COURT OF QUEEN'S BENCH OF MANITOBA

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1 Date: Docket: CI (Winnipeg Centre) Indexed as: North Portage Development Corp. v. Cityscape Residence Corp. Cited as: 2018 MBQB 173 COURT OF QUEEN'S BENCH OF MANITOBA B E T W E E N: NORTH PORTAGE DEVELOPMENT CORPORATION, ) - and - ) ) Counsel: ) ) KEVIN T. WILLIAMS plaintiff, ) for the plaintiff ) AMANDA E. VERHAEGHE and CITYSCAPE RESIDENCE CORPORATION, ) ROBERT L. TAPPER, Q.C. ) for the defendant defendant. ) ) JUDGEMENT DELIVERED ) NOVEMBER 1, 2018 Motion for Summary Judgment SUCHE J. [1] The plaintiff and defendant have a rather intertwined relationship relating to a multi use real estate development known as Portage Place and Place Promenade, in Winnipeg, which includes a two-level parking structure ( the parkade ). This action concerns the interpretation of the sublease of the lower level of the parkade. The plaintiff seeks a declaration that rent is not payable

2 2 pursuant to the sublease. The defendant counterclaims, seeking judgment for rent it says is owing. The plaintiff s motion for summary judgment is before me. FACTS [2] The plaintiff owns the land on which the development is located. In 1986, it entered into a series of agreements with The Village at Portage Place Housing Ltd. ( VAPP ) to construct Place Promenade, consisting of mixed use apartment buildings and the parkade. Reduced to its basics, VAPP would build the structures. The plaintiff would retain title to the land until 2060 when title to the structures would pass to the plaintiff. VAPP would have use of the structures pursuant to a ground lease in the interim. [3] In terms of the parkade, the plaintiff financed construction of both levels, which was secured by two mortgages one related to the upper level and the other to the lower level, the latter being the subject of this action. The parties also entered into a sublease for the lower level VAPP being landlord and the plaintiff tenant. [4] The terms of the mortgage and sublease mirror each other. The plaintiff advanced $2,680,000 to VAPP. Interest under the mortgage was set at 9.75%. Annual payments of $261,380 were on account of interest only, payable in quarterly installments of $65,325. The principal was payable when the mortgage matured in November The sublease required annual rent of $261,380 payable in quarterly installments of $65,325. The lease ended in November 2060.

3 3 [5] The clause at issue concerns the plaintiff s obligation to pay rent, which states: 4.01 Provided that the Subtenant receives payments of interest or principal from the Sublandlord pursuant to the Parking Structure Mortgage, the Subtenant shall pay to the Sublandlord at the address specified herein, rent in the amount of $261,380 per annum in each and every year during the Initial Term commencing on the first day of the month immediately following the Commencement Date payable in equal quarterly installments of $65,325, in advance. If, for any reason, payments of interest or principal are not made or required to be made by the Sublandlord under the Parking Structure Mortgage, then no rent shall be payable by the Subtenant to the Sublandlord under this Sublease. [6] The net effect of this arrangement was that VAPP received $2,680,000 interest free for the duration of the lease. In exchange the plaintiff was entitled to occupy the lower level of the parkade rent free. No payments were ever made by either party. [7] VAPP defaulted on the mortgage related to the upper level of the parkade. The plaintiff foreclosed. Prior to the final order of foreclosure, the plaintiff transferred the mortgage to the defendant, which at the time was a wholly owned subsidiary of the plaintiff. As a result of the foreclosure the defendant took the leasehold title, governed by the ground lease with the plaintiff. [8] In 1998, the plaintiff sold the shares in the defendant to Manitoba Ltd. At that point, the defendant was indebted to the plaintiff for more than $6 million, including $2.68 million owing for the lower level of the parkade. The plaintiff forgave the defendant the entire indebtedness to facilitate the sale of the shares.

4 4 [9] The plaintiff has made no payments for rent under the sublease since the foreclosure. The lower level mortgage remained on the title, in error, it seems, until sometime in A notice of discharge was then filed by the plaintiff. [10] In May 2016, the defendant demanded payment of $7,852,261, being the amount it claims is owing on account of rent under the parkade sublease. POSITIONS OF THE PARTIES [11] The plaintiff says that the plain meaning of the words of article 4.01, when read in the context of the lease as a whole and in light the surrounding circumstances, shows the plaintiff s obligation to pay rent under the parkade sublease was a concomitant obligation and contingent upon VAPP (and therefore the defendant) paying interest or principal under the mortgage. Since VAPP never made any payments, and the obligation to make payments was extinguished, the plaintiff is also not required to make any payments. [12] The defendant says article 4.01 is at best ambiguous and may even be a sham intended to deceive anyone interested in purchasing VAPP s leasehold interest in Place Promenade. It maintains that a trial of the issue is required in order to understand the surrounding circumstances of the parties at the time of entering into the sublease, which is necessary to properly interpret the provision. DECISION [13] I agree that article 4.01 established a concomitant obligation between the parties that was conditional: the plaintiff was required to pay rent under the

5 5 sublease only if and when VAPP made payments under the mortgage. When the mortgage was foreclosed on and the debt extinguished, VAPP s obligation to make mortgage payments disappeared. So did the plaintiff s obligation to pay rent under the sublease. [14] No further evidence is required in order to determine the meaning and effect of this provision. No triable issue has been raised. [15] Accordingly, the plaintiff is entitled to summary judgment, specifically a declaration it that no rent is owing under article 4.01 of the parkade sublease. [16] The defendant s counterclaim also raises no issues requiring a trial and it is hereby dismissed. [17] The plaintiff is entitled to costs. If counsel are unable to agree on the amount they may speak to same. J.