DURHAM SPORTS BARN INC. BANKRUPTCY PROPOSAL, 2020 ONSC 5938

A distressed sale by the landlord was set aside by the Court in the view of facts of the case.

The facts depict that Durham (Appellant) is a person who has a business of operating an elite athletic performance center at the leased premises. The said lease was for ten years and it obligated the landlord to provide a bona fide estimate of the TMI at beginning of each year. The landlord could not do this as it became difficult for him to plan his cash needs. Simultaneously, the landlord demanded rental arrears and further threatened to take possession in case it is not complied with. Appellant then filed a Notice of Intention to propose section 50.4 (1) of the Bankruptcy and Insolvency Act. On the same day, the Landlord delivered a Notice of Impending Termination to appellant and demanded him to pay rental arrears or the Landlord said he would terminate the lease and change the locks. At the same time, the landlord sold the goods to one Mr. Rogalski. Now, appellant raised other issues with respect to an abatement of the payment of rent including frustration and force majeure. Therefore, this petition.

The court had three issues to look after determining this motion. First, whether the distraint was lawful or should be set aside? Secondly, whether the lease termination that followed the Notice of Intention (“NOI”) was lawful or should be set aside? And thirdly, whether appellant should be relieved of paying rent when it was prevented from lawfully operating due to emergency orders issued by the Province of Ontario?

The Landlord opposed the motion stating that both the distraint and termination were lawful. The Landlord requested that appellant should immediately deliver vacant possession of the premises.

The concern, the court showed, was in relevance to section 53 of Commercial Tenancies Act, R.S.O. 1990. It was argued that the best price possible was not obtained. The second appraisal was cleared with no inspection done on goods and therefore, the negotiation on the sale price could not be done properly. Also, the sale could not be completed as the goods remained with the appellant. As a result, Mr. Rogalski paid off for the sale done but did not insist on the delivery of the goods. Further, the court held that if it is found necessary, a trustee can again conduct a proper sale of goods. Meanwhile, in the interim, the goods shall remain in the possession of appellant so that the operations of his business runs effectively during the course. Therefore, the court decided that the notice of termination by the landlord as well as the notice of default should be set aside. And in the light of above mentioned discussion, the distress sale was also set aside which was initiated by the landlord.