How Ottawa’s Fauna restaurant fought back to overcome a $900K landlord dispute
May 6, 2019 Read Time: 5 minutes
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After spending months preparing to launch his new Centretown restaurant Fauna, Jon Svazas received a troubling phone call around midnight just hours before its grand opening.

A water pipe had burst in the restaurant, flooding the basement and damaging the dining room.

That setback alone would be discouraging for any entrepreneur. But for Svazas, it was just the latest in a series of disturbing developments that would ultimately delay the opening of Fauna by some two years.

Roughly a month earlier, in December 2013, Svazas arrived at the Bank Street restaurant to find that his landlord, Ahmed Abou-Gabal of Velkia Realty, had the locks changed and posted eviction notices on its windows.

What had started as a dispute over responsibility for the cost of fit-ups and upgrades to the property quickly spiraled into an ugly battle that threatened to destroy Svazas’s career.

Jon Svazas

“I thought if I can’t get this restaurant open, then I will never open a restaurant in Ottawa because people won’t want to invest in someone who failed,” he recalls.

But today, Fauna is a thriving eatery that’s been named one of the country’s top 100 restaurants. The journey from that seemingly intractable conflict involved a series of court orders, sustained legal pressure and a creative solution proposed by Svazas’s lawyer, Craig O’Brien – a partner at Nelligan O’Brien Payne – that led to Svazas gaining ownership of the Bank Street property.

Red flags

The first signs of trouble came early on, not long after Svazas and Velkia Realty signed their lease in May 2012.

In exchange for Svazas taking on $100,000 in minor renovations, the landlord promised to spend $600,000 upgrading the HVAC and water systems, making structural enhancements, repairing the basement floor and installing new electrical panels.

When the landlord delayed his repairs, Svazas had to do the work himself. Then the landlord blocked approval for contractors to work at the restaurant.

That was a red flag for O’Brien.

“It’s unusual for a landlord to refuse to give consent for construction,” he said.

The series of events reminded lawyers at Nelligan O’Brien Payne of a scenario they’ve seen before: Landlords have tenants pay for renovations and, once the upgrades are finished but before the business can open and generate revenue, try to evict them when they’re financially leveraged and thus weak.

“Jon was doing everything right but I knew if this behaviour continued, the landlord would win,” O’Brien said.

As the delays continued to mount, Svazas was still legally obligated to pay rent even though Fauna hadn’t opened. To put financial pressure on the landlord, O’Brien advised Svazas to make the scheduled rent payments to the court, rather than Velika. This would force the landlord to complete its works and then go to court and prove he was entitled to the rent.

“The landlord failed in his obligations by not doing the repairs and blocking the contractors from coming in,” O’Brien explains. “Because of this, the tenant has the right to withhold rent until the landlord does what he promised.”

Craig O'Brien

Despite the pressure, Velika and Abou-Gabal raised the stakes. He locked Svazas out of his restaurant and disconnected the electricity.

The water pipe in the residential apartment immediately above Fauna suspiciously burst, causing major flood damage to the restaurant. Velika refused to authorize repairs.

Creative tactics

O’Brien and Svazas continued to fight back. They won a court order requiring the landlord to restore the electricity and authorizing police to keep Abou-Gabal and Velika out. With the landlord unable to interfere, Svazas completed all repairs and opened Fauna in September 2014.

But there was still the problem of getting reimbursed. Svazas spent more than $900,000 in repairs and legal fees – costs that the landlord is required by the courts to pay back – as he borrowed money and worked part-time jobs to keep his dream of opening his restaurant alive.

When Velika’s final appeal failed in 2015, O’Brien saw a potential problem brewing that could prevent Svazas from collecting the money he was owed.

“The landlord was losing money and I was concerned that he would file for bankruptcy,” says O’Brien. “If he did, Jon would get very little money back.”

With rent still being held by the court, O’Brien came up with a solution. He persuaded the landlord to hand over ownership of the building – worth $1.45 million – in exchange for O’Brien asking the court to release some of the rent to the landlord. Svazas became owner in 2017.

“He was entitled to more than what the property was worth,” says O’Brien. “And this way he would be done with Abou-Gabal and Velika. It would be over.”

Building off the success of Fauna, Svazas has since expanded and opened a second restaurant in Hintonburg. His ability to establish his business depended in no small part on his own perseverance and ability to find a like-minded ally in O’Brien who was willing to help him fight until the end.

“I wasn’t going anywhere,” says Svazas. “After all the damage Abou-Gabal caused, I had to open.”

Timeline

  • May 22, 2012 – Jon Svazas signs a lease with Ahmed Abou-Gabal of Velkia Realty Inc. for a new restaurant at 425 Bank St. The cost of renovations are to be split between the tenant and landlord in exchange for seven months of free rent.
  • Dec. 22, 2012 – Landlord fails to complete repairs and agrees to extend free rent to February.
  • April 11, 2013 – Svazas sues landlord for repair costs.
  • June 2013 – They settle out of court with the landlord promising to complete repairs by July 30, 2013. Landlord does not complete the repairs.
  • Early December 2013 – Landlord posts eviction notice on restaurant and changes locks.
  • Dec. 13, 2013 – Court issues order requiring the landlord to remove the new locks. As part of the order, the landlord cannot enter the restaurant without court approval. Svazas sets new opening date for Jan. 17, 2014.
  • Jan. 16-17, 2014 – Water pipe bursts, flooding basement and damaging dining room of the restaurant. The landlord prevents contractors from entering the building.
  • March 1, 2014 – Svazas pays rent to the court.
  • March 19, 2014 – Landlord attempts to once again change the locks. Security guards hired by Svazas call police. At 4 p.m., landlord comes again and shuts off the electricity. Police are called again.
  • March 21, 2014 – Court issues order allowing Svazas to continue paying rent to the court.
  • March 28, 2014 – Landlord shuts off electricity again.
  • April 11, 2014 – Court orders landlord to restore electricity.
  • April 16, 2014 – Court orders a contractor to enter the restaurant to restore power and for landlord to cover the costs.
  • Sept. 1, 2014 – Fauna restaurant opens.
  • August 21, 2015 – Court orders landlord to pay $900,000 to the court to cover all costs from previous orders.
  • September 15, 2015 – Court orders that administrator is assigned to take over the property.
  • March 7, 2016 – Landlord’s appeal to Sept. 15 court order fails.
  • February 2017 – After lengthy negotiations, Svazas receives ownership of the property.
This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2019 Nelligan O’Brien Payne LLP.

Service: Business Law

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