Executive Summary: Key Legal and Evidentiary Issues

• Interplay between commercial landlord–tenant remedies and the Highway Properties “fourth option” for claiming prospective lease damages following repudiation.
• Characterization of Ryan’s September 13, 2019 email as sufficient “Highway Properties Notice” and whether it preserved RW’s right to future damages.
• Jurisdictional limits of the Ontario Small Claims Court, including whether findings about a binding lease amount to declaratory relief or impermissibly engage real property rights.
• Existence and enforceability of a binding commercial lease despite parallel, uncompleted share purchase negotiations and the tenant’s claim that the lease was contingent on a share deal.
• Application of the appellate standard of review (palpable and overriding error, and correctness on questions of law) to the deputy judge’s factual findings and legal conclusions.
• Adequacy of the Small Claims Court judge’s reasons in light of the informal, summary nature of that court and appellate guidance on what is required to permit meaningful review.

Factual background

RW Stick Holdings Inc. (“RW”) owned and leased commercial units at 8250 Lawson Road, Milton, Ontario, adjacent to premises occupied by Canadian Flatbeds Ltd. (“CFL”) at 8270 Lawson Road. CFL had outgrown its existing space and was interested both in purchasing RW’s company shares (to acquire the building) and in leasing additional units in RW’s premises to meet its immediate operational needs. Negotiations began in mid-2019, with real estate agent Peter McKenna acting as intermediary. CFL’s principal, Harry Wadhwa, approached RW’s principals, Craig Ryan and Kevin Wyeld, about acquiring their shares and leasing space in the building. Ryan’s uncontradicted evidence at trial was that Wadhwa expressed a need for office space even if a share purchase could not be finalized, so leasing was intended to proceed either as a bridge to a purchase or as a standalone arrangement.

On August 1, 2019, McKenna transmitted two separate offers to RW: an offer to purchase 100% of RW’s shares (the “Share Offer”) and an offer to lease fourteen units in the premises (the “Offer to Lease”). The Share Offer referred to the Offer to Lease, but the Offer to Lease itself did not refer to the share purchase or make the lease’s validity contingent on the share transaction. The Offer to Lease contemplated a nine-month term from September 1, 2019 to July 1, 2020 at monthly rent of $11,661 plus HST.

On August 12, 2019, Ryan forwarded a signed draft lease (the “Draft Lease”), naming RW as landlord and CFL as tenant. The Draft Lease covered fourteen units, with monthly rent of $11,661 plus HST, but with a shorter term of four months and three days (August 15 to December 18, 2019). Wadhwa signed this Draft Lease and made several handwritten changes: one unit was deleted (reducing the number of leased units to thirteen); the term was lengthened to twelve months (September 1, 2019 to August 31, 2020); a clause dealing with December 16–18, 2019 was removed; and the monthly rent was reduced to $10,283 plus HST to reflect the reduced number of units. These changes were marked by McKenna using a standardized red stamp.

In the following days, RW’s lawyer raised issues about the broader transaction, and Ryan wrote to McKenna on August 21, 2019 suggesting clarifications to the share purchase arrangement and acknowledging that the lease term would be extended to one year. He indicated he would revise the lease to reflect the one-year term and that first and last months’ rent plus ten additional post-dated cheques would be required at signing. Rather than draft a fresh lease, Ryan initialled Wadhwa’s changes and inserted minor additional terms. By August 30, 2019, Ryan sent McKenna an email enclosing what he described as a “signed one year lease agreement commencing September 1, 2019.” In that version, Ryan adjusted the number and dates of post-dated cheques (from three to eleven) and revised the monthly rent from $11,661 to $9,100, reflecting the agreed-upon one-year structure. Both parties accepted these terms, and this fully initialled and executed document is referred to in the judgment as the “Final Lease.” Significantly, at no stage did any version of the lease document include a clause that made the lease conditional on the share purchase.

On August 31, 2019, Ryan emailed McKenna stating RW was willing to wait until Tuesday, September 3, 2019, given that September 1 fell on a long-weekend Sunday, for delivery of all required payments under the lease. McKenna replied that this had been sent forward. CFL, however, did not deliver any rent payments or post-dated cheques. There was no communication from CFL to RW until September 13, 2019, when Wadhwa emailed Ryan and McKenna asserting that negotiations for the lease had “ended unsuccessfully,” that there was “no signed lease,” and that CFL would not proceed with renting the premises. Ryan promptly responded by attaching a copy of the signed Final Lease and advising Wadhwa that it had been sent to McKenna on August 30. In a follow-up message the same day, Ryan stated that RW had incurred costs to demolish walls and reconfigure space for CFL’s expected occupancy, and that CFL had made it clear it would not honour the signed lease. RW therefore began re-advertising the space to mitigate its losses and invited CFL to propose a monetary resolution taking account of RW’s out-of-pocket expenses and loss of rental income, with a specified deadline and an express warning that legal action would follow if no reasonable proposal was received.

CFL never moved into the premises, paid no rent, and did not submit any proposal. RW commenced a Small Claims Court action for damages arising from CFL’s repudiation of the Final Lease. The only oral evidence at trial was from Ryan; Wadhwa did not testify, and CFL’s evidence was limited to McKenna’s written witness statement, which did not substantively support CFL’s theory that the lease and the share purchase were inextricably linked.

The Small Claims Court judgment

Deputy Judge Hoffman of the Milton Small Claims Court accepted Ryan’s evidence as credible and reliable regarding the parties’ intentions, the execution of the Final Lease, and RW’s incurred costs. The deputy judge rejected CFL’s argument that later alterations to the Draft Lease were so material as to render the contract void. She found instead that the parties were ad idem on the essential terms of the Final Lease and that the modifications were technical adjustments that gave effect to their mutual intentions rather than prejudicial alterations. She also accepted that RW had incurred expenses in altering the premises at CFL’s request and that CFL unilaterally elected not to honour the agreement by failing to take possession or make any payments.

On damages, the deputy judge applied principles of mitigation and accepted that RW had acted reasonably in seeking to re-let the space, referencing authority on the standard for a landlord’s mitigation efforts. She concluded that RW had proven damages “well in excess” of the Small Claims Court’s monetary jurisdictional limit. However, because that limit is $35,000, she awarded RW judgment in the amount of $35,000, plus interest and costs, without specifying the exact amounts of interest and costs.

Legal framework: Highway Properties and landlord remedies

A key legal issue was how Highway Properties Ltd. v. Kelly, Douglas and Co. Ltd., [1971] S.C.R. 562, governed RW’s remedies. Traditionally, a commercial landlord faced with fundamental breach or repudiation by a tenant had three main options: do nothing and sue for rent while keeping the lease alive; accept the tenant’s repudiation and terminate the lease, preserving only accrued rent and past damages; or re-enter and re-let on the tenant’s account. Highway Properties recognized a fourth option for commercial landlords: terminate the lease but, on notice to the tenant, claim damages immediately for the loss of the lease over its unexpired term, including the present value of future rent less the actual or potential rental value of the premises, along with provable consequential losses.

The Superior Court noted that subsequent case law has developed the idea of “Highway Properties Notice”: the landlord must communicate, within a reasonable time, that it will seek prospective damages following termination; otherwise, re-entry may be treated as a surrender that forecloses such claims. There is no required formal wording, and the notice can, in appropriate circumstances, be contained in the statement of claim.

CFL argued that RW failed to give effective Highway Properties Notice and therefore could not rely on the fourth option. On CFL’s theory, RW’s entitlement would be limited to damages corresponding to the brief period between the lease commencement date and RW’s taking steps to re-let the premises. RW, in response, relied both on Ryan’s September 13, 2019 email correspondence and on its later statement of claim as constituting timely and adequate notice.

Issues on appeal

CFL appealed the Small Claims Court judgment to the Superior Court of Justice on four primary grounds. First, it alleged that the deputy judge misapplied the Highway Properties framework and improperly granted damages that were not available in light of RW’s conduct. Second, it contended that the deputy judge exceeded the Small Claims Court’s jurisdiction by effectively granting declaratory relief or adjudicating real property rights beyond monetary damages. Third, CFL argued that the deputy judge committed a palpable and overriding error in finding that a binding commercial lease existed independent of the share purchase agreement, insisting that the two were inextricably linked and that the lease was conditional on the share deal. Fourth, CFL submitted that the reasons were inadequate and did not sufficiently explain why the deputy judge accepted RW’s version of events and the validity of the Final Lease.

The Superior Court applied the standard of review from Housen v. Nikolaisen: questions of law are reviewed for correctness, while findings of fact and mixed fact and law are reviewable only for palpable and overriding error, absent an extricable legal error. The judge also considered whether the trial reasons were legally sufficient in light of Court of Appeal guidance on Small Claims Court judgments, which acknowledges the court’s informal, high-volume, summary character and does not demand the same degree of detail as in superior court reasons, so long as they make clear what was decided and why.

Findings on landlord remedies and Highway Properties Notice

The Superior Court rejected CFL’s argument that RW had not validly invoked the fourth Highway Properties option. The court held that CFL had clearly repudiated the Final Lease through Wadhwa’s September 13, 2019 email denying the existence of a signed lease and refusing to proceed. In the alternative, CFL’s failure to deliver rent and post-dated cheques, coupled with its explicit statement that it would not go forward with the lease, constituted fundamental breach of the Final Lease.

In response, Ryan’s email that same day was found to satisfy the requirements of Highway Properties Notice. The message asserted that CFL did not plan to honour the signed lease, described RW’s re-advertising of the premises to mitigate losses, identified RW’s out-of-pocket expenditures in modifying the space, and expressly demanded that CFL submit a proposal compensating RW for both its construction costs and its loss of income, with a firm deadline and the stated intention to commence legal action absent a reasonable proposal. The judge concluded that this communication sufficiently put CFL on notice that RW intended to claim damages, including for loss of the benefit of the lease over its term, while also demonstrating RW’s efforts to mitigate. The fact that RW invited a negotiated resolution did not detract from the legal effect of the notice.

The court further observed that even if the September 13, 2019 email were not sufficient, RW’s issuance of its claim less than six months after CFL’s repudiation would itself constitute Highway Properties Notice given within a reasonable time in the circumstances, especially since the basic limitation period for civil claims in Ontario is two years and there was no evidence of prejudice to CFL from the delay. On either footing, RW was properly entitled to damages under the Highway Properties fourth option, and the deputy judge did not misapply the law.

Findings on Small Claims Court jurisdiction and alleged declaratory relief

Turning to jurisdiction, the Superior Court reaffirmed that the Small Claims Court’s authority under section 23 of the Courts of Justice Act is confined to awarding money judgments up to the prescribed limit and to claims for recovery of personal property up to that same amount. It cannot grant formal declaratory relief or directly adjudicate interests in real property. However, the court emphasized that Small Claims Court judges must make factual findings about the existence and terms of contracts, including leases, in order to resolve money claims; such findings of fact do not transform a judgment for damages into a declaration, nor do they improperly affect title or rights in land.

In this case, RW’s claim sought only monetary damages for breach of the Final Lease; it did not seek a declaration of rights or an order affecting interests in the property. Deputy Judge Hoffman’s reasons did not use declaratory language or purport to confer or alter any real property rights. The judge simply found that a binding commercial lease existed, that CFL had breached it, and that RW had suffered compensable losses. The Superior Court held that these findings fell squarely within the Small Claims Court’s jurisdiction. By analogy to jurisprudence from other provinces, the court noted that a monetary damages claim can be decided even where real property interests form part of the factual context, so long as no order is made that directly alters title or creates or extinguishes an interest in land. Consequently, CFL’s jurisdictional challenge failed.

Findings on the existence and binding nature of the lease

On the question whether the Final Lease was binding, the Superior Court placed significant weight on the evidentiary record. Ryan was the only oral witness, and his testimony that CFL needed the office space regardless of whether a share purchase closed was uncontradicted. The real estate agent’s written statement did not undermine that evidence, and Wadhwa chose not to testify or offer direct evidence that the lease was conditional on a share transaction.

The court observed that the Share Offer did refer to the Offer to Lease, but the Offer to Lease itself—and more importantly, the fully executed Final Lease—contained no clause tying enforceability to the completion of a share purchase agreement. On the documentary and oral evidence, it was open to the deputy judge to find that the lease and the share purchase were distinct arrangements, that the lease stood on its own terms, and that CFL’s attempt to characterize the lease as contingent was unsupported. There was thus no palpable and overriding error in the finding that a binding commercial lease existed between RW and CFL for the one-year term commencing September 1, 2019.

Assessment of the sufficiency of the Small Claims Court reasons

CFL’s complaint that the deputy judge’s reasons were too brief to permit meaningful appellate review was also dismissed. The Superior Court reviewed the reasons and concluded that, while concise and written in the context of an informal, high-volume court, they clearly articulated the factual findings and the legal framework applied. The deputy judge set out the parties’ positions, accepted Ryan’s evidence as credible, rejected the proposition that the lease alterations were material and prejudicial, and cited relevant authority for the rule that only material and prejudicial alterations could vitiate a contract. She also expressly discussed RW’s mitigation efforts and found that RW had proven damages beyond the court’s limit.

In light of the detailed evidentiary record, the governing appellate jurisprudence on Small Claims reasons, and the explicit findings regarding credibility, contract formation, breach, and damages, the Superior Court held that the reasons adequately explained both what was decided and why. They allowed proper appellate review and did not reveal any error of law.

Outcome and monetary consequences

In the end, the Superior Court of Justice dismissed CFL’s appeal in its entirety. The court confirmed that a binding commercial lease had been entered into and repudiated by CFL; that RW had given sufficient Highway Properties Notice and was entitled to claim prospective damages; that the Small Claims Court had jurisdiction to award monetary relief based on these findings; and that there was no palpable and overriding error or legal error in the deputy judge’s reasoning or conclusions. As a result, the Small Claims Court judgment awarding RW Stick Holdings Inc. the maximum permissible damages of $35,000, together with interest and costs, remained in force. The precise amounts of interest and costs—both at trial and on the appeal—were left to be determined through further submissions or agreement and are not specified in the decision, so while RW is clearly the successful party, the only quantified component of its recovery in the record is the $35,000 damages award, with any additional sums for interest and costs undetermined.