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Pedestrians walk in front of The One, a skyscraper currently under construction in downtown Toronto, on Feb. 13.Eduardo Lima/The Globe and Mail

Apple Inc. AAPL-Q has threatened to pull out of Sam Mizrahi’s massive retail and condo project in downtown Toronto, dealing a blow to the development of the tallest residential building in the country.

The 85-storey skyscraper at Yonge and Bloor streets called The One is currently under construction, including a unique space designed to host Apple’s flagship store, with its arresting glass architecture and soaring ceiling.

But the tech giant has told Mizrahi Developments it may exercise an option in the lease agreement that allegedly allows the retailer to exit without penalties if the developer misses certain deadlines, according to court documents filed by Mizrahi in Ontario’s Superior Court of Justice on Oct. 5, 2021.

Mizrahi says it has not missed deadlines and Apple no longer has the option to terminate the lease. The developer is seeking a court order to stop the retailer from leaving. In its court submission, Mizrahi said it will “suffer irreparable harm from losing a world-class tenant that was intended to be an anchor tenant for a world-class property, which is a loss that cannot be compensated in damages.”

A spokesman for Apple declined to comment. Mr. Mizrahi’s development company and his lawyers did not respond to a request for comment. There have been no judgments issued in the case, and it’s unclear whether the parties are close to resolving their differences out of court.

Getting Apple to establish its flagship Toronto store on the ground floor was a coup for Mr. Mizrahi. Apple stores are magnets for consumers and would have attracted throngs of people to the building and the neighbourhood.

The condo plans also include restaurants and a hotel, in addition to luxury condos and a multilevel penthouse. Although the project is being led by Mr. Mizrahi, a company controlled by Jenny Coco, the co-founder of troubled lender Bridging Finance Inc., is a 50-per-cent equity investor in The One.

Like other commercial real estate projects, The One has suffered from COVID-19 pandemic restrictions that slowed construction. As well, Mizrahi said it had to wait for Apple to choose a design for the storefront glass and had to deal with other delays out of its control, including a provincewide plumbers’ strike in 2019.

During the lease negotiations, Mizrahi also signed an agreement with Apple and its architect Foster + Partners, a high-profile London-based firm that has worked on Apple’s flagship stores in New York, Los Angeles, Milan and other major global cities. Foster + Partners did not respond to a request for comment.

Mizrahi said it exercised its right to delay the delivery of the space because of events out of its control, such as the pandemic and the plumber’s strike. In December, 2020, it told Apple that it would push out the delivery of the space to Oct. 31, 2021. Apple responded by saying it would exercise its rights to terminate the lease and provided a list of items it thought Mizrahi could not deliver.

Apple’s “position flies in the face of the commercial and practical realities of the construction process for a project,” such as The One, Mizrahi’s court filing said.

The developer accused Apple of threatening an unlawful termination to extract more concessions. Mizrahi said the entire building has been designed and built to be specifically tailored to Apple’s store.

The tech company’s lease was for more than 15,000 square feet, including more than 9,000 square feet on the ground floor. As part of the agreement, Mizrahi agreed to pay Apple’s architect to cover the cost of designing the store, which as of mid-October amounted to $6.24-million, Mizrahi said in its court submissions.

Apple’s space is surrounded by seven layers of glass with no breaks. That was made up of 34 panels custom fabricated from integrated units at an average cost of $400,000 per panel, in the signature and iconic style of flagship Apple stores around the world, Mizrahi stated in its court filings.

If Mizrahi cannot block Apple’s departure, the developer will have to find another tenant for the space built for Apple. Michael Emory, a commercial real estate developer and chief executive officer of Allied REIT, said the location is prime real estate and Mizrahi would be able to find a replacement.

The One is near designer stores and museums – a luxury strip of Bloor Street some refer to as the Mink Mile. It is an area that usually teems with activity, given its location running west from the intersection of the city’s two main subway lines. Like other stores and shopping centres, the street lost business and tenants from the pandemic’s closures.

“It’s almost the epicentre of Toronto. It’s a fabulous corner, just outstanding,” Mr. Emory said. “Bloor Street may have deteriorated a little bit in the last while, but it deteriorated from an incredibly high level, and I don’t think Bloor Street is ever going to go into decline.”

Jones Lang LaSalle Inc., a commercial real estate services firm, has found that retail vacancies on Bloor Street near The One are at the same level as prior to the pandemic. The situation has improved since summer of 2020, when many retailers were closing up shop.

“We have seen a substantial increase in leasing activity and tenant interest on Bloor Street,” said JLL’s senior vice-president of retail, Brandon Gorman, adding that retailers such as Alexander Wang and Rolex have recently signed leases.

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