Steakhouse Compensated for Impacts of Eglinton LRT
While the rest of Toronto waits for the day that the Eglinton LRT becomes operational, the wait for compensation is now over for one restaurant owner that suffered business losses due to Metrolinx’s expropriation for, and construction of, that long-delayed project. In late March the Ontario Land Tribunal ordered that Metrolinx pay Newgen Restaurant Services Inc. (“Newgen”) over $550,000 in compensation as injurious affection for business losses it suffered at a restaurant operating as Smith Bros. Steakhouse Tavern at Eglinton Avenue East and Warden Avenue (Eglinton Corners). ‘
Read the Tribunal’s decision here: Newgen Restaurant Services Inc v Metrolinx.
Conner Harris and Leah Cummings were counsel to the successful Claimant in the hearing before the Ontario Land Tribunal, and share their insights from the Tribunal’s decision below.
Background
Newgen and its parent company were long-term restaurant operators. They were the founders and operators of the buffet-style Tucker’s Marketplace chain of restaurants and had operated at Eglinton Corners since 1979. Newgen had, at first, operated a restaurant in the main building on this property but later relocated to a detached building on the same property. In 2012, Newgen converted the location to the first of a new restaurant concept, Smith Bros. Steakhouse Tavern.
In 2015, Metrolinx expropriated a portion of the Eglinton frontage from Eglinton Corners for the purpose of constructing the Eglinton LRT project. Newgen, whose lease was registered on title, received notice of the expropriation.
In late 2017, Metrolinx’s construction got underway in earnest. Eglinton Corners was located at about the mid-way-point of the street level portion of the Eglinton LRT, and a station stop was being constructed at the intersection. Over the years there were lane closures, street and intersection closures, and rerouting of public transit routes around Eglinton Corners that were related to Metrolinx’s construction. Smith Bros’ business suffered as fewer customers frequented the restaurant.
Finally, in March 2020, at the height of Metrolinx’s construction, Smith Bros was forced to close due to the COVID-19 pandemic. It never reopened. Newgen could not adapt its buffet-style Tucker’s Marketplace restaurants to new public health requirements for reopening. Smith Bros, which was not buffet-style, could not reopen in the midst of the perfect storm of COVID-19 restrictions and Eglinton LRT construction.
Newgen brought a claim for compensation under the Expropriations Act for business losses as either injurious affection or disturbance damages for the losses Smith Bros suffered due to the Eglinton LRT construction.
Issues
Metrolinx denied that it was liable to compensate Newgen on four bases:
Since the expropriated land was part of the common elements of a plaza, Newgen did not have a leasehold interest in the expropriated land and was not an “owner” under the Expropriations Act:
Smith Bros’ losses were not caused by the Eglinton LRT construction but were the result of poor management and because Smith Bros had never been a viable business model;
Smith Bros’ losses after March 2020 and its eventual closure was caused by the COVID-19 pandemic, not the Eglinton LRT construction;
Smith Bros failed to mitigate its losses.
Tribunal’s Analysis
Newgen is an “Owner”
The Tribunal rejected Metrolinx’s argument that the definition of “owner” in the Expropriations Act did not include tenants when the land expropriated is part of the common elements of a plaza.
While Metrolinx acknowledged that Newgen’s lease included the use of “Common Facilities” – part of which included the landscaped frontage on Eglinton Avenue that was expropriated – it characterized this right as a “non-exclusive licence” that was not an interest in land as required by the definition of an “owner” under the Expropriations Act .
The Tribunal, in reviewing the evidence, noted that Newgen’s lease had been registered on title and Metrolinx had served it with all notices, offers of compensation, and other documents required by the Expropriations Act . The Tribunal noted that Newgen’s lease gave it the right to use the Common Facilities and that Newgen paid annual fees as part of its rent for the repair, maintenance, and operation of the plaza, which included the Common Facilities. The Tribunal found that the grant of this non-exclusive licence, through the lease, gave Newgen an interest in land as that term is used in the definition of “owner” under the Act. The Tribunal’s decision placed emphasis on the remedial nature of, and the broad interpretive lens applied to, the Expropriations Act .
Smith Bros’ Business Losses were Caused by Metrolinx’s Construction
Evidence and Arguments of the Parties
Newgen’s business loss expert divided the claimed losses into three periods: (1) business losses from 2017 to March 16, 2020; (2) saved expenses during the province-wide shut downs due to the COVID-19 pandemic; and (3) winding down costs and the permanent closure of the business.
Metrolinx called three employees or contractors for Metrolinx who gave evidence as to how the construction was carried out, efforts to minimize disruption to local businesses, and complaints received from local businesses. It also called an expert in food service management and operations and an expert business loss valuator.
Newgen called two witnesses. Mr. Grubert was the owner/operator of Newgen. He testified about his personal history and experience in restaurant management, Newgen’s business, Smith Bros’ operation, its loss of customers during construction, navigating the area during construction, attempts to mitigate losses, and the eventual closure of Smith Bros. The second witness was an expert business loss valuator.
The Tribunal heard evidence and reviewed construction notices detailing the extent of the construction in this area. Metrolinx’s fact witnesses testified to the steps taken to minimize impacts to the travelling public and to undertake construction during “off-peak hours”. However, “off-peak hours” for the general public – being evenings and weekends – were when the majority of customers would frequent Smith Bros. The Tribunal noted Mr. Grubert’s evidence that over the course of the construction, Smith Bros saw falling customer counts and that customers and staff were often complaining about construction and difficulties in getting to the restaurant.
Metrolinx, through its food service management and operations expert, claimed that Smith Bros was a failing business that was only being supported by the other Tucker’s Marketplace restaurants and was never viable on its own.
The Tribunal’s Findings
The Tribunal rejected Metrolinx’s argument. While noting Smith Bros was still a relatively new business in 2017 when the losses began, the Tribunal rejected that it was a failing business. Metrolinx’s submission that Smith Bros’ losses were the product of various failures by Mr. Grubert was also rejected. Mr. Grubert’s extensive history in this industry was reviewed by the Tribunal, which took time to note that he testified in an “honest, forthright, and comprehensive manner” which demonstrated his “extensive experience and knowledge about the restaurant industry in general and Smith Bros. restaurant in particular”.
The Tribunal found that the evidence demonstrated that Smith Bros’ business was declining throughout the period of construction and that certain periods of intense construction aligned with periods of particular decline in Smith Bros’ business. The Tribunal concluded that “the construction of the Works and lane closures on Eglinton had an extremely significant, far reaching, and detrimental impact on the movement of vehicular traffic on both Eglinton and on adjoining roadways not located in the actual construction zone.” The Tribunal noted that Newgen did not need to prove that Metrolinx had been negligent in order to establish that it was liable for Newgen’s losses.
In quantifying the business losses experienced by Newgen from October 2017 to March 2020, the Tribunal preferred the Claimant’s business loss expert’s valuation. The methodology used by the Claimant was based on Smith Bros’ historic monthly entrée sales and customer counts to project revenue that would have been expected if the construction had not taken place. By comparison, Metrolinx’s expert used historical industry averages from Statistics Canada and other references to project Smith Bros’ revenue. The Tribunal adopted the Claimant’s expert’s valuation of these losses in the amount of $571,891.
Smith Bros’ Losses and Closure after 2020 are not Compensable
Newgen submitted that had the Eglinton LRT construction not caused significant business losses to Smith Bros prior to March 2020, and had the construction not been continuing, it could have reopened Smith Bros in 2021 when provincial pandemic mandates were lifted on indoor dining. While Newgen’s other restaurants – all buffet style – had permanently closed due to the pandemic, Smith Bros’ format was more conducive to being adapted to public health guidelines and could have reopened.
The Tribunal concluded that, based on the evidence on the record, Smith Bros would not have been financially capable of reopening after the COVID-19 closures. This was because the other restaurants in Newgen’s portfolio – the Tucker’s Marketplace Restaurants – had permanently closed. The permanent closure of Smith Bros was therefore attributable to the pandemic and not to Metrolinx’s Eglinton LRT construction. No compensation was payable for this period.
Newgen Mitigated its Losses
The Tribunal declined to reduce Newgen’s claimed losses on the basis of a failure to mitigate. The Tribunal found that Smith Bros had tried to mitigate its losses by: running radio advertisements to encourage customers during construction; offering discount certificates for repeat customers; reducing lunch service to two days a week; reducing operating costs; and negotiating reduced rent with the landlord. While Metrolinx submitted that Newgen failed to mitigate its losses because it never brought concerns about the impacts of the construction to its attention, the Tribunal found that there was no evidence to suggest that Metrolinx could have or would have made changes to the construction schedule if Newgen raised concerns.
Take-Aways and Insights
This decision seems to be the first from the Tribunal which contends with the merits of a new argument advanced by expropriating authorities that attempt to narrow the definition of the term “owner” under the Expropriations Act, and therefore limit who is entitled to claim compensation for expropriations. The Tribunal instead adopted a broad definition of “owner” and of “land”, when referring to an interest in land, which is consistent with the broad ambit of the Expropriations Act’s definition of those terms.
Although the Tribunal accepted Metrolinx’s evidence of the steps that it took to minimize the impact of construction on the majority of people in the area, it noted that by minimizing the impacts to the majority, the construction schedule actually exacerbated the impacts on businesses like Smith Bros. Metrolinx’s actions did not need to be negligent in order for it to be liable for the damages caused by its construction.
While the Tribunal found that construction of the Eglinton LRT has had significant impacts on vehicular traffic in the area and caused losses to Smith Bros’ business, it was careful to point out that each business loss claim must be proven on its own merits. This was not to be a signal that all claims for business losses due to the Eglinton LRT construction would be treated the same way.
The Tribunal declined to make broader comment on how the COVID-19 pandemic should be treated as an intervening factor when determining whether there is a sufficient causal connection between an expropriation and construction and business losses. The issue remains a live one and it is unclear how the Tribunal may treat similar arguments in the future.