Tim Hortons Obtains Major Judgement for Rent Setoff against a Mortgagee

In April 2005, I wrote about the March 2005 decision in 473807 Ontario Ltd. v. TDL Group Ltd., where the Ontario Superior Court of Justice held that TDL (Tim Horton’s) could not set-off a $700,000.00 damage award against its landlord, from rent owing to the landlord’s mortgagee (not an institutional lender) who went into possession. If successful, the set-off would have resulted in no rent payable for the balance of the lease term of 15 – 20 years. TDL appealed and on July 27, 2006, the Court of Appeal reversed the earlier decision and held that: TDL was entitled to set-off the judgment against the landlord, from rents due to the mortgagee after it went into possession.

Background

TDL had a 20 year lease in priority to the mortgage and an assignment of rents. TDL and the Mortgagee entered into a postponement and non-disturbance agreement (“NDA”) on TDL’s form which provided that the Mortgagee would not be liable for more than one month’s pre-paid rent. As a result of litigation between the Landlord and TDL for wrongful termination, TDL was awarded damages of $700,000.00 and entitled to set it off against its rent. The Mortgagee was aware of but not a party to that proceeding and made no inquiries. Subsequently, the Mortgagee went into  possession and attorned the rents. TDL advised of the damage judgment and claimed a set-off against rent and the Court of Appeal agreed.

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