2018 QCCQ 3584, 2018 QCCQ 3584

Kishfy c. 9279-2928 Québec inc. 2018 QCCQ 3584 COURT OF QUÉBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL Civil Division No: 500-22-229355-162 DATE: May 30, 2018 ______________________________________________________________________ BEFORE THE HONOURABLE DOMINIQUE GIBBENS, J.C.Q. ______________________________________________________________________ Brian Kishfy Plaintiff v. 9279-2928 québec inc. -and- Roger Dery Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Plaintiff Brian Kishfy (“ Kishfy ”) seeks the resiliation of a commercial lease agreement relating to premises located at 225-233 15 th Avenue in Lachine (the “ Leased Premises ”) and the recovery of $78,538.44 in arrears of rent. [ 2 ] Defendant 9279-2928 Québec Inc. (the “ 9279 ”) is the tenant.

Defendant Roger Dery (“ Dery ”) is the previous owner of the property. Dery presently occupies the Leased Premises. [ 3 ] Dery opposes the claim on the ground that he is entitled to occupy the Leased Premises without paying rent pursuant to: (

a) a written amendment to the lease agreement; and (

b) a verbal agreement with Kishfy. 9279 failed to respond to the claim and the matter is proceeding by default as far as it is concerned. [ 4 ] For the reasons explained below, the Court finds that the action must be granted, the lease agreement resiliated and Defendant 9279 condemned to pay $78,538.44 in arrears of rent, together with interest and costs. questions in issue [ 5 ] Given the position taken by the parties, the case calls for the resolution of the following questions :

a) Is the lease amendment agreement invoked by Dery valid and can it be set up against Kishfy?

b) Did Kishfy agree to let Dery occupy the Leased Premises without paying rent?

FACTUAL CONTEXT [ 6 ] Kishfy is the owner of a two-building property bearing civic addresses 225-235 15 th Avenue and 1500-1530 Notre-Dame Street in Lachine (the “ Property ”), which he purchased on May 16, 2014. [1] The Property consists of residential rental units and some commercial space, including the Leased Premises. [ 7 ] The Property was previously owned by 3733998 Canada inc. (“ Canada Inc. ”), Dery’s holding company. [2] [ 8 ] In 2011 or 2012, Canada Inc. ran into financial difficulties and secured a hypothecary loan from Castleton Financial Ltd. (“ Castleton ”). [3] [ 9 ] Its financial situation did not improve and, sometime in 2012, Castleton advised Dery that Canada Inc. had to find alternative financing and repay the loan within a few months.

Despite Dery’s efforts, no alternative financing could be secured and, in April 2013, Castleton issued a Prior notice of the exercise of a hypothecary right indicating its intention to take the Property in payment. [4] [ 10 ] In July 2013, Castleton filed judicial proceedings to obtain the forced surrender of the Property. [5] It obtained a judgment of forced surrender and taking in payment on October 31, 2013 (the “ Judgment ”). [6] [ 11 ] Castleton agreed, however, to grant Dery until early February 2014 before publishing the Judgment on the land register.

If Dery could find financing within this delay, Castleton would accept payment of an amount based on Canada Inc.’s indebtedness and desist from the Judgment. [ 12 ] At the time, Dery and Kishfy had known each other for several years and were friends. They had entertained some business opportunities together, although none had materialized. They had also loaned each other amounts of money when needed.

[ 13 ] Dery spoke to Kishfy about his financial difficulties in relation to the Property and, in December 2013, Kishfy accepted to help him. The evidence is contradictory regarding the nature of this help, as will be discussed further below. [ 14 ] All efforts to find alternate financing failed. In the end, Kishfy made an agreement with Castleton to purchase the Property himself for a price of $751,875.

The sale was concluded on May 16, 2014. [7] [ 15 ] After purchasing the Property, Kishfy advised the tenants of the transfer of ownership and started to collect rents, but Dery remained involved in the management of the Property.

In the months that followed, however, the relationship between Kishfy and Dery seriously deteriorated. [ 16 ] After acquiring the Property, Kishfy obtained some of the leases in place from Dery and others. [ 17 ] He obtained a copy of a 5-year commercial lease agreement for the Leased Premises entered into on October 1, 2013 between Canada Inc. and 9279 (the “ Lease Agreement ”). [8] It provided for rent of $3,060 per month before applicable taxes, payable from February 1, 2014 in consideration of leasehold improvements to be carried out by the tenant.

This is the lease that Kishfy seeks to have resiliated. [ 18 ] He also obtained a copy of a 2-year residential lease entered into on September 1, 2013 between Canada Inc. and Dery for a large dwelling in the Property (the “ Residential Lease ”) providing for a monthly rent of $1,500. [9] [ 19 ] Later on, in December 2014, Kishfy also obtained a copy of two amendments to the Lease Agreement between Canada Inc. and 9279, namely:

a) A first amendment entered into on December 27, 2013, whereby additional storage space was added to the Leased Premises and the tenant was granted exclusive rights to certain parking spaces; [10]

b) A second amendment entered into on December 30, 2013 pushing back the date of the first payment of rent from February 1, 2014 to April 1, 2014. [11] [ 20 ] A third amendment to the Lease Agreement was also entered into on December 30, 2013 (the “ Third Amendment ”). [12] It provides that: (

a) no rent is due from September 1, 2014 to October 1, 2018; (

b) the rent is to be reduced to $2,080 per month from November 1, 2018; and (

c) the rights of 9279 pursuant to the lease are assigned to Dery personally effective April 1, 2015. Kishfy claims that he was not made aware of the Third Agreement until after the proceedings in the instant case were instituted. * * * [ 21 ] Kishfy had difficulty collecting rent from 9279 from the time that he purchased the Property. Dery had advised 9279’s representative, Mr.

Gabriel Antenucci (“ Antenucci ”), that Kishfy had taken over the Property in May 2014 and cheques for the rent were provided by 9279 through Dery, [13] but these cheques were returned due to insufficient funds. [14] [ 22 ] Partial payments were made in December 2014 and in the first months of 2015, substantial amounts remained outstanding. [15] During this time, 9279 was not yet operating the UPS-type store that it intended to open. Dery was actively involved.

He represented to Kishfy that he was trying to get the business started with Antenucci and that there were delays in doing so, promising that the situation would be soon regularized. It was not. [ 23 ] In October 2015, Kishfy sent 9279 a letter of demand seeking payment of $44,460 in arrears of rent, [16] which arrears remained unpaid. In March 2016, Kishfy attempted to change the locks of the Leased Premises.

In response, Antenucci and Dery asserted that the Lease Agreement had been assigned to Dery who was entitled to occupy the Leased Premises with paying rent. [17] Antenucci claimed to have “ all the required paperwork legitimizing [Dery’s] occupation ”, but did not provide the alleged documentation to Kishfy. [ 24 ] In April 2016, Kishfy filed the proceedings in the instant case.

Antenucci had communications with Kishfy’s counsel stating that 9279 should not have been named in the proceedings given the alleged assignment of lease to Dery, [18] but 9279 did not formally respond. [ 25 ] A parallel dispute between Kishfy and Dery was ongoing at this time regarding the Residential Lease. After Dery stopped paying rent for the apartment in December 2015, Kishfy took proceedings before the Régie du logement to have the lease resiliated. Dery invoked an amendment to the Residential Lease providing that no rent was due from October 1, 2015 to October 1, 2019.

The amendment took the form of a handwritten addendum appearing on a copy of the Residential Lease and bore Kishfy’s signature. No original of the addendum was adduced into evidence and Kishfy vehemently denied having agreed to it. [ 26 ] In June 2016, the Régie du logement concluded that the addendum was not part of the Residential Lease and that Dery had to pay rent.

Given his failure to do so, the Régie du logement resiliated the Residential Lease, condemned Dery to pay $9,000 in arrears of rent and ordered his eviction. [19] Dery sought the revocation of this decision, but it was denied by the Régie du logement [20] and a motion for authorization to appeal to this Court was dismissed. [21] Dery was eventually evicted, but he then moved into the Leased Premises. [ 27 ] Dery continues to occupy the Leased Premises, with others to whom he has granted permission to occupy.

Despite a change in zoning that took place in 2015 as a result of which no commercial activities can be conducted in the Leased Premises, Dery apparently continues to conduct some business. [ 28 ] Kishfy has proven the arrears of rent claimed, which total $78,538.44. [22] ANALYSIS

a) Is the Third Amendment valid and opposable to Kishfy? [ 29 ] Dery invokes the Third Amendment as a first ground to support his position that he was personally entitled to occupy the Leased Premises without paying rent during the months concerned by Kishfy’s action.

The Third Amendment effectively provides that no rent is due pursuant to the Lease Agreement from September 1, 2014 to October 1, 2018 and it assigns the rights of the tenant to Dery effective April 1, 2015. [23] [ 30 ] The Court is of the opinion that the Third Amendment did not validly amend the Lease Agreement and cannot be set up against Kishfy for the following reasons. [ 31 ] The extinction of the lessor’s title to a leased property does not terminate the lease; it results in an assignment of all of the lessor’s rights and obligations under the lease to the acquirer of the property, by operation of law. [24] [ 32 ] Such an assignment takes place where a hypothecary creditor exercises the right to take a property in payment.

The judgment of forced surrender and taking in payment transfers title from the debtor to the hypothecary creditor. [25] [ 33 ] In the instant case, Castleton obtained judgment of forced surrender and taking in payment of the Property on October 31, 2013. [26] The Judgment extinguished Canada Inc.’s title to the Property.

On that date, Castleton obtained title to the Property and all of Canada Inc.’s rights as lessor under the Lease Agreement were assigned by law to Castleton. [ 34 ] This means that when Canada Inc. entered into the Third Amendment on December 30, 2013, it no longer held any rights under the Lease Agreement. It could therefore no longer amend the Lease Agreement in any way or agree to an assignment of lease in favour of Dery, [27] as it purported to do. [ 35 ] It is true that Castleton had not yet published the Judgment on the land register when the Third Amendment was entered into.

Castleton had granted Dery a delay before publishing the Judgment and should Dery have found alternative financing, it would have desisted from the Judgment, in which case the Third Amendment would have been valid. The Judgment, however, was published on April 8, 2014, [28] crystallizing Castleton’s title as of October 31, 2013. [ 36 ] It is also true that the publication of a taking in payment judgment is required before the creditor’s title can be set up against third persons, [29] but Canada Inc., Dery and 9279 are not “third persons” entitled to the protection of this rule.

They were fully aware of the Judgment when the Third Amendment was entered into, irrespective of its publication. [ 37 ] At trial, Dery testified that Kishfy had been made aware of the Third Agreement prior to purchasing the Property and that he had accepted to respect its terms, but he was unable to provide any corroborating evidence to this effect.

The Court accepts Kishfy’s testimony that he was made aware of the Third Amendment after the institution of the instant proceedings. [ 38 ] The Court therefore concludes that the Third Amendment to the Lease Agreement did not amend the terms of the Lease Agreement and is unopposable to Kishfy.

b) Did Kishfy agree allow Dery to occupy the Leased Premises without paying rent? [ 39 ] As a second ground of defence, Dery alleges a verbal agreement pursuant to which Kishfy agreed to allow him to occupy the Leased Premises without paying rent.

Kishfy categorically denies the existence of such an agreement. [ 40 ] Two preliminary comments are called for at this point. [ 41 ] The first concerns the applicable burden of proof. [ 42 ] Because the Lease Agreement supports Kishfy’s position that rent was due during the period at issue, Dery bears the burden of proving, on a balance of probabilities, the existence of the alleged verbal agreement with Kishfy, as provided for in articles 2803 and 2804 C.C.Q.: 2803. A person seeking to assert a right shall prove the facts on which his claim is based.

A person who claims that a right is null, has been modified or is extinguished shall prove the facts on which he bases his claim . 2804.

Evidence is sufficient if it renders the existence of a fact more probable than its non-existence, unless the law requires more convincing proof. [Emphasis added] [ 43 ] To meet this burden, Dery must offer evidence that is clear and convincing; [30] the alleged facts must not only be possible, but probable. [31] [ 44 ] Where there is no written contract and the parties rely on conflicting testimonial evidence, as is the case here, the Court must consider the credibility and probative value of the evidence offered and decide on the basis of what it believes to be the most probable facts. [32] [ 45 ] The second comment concerns the extent of the evidence offered.

Both Kishfy and Dery expended tremendous energy and time trying to impeach each other’s credibility by adducing extensive evidence on peripheral issues not relevant to the questions in issue here. The Court will not discuss all of the evidence offered. It will only address the evidence directly relevant to the alleged verbal agreement. [ 46 ] Dery claims that Kishfy agreed to let him occupy the Leased Premises as part of a broader undertaking to help him out of the

financial difficulties that Canada Inc. had run into in 2012. According to Dery, Kishfy accepted to help him in December 2013 and many scenarios were looked into for him to do so. Kishfy offered to “cosign” with Canada Inc. for new financing to reimburse Castleton. He also supported Dery’s efforts to secure financing from Equitable Bank, National Bank and RBC.

Seeing that no financing could be secured, Kishfy considered other alternatives and looked into buying the shares of Canada Inc. or buying the Property from Castleton. [ 47 ] According to Dery, he and Kishfy later agreed that purchasing the Property directly from Castleton was the best option. Dery claims that he was instrumental in obtaining that Castleton sell at a price lower than the Property’s market value. In exchange, Kishfy allegedly undertook to transfer the Property back to him once he was “back on his feet” and agreed to let him occupy both the Leased Premises and his apartment free of rent.

This is why he made payments to Kishfy which he considered to be “contributions” towards the mortgage payments and remained involved in the management of the Property after Kishfy purchased it. [ 48 ] Kishfy offers a very different version of the facts. He admits that he accepted to help Dery in December 2013 in the hope that he would not lose the Property to Castleton. He also admits that he was involved in efforts to secure alternative financing, which eventually failed, and that Dery was initially involved when Kishfy considered the option of buying the Property from Castleton.

He affirms, however, that when he made the decision to purchase the Property himself from Castleton, the purchase was negotiated by his lawyers and not by Dery, who was merely advised of the sale. Most importantly, he categorically denies having agreed to sell the Property back to Dery after a time and allowing him to occupy the Leased Premises without rent. [ 49 ] After careful examination of the evidence, the Court prefers Kishfy’s version of the facts to that of Dery for the following reasons. [ 50 ] Firstly, Dery’s testimony regarding the alleged agreement with Kishfy was extremely vague.

He claims that the consideration for his right to rent-free occupation is that Kishfy could purchase the Property for a price below its market value. He admitted at trial, however, that Kishfy negotiated the purchase price directly with Castleton. He was unable to explain in what way his involvement had any impact on the price paid by Kishfy.

He was also very vague about the terms under which the Property was to be transferred back to him (i.e. delay to do so, amount to be paid, contributions in the meantime, etc.), stating finally that all the details were not discussed and agreed to because he fully trusted Kishfy. It is difficult to believe that Dery would have been so careless about such an important agreement. [ 51 ] Secondly, Dery’s testimony finds no support in the other evidence offered.

He called several witnesses to prove the alleged agreement, [33] but these witnesses had no true knowledge of the terms of any agreement between the parties, other than what had been told to them by Dery. [ 52 ] The documentary evidence offered does not support the existence of the alleged agreement either.

It is true that certain documents prove Kishfy’s involvement in helping Dery, [34] as well as the fact that Dery was initially involved in negotiations with Castleton [35] (which Kishfy admits), but none corroborate an agreement to allow Dery to occupy the Leased Premises for free. [ 53 ] Dery pointed to the Offer to Purchase that he received from Frederic Nataf in March 2014. [36] He argued that this offer, which he considered at the time, granted him the right to occupy the Leased Premises rent-free, corroborating that he agreed to a similar arrangement with Kishfy.

On the facts, however, the offer to purchase does not contain the alleged provision. [37] [ 54 ] It should be noted that Kishfy’s testimony was not altogether clear and convincing. His explanations regarding his agreement to help Dery were vague and he appeared to be strictly focused on denying the alleged agreement to let Dery occupy the Leased Premises rent free.

The Court is left with many questions as to how the situation evolved from Kishfy accepting to help Dery out of his financial difficulties to purchasing the Property himself without any obligations towards Dery. [ 55 ] That being said, the Court must decide the case on the basis of the evidence that it believes to be the most probable. Kishfy’s version of the facts appears much more probable than Dery’s. [ 56 ] The Court concludes, on a balance of probabilities, that Kishfy did not agree to allow Dery to occupy the Leased Premises rent- free.

The rent provided for in the Lease Agreement ($3,060 plus applicable taxes) was therefore due.

c) Conclusion [ 57 ] Kishfy has proven the arrears of rent claimed, which total $78,538.44 [38] . Given the breach of the tenant’s obligations, he is entitled to the resiliation of the Lease Agreement and the eviction of all occupants from the Property. [ 58 ] During the trial, the issue of Dery’s potential liability for the arrears of rent was discussed. The Court notes, however, that the conclusions of the Amended Judicial Application to Claim Arrears of Rental and in Cancellation of Lease are strictly directed against 9279.

Dery will therefore not be condemned to the payment of said arrears. [ 59 ] On a final note, given that the present judgment will order the eviction of the occupants of the Leased Premises following the resiliation of a lease, Kishfy is entitled as of right to its provisional execution notwithstanding appeal, as provided for in paragraph 660 (5) of the Code of Civil Procedure .

FOR THESE REASONS, THE COURT: GRANTS the action; RESILIATES the lease agreement entered into between 3733998 Canada inc. and defendant 9279-2928 Québec inc. on October 1, 2013 for premises located at 225-233 15 th Avenue in Lachine; CONDEMNS defendant 9279-2928 Québec inc. to pay to Brian Kishfy an amount of $78,538.44, together with interest at the legal rate, plus the additional indemnity stipulated in

article 1619 of the Civil Code of Québec from October 12, 2015.

ORDERS the eviction of all occupants from the premises located at 225-233 15 th Avenue in Lachine, including Defendant Roger Dery; DECLARES that this judgment is executory notwithstanding appeal; THE WHOLE WITH LEGAL COSTS . __________________________________ DOMINIQUE GIBBENS, J.C.Q. Date of hearing: January 18, 19 and 20, 2017 April 12 and 13, 2017 October 25 and 26, 2017 (taken under advisement after the filing of the detailed calculation of claim on November 2, 2017) Me Cezar Catalin Mihai Attorney for Plaintiff M. Roger Dery For himself