ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
A.C.J. Cunningham, swinton and smith jj.
B E T W E E N:
First Ontario Realty Corporation Ltd.
Appellant
- and -
Liangrui Deng, Guizhi He, Dustin Yang, Jenny Yang and Yi Yang
Respondents
Joseph Hoffer, for the Appellant
Richard A. Fink, for the Respondents
HEARD AT TORONTO: October 5, 2009
Cunningham a.c.j.:
REASONS FOR JUDGMENT
The Appeal
1First Ontario Realty Corporation Ltd. (“the Landlord”) appeals from an order of the Landlord and Tenant Board (“the Board”) declaring that the respondent tenants (“the Tenants”) are entitled to a 2.5 per cent rent reduction.
2The rent reduction was granted on the basis of a “reduction in facilities” at the Tenants’ residential complex as a result of the construction of row houses adjacent to the Tenants’ apartment building. The Board held that the lands on which the houses were constructed (“the infill lands”), which were legally severed from the rest of the property, constituted a “recreational facility” within the definition of “services and facilities” under s. 1 of the Tenant Protection Act, 1997, S.O. 1997, c. 24.
3The appeal is allowed for the reasons set out below. We find that the Board erred in its finding that the infill lands met the definition of “services and facilities” in s. 1 of the Tenant Protection Act, 1997. The Board’s orders are rescinded.
Issues Raised
4The following issues are raised on this appeal:
Did the Board err in its finding that the infill lands constituted a common recreational facility within the definition of services and facilities found in s. 1 of the Tenant Protection Act, 1997?
If the infill lands were a common recreational facility, did the Board err in finding that the facility had been reduced?
If the facility was reduced, did the Board err in its approach to calculating the quantum of the rent reduction awarded to the Tenants, pursuant to s. 30 of O. Reg. 194/98?
Factual Overview
5First Ontario Realty Corporation Ltd. is the landlord of an apartment building situated at 50 Rosehill Avenue, Toronto. The Tenants have leased a unit in this building since December 13, 2003.
6The owner of the property, 50 Rosehill Avenue Inc., decided to further develop the land through infill construction of row houses on a portion of green space at the rear of the apartment building. The infill lands were legally severed from the rest of the property to permit the construction.
7On June 28, 2005, 50 Rosehill Avenue Inc. entered into an agreement with the City of Toronto to amend the Official Plan to permit the infill construction. The Official Plan was duly amended and construction commenced in August 2006.
8It was undisputed by the parties that prior to construction, the Tenants used the infill lands as a recreational space. The lands included a lawn with a fence around it, walkways and trees. One of the Tenants gave evidence that she visited the lawn almost daily with her young son.
9The Tenants brought an application to the Board in January 2007 under s. 142 of the Tenant Protection Act, 1997, seeking a rent reduction based on a reduction or discontinuance of services. The Tenants alleged that three services or facilities had been reduced: a quiet and clean living environment, visitor and tenant parking, and building safety.
10At the hearing, the Board found that there was a fourth and separate ground for a rent reduction. The Board concluded that the infill lands were a common recreational facility within the definition of “services and facilities” in s. 1 of the Tenant Protection Act, 1997, and granted a permanent rent reduction on this fourth ground. The Board found that the Tenants failed to make out the other three grounds.
11The Board then calculated the quantum of the reduction by dividing the amount that the Tenants had requested by four, since the Tenants had succeeded on one out of four grounds. As the Tenants had requested a rent reduction of ten per cent, the Board granted a reduction of 2.5 per cent.
12The Landlord filed a request to review this decision of the Board, pursuant to rule 29 of the Board’s Rules of Practice and s. 21.2 of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22. At the review hearing, held January 21, 2008, the Board upheld the rent reduction. The Landlord appeals from both decisions of the Board.
Standard of Review
13Generally, decisions of the Board are reviewable on a standard of correctness, as decisions of the Board may only be appealed to the Divisional Court on a question of law pursuant to s. 210 of the Residential Tenancies Act, 2006, S.O. 2006, c. 17 (formerly s. 196 of the Tenant Protection Act, 1997). The appropriate standard of review in this case is correctness.
14Prior to Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, courts consistently applied the standard of correctness to decisions of the Board on questions of law: Bielak v. Clarke (2008), 169 A.C.W.S. (3d) 653 (Div. Ct.) at para. 8; Dollimore v. Azuria Group Inc. (2001), 152 O.A.C. 57 (Div. Ct.) at para. 2.
15If the Board’s decision on a question of law involves the exercise of discretion, or the interpretation of provisions that are closely connected to its function, then reasonableness may apply. Following Dunsmuir, the Divisional Court applied the standard of reasonableness to a decision of the Board in Caputo v. Newberg (2009), 2009 32908 (ON SCDC), 251 O.A.C. 281 (Div. Ct.). The issue in Caputo was the application of s. 83(1) of the Residential Tenancies Act, which provides that the Board “may” refuse to evict a tenant unless satisfied that it would be unfair to refuse. The Board was required to exercise its discretion under this provision on the specific facts of that case. Reasonableness was held to be the appropriate standard under those circumstances.
16In this case, the Board was required to apply common law principles of statutory interpretation to provisions of the Tenant Protection Act, 1997 and its associated regulation. Further, the provisions of the regulation, which prescribe the method of calculating a rent reduction, employ mandatory language. This was not a matter of the Board exercising statutorily-mandated discretion. The appropriate standard to apply to decisions of the Board on a pure question of law remains correctness: Darragh v. Normar Developments Inc., [2008] O.J. No. 2586 (Div.Ct.) at paras. 14-15.
Issue 1: Did the Board err in its finding that the lands in question constituted a common recreational facility within the definition of services and facilities found in s. 1 of the Tenant Protection Act, 1997?
17Whether or not a rent reduction should have been granted in this case turns upon the definition of services and facilities in the Tenant Protection Act, 1997. Section 142(1) of the Act provides:
142(1) A tenant of a rental unit may apply to the Tribunal for an order for a reduction of the rent charged for the rental unit due to a reduction or discontinuance in services or facilities provided in respect of the rental unit or the residential complex.
(emphasis added)
18“Services and facilities” is defined in s. 1 of the Act as including, among other features, common recreational facilities.
19The Board defined facility as “something that is built or installed upon to perform some particular function.” Both parties rely upon dictionary definitions of facility that are essentially the same as that provided by the Board. The parties disagree, however, as to whether the infill lands met this definition of facility.
20The accepted approach to statutory interpretation is that “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament” (Bell ExpressVu Ltd. Partnership v. R., 2002 SCC 42, [2002] 2 S.C.R. 559 at para. 26).
21Read in its ordinary sense, common recreational facility would entail something that is built or installed to serve a recreational function. The lands surrounding a building, while they may be used for recreation, do not meet the requirement of being built or installed to fulfill that particular function. We accept the Landlord’s submission that these lands are a “necessary incident” to the construction of the building itself. Unless the lands surrounding a building have been specifically landscaped to serve a recreational purpose, by adding a playground, for instance, they will not meet the definition of common recreational facility.
22Further support for this definition of common recreational facility is found in the list of other services and facilities in s. 1 of the Act. All of the items on the list are features of residential complexes that are installed or built to perform a particular function, such as security, laundry, elevators, garbage, and parking facilities.
23The land in question may have been a common area, which was open for the tenants to use for various purposes. The Tenants’ choice to use the land for recreational purposes does not convert it into a facility within the meaning of the Act.
24We therefore accept the Landlord’s submissions that the infill lands did not constitute a service or facility within the meaning of the Tenant Protection Act, 1997.
Issue 2: If the land in question was a common recreational facility, did the Board err in finding that the facility had been reduced?
25Reduction can refer to a reduction of the quality, quantity, or both of a service or facility. This interpretation of the meaning of reduction is logical, given the list of services and facilities in s. 1(1) of the Tenant Protection Act, 1997. Laundry facilities, for instance, could be reduced by either a reduction in the quality or quantity of washing or drying units. For another example, the size or quantity of storage facilities might remain the same, and yet they might be relocated to a less accessible portion of the property.
26In this case, the quantity of land was clearly reduced. However, the Landlord was obliged by its agreement with the City of Toronto to spend over $250,000 on improvements to the remaining land as a condition of the development approval. It is questionable whether the lands should be considered “reduced” under these circumstances based on a reduction in quantity alone.
27As we have found that the infill lands were not a common recreational facility, however, it is not necessary to determine this issue.
Issue 3: If the facility was reduced, did the Board err in its approach to calculating the quantum of the rent reduction awarded to the Tenants, pursuant to s. 30 of O. Reg. 194/98?
28Although our finding that the Board erred in its interpretation of services and facilities disposes of this appeal, we will briefly address the Board’s approach to calculating the quantum of the rent reduction.
29The Tenants applied for a rent reduction under s. 142(1) of the Tenant Protection Act, 1997. This provision is now s. 130(1) of the Residential Tenancies Act, 2006. The prescribed method for calculating the rent reduction largely remains the same under the new legislative regime. It is therefore worthwhile to discuss the appropriate method of calculating the quantum of a rent reduction based on the discontinuance or reduction of a service or facility, as this issue will likely come before the Board again.
30Section 30 of O. Reg. 194/98, the general regulation under the Tenant Protection Act, 1997, prescribes the rules for calculating the quantum of a rent reduction awarded under s. 142 of the Act. The relevant subsections provide as follows:
30(2) If a service or facility is discontinued, the rent shall be reduced by an amount that is equal to what would be a reasonable charge for the service or facility based on the cost of the service or facility to the landlord or, if the cost cannot be determined or if there is no cost, on the value of the service or facility.
(4) If a service or facility is reduced, the amount of the reduction of rent shall be a reasonable proportion, based on the degree of the reduction of the service or facility, of the amount determined under subsection (2) or (3).
(emphasis added)
31The language of these provisions is mandatory. The Board does not have discretion to adopt an alternative method of calculating the quantum of the rent reduction.
32The regulation mandates the following process. First, it must be determined what a “reasonable charge” for the facility would be based on the cost of the service or facility to the landlord. Second, if there is no cost to the landlord or the cost cannot be determined, the reasonable charge will be based upon the value of the services or facility. If the service or facility is discontinued, the amount of the rent reduction will be equal to the “reasonable charge” determined by these first two steps. If the service or facility is reduced, the amount of the rent reduction will be a reasonable proportion of that “reasonable charge,” depending on the extent to which the service or facility was reduced.
33The parties disagreed as to how the value of the service or facility in the second step should be assessed. The Landlord submits that the Tenants had an obligation to establish a prima facie case as to how much of their rent was attributable to the strip of land. The Tenants submit that value should be assessed from the landlord’s perspective, since the regulation specifies that “cost” is assessed from the landlord’s perspective. It is helpful to recall that the value of the service or facility is only used to determine “what would be a reasonable charge for the service or facility.” The appropriate method is to determine the proportion of the tenants’ rent that could reasonably be attributed to the service or facility.
34In this case, the Board found that there was no cost to the Landlord to provide the “facility” of the infill lands. The Board was incorrect to make this finding. It accepted the Landlord’s submission that there had been no change in the cost of the lands, based upon property taxes, insurance, and landscaping costs. Having found that, the Board should have considered what would be a reasonable charge for the facility, based upon these costs.
35Even if it had been appropriate to consider the value of the lands, the only evidence before the Board on value was the Tenants’ statement that they were entitled to a ten per cent reduction based on all of their claims. The Board therefore adopted the novel approach described above: since it held that the Tenants succeeded on one out of four grounds, it awarded one quarter of the reduction they requested.
36Following the original Board hearing, the Tenants have had the infill lands appraised. They submit that the rent reduction awarded using this novel approach was actually far less than what would be proportionate to the actual value of the land to the Landlord, and that the rent reduction awarded is therefore reasonable. We cannot comment on whether the rent reduction awarded by the Board would have been reasonable, had we found that the infill lands were a service or facility, and had the Board used the prescribed method of calculating the quantum. The Board does not have the discretion to adopt a method of calculation that is not provided for in the regulation, regardless of whether the amount arrived at is reasonable.
37The Board’s approach to calculating the quantum of the rent reduction is not supported by the regulation and therefore constitutes an error of law. Even if we had found that the infill lands were a facility that had been reduced with the meaning of the Tenant Protection Act, 1997, we would have granted the appeal on this ground.
Conclusion and Costs
38For these reasons the appeal is allowed.
39The parties have agreed that the successful party is entitled to costs fixed in the amount of $5,000, all inclusive. The respondents shall therefore pay this amount to the appellant forthwith.
___________________________
cunningham a.c.j.
___________________________
SWINTON J.
___________________________
SMITH j.
RELEASED: October 29, 2009
COURT FILE NO.: 151/08
DATE: 20091029
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
A.C.J. Cunningham, swinton and smith jj.
B E T W E E N:
First Ontario Realty Corporation Ltd.
Appellant
- and -
Liangrui Deng, Guizhi He, Dustin Yang, Jenny Yang and Yi Yang
Respondents
REASONS FOR JUDGMENT
CUNNINGHAM A.C.J.
RELEASED: October 29, 2009