Who’s the Real Jerk? Judge’s Surprise Ruling

In a ground breaking ruling on Wednesday Madam Justice Wailan Low granted an injunction preventing The Real Jerk from being evicted by the end of January. This decision came as a massive relief to The Real Jerk owners; Ed and Lily Pottinger.

Their building was sold to a new owner; Bill Mandelbaum. Upon taking ownership of the site, Mandelbaum gave the Pottingers a mere 30 days to vacate the premises to make way for a new Irish Pub to be opened by two other local entrepreneurs; Rick Aulier and Scott Brockington. Apparently the Pottingers didn’t have a proper lease in place that protected them from this type of eviction and were shocked to learn they only had 30 days to find a new site after being a Queen and Broadview fixture for 27 years.

This news spread through the local media and eventually made it to the evening news. Turns out that everyone loved The Real Jerk and was willing to do anything to stand up for what they believed was a massive injustice. Local Twitter users sent messages of support to The Real Jerk, local Facebook pages and groups were flooded with “How dare the greedy landlord do this!” “This is what’s wrong with society” and so on.  So what about the landlord’s right to collect fair market value?  The Real Jerk was paying $6300/mth for this prime space at Queen and Broadview, the new tenants had agreed to pay $12,000/mth. Just to help you out with the math, that’s a $5,700/mth difference.

Once the dust settled Thursday morning here is what we’re left with. The Pottingers now have a full month to arrange a new lease with the landlord including current market value plus other terms Mandelbaum will likely insist upon. Failing this, the Pottingers will have their rent increased to $12,000/mth on March 1, 2012 and will have up to a year to find a new place to open their beloved restaurant. My guess is that the Pottingers will want out ASAP and find another local spot to open up. Rick Aulier and Scott Brockington, who planned on opening their Irish Pub by St. Patrick’s Day are out of luck unfortunately. They must wait until the space becomes vacant.

My question is; What did Madam Justice Wailan Low base her decision on? Bill Mandelbaum provided hard evidence that the Pottingers had signed a simple month to month lease that left them vulnerable to a 30 day notice for eviction and the Pottingers did not bring a shred of evidence to the table to dispute this. Their sole argument was that Mandelbaum was being unethical and they needed more time to find a new location. I guess the outpouring of support from the community and morality trumped the law in this case. A dangerous precedent has been set by Madam Justice Wailan Low in my opinion but certainly a popular one with locals.

What’s the moral of this story? OWN YOUR LOCATION (or a least ensure your lease provides an adequate notice period)! The goal of all businesses should be to own your location as soon as possible. This is not simply a ploy to sell you real estate (although we’re really good at it so if you’re in the market, give us a call!). If you own your location, you have control. Plain and simple.

7 thoughts on “Who’s the Real Jerk? Judge’s Surprise Ruling

  1. “The goal of all businesses should be to own your location as soon as possible. ”

    None of the national brands looking for space in my market place want to own space, they all want to lease. They aren’t in the property investment business, they’re in the retail (or restaurant) business.

    The moral isn’t to own your own location, it is to have a great commercial realtor & lawyer acting as fiduciaries and making sure that your lease provides the protection you need.

    1. Ara says:

      A good point. For this post I’m focusing on the community level. We’re seeing businesses anchored in a neighbourhood only to be evicted by new landlords raising rents. This restaurant likely can’t afford to pay $12,000/mth for this space (though they’re getting a lot of publicity!). If they aren’t evicted, the increased rent will likely force them out anyhow. It happened to the Red Rocket Cafe and it will continue to happen. If we look at the local barber just east of here, he owns his location and bought it as soon as he could. He now faces tough competition from newer rivals but he’s not going anywhere because he owns his spot and has realized the benefits of real estate ownership.

      A good Real Estate Rep or Lawyer can only get you so far. Leases expire and that’s when these businesses have issues. Upon expiry, rents can increase dramatically and the law only requires 30 days notice to vacate the premises and that is what happened here. For a small/medium sized business owning your location can provide stability in the early days when local patronage is key to success. If you’re lucky enough to become a big national brand, then leasing can provide certain benefits and specific property ownership no longer becomes such a priority. Most National brands enjoy landlords fighting for their long lease terms and reliable monthly payments.

  2. Laura Bowman says:

    It is not true that they had no argument or that the decision was not legal.

    There is a factual dispute as to whether the lease is month to month or year to year that will be argued later. The court held that there was evidence on either side, and so issued the injunction.

    Given that the landlord ma have misled the tenants and that there is a factual dispute about the term of the lease, and that the facts are sympathetic, this is an appropriate case for an injunction under the test for injunctions. The extra rent is also paid into court until the hearing of the main issues, not to the landlord.

    http://www.scribd.com/fullscreen/80201359?access_key=key-2ho0ukt7dakfhxlvpxow

    1. Ara says:

      Thank you for the clarification Laura. As a Lawyer you must come across these types of difficult cases all of the time. Also, thank you for providing the Judge’s actual findings. This is very helpful!

      In an interview with Bill Mandelbaum (the new owner), he mentions the signed document by Mrs. Pottinger, owner of The Real Jerk, acknowledging that there is a month to month lease but reading your document it’s clear that she may not have had adequate signing authority therefore this document may not be used as evidence. The one thing that is clear here is that since their latest lease expired in 2000, there was never a new lease signed. I’m having difficulty with the notion that it can now be assumed that the Pottingers were on a year to year vs. a month to month lease, what is this conclusion based on? Would it be assumed that since they continued to pay their monthly lease payment after their lease expired (acknowledging that their lease included an option to renew for 5 more years but they didn’t officially renew) that they were on a year to year? Why would that not simply become a month to month? Perhaps you could help clarify this point.

      It seems as though there were a lot of “ya, ya don’t worry about it” moments with the previous landlord and the Pottingers. Informal agreements and handshakes seemed commonplace. I am very interested to see how this plays out over the coming month.

  3. happywarrior says:

    Ara,

    If you actually read the link that Laura provided you will see that there are two legal issues. 1. they may be a year over year tenant because of common law. 2. they may be entitled to six months notice which can terminate the lease at the end of that lease, in this case Dec 31st, because of common law. As a real estate professional you should use the decision to educate your clients about contracts and the need for independent legal advice. If you had represented the buyer in this transaction and given them this advice they would likely litigate against you. The owners of the Real Jerk must have done something right…the won the first court battle.

  4. Happy Warrior (love the name!),

    I spent a lot of time going through the Judges ruling that Laura was kind enough to attach. I am quite curious to learn more about the facts and what makes this a year to year vs. a month to month. This sale took nearly one year to complete, the Buyer’s legal team had a lengthy due diligence period during which they satisfied themselves of the current lease terms and their rights as a landlord once they took possession.

    Strong legal representation is vital in any Real Estate Purchase and we always advise our clients to seek council, in fact, the Real Estate lawyer is essential! Especially in complicated commercial leases.

    I have discussed this case with my clients, peers and mentors. Needless to say, it has always been a heated discussion! The study of these cases allows us all to grow as professionals and become better at what we do.

    The advice I give in this article is targeted to small/medium sized businesses, and that is to own your place of business as soon as possible (as the first comment mentioned, I’m not intending to offer advice to large national brands here). It is in the best interest of any start up to consider property ownership in their business plan (or 5-10yr plan) to mitigate the risks associated with an unexpected move.

    Thank you for your comment, enjoy your weekend.

  5. happywarrior says:

    Ara

    Point taken. I think as I read the decision, any business whose lease expires but continues paying monthly rent is automatically a year to year tenant, based on a legal precedent sited in the decision. Additionaly, any year to year tenant in this circumstance is entitled to six month notice.Unless the lease says otherwise. Notice that I used the words “may” in my previous comment above. That is becuase a court has yet to determine their status. The injunction allows a hearing of facts and a determination. Otherwise the business would have been irreparably harmed by the eviction even if they won a positive decision at some future date. The jobs would be lost and the goodwill lost – poof – once the restaurant was closed for a long period. Interestingly, large retail chains almost NEVER own their locations. Probably because of the amount of capital required. You are right about one thing, this is an interesting case and one from which we can all learn.

    Perhaps The Real Jerk needs a good Real Estate Agent to help them lease or buy their next spot…nudge nudge wink wink.

    Good work on your website.

    Regards

    HW

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