2016 QCCQ 2894, 2016 QCCQ 2894

4202805 Canada inc. c. 9160-9818 Quebec inc. (Studio Alice) 2016 QCCQ 2894 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL “Civil Division” No: 500-22-209177-149 DATE: April 22, 2016 ______________________________________________________________________ BY THE HONOURABLE JEFFREY EDWARDS, J.C.Q. ______________________________________________________________________ 4202805 CANADA INC.

Plaintiff v. 9160-9818 QUEBEC INC., carrying on business under the registered trade name of STUDIO ALICE Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] The company 4202805 Canada Inc. (" 420 " or the “ Lessor ”) owns a commercial building in the Chinatown district of Montreal.

In 2011, 420 entered into a lease agreement (“ Lease ”) [1] with 9160-9818 Québec Inc., carrying on business under the registered trade name of Studio Alice (" Studio Alice " or the “ Lessee ”) to lease certain premises in the building (" Leased Premises "). The parties had differences as to amounts owing under the Lease and agreed to end the Lease on March 15, 2014.

Even though the Lease had been resiliated, the parties still have their respective claims and contestations with respect to amounts owing during the period that Studio Alice occupied the Leased Premises. [ 2 ] All base rent for the Leased Premises has been paid. The parties disagree over amounts claimed for additional rent. 420 also claims for unpaid rent due for additional storage space leased to Studio Alice. 420 claims the total amount of $45,733.21. Studio Alice states that no amounts remain owing to 420.

Rather, Studio Alice has overpaid past rental payments and it claims by way of Cross- Demand a refund resulting from the overpayment as well as damages totalling $13,197.51. Questions in Issue 1) What amounts, either as payment due or overpayment to be refunded, are owed as additional rent for Operating Costs pursuant to the Lease, and more particularly, for the non-residential tax? 2) What amounts, if any, are owed as rent to 420 for the storage space used by Studio Alice? 3) Are any other amounts owed as damages to Studio Alice by 420? Context [ 3 ] On July 12, 2011, the parties entered into the Lease.

The Lease is notarized and was drafted by 420's notary, Me Sherry Ao. According to the proof, Studio Alice did not and could not negotiate the essential terms of the Lease. The commencement date of the Lease was October 1, 2011 [2] . The base monthly rent was set at $2,050, being $24,600 per year. In addition to the base rent, the Lease

obliges the Lessee to pay as additional rent a proportional share of "Operating Costs" [3] . At

Section 5.3.1 of the Lease, "Operating Costs" are described as follows: "5.3.1 Operating Costs The intention of the Parties hereto is that the Lessor shall collect the rent completely net, free, and clear of all taxes, costs, and expenses in respect of the preservation, protection, operation, maintenance, and management of the Leased Premises and the Property.

Throughout the Term of the Lease and any renewal thereof, the Lessee shall, as additional rent, pay its proportional share of the operating costs hereinafter defined to the Lessor in advance in equal, consecutive, monthly instalments, each equal to one-twelfth (1 12) of the amount payable, on the dates of the monthly instalments of base rent (the base rent and the additional rent together being called the "rent").

For the purposes hereof, "operating costs" means and includes: 1- the cost of all goods and services supplied to operate, maintain and repair the Property; 2- the cost of outfitting, maintaining, and cleaning the common areas and the Leased Premises, repairs to the installations and common areas of the Property, including window cleaning, snow removal, and the cleaning, repair, and maintenance of the grounds; 3- the cost of repairs to the Property, and the replacement of any equipment, device, machinery, or other property of the Property, with the exception of those relating to the roof and the building structure for which the Lessor is responsible; 4- all amortization of capital (using the straight-line depreciation method, based on the useful life of the fixed assets or on any shorter period reasonably determined by the Lessor) on all net costs and expenses incurred after the date on which space in the Property is occupied for the first time by a lessee, and adequately imputed to the fiscal period as fixed asset improvements or structural changes or repairs intended to reduce or limit increases in operating costs or required as a result of an amendment to any law, regulation, rule, or order issued by a competent governmental or para-governmental agency, which costs and expenses are amortized at the rate of interest that applies over the economic life of the structural improvement, change or repair in question; 5- the cost of pest control; 6- the cost of all insurance carried by the Lessor in respect of the Property; 7- property, business, garbage removal, and water taxes; any tax or licence fee relating to the business conducted on, or the use or occupancy of the Property; all other taxes levied by a governmental, provincial, municipal, intermunicipal, school, or other authority legally authorized to assess, impose, or collect taxes or charges that are not already included in property taxes or collected directly from the Lessee, including the surtax on non-residential immovables and any other tax or charge levied in addition to or in replacement of such surtax (collectively called: "Municipal Taxes"); 8- all other costs and expenses directly related to the adequate preservation, protection, operation, and maintenance of the Property." [ 4 ] The central issue in this instance relates to the allocation of financial responsibility for municipal taxes as between the parties, as defined at the seventh item in the above list of operating expenses. [ 5 ] The question is: what is the proportional share of Operating Costs for which the Lessee Studio Alice is responsible with respect to municipal taxes?

This requires an examination of the Lease provisions. [ 6 ]

Section 5.3.6 of the Lease defining the Lessee’s proportional share provides for different percentages for the non-residential tax

and for all other purposes to calculate other operating costs.

Section 5.3.6 reads as follows [4] : "5.3.6 Proportional share and adjustment For the purposes of this Lease, the Parties agreed that the Lessee's "proportional share" is Ten percent (10%) and with respect to the non- residential tax, the Lessee's share shall be the percentage representing the base rent divided by the municipal evaluation of the Building ." [Emphasis added.] [ 7 ] The municipal tax in issue is a "non-residential" tax. That is common ground between the parties since the building is entirely commercial in nature and therefore all the disputed municipal taxes are non-residential. [ 8 ] The Lessee relies on the first part of

Section 5.3.6 and pleads that the applicable proportional share is therefore 10%. [ 9 ] Since the commencement of the Lease, all operating costs, including municipal taxes, were charged by the Lessor to the Lessee using the 10% proportional share. [ 10 ] The Lessee argues that the 10% share only applies to operating costs other than the municipal (non-residential) tax. With regard to such tax, the Lessee insists that the specific formula in

Section 5.3.6 of the Lease expressly provides a different calculation of the Lessee’s share of the non-residential municipal tax. [ 11 ] In particular, the Lessee argues that

Section 5.3.6 of the Lease states the applicable percentage is that which results from the amount of base rent being divided by the municipal evaluation of the building. Accordingly, the Lessee argues that the proper calculation of its share with respect to the non-residential tax is as follows: $24,600 (annual base rent) ÷ $2,344,700 (municipal evaluation of the building [5] ) = 1,049. Studio Alice rounds this figure off to 1.05%. [ 12 ] After instituting legal proceedings, and being confronted by the terms of

Section 5.3.6, the Lessor changed its

interpretation of that clause. [ 13 ] 420 now pleads in its proceedings and before the Court that the specific reference to the formula for non-residential taxes should be applied. For instance, for the year 2011, it proposes that the 1.05% be applied for the non-residential taxes to arrive at a separate dollar figure of $256.41 (97,678.79 x 1.05% = 1025.62 ÷ 4 (given that the Lessee occupied the Leased Premises for only one quarter of the year, being 3 months)).

This first amount of $256.41 would be paid by the Lessee. [ 14 ] Then 420 proposes to add the remaining other non-residential tax amount (i.e., $96,653.16 ($97,678.79 - $1,025.62) for a period of 3 months for the calendar year 2011) to the other operating costs and that the Lessee pay a 10% share of that remaining non- residential tax [6] . [ 15 ] On that basis, 420 claims from Studio Alice the following amounts as non-residential taxes as part of the Operating Costs owed by the Lessee: 2011: $1,485.12 + 5% GST + 8.5% QST (Exhibit P-4) $1,691.92 2012: $6,889.36 + 5% GST + 9.5% QST (Exhibit P-5) $7,921.04 2013: $16,980.91 + 5% GST + 9.975% QST (Exhibit P-6) $19,523.81 2014: $12,234.83 + 5% GST + 9.975% QST (Exhibit P-7) $14,066.99

Sub-total: $43,203.76 [ 16 ] 420 also claims an amount for an extra storage space rented to Studio Alice at the monthly amount of $459.90, taxes included, pursuant to a separate verbal lease. 420 files payment cheques for that amount issued by Studio Alice with the mention of "storage" on the memo part of the cheque [7] . 420's representative states that Studio Alice used the extra storage space for a period of 5 and ½ months, until March 16, 2014 and never paid the rent for this occupation period.

Therefore, 420 claims from Studio Alice total storage rent of $2,529.45 for rental owed ($459.90 x 5.5). [ 17 ] At the trial, 420 waived its claim for extrajudicial fees and disbursements. [ 18 ] Accordingly, 420 claims from Studio Alice in total $47,333.21 ($43,203.76 + $2,529.45).

Cross-Demand of Studio Alice [ 19 ] By way of Cross-Demand, and based on the formula that is pleaded by Studio Alice with respect to the non-residential taxes, Studio Alice claims a refund of amounts of rent overpaid as follows: 2011: $1,317.93 (Exhibit D-4 (a)) 2012: $4,879.58 (Exhibit D-4 (b)) Sub-total: $6,197.51 [ 20 ] As for the years 2013 and 2014, Studio Alice refused to pay Operating Costs. It acknowledges that, even based on its

interpretation of

Section 5.3.6 of the Lease, the following amounts would be owed for its share of Operating Costs: 2013: $4,567.26 (Exhibit D-4 (c)) 2014: $3,455.89 (Exhibit D-4 (d)) Sub-total: $8,023.15 [ 21 ] Studio Alice also claims for loss of peaceful enjoyment of the Leased Premises ($2,000) and trouble and inconvenience ($5,000). After operating compensation, the total amount claimed by Studio Alice in its Cross-Demand is therefore $5,174.36 ($6,197.51 - $8,023.15 + $2,000 + $5,000).

Analysis and Decision 1) What amounts, either as payment due or overpayment to be refunded, are owed as additional rent for Operating Costs pursuant to the Lease, and more particularly, for the non-residential tax? [ 22 ] With regard to an

interpretation of a clause in a contract, including a commercial lease, the Courts seek to determine the intention of the parties in accordance with

Article 1425 of the Civil Code of Quebec (" C.C.Q. ") which reads as follows: 1425. The common intention of the parties rather than adherence to the literal meaning of the words shall be sought in interpreting a contract.

[ 23 ] The Court of Appeal confirmed that the intention of the parties has primacy over the words used, especially when these words result from an error in drafting [8] . [ 24 ] However, 420, in its pleading and its evidence, does not argue that the formulation of

Section 5.3.6 of the Lease is an error. Instead, 420 submits that it must be applied and proposes in its amended proceeding and by its replacement exhibits an

interpretation of the formula stated above with respect to non-residential taxes. [ 25 ] Furthermore, the Court heard no proof from the notary who drafted the Lease that this paragraph contained an error or did not reflect the intention of the parties. [ 26 ] The argument that it was the intention of the parties to add the second part of

Section 5.3.6 is also supported by the title of that paragraph, which is "Proportional share and adjustment ". [ 27 ] Therefore, it appears that the parties did in fact intend to create a special rule regarding the attribution of responsibility for the non-residential tax. [ 28 ] It should be also noted that in the case at bar, the tax in issue was not introduced after parties had concluded the Lease. The parties therefore had an opportunity to direct their minds to its existence.

According to the evidence, the levying of a non-residential tax by the City of Montreal as a distinct sub-component of municipal taxes was the established practice well before (in fact, some ten years before) the Lease was entered into on July 12, 2011. [ 29 ] Two other articles of the Civil Code of Quebec regarding the

interpretation of contracts are also relevant in the circumstances. Articles 1428 and 1432 C.C.Q. read as follows: 1428. Une clause s'entend dans le sens qui lui confère quelque effet plutôt que dans celui qui n'en produit aucun. 1428. A clause is given a meaning that gives it some effect rather than one that gives it no effect. 1432. Dans le doute, le contrat s'interprète en faveur de celui qui a contracté l'obligation et contre celui qui l'a stipulée. Dans tous les cas, il s'interprète en faveur de l'adhérent ou du consommateur. 1432.

In case of doubt, a contract is interpreted in favour of the person who contracted the obligation and against the person who stipulated it. In all cases, it is interpreted in favour of the adhering party or the consumer. [ 30 ] As stated, it is common ground between the parties that the second part of the text of

Section 5.3.6 of the Lease regarding the applicable formula for Operating Costs relating to the non-residential tax was deliberate. In such a case, the law instructs the Court to favour an

interpretation of the clause by which it has some effect rather than none. [ 31 ] The

interpretation proposed by Studio Alice is clear and cogent. It logically applies the terms of the clause. It has an effect and constitutes an important adjustment almost exempting the Lessee from payment of the non-residential municipal tax. [ 32 ] On the other hand, with all due respect, the

interpretation of

Section 5.3.6 proposed by 420 appears illogical, artificial and contradictory: the amount of the non-residential tax is first removed from the calculation of Operating Costs and then it is added back. Such an

interpretation would give little or no effect to this part of

Section 5.3.6 of the Lease. [ 33 ] With respect to

Article 1432 C.C.Q., it should be noted that

Section 5.3.6 along with the rest of the Lease was drafted by the notary chosen and regularly retained by 420. Accordingly, in case of doubt,

Section 5.3.6 should be interpreted in favour of the person who contracted the obligation, namely the Lessee Studio Alice, and against the person who stipulated it, namely the Lessor 420.

[ 34 ] Furthermore, in light of the proof heard and the modest level of sophistication of the representative of Studio Alice, who was unable to express himself in English or in French before the Court and who testified through an interpreter, it is clear that the Lease was prepared by 420 and presented to the representative of Studio Alice for signature, without the opportunity for negotiation. [ 35 ] In conclusion, the Court considers that

Section 5.3.6 of the Lease should be interpreted in favour of the Lessee and in accordance with the

interpretation proposed by Studio Alice.

The Court therefore concludes that, with respect to amounts due as additional rent regarding the non-residential taxes, Studio Alice owes 420 the amount of $1,825.64 ($8,023.15 - $6,197.51). 2) What amounts, if any, are owed as rent to 420 for the storage space used by Studio Alice? [ 36 ] The Court considers that 420 has established by preponderance of proof that there was a verbal lease with Studio Alice for storage space for the monthly amount of $459.90 and that Studio Alice used such space for a period of 5 ½ months and did not pay the rent owed, namely $2,529.45. 3) Are any other amounts owed as damages to Studio Alice by 420? [ 37 ] With regard to the claims of Studio Alice for trouble and inconvenience and loss of peaceful enjoyment, the Court concludes that there is insufficient proof to support them and they will therefore be dismissed.

Conclusion [ 38 ] Based up the above, the Court will condemn Studio Alice to pay 420 the amount of $4,451.09 ($1,925.64 + $2,525.45). FOR THESE REASONS, THE COURT: GRANTS in

part 4202805 Canada Inc.'s judicial demand for the amount of $10,548.60 ($8,023.15 + $2,525.45); GRANTS in

part 9160-9818 Quebec Inc.'s Cross-Demand for $6,197.51; OPERATES COMPENSATION between the two above claims and CONDEMNS 9160-9818 Quebec Inc. to pay 4202805 Canada Inc. the amount of $4,451.09; GIVEN the contradictory versions of the

interpretations of the Lease provisions, the Court will award interest at the agreed rate of 14% (Section 5.3.7 Exhibit P-1) but only from the date of the present judgment; GIVEN the mixed result, the Court will make no order with respect to legal costs. __________________________________ Jeffrey Edwards, J.C.Q.

Me Jean L. Bernier Bernier Figlar z Attorneys for Plaintiff Me Xiao Jing Yang Cabinet Juridique J & Y inc. Attorneys for Defendant Date of hearing: October 9, 2015