Pasternak v. 3011650 Nova Scotia Limited, 2014 ONSC 1012

CITATION: Pasternak v. 3011650 Nova Scotia Limited, 2014 ONSC 1012

DIVISIONAL COURT FILE NO.: 469/13; 470/13; and 467/13

DATE: 20140221

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Marrocco A.C.J.S.C., Lederman and Sachs JJ.

BETWEEN:

JOSEPH PASTERNAK

Tenant/Respondent

– and –

3011650 NOVA SCOTIA LIMITED c.o.b. as MICHIPICOTEN FOREST RESOURCES

Landlord/Appellant

AND

GLENN CAMPBELL

Tennant/Respondent

– and –

3011650 NOVA SCOTIA LIMITED c.o.b. as MICHIPICOTEN FOREST RESOURCES

Landlord/Appellant

AND

GERALD NANNE

Tenant/Respondent

– and –

3011650 NOVA SCOTIA LIMITED c.o.b. as MICHIPICOTEN FOREST RESOURCES

Landlord/Appellant

Wendy Earle and Matthew Furrow, for the Appellant

Robert G. Doumani and Patrick J. Harrington, for the Respondents

HEARD at Toronto: February 6, 2014

Sachs J.

reasons for judgment

Introduction

[1] These three appeals all raise the same issue, namely, whether the Respondents’ (“Tenants”) leases are void pursuant to the subdivision control provisions found at section 50(3) of the Planning Act, R.S.O. 1990, c. P.13 (“PA”), with the result being that the Tenants have no rights under the Residential Tenancies Act, 2006, S.O. 2006, c. 17 (“RTA”).

[2] On June 7, 2013 Member Stevens of the Landlord and Tenant Board (“Board”) ordered the Appellant (“Landlord”) to repay rent illegally collected under the RTA. In doing so she limited the repayment to a one-year period under s. 135(4) of the RTA. The Landlord appeals the finding that the rent was illegally collected because, according to it, the RTA does not apply. The Tenants cross-appeal the finding that they are only entitled to repayment of illegally collected rent for a one-year period.

[3] For the reasons that follow I would dismiss both the appeal and the cross-appeal.

Factual Background

[4] In the 1970s Algoma Central Railway (“ACR”) became the owner of a large tract of land north of Sault Ste. Marie. In the 1970s and 1980s ACR leased many one acre sites within the property for recreational use during the summer. The lessees built cottages on their sites. In 1997 ACR sold part of the land, including 429 cottage sites, to the Landlord. In 2005 ACR sold the rest of the land and cottage sites to Algoma Timberlakes Corporation.

[5] On June 1, 2008, each of the lessees, including the Tenants, executed a new lease with the Landlord that provided for automatic yearly renewal, unless either party gave notice of termination, for a maximum of 20 years.

[6] Subsection 50(3) of the PA prohibits a landowner from entering into any agreement that has the effect of granting another person “the use of or right in [the owner’s] land” directly, or by entitlement to renewal, for a period of 21 years. The leases were drafted to provide for a term that was less than the 21 year term prohibited under the PA.

[7] In 2005, after Algoma Timberlakes acquired its portion of the land, Algoma Timberlakes either tried to evict or increase the rent paid by the tenants who held 20 year cottage leases on the land. The tenants applied to the Board for a declaration that the RTA applied to their leases and, therefore, Algoma Timberlakes’ actions were illegal. The Board declined the tenants’ request for relief. The tenants appealed to the Divisional Court, which also found against the tenants. On appeal to the Court of Appeal, in a decision called Matthews v. Algoma Timberlakes Corp., 2010 ONCA 468, 102 O.R. (3d) 590, the Court of Appeal found that the RTA did apply to the tenants’ leases. The parties accept that since the RTA applies to the leases in the Matthews case, it also applies prima facie to the leases that are the subject of the appeal before us.

[8] The Tenants signed the 2008 leases before the Matthews decision was released by the Court of Appeal. In those leases they agreed to pay an increased rent in excess of the amount that would have been allowed under the RTA. After the Tenants became aware of the Court of Appeal’s ruling in Matthews they applied to the Board for a declaration that the increased rents they were paying under the 2008 leases were illegal. The Landlord’s response was to submit that the 2008 leases were void ab initio. The Board rejected this argument.

[9] According to the Landlord, the RTA contains a statutory entitlement to automatic renewal. The effect of this entitlement on a land lease, where the Landlord is a corporation and owns abutting land, is to render the leases void under the subdivision control provisions at s. 50(3) of the PA.

[10] This argument was never put to the court in Matthews. Disconcertingly, if the Landlord’s argument is accepted, the effect of the Court of Appeal’s decision in Matthews would be to void the leases at issue in that case, leaving the tenants with no rights in relation to their cottages. The same would be true for the leases that are the subject of this appeal.

Issues

[11] This appeal raises three issues:

(a) Did the Board err when it found that the leases were not void under s. 50(3) of the PA?

(b) If the leases are not void, did the Board err in finding that the Tenants were not estopped from claiming that the rents they agreed to pay in 2008 were illegal under the RTA?

(c) If estoppel does not apply and the rents were illegal, did the Board err in limiting the Tenants’ claim to one year?

Section 50(3) of the Planning Act

[12] The parties disagree as to the standard of review that is applicable to this issue. The Landlord argues that it is correctness because the issue involves a question of law about a statute other than the Board’s home statute. The Tenants submit that the standard is reasonableness. I see no reason to resolve this issue, since, in my view, the Board’s decision was correct.

[13] Section 50(3) of the PA provides as follows:

No person shall… enter into any agreement that has the effect of granting the use of or right in land directly or by entitlement to renewal for a period of twenty-one years or more unless,

(a) the land is described in accordance with and is within a registered plan of subdivision;

(b) the …grantor of a use of or right in land…does not retain the fee or the equity of redemption in, or a power or right to grant, assign or exercise a power of appointment in respect of, any land abutting the land that is being conveyed or otherwise dealt with other than land that is the whole of one or more lots or blocks within one or more registered plans of subdivision…

(f) a consent is given to convey, mortgage or charge the land, or grant, assign or exercise a power of appointment in respect of the land or enter into an agreement in respect of the land.

[14] The parties agree that the leased lots are not part of a registered plan of subdivision, that the Landlord does retain an interest in the abutting land , that no planning board consent has been given in relation to the leases at issue and that none of the other exceptions in s. 50(3) apply.

[15] Section 50(21) of the PA states that “[a]n agreement … made … in contravention of this section or a predecessor thereof does not create or convey any interest in land.”

[16] Section 37(1) of the RTA provides that a tenancy can only be terminated in accordance with its provisions. Under the RTA when a lease expires a landlord (as opposed to a tenant) may apply to terminate a lease upon notice only on specific grounds, such as personal use of a landlord( which would not apply to a corporation that is not a sole shareholder corporation), personal use of a purchaser, conversion for a purpose other than residential, demolition, non-payment of rent, illegal or dangerous acts, damage to the premises, interference with reasonable enjoyment of another tenant, or excess occupancy.

[17] Subsection 38(1) of the RTA states:

If a tenancy agreement for a fixed term ends and has not been renewed or terminated, the landlord and tenant shall be deemed to have renewed it as a monthly tenancy agreement containing the same terms and conditions that are in the expired tenancy agreement and subject to any increases in rent charge in accordance with this Act.

[18] According to the Landlord, since the leases at issue are governed by the RTA, they can be automatically renewed indefinitely. This potential of renewal for a period of more than 21 years is enough to trigger the application of s. 50(3) and (21) of the PA, thereby rendering the leases void ab initio. In making this submission the Landlord relies on two decisions of the Ontario Court (General Division): Londry v. Dean (1994), 1994 7339 (ON SC), 21 O.R. (3d) 157, and Beer v. Beer (1997), 13 R.P.R. (3d) 33.

[19] In Londry, Chilcott J. found that a lease for the lifetime of the last survivor of two lessees, where the lessor owned the abutting property, violated s. 50 of the PA and was void ab initio. In Beer, LaForme J. found that a grant where the grantor reserved a life interest to himself contravened the PA because it granted the use of a right in land for a period of more than 21 years.

[20] The Board rejected the Landlord’s submission. At paragraph 15 of its decision it found:

The Landlord’s argument creates an absurd result which is in conflict with the legislative intent of the RTA. For example if a landlord owns a side by side duplex or a townhouse development the tenants would not have the protection of the RTA because the Landlord retains abutting lands.

[21] At paragraph 24 it stated:

The Landlord’s submission argues that subsection 50(3) of the PA applies because of the renewal of leases provided in Section 38 of the RTA. I agree with the Tenants submission that the plain reading of subsection 50(3) specifically refers to “agreements”. It does not say that it applies to a statutory provision for security of tenure.

[22] In my view, the Board correctly interpreted s. 50(3) and correctly observed that the Landlord’s interpretation of the subsection would lead to an absurd result. The wording of section 50(3) is directed at the parties entering into an agreement that has the effect of directly or indirectly providing for the use of the land for more than 21 years. In other words, for a lease to be void, it is the agreement entered into by the parties, not a statutory provision, that must have the effect of providing for a term of usage of more than 21 years. In both Londry and Beer it was the agreement between the parties( or private instrument) that provided for a life interest and, therefore, contravened the PA.

[23] Such an interpretation is consistent with the legislature’s intention to prevent people from circumventing the subdivision control provisions of the PA by entering into leases with a term of more than 21 years and consistent with the remedial purpose of the RTA to protect residential tenants in Ontario.

[24] In this case there is no suggestion that the parties sought to circumvent the provisions of s. 50(3) of the PA when they entered into the leases in question. In fact, as noted, in providing for a maximum term of 20 years, it would appear they did the opposite. In addition, as the Board found, adopting the Landlord’s interpretation could have the unintended effect of voiding the leases of a number of tenants in Ontario – something that would be clearly contrary to the remedial purpose of the RTA.

Estoppel

[25] The Board found that the Landlord had not complied with the notice requirements of subsections 116(1) and (4) of the RTA when it entered into the 2008 leases, which provided for above guideline rent increases. The Board also found that the Tenants had voluntarily agreed to the terms of the 2008 leases and that, at the time, both parties believed that the RTA did not apply to their relationship.

[26] According to the Landlord, having agreed to the 2008 leases and accepted the rent increases in those leases, the Tenants should be estopped from retroactively challenging those increases.

[27] On this issue, which involves the interpretation of the Board’s home statute, the standard of review is reasonableness: First Ontario Realty Corporation Ltd. v. Deng, 2011 ONCA 54, at para. 22.

[28] Subsection 3(1) of the RTA provides that the Act applies “despite any agreement or waiver to the contrary” and s. 4 states that “a provision in a tenancy agreement that is inconsistent with this Act or the regulations is void.” In 1086891 Ontario Inc. v. Barber (2007), 2007 18734 (ON SCDC), 284 D.L.R. (4th) 568 (Ont. S.C. – Div. Ct.), it was held that these sections, of which there were similar versions in the predecessor legislation to the RTA, preclude a landlord from relying on the doctrine of estoppel to legalize an unlawful rent increase. As put by the court, at para. 19:

Estoppel cannot override statute. There is no need for the subsection to make specific reference to the doctrine of estoppel. In any event, it would be illogical to conclude that, although the TPA prohibits in very clear terms any agreement to the contrary or waiver of rights, it leaves open to the parties to accomplish the same thing through the doctrine of estoppel. [Citations omitted]

[29] I agree with this reasoning and find that similarly, in this case, the Landlord cannot rely on the doctrine of estoppel to escape a challenge to its illegal rent increases.

The One Year Limit

[30] The Board interpreted its home statue when it determined this issue. Thus, the standard of review applicable to this aspect of its decision is reasonableness.

[31] Section 135 of the RTA is the section that provides that a tenant may apply to the Board for an order directing a landlord to pay him or her any money the landlord collected or retained in contravention of the Act. Section 135(4) states:

No order shall be made under this section with respect to an application filed more than one year after the person collected or retained money in contravention of the Act or the Tenant Protection Act.

[32] The Board applied s. 135(4) and limited the illegal rent subject to repayment to the rents collected in the years 2011 and 2012.

[33] The Tenants submit that this decision was unreasonable for three reasons. First, since the rent increases for the years 2008, 2009 and 2010 were void under s. 4 of the RTA, the Board erred when it used the provisions of s. 135(4) to allow the Landlord to retain those increases. Second, the section refers to retention as well as collection and the act of retention is an ongoing act. In other words, since the Landlord continues to retain the illegal rents, the one-year period has not begun to run. Third, s. 135(4) should be interpreted as implying “discoverability” and, in this case, the Tenants did not know that the rents collected under the 2008 leases were illegal until they found out about the Court of Appeal’s decision in Matthews, which was released in October of 2010. The Board accepted that the Tenants did not become aware of the decision until sometime in 2011.

[34] In rejecting the Tenants’ arguments the Board reviewed the authorities that the Tenants relied upon, found that they were not directly applicable and drew a distinction between “retaining illegal money” and “collecting an illegal rent increase”. The Board found that this was a case of collecting an illegal rent increase, as opposed to retaining money illegally (e.g. illegally retaining a deposit).

[35] With respect to their first argument, the Tenants relied upon the Court of Appeal’s decision in Price v. Turnbull’s Grove Inc., 2007 ONCA 408, 85 O.R. (3d) 641. This decision does not deal with s. 135(4) of the RTA and makes no finding that its reasoning should be applied to s. 135(4).

[36] With respect to their second argument, the Tenants relied on the decision of this court in Dollimore v. Azuria Group Inc. (2001), 152 O.A.C. 57 (Ont. S.C. – Div. Ct.), where the court found that a landlord who forced a tenant to pay one year’s rent in advance (contrary to the RTA) continued to retain the money and therefore the one year period provided for in s. 135(4) of the RTA had not expired. In my view, this case supports the distinction that the Board made. Dollimore was a case where the court found that the landlord continued to retain a deposit that it had collected in violation of the RTA’s provisions with respect to security deposits. It was not a case of collecting illegal rent on a monthly basis.

[37] With respect to their third argument, the discoverability argument, this argument ignores the fact that the discoverability principle applies to knowledge of facts, not law. The commencement of a limitation period will not be postponed where a person knows of a fact, but fails to appreciate its legal significance: Graham v. Imperial Parking Canada Corp., 2010 ONSC 4982, at para. 160.

[38] As the Supreme Court of Canada has made clear, to survive scrutiny on a reasonableness standard, a decision does not have to be the only possible interpretation of the law. It has to be justifiable, intelligible and transparent. Further, the outcome must fall with the range of acceptable outcomes that are defensible in respect of the facts and the law: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, at para. 47. In this case, the Board’s decision with respect to the applicability of s. 135(4) meets the Dunsmuir criteria for reasonableness. Certainly there is a reason to draw the distinction that the Board drew as, otherwise, it would be difficult to think of a circumstance where the one-year limitation period provided for in s. 135(4) would apply.

Conclusion

[39] For these reasons the appeal and the cross-appeal are dismissed. The parties agreed that costs for the appeal and the cross-appeal should be fixed in the same amount, namely, $12,000.00 plus disbursements. In view of this agreement, there shall be no order as to costs unless there is a significant differential in disbursements that the parties wish us to address.

Sachs J.

Marrocco A.C.J.S.C.

Lederman J.

Released:

CITATION: Pasternak v. 3011650 Nova Scotia Limited, 2014 ONSC 1012

DIVISIONAL COURT FILE NO.: 469/13

DATE: 20140221

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Marrocco A.C.J.S.C., Lederman and Sachs JJ.

BETWEEN:

JOSEPH PASTERNAK

Tenant/Respondent

– and –

3011650 NOVA SCOTIA LIMITED c.o.b. as MICHIPICOTEN FOREST RESOURCES

Landlord/Appellant

AND

GLENN CAMPBELL

Tennant/Respondent

– and –

3011650 NOVA SCOTIA LIMITED c.o.b. as MICHIPICOTEN FOREST RESOURCES

Landlord/Appellant

AND

GERALD NANNE

Tenant/Respondent

– and –

3011650 NOVA SCOTIA LIMITED c.o.b. as MICHIPICOTEN FOREST RESOURCES

Landlord/Appellant

REASONS FOR JUDGMENT

Released: 20140221