Breadsource Corp. v. Samuel Sarick Ltd.

Breadsource Corporation, Plaintiff and Samuel Sarick Limited and Graduate
Holdings Limited, Defendants

Ontario Superior Court of Justice

Dunnet J.

Heard: April 8 – June 20, 2002
Judgment: August 2, 2002
Docket: 01-CV-215235SR

Counsel: Robert W. Calderwood, for Plaintiff

Larry Keown, for Defendants

Subject: Property

Landlord and tenant — Premises — Repairs — By tenant — Under covenant.

ACTION by tenant for repayment of realty taxes and last month’s rent; COUNTERCLAIM by landlord for cost of repairs to heating and air conditioning system.

Dunnet J.:

Overview

1 The plaintiff (“the tenant”) claims from the defendants (“the landlord”) the sum of $13,188.37 for realty taxes and last month’s rent. The landlord claims the sum of $17,585.39 for repairs to the heating and air-conditioning sys-tem (“the HVAC”) pursuant to the provisions of a lease agreement, for which amount the landlord claims a set off with respect to any monies found owing to the tenant.

The Evidence

2 The tenant produces and supplies bakery goods to hotels and restaurants.

3 On May 1, 1990, B&A Bakery, the shares of which were purchased by the tenant in 1991, entered into a ten year lease with the landlord for premises municipally known as 475 Ellesmere Avenue in Toronto. In the ninth year of the lease, the tenant moved to larger premises, but continued to maintain a retail outlet for the remainder of the lease.

4 In anticipation of the termination of the lease, the landlord conducted an inspection of the premises and advised the tenant in writing on March 10, 2000, to “repair and leave in good working order all mechanical heating, venting and air-conditioning before April 30, 2000”.

5 Located on the rooftop of the premises were three cooling units and one heating and cooling unit. Inside the premises, there were five heating units.

6 Sharif Sunderji, an officer of the tenant, knew that under the lease, the tenant had an obligation to repair and maintain the HVAC. It is his evidence that because of the high level of humidity required for the production of bread products, a number of the units were not used during the term of the lease. The tenant’s position is that when the lease expired, all of the units were working properly.

7 On June 16, 2000, after the end of the lease, the tenant received a letter from the landlord enclosing an invoice from Brent Air Systems Heating & Air Conditioning (“Brent”) for repairs to the HVAC.

8 By letter dated January 21, 2001, the landlord reconciled the realty taxes and applied the taxes and last month’s rent to the outstanding invoice from Brent. The tenant agrees that if it is responsible for the entire amount of the Brent invoice, the sum of $4,403.27 remains owing to the landlord.

9 Sandrudin Sunderji, the tenant’s president, testified that he and his employees maintained the HVAC on a regu-lar basis by cleaning the units and by replacing belts and filters when necessary.

10 Sandrudin denied that he permanently removed the covers from the rooftop units. He conceded that he rou-tinely removed covers because of the build-up of flour. However, after cleaning the units, he replaced the covers. He also conceded that it was possible for Brent to have discovered pigeon nests inside the rooftop units, since pigeons tended to appear during the summer months.

11 When the tenant received the landlord’s letter of March 10, 2000, Sandrudin hired Dave Mechanical to ensure that the HVAC was working properly. Devinder Bhardwaj is the owner of Dave Mechanical. He testified that in April 2000, he attended the premises ten times “to get the HVAC up and running”.

12 On the rooftop, he removed covers from the units and replaced the motor and belt on the center unit. He also changed the filter on the unit above the office. Inside, he replaced thermostats, thermal cupples and installed a trans-former. He did not clean the units and did not notice any cracked heat exchangers. He said that from his experience, he is able to smell and feel carbon monoxide and it was not present in the building.

13 Mr. Bhardwaj testified that on April 28, 2000, all of the units were working properly. He rendered invoices for his work in the total amount of $2300, which was paid by the tenant.

14 Mr. Bhardwaj conceded that he was in error when he wrote on one invoice that the rooftop units were “heating ok” in reference to the cooling units. He denied that he replaced the motor in the rooftop unit with incorrect mount-ing brackets and maintained that he specifically checked the heat exchangers. He was aware that it is illegal to oper-ate a unit with a cracked heat exchanger, although he had never replaced one and could not speak to its life expec-tancy.

15 His evidence was that if the units had been sitting idle for ten years, there would likely be some signs of corro-sion, but this should not affect their ability to operate. He asserted that there would be more visible wear and tear if the units had been used constantly.

16 On May 1, 2000, Sandrudin met with representatives of the landlord. He testified that the HVAC units were operating and Martha Handley told him “everything was ok”.

17 Ms. Handley has been a property manager for the landlord for 24 years. She testified that before signing the lease in 1990, B&A Bakery insisted that the landlord insert a covenant warranting that the HVAC was in working condition on occupancy. Throughout the tenancy she received no complaints about the HVAC.

18 On March 10, 2000, Ms. Handley showed the premises to prospective tenants. She described its condition as filthy. She denied telling Sandrudin on May 1, 2000 that everything was “ok”, in reference to the HVAC.

19 When she received Brent’s invoice, she sought payment from the tenant by sending the letter of June 16, which read in part:

We note that you did do one valve and some thermostats prior to vacating the building on April 30th, 2000. We have now completed the balance of the deficiencies on your behalf. Please accept this letter as our in-voice to you for your repairs.

20 The letter purports to enclose a copy of Brent’s inspection report of March 10, 2000 as well as Brent’s invoice in the amount of $14,291.25, plus an administrative fee of 15% and GST. Ms. Handley testified that the inspection report was inadvertently omitted from the letter. However, it was given to the tenant in January 2001.

21 Larry Young has been a construction and property manager for the landlord for 29 years. On March 9, 2000, he conducted an inspection of the tenant’s premises and told Sharif about work that had to be undertaken prior to delivering up vacant possession, including the requirement to repair and leave in good working order all mechanical HVAC equipment.

22 Mr. Young also arranged for Brent to inspect the HVAC. On March 10, 2000, Brent provided a quotation to the landlord in the amount of $14,518.

23 Mr. Young testified that he also inspected the premises on March 20, 23, 31 and April 19, 2000. He observed no progress on the required repairs. By letter dated April 25, 2000 to the tenant, he listed outstanding deficiencies, including the fact that the mechanical HVAC had not been serviced in a very long time and was not working. The letter contained the following paragraph:

Please note that we have leased the premises commencing May 1st, 2000. You must complete all of the above noted work prior to April 30th, 2000. Should our new tenancy not be able to take occupancy due to the state of the premises, we shall hold you fully liable for all loss of rental and will hold you responsible for all work required to be done by you and not completed.

24 On May 1, 2000, Mr. Young was advised by the tenant that the HVAC had been repaired. He could not recall if the units were turned on at the time. He denied that he told either Sharif or Sundrudin that the HVAC system was fine.

25 Mr. Young testified that it was his usual routine to have someone inspect the equipment at the end of a lease and he arranged for Brent to check the HVAC on May 1, 2000. On that day, he received a call from Richard Hill, who advised him what needed to be done. The landlord retained Brent to complete the necessary repairs.

26 Richard Hill is the owner of Brent Air Systems Heating & Air Conditioning. He is a certified gas technician and refrigeration and air-conditioning mechanic. He testified that he likes to leave a place “like I leave my mother’s house”.

27 Mr. Hill had first inspected the premises on March 10. At that time, he found a cracked heat exchanger in the rooftop unit above the office. He explained that if a heat exchanger is cracked, the resultant airflow interferes with the burning process and can produce a carbon monoxide leak or cause a fire. It was his evidence that carbon monox-ide is an odourless, tasteless and colourless gas. He disabled the unit as required by law, and assumed that someone else was going to do the work on behalf of the tenant before the end of the lease.

28 Mr. Hill also found that the covers had been removed from the rooftop cooling units and pigeons were nesting inside. He discovered that the units were caked in flour, belts were split and filters were pulled out of their racks. The units were running, but at a very low speed. They all needed to be cleaned.

29 Inside, the inside heating units also had to be cleaned. One had a small crack in the heat exchanger which ne-cessitated replacing the unit. Another had a defective gas valve.

30 It was Mr. Hill’s opinion that the units had not been regularly maintained. He testified that they were 27 years old and if properly maintained, could last up to 35 years. He said it was possible but not likely, that the units had outlived their normal life expectancy.

31 On May 1, Mr. Hill performed his final inspection. The units with the cracked heat exchangers had not been replaced. On one rooftop unit, the condensor fan motor had been replaced, but it was in a slanted position and was causing the brackets to warp. Some thermostats had been replaced. However, in one case, two units were operating from a single thermostat. None of the units had been cleaned and the filter coils remained plugged with flour dust.

32 Mr. Hill testified that with the consent of the landlord, Brent completed the work. On the rooftop, he was able to start the unit with the cracked heat exchanger, but had to replace it because it would have been operating illegally. Replacement parts were unavailable because of the age of the unit.

33 None of the cooling units were turned on when he arrived. Once he turned them on, one compressor had no power. The bearing on another unit started to squeal after ten minutes. Then the motor began to slow down and it began to burn out. The third unit had a short to ground.

34 Mr. Hill retained a subcontractor to replace the defective compressor on the rooftop. Although the right side condensor fan motor and blade had been replaced, the evidence is that the motor was dislodged at an angle causing the fan blade to clip the bracket. The subcontractor also replaced the liquid line and suction line filter driers, com-pressor contactor, condensor fan motor, blade and motor contactor.

35 Mr. Hill conceded that his subcontractor used a motor and mounting brackets with the same serial numbers as the ones used by Dave Mechanical. Nevertheless, he maintained that the motor inserted by Dave Mechanical did not fit properly into the brackets.

36 He cleaned all the cooling units and replaced condensor fan motors, blades, capacitors, filters, belts, pressure wash coils, contactors and control wiring.

37 In addition, he cleaned all the heating units and replaced the unit with the cracked heat exchanger. Another needed a thermostat and new venting, because it was dislodged. Mr. Hill testified that the venting had been in good condition on March 10 and could have been dislodged when the tenant was moving out. Another unit required a thermostat and wiring.

38 Brent’s work took three days to complete. Mr. Hill charged $65.00 an hour and his assistant charged $33.00 an hour. His subcontractor charged $45.00 an hour.

The Position of the Tenant

39 The tenant concedes that under the lease there is a duty to maintain the HVAC and to yield it up to the landlord in good and substantial repair and condition. The tenant submits that it fulfilled these covenants, as required under the lease.

40 Further, if any repairs were necessary, the landlord is not entitled to an administration fee for undertaking those repairs, in the absence of notice in writing to the tenant, as required under paragraph 9(g) of the lease.

41 The tenant also submits that after the landlord inspected the premises on March 9 and obtained the Brent report suggesting substantial repairs to the HVAC, there was a duty on the landlord to bring this matter to the attention of the tenant and to provide an opportunity for the tenant to complete the repairs noted in the Brent invoice.

42 The tenant’s main submission is that the HVAC was old and had met its life expectancy. Therefore the landlord is not entitled to the benefit of new units and an HVAC system left, in the words of Mr. Hill, “like his mother’s house”.

The Position of the Landlord

43 The landlord submits that the tenant was negligent in failing to maintain the HVAC in good order and first class condition and in failing to yield it up in good and substantial repair, as required under paragraphs 9(f) and (i) of the lease. Further, the tenant failed to act reasonably in maintaining the HVAC and such conduct accelerated the depreciation of the equipment.

44 The landlord submits that Mr. Bhardwaj was negligent in his repair of the HVAC. He failed to locate the cracked heat exchangers and failed to make many of the repairs found necessary by Mr. Hill.

45 The landlord maintains that the tenant was given repeated and timely notice of the requirement to repair the HVAC. In any event, there is no duty to provide notice under paragraphs 9(f) or (i) of the lease.

46 It is the position of the landlord that there should be no deduction for betterment, because the tenant breached its contractual obligation to indemnify under paragraphs 12(h) and (i) of the lease.

Analysis

47 I accept the evidence of Ms. Handley and Mr. young that the HVAC was supplied to the tenant in working condition on occupancy.

48 The obligations of the tenant with respect to heating and air-conditioning are governed by paragraph 9(i) of the lease, which specifically addresses the subject. Under that paragraph, the tenant has the duty to maintain, repair, or if necessary, replace the HVAC at its own expense and at the expiration of the lease, to yield it up to the landlord in good and substantial working condition.

49 I find that the tenant failed to comply with paragraph 9(i) of the lease.

50 The evidence of the tenant is that many of the units were not used during the tenancy. I do not accept San-drudin’s evidence that filters on the units were changed or the rooftop units cleaned on a regular basis. The tenant did not produce any documents or other evidence to support the assertion that the units were regularly maintained. Further, the tenant did not use the premises for almost one year prior to the termination of the lease for the purpose of making bread products.

51 The evidence of Mr. Hill is that based upon the condition of the equipment, the HVAC had not been main-tained for several years. All the equipment required cleaning because of the accumulation of flour dust and the evi-dence of pigeon nests.

52 Mr. Bhardwaj was unimpressive as a witness. He had no specific recollection of what he did to repair the units other than what was written in his invoices. In cross-examination, he admitted that one invoice was wrong when he noted that a cooling unit was “heating ok”. Further, his invoices were lacking in detail and materially deficient. In addition, he failed to find either of the two cracked heat exchangers discovered by Mr. Hill. I do not accept his evi-dence that if there was a crack in the heat exchanger he could have smelled carbon monoxide. Hr. Hill strongly dis-agreed with this evidence.

53 I have no difficulty in accepting the testimony of Mr. Hill. He could recall in detail the evidence directly relat-ing to each of the units he undertook to repair. Mr. Bhardwaj had never replaced a cracked heat exchanger, whereas Mr. Hill had done so many times.

54 I also accept the evidence of Mr. Hill that the condensor fan motor was improperly positioned by Mr. Bhard-waj and it was necessary to replace both the motor and brackets.

55 The covenant to repair requires a tenant to put the premises into a state of repair similar to that existing when the tenancy began. Since the tenant failed to maintain the equipment, the tenant is responsible for the necessary cleaning and replacement of filters, belts, thermostats and venting.

56 The covenant to repair, however, must be in relation to the age of the equipment. The evidence is that the roof-top and heating units with cracked heat exchangers had to be replaced because of their age. I find that the landlord clearly benefited from the replacement of equipment, which, according to the evidence, was already 17 years old at the time of the commencement of the lease.

57 I cannot accept the argument that even without proper maintenance by the tenant, the landlord is entitled to the benefit of new units when the evidence is that at best, their life span was only another seven years. Accordingly, the tenant should only be responsible for 23% of the cost of the units that were replaced because of cracked heat ex-changers.

58 The law does not hold a tenant who has entered into a covenant to repair to a standard of perfection, nor is the tenant required to return improved premises to the landlord at the end of the term. In other words, the tenant should not be responsible for the betterment of the equipment.

59 The tenant submits that the claim of the landlord for new condensor fan motors, blades, capacitors, contactors and compressor should be reduced by half. The landlord’s position is that because of the failure to maintain the HVAC, there should be no reduction for betterment.

60 There was no evidence of the age of the units other than those with cracked heat exchangers. In the absence of any evidence, it is reasonable to assume that the other rooftop units were approximately the same age. The tenant, therefore, would also be responsible for 23% of the amounts charged for replacing equipment in the rooftop cooling units. In view of the failure to maintain the equipment, the tenant is also responsible for the amounts charged for cleaning the existing units and associated charges for thermostats, wiring venting, filters and belts.

61 The landlord gave the tenant timely notice in writing on March 10 and April 25, 2000 of the requirement to put the HVAC in good and substantial repair and condition. The tenant failed to make repairs and replacements in a good and workmanlike manner and within the time provided for in the notice. Therefore, the tenant is responsible for the overhead cost of 15%, pursuant to s. 9(g) of the lease.

Disposition

62 Accordingly, the tenant is to pay the sum of $4,358.06 for the Brent invoice plus an administration fee of $653.71 plus GST of $350.82 or a total of $5,362.59.

63 Taking into consideration the monies owing to the tenant for realty taxes and last month’s rent, the tenant shall have judgment for the sum of $7,819.53. Counsel are to address pre-judgment interest and costs in writing within 20 days.

Action allowed in part; counterclaim allowed in part.