipment left on the premises in the amount of $27,000, inventory in the amount of $2,500 and a return of their security deposit in the amount of $4,520.10.

The Defendants maintain that there was a failure by the Claimant to mitigate its damages. [ 3 ] Sharon Wortman, the Commercial Property Manager for Colliers International, the Claimant’s agent, gave evidence on behalf of

the Claimant. She stated that she spoke to Mr. Wang some months after he was having some difficulties with the restaurant, when he requested that the landlord permit him and Urban Life to get out of the Lease. She stated that the landlord refused but agreed to allow an assignment of the Lease to a new buyer, and Mr. Cheng became that assignee. She stated that Mr. Cheng operated the restaurant until May 2008, at which time he abandoned the premises, and advised them that he was ill and could no longer operate the restaurant. She stated that Mr.

Cheng failed to provide a cheque for the rent as promised and the matter was turned over to the Credit Manager and the landlord set out to find another tenant and she assisted. [ 4 ] She stated that the premises were leased to a new tenant as of December 1, 2008, and that the landlord had to provide an incentive of a $50,000 loan to the new tenant for it to repair and refit the premises in a “Diner Style”.

She stated that she is not privy to the details of the lease with the new tenant, but she believes that that the new tenant went into the premises in November 2008, to do renovations, but that she does not know exactly when the renovations were begun. [ 5 ] Nicole Anderson the Credit Manager for Colliers was the next witness for the Claimant. She stated that she had no dealings with either Urban Life or Mr. Wang, only Mr. Cheng. She stated that approximately May 2008, the Property Manager advised her that Mr.

Cheng had abandoned the premises and that when she contacted him he said he was sick and could not pay the May rent. She stated that once she determined that the rent was not to be paid, she issued a Notice of Termination and she gave Mr. Cheng an opportunity to come in and pick up his belongings. She stated that the commencement of a lease with a new tenant was December 1, 2008. On cross- examination by Mr. Cheng she agreed that Mr.

Cheng had tried to make a proposal to try to sell the restaurant in two to three months, which she said she would take to the landlord, but that the landlord said that no proposal would be accepted without the payment of rent. She agreed that she was the one who ordered the change of locks. She stated that she has never visited the premises, but that she asked her bailiff to drive by and he reported to her that there was nothing of value to distrain. [ 6 ] Mr.

Wang gave evidence that he only received the letter of termination in June 2008, which was after the date of termination and that was his reason for joining Mr. Cheng as a Third Party. He stated that there was furniture and equipment on the premises worth about $27,000 which Mr. Cheng could have sold if he was allowed to. He admitted that he made the assignment of the Lease to Mr. Cheng for one dollar and that no extra sum was set out for the fixtures and equipment.

He was shown pictures of the equipment presently in the restaurant renovated by the new tenant and he identified several pieces of equipment and furniture that belonged to the restaurant that he sold to Mr. Cheng. He advised that he initially purchased the restaurant and equipment for $22,000. [ 7 ] Mr. Cheng gave evidence that he had suffered a heart attack and that he wrote the following letter to Nicole Anderson: “Dear Nicole, Further to our conversation, I explained to you that I had a heart attack about 4 weeks ago and was unable to take care of the restaurant anymore.

I left it with my staff to run it for 2 weeks and sorry to say that the business has gone downhill since. I have currently listed my business and is very close to finding a buyer now. You have said that the landlord has decided not to continue on as a restaurant operation anymore due to past unsuccessful history. You have described it as a revolving door, people came in and went out almost as quickly as the door revolved. I have to believe that even if I found a buyer in the near future, you would not approve the transfer.

For this matter, I have discussed with the previous owner and she confirmed with me that she would not want the restaurant back and would want no recourse on this. In other words, we are both ready to surrender the lease and if you can grant us some time to have the equipment in tact until I find a buyer for the equipment which I estimate should worth about $20,000 and I would pay the landlord back for any arrears incurred. If I failed to find a buyer during the next 3 months, which is June, July, August, I will let you keep all my equipment and my damage deposit.

I am so sorry that due to my health issue, I have no other income to support the restaurant anymore……….. Harry Cheng May 28 th , 2008” [ 8 ] By letter dated May 29, 2008, the Claimant’s representative, Colliers International, advised the Defendant, Mr. Cheng that his lease was being terminated effective May 31, 2008. By accompanying letter, the Claimant advised inter alia as follows: “We confirm that the Tenant has abandoned the Premises on approximately the 31 st day of May, 2008 and as such has repudiated the Lease.

Take notice that the Landlord shall treat such repudiation as a default under the terms of the Lease entitling the Landlord to terminate the Lease, re-enter the Premises and pursue recovery against the Tenant for all loss of rent and damages. Further take notice that because of the default and repudiation, the Landlord does hereby pursuant to the Lease, re-enter, take possession of the Premises and terminate the tenancy immediately, terminating the rights of continued occupancy of the Premises by any person purporting to occupy by or through the Tenant.

Any further occupation of the Premises must cease immediately. And further take notice that the Landlord, pursuant to the Lease, does hereby terminate the Lease and the tenancy and any renewals thereof, effective immediately and requires that the Tenant give up vacant possession of the Premises to the Landlord and that any and all chattels or Tenant’s fixtures remaining on the Premises either revert to the Landlord pursuant to the Lease or are deemed abandoned……………” [ 9 ] He stated that in early June 2008, the locks were changed and denied that any bailiff employed by the Claimant or his agent was involved.

He testified that in October 2008, he drove by and witnessed persons working inside the restaurant, and they stated that they wanted to open by Christmas. He referred to two clauses in

Schedule “E” to the lease between the Claimant and the new tenant which

stated as follows: “2. Fixture Period The tenant shall have a fixturing period (the “Fixture Period”) from the date of unconditional acceptance and until the Commencement Date to complete its improvements and/or conduct its business. Such Fixturing Period shall be free of Basic and Additional Rent. 3. Improvement Allowance The Landlord will pay for the Tenant start up costs pursuant to the Tenant’s specifications to a maximum of Fifty Thousand Dollars ($50,000.00), (the “Improvement Allowance”).

Such Improvement Allowance will be amortized at seven percent (7%) above the Basic Rent.” [ 10 ] The Defendants and the Third Party also take issue with the “fixturing period” granted to the new Tenant as well as the $50,000.00 incentive given to the new Tenant. They argue that these incentives impugn any attempt by the Claimant to argue that it has mitigated its damages. ANALYSIS AND DECISION [ 11 ] The issue in this case in my opinion is not whether outstanding rent due is owed by the Defendants, but whether the future rent claimed by the Claimant is really in the nature of damages.

It is acknowledged of course that the $17,475.80 claimed for lost rent from September 1, 2008 to December 31 st , 2008, is a claim for damages. If I find that any of the claim is in reality for damages, it is incumbent upon me to decide whether or not the Claimant has mitigated its damages.

Also I find that I also have ascertain whether the Defendants were forced to leave all its fixtures and equipment on the premises, and precluded by the Claimant from realizing monies from the sale of same which they offered to apply to outstanding rent, and whether I should consider the Claimant’s failure to distrain for rent, another failure by it to mitigate its damages. [ 12 ] The Court of Appeal decision of Transco Mills Ltd et al v.

Percan Enterprise Ltd. et al. (1993 1993 CanLII 2876 (BC CA) , 76 B.C.L.R. (2d) 129 ) is instructive on the issue of mitigation with regards to monies claimed as future rent and/or damages on a breached leased. The case states starting from paragraph 38 as follows: “© Mitigation 38. There is in my view no basis on which a landlord of commercial premises can be required to mitigate its loss where it maintains the lease in existence and claims for rent due. 39. In Highway Properties Ltd. v Kelly Douglas & Co ., (1971) 1971 CanLII 123 (SCC) , S.C.R. 562 ……., Mr.

Justice Laskin (as he then was) (for the Court) sets out at p.570 (S.C.R.) the options open to a landlord when a tenant is in fundamental breach of the terms of the lease: “ The developed case law has recognized three mutually exclusive courses that a landlord may take where a tenant is in fundamental breach of the lease or has repudiated it entirely, as was the case here. He may do nothing to alter the relationship of landlord and tenant, but simply insist on performance of the terms and sue for rent or damage on the footing that the lease remains in force.

Second, he may elect to terminate the lease, retaining of course the right to sue for rent accrued due, or for damages to the date of termination for previous breaches of covenant. Third, he may advise the tenant that he proposes to re-let the property on the tenant’s account and enter into possession on that basis.

Counsel for the appellant in effect, suggests a fourth alternative, namely, that the landlord may elect to terminate the lease but with notice to the defaulting tenant that damages will be claimed on the footing of present recovery of damages for losing the benefit of the lease over its unexpired term.” It is my understanding that in the present case the landlords have not re-entered, nor re-let on the tenants’ account, but have proceeded on the basis that the leases remain in force and have claimed rent as it falls due. 40.

The first argument of the tenants is that there is a duty on the landlord to mitigate where the lease is no longer alive; but I have held that here the leases are alive….. 45. Finally, two cases are cited in support of the contention that a duty to mitigate arises even where the claim is brought under a lease which remains in force. In Grouse Mechanical Co. v. Griffith (1990), 14 R.P.R. (2d) 233 (B.C.S.C.) , the tenant having breached the terms of the lease, the landlord chose to re-lease to another tenant.

It was in reference to these circumstances that the judge observed (at p.240): “Once the tenant breached his obligations or stated his intention to breach his obligations, the plaintiff had a duty to mitigate his loss, unless the plaintiff had “substantial and legitimate interest” in actual performance.” “The statement relates to a situation in which the landlord has chosen to re-enter and re-lease the premises. ” [ 13 ] I find that the above quoted Notice of Termination suggests that the Landlord elected to terminate the lease, retaining of course the right to sue for rent accrued due, or for damages to the date of termination for previous breaches of covenant, but seeks to extend his claim for future rent after termination and damages for lost rent.

I find that in accordance with the Transco Mills case (supra), the Claimant is entitled to sue for rent accrued due to May 31 st , 2008, the date of termination, and any other damages occurring prior to that date, but that any claim for future or lost rent after that date, must be deemed a claim for damages and subject to the requirement for

mitigation as set out in the Transco Mills case. [ 14 ] I find that I now have to consider whether or not the Claimant has in fact mitigated his damages. I find firstly that the Claimant’s failure to distrain for rent as allowed under the terms of the lease, or to allow the Defendants to sell their furnishings and equipment, and apply monies obtained there from in reduction of monies deemed owing under the lease, a failure on the part of the Claimant to mitigate its loss.

I find that the evidence of the Colliers International representative, that she had a bailiff “drive by”, who informed her that there was nothing of value on the premises, unsatisfactory indeed. I find that the evidence supports the Defendants’ contention that their restaurant had a valid 2008 operating licence and a health department permit until March 2009, and I find that the fact that Mr.

Cheng was unable to operate the restaurant because he had a heart attack suggests to me that he had a fully operational restaurant with the equipment and furnishings as claimed and was simply unable to operate the restaurant because of illness. I find it difficult to accept that Mr. Cheng would have requested an opportunity to sell his furnishings and equipment and apply the monies to a reduction of his liabilities under the lease, if they were worthless.

I find that the photographs of the furnishings and equipment entered into evidence compelling enough, and find that the evidence suggests that some of the Defendants’ furnishings and equipment were used in furnishing of the restaurant by the new tenant. [ 15 ] I find also that the offering by the Landlord to the new tenant an incentive of $50,000.00 as an Improvement Allowance, especially when I find that some of the new Tenant’s furnishings and equipment belonged to the Defendants, and that their use was permitted by the Claimant, a failure by the Landlord to mitigate his loss.

I find it unconscionable that a landlord should be permitted to offer what is commonly described as a “sweetheart deal” to a new tenant, involving benefits far in excess of what is being claimed as a loss, and at the same time claim that it has suffered a loss as a result of the termination of the previous lease by the previous tenant. [ 16 ] I also find the granting to the new tenant, a “Fixturing Period”, troubling indeed.

It is to be noted that the clause states: “The Tenant shall have a fixturing period (the “Fixturing Period”) from the date of unconditional acceptance until the Commencement Date to complete its improvements and/or conduct its business. Such Fixturing Period shall be free of Basic and Additional Rent.” [ 17 ] The above clause suggests to me that not only is a rent free period being offered to the new Tenant, but at the same time, the Landlord seems to be claiming those rent free months as a loss for which the previous tenant should be responsible.

I find that this once more indicates a failure by the Landlord to mitigate. In any event however, no evidence was led by the Claimant as to the date of “unconditional acceptance” of the offer to lease, and it is to be noted that the Commencement date as set out in the new lease is December 1, 2008.

I find that without such evidence, I am in any event unable to conclude from what date the Claimant is claiming to have suffered a loss as a result of the termination of the lease. [ 18 ] I find that without evidence about when the “fixturing period” commenced, I am willing to accept that a reasonable period for the Claimant to find a new tenant should be set at three months, and therefore I find that the Claimant is entitled to rent arrears and damages, without getting into the issue of mitigation, as follows: Rent due to May 31, 2008: $4,288.65 Damages amounting to 3months rent To September 1, 2008 $13,106.85 Sub-Total: $17,393.50 Less security deposit: $4,520.10- Sub-Total: $12,873.40 [ 19 ] With regards the Claimant’s claim for damages from September 1, 2008 to December 31,2008, I find that firstly apart from the fact that the Claimant has not established when in fact its new tenant accepted the offer to lease and entered into its “fixturing period”, rent free until the commencement of its lease on December 1, 2008, that the terms of the Claimant’s lease with the new tenant indicates, in my opinion, that the Claimant not only failed to mitigate its loss, but it is also questionable whether it suffered any loss at all, since it was its decision to grant its prospective tenant a rent free fixturing period, for which he now seeks to have the previous tenant liable as if it suffered a loss.

I reiterate that I also consider its failure to distrain for rent or to allow the Defendants to sell their furnishings and equipment to apply to rent owed, a failure by the Claimant to mitigate its loss. [ 20 ] The Claimant is therefore entitled to judgment in the amount of $12,873.40, only, together with Court Order Interest from June 1, 2008, not the 24% contractual interest as claimed, because of its failure to mitigate, together with filing fees in the amount of $156.00 and service fees in the amount of $70.00. [ 21 ] With regards the Defendants Counterclaim, I find that the Claimant changed the locks on the premises and failed to distrain for rent or to allow the Defendants to sell their furnishings and equipment in order to apply the monies to the rent owing.

I find that under the circumstances the Claimant cannot claim that the Defendants abandoned their furnishings and equipment, when they were denied access to the premises to retrieve same, and the Landlord’s representative sought to rely on a bailiff conducting a “drive-by” and concluding that there was nothing of value in the premises. I accept the Defendants’ evidence that equipment for a functionally operating restaurant was appropriated by the Landlord with no compensation to the tenants, and was allowed to be used by the new tenants.

The value of the items seem to be an issue, but I note that both Defendants list the numerous amount of items and provide photographs and testify as to a value of approximately $20,000.00. [ 22 ] Since I have taken into account the value of the items in deciding the Claimant’s failure to mitigate, I will allow a discounted value of its said items to the amount awarded to the Claimant for rent and damages aforesaid, in the amount of $12,873.40.

The Defendants are therefore entitled to judgment on their Counterclaim in the amount of $12,873.40 together with Court Order Interest from June 1, 2008, and filing fees and service fees in the amount of $206.00.

[ 23 ] Since the amounts of the judgments seem to cancel out each other, I find that it is unnecessary for me to make any finding regarding the third party claim, and I also decline to award any costs to the third party. _________________________ V. Romilly Provincial Court Judge