Loyalist College of Applied Arts and Technology v. The Municipal Property Assessment Corporation, 2014 ONSC 7152
CITATION: Loyalist College of Applied Arts and Technology. v. The Municipal Property Assessment Corporation, 2014 ONSC 7152
DIVISIONAL COURT FILE NO.: 199/14
DATE: 20141210
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
SACHS, NORDHEIMER & C. HORKINS JJ.
BETWEEN:
THE LOYALIST COLLEGE OF APPLIED ARTS AND TECHNOLOGY and CAMPUS DEVELOPMENT CORP.
Applicants
(Respondents on Appeal)
– and –
THE MUNICIPAL PROPERTY ASSESSMENT CORPORATION and THE CORPORATION OF THE CITY OF BELLEVILLE
Respondents
(Appellant on Appeal)
COUNSEL:
S. Longo, for the respondents
D. Mitchell, for the appellant
D. DeMille, for The Corporation of the City of Belleville
HEARD at Toronto: December 2, 2014
REASONS FOR JUDGMENT
NORDHEIMER J.:
[1] The appellant appeals from the judgment of Scott J. dated January 20, 2014 in which he ordered and declared that a student residence located at 376 Wallbridge-Loyalist Road in the City of Belleville (the “Residence”) is exempt from property taxation effective September 1, 2011 and forward. The City of Belleville appeared on the appeal to support the position taken by the appellant.
Background
[2] The respondent, Loyalist College of Applied Arts and Technology, is a college of applied arts and technology established pursuant to the Ontario Colleges of Applied Arts and Technology Act, 2002, S.O. 2002, c. 8, Sched. F and Ontario Regulation 34/03 made thereunder. Loyalist has campuses located in Belleville and Bancroft, Ontario. Loyalist has approximately 2,800 students at its Belleville campus, where the Residence is located.
[3] The respondent, Campus Development Corp., is a private corporation. It is in the business of developing, owning and leasing residential accommodation.
[4] Loyalist has residence spaces for 476 students. In 2009, Loyalist determined that it needed an additional 100 beds at its Belleville campus. On May 26, 2012, Loyalist entered into a 99-year land lease (the “Lease”) with CDC. The Lease describes Loyalist as the “Landlord” and CDC as the “Tenant”. The purpose of the Lease was to facilitate the financing, construction and operation of a 104 bed student residence on the Loyalist campus. CDC ultimately designed and constructed the Residence.
[5] The Residence is built on land owned by Loyalist. In fact, the Lease describes Loyalist as the “legal and beneficial owner of the Land”. The land is demised under the Lease to CDC for 99 years. CDC is obliged to pay rent to Loyalist which includes payments for operating costs and expenses applicable to the Residence including property taxes. After the first twenty-five years of the lease, CDC is required to pay Loyalist twenty-five percent of all net profits generated by the Residence. The CDC obtained a loan, from Desjardins Financial Security Life Insurance Company, secured against its leasehold interest. While the record is not clear on this point, I assume that this loan was obtained to assist in the financing of the construction of the Residence.
[6] At the end of the lease, CDC is required to surrender the leased premises to Loyalist. Until that time, however, the Residence is owned by CDC. Indeed, the Lease expressly provides, in clause 2.5(a) that the Improvements (defined to include the Residence):
… shall, during the Term, be deemed, as between the Landlord and the Tenant, to be the separate property of the Tenant and not of the Landlord …
[7] CDC and Loyalist share operating responsibility for the Residence. CDC is required, to a limit, to cover the costs of general repairs and maintenance. Any expenses in excess of the limit are to be split equally between CDC and Loyalist. CDC is also responsible for major capital expenditures.
[8] Loyalist is responsible for the cost of security, resident advisors (students who live in the Residence to provide supervision), all management and associated expense, garbage removal, snow removal and landscaping. While the rent for the units is to be paid to CDC, Loyalist is responsible for collecting the rents from the students and forwarding these rents to CDC. Loyalist is responsible for the imposition of sanctions for non-payment of rent, including the withholding of grade reports and clearance to graduates.
[9] While the Lease expressly provides that the Residence is to be used and occupied primarily as residential housing for Loyalist students, CDC is permitted to lease the premises to non-students. The Residence is part of the Loyalist residence system and is administered and managed by Loyalist in the same way as the other Loyalist student residences. Each student living in the Residence enters into a Student Residence Agreement. The agreement is made between the student resident, Loyalist and the Loyalist College Residence (Manager), as agent for CDC.
[10] All Loyalist residences, including the Residence, fall within the purview of the Residence Manager. The Residence Manager is a Loyalist employee and reports to the Director of Student Life, also a Loyalist employee. There are four Residence Assistants assigned to the Residence. The Residence Assistants are responsible for day-to-day supervision of activities and conduct, and interaction with students. Residence Assistants may report any issues or difficulties to the Residence Manager. Residence Assistants are Loyalist students and are paid by Loyalist.
Analysis
[11] Before getting into the requisite analysis for this case, I should say something about the standard of review. The standard of review is correctness with respect to questions of law and palpable and overriding error with respect to findings of fact. With respect to questions of mixed law and fact, the standard of review to apply will fall along a spectrum between correctness, on the one end, and palpable and overriding error, on the other end: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 at paras. 8, 10 & 36.
[12] The key provisions of the Assessment Act, R.S.O. 1990, c. A.31 relevant to this appeal are s. 3(1)1; s. 3(1)4 and s. 18. I begin with s. 3(1)4 that reads:
All real property in Ontario is liable to assessment and taxation, subject to the following exemptions from taxation:
- Land owned, used and occupied solely by a university, college, community college or school as defined in the Education Act or land leased and occupied by any of them if the land would be exempt from taxation if it was occupied by the owner.
[13] The application judge found that the respondents did not fall within the confines of s. 3(1)4 with respect to the Residence because Loyalist did not “solely” occupy the land upon which the Residence sits. There is no challenge taken to that conclusion.
[14] The application judge did, however, find that the respondents’ situation was captured by s. 3(1)1. That section reads:
All real property in Ontario is liable to assessment and taxation, subject to the following exemptions from taxation:
- Land owned by Canada or any Province.
[15] Section 3(1)1 is, however, made subject to s. 18(1). That section reads:
Despite paragraph 1 of subsection 3 (1),
(a) the tenant of land owned by the Crown shall be assessed in respect of the land as though the tenant were the owner if rent or any valuable consideration is paid in respect of the land; and
(b) an owner of land in which the Crown has an interest shall be assessed in respect of the land as though a person other than the Crown held the Crown’s interest.
[16] The application judge found that s. 18(1) did not apply in this situation to make what would otherwise be exempt Crown land, liable for assessment because of his conclusion that the “tenant” of the land was Loyalist. Consequently, s. 3(1)1 made the Residence exempt. As I shall explain, in my view, the application judge erred in coming to that conclusion.
[17] There was, and is, agreement between the parties that Loyalist is an agency of Ontario. That agreement would seem to be inevitable given that s. 2(4) of the Ontario Colleges of Applied Arts and Technology Act, 2002 expressly provides that a college established under s. 2(1) is “an agency of the Crown”. The fact that Loyalist is an agency of Ontario means that Loyalist’s ownership of the land, on which the Residence sits, equates to ownership by Ontario: British Columbia (Attorney General) v. Lafarge Canada Inc., 2007 SCC 23, [2007] 2 S.C.R. 86 at para. 57. That conclusion is buttressed by the Crown Agency Act, R.S.O. 1990, c. C. 48, s. 2 of which reads:
A Crown agency is for all its purposes an agent of Her Majesty and its powers may be exercised only as agent of Her Majesty.
[18] This means that the land would be exempt from taxation by virtue of s. 3(1)1 of the Assessment Act, subject to the restriction imposed by s. 18(1). The impact of s. 18(1) turns on who is the tenant of the land. Tenant is a defined term under the Assessment Act. Section 1 reads:
“tenant” includes an occupant and the person in possession other than the owner.
[19] The application judge concluded that the tenant for the purposes of s. 18(1) was Loyalist. In reaching that conclusion, the application judge began by saying that the real issue before him was whether Loyalist or CDC is “the tenant/occupier of the Residence in the context of the Act”.
[20] The application judge then applied the four part test referred to Mount Sinai Hospital v. Municipal Property Assessment Corp., [2002] O.J. No. 4295 (S.C.J.) for determining occupation. That four part test is: (i) actual occupation; (ii) exclusivity for the particular purpose of the possessor; (iii) value or benefit to the possessor; and (iv) permanence. The application judge found that all four parts of the test favoured Loyalist and concluded that Loyalist “remains in occupation of the Residence”.
[21] The application judge moved from his conclusion that Loyalist remained in occupation of the Residence to consider the issue of paramount occupancy because he acknowledged that the facts could lead to a conclusion that CDC “enjoys some level of shared occupancy with Loyalist”. Indeed, it was this shared occupancy that led to the application judge’s earlier conclusion that the respondents could not rely on s. 3(1)4 of the Assessment Act for their claim for exemption from taxation.
[22] The three elements of “paramount occupancy” are also referred to in Mount Sinai. They are: (i) an occupant’s physical presence on the land; (ii) any controls imposed by one occupant on the other occupant’s use of the land and the purpose and effect of such controls and (iii) the relative significance of the activities commenced on the land to the primary business of each of the competing occupants. Again, the application judge found that each of these three elements favoured Loyalist and, therefore, he concluded that Loyalist was the paramount occupier.
[23] It is accepted that where there are two occupiers of land, and therefore two tenants, it is the paramount occupier who is liable for taxation since only one party can be liable for realty taxes. The application judge concluded that since Loyalist was the tenant for the purposes of s. 18(1), and Loyalist is an agent of the Crown, s. 3(1)1 made Loyalist exempt from taxation and thus the Residence was exempt from taxation.
[24] In my view, the application judge made two fundamental errors in reaching his conclusion. First, the application judge erred in law when he found that CDC was not a tenant of the land. Second, the application judge erred when he concluded that, even if there was shared occupancy of the land, Loyalist was the paramount occupier and was then, again, the tenant of the land for assessment purposes. I believe that both of these errors flowed from the fact that the application judge focussed his analysis solely on the facts surrounding the Residence, and not on the broader issue of the facts surrounding the land.
[25] For the purpose of determining the application of s. 18(1), the issue is not who is the tenant/occupier of the Residence. The issue is who is the tenant/occupier of the land. It is the land to which s. 18(1) is expressly directed. The application judge ultimately concluded that Loyalist was the true tenant and not CDC. In looking at the question only as it related to the use and occupation of the Residence, and not the use and occupation of the land, the application judge applied the wrong facts to the analysis and, in doing so, he failed to consider other relevant facts.
[26] On the first point, namely whether CDC was a tenant of the land, I note that the definition of “tenant” under the Assessment Act includes both a tenant, as that term would be normally understood, and an occupant/person in possession. In other words, the Assessment Act provides for a broader definition of tenant but it does not remove the common understanding of who a tenant is.
[27] In this case, the principal document signed by the two respondents is titled “Lease”. The document refers throughout to Loyalist as the “Landlord” and CDC as the “Tenant”. Clause 3.1 of the Lease provides that Loyalist “does hereby demise and lease, by way of a lease” the land to CDC. The Lease provides for CDC to pay rent to Loyalist – both minimum rent and additional rent. The Lease also provides that CDC shall have quiet enjoyment of the Premises (defined to include the land and the Residence).
[28] While the respondents argue that the Lease is more a financing agreement than a lease (an argument that it appears was first made in the oral submissions before this court), that argument is belied by the contents of the document and by the respondents’ admission that the contract between Loyalist and CDC created a landlord and tenant relationship. While, admittedly, the Lease provides for CDC to construct the Residence on the land, that is not inconsistent with a commercial lease. It is clear that the principle purpose of the Lease is to provide for a lease of the land for 99 years on which CDC will construct and operate the Residence.
[29] A somewhat similar situation presented itself in Exchange Corp. Canada Inc. v. Mississauga (City), 2014 ONCA 113, [2014] O.J. No. 694 (C.A.). In that case, the Court of Appeal agreed with this court, which had concluded that the appellant Exchange, a private corporation, was a tenant of the Greater Toronto Airport Authority which was, in turn, a tenant of the Federal Government, who owned the land on which Pearson International Airport is located. That conclusion was sufficient to make the appellant liable for realty taxes. Sharpe J.A. put the point succinctly at para. 30:
I have concluded that Exchange is a “tenant”. That is sufficient to render Exchange liable for municipal realty taxes.
[30] It is clear, in my view, on the facts of this case, that CDC is the “tenant” of the land, as that term is defined in the Assessment Act. CDC is the tenant of Loyalist, which owns the land as an agency of Ontario. The land is therefore owned by the Crown. As such, s. 18(1) directs that the land is to be assessed as if the tenant was the owner. In accordance with the principle set out above from Exchange, the conclusion that CDC is the tenant is, by itself, enough to make CDC liable for realty taxes.
[31] While that conclusion is sufficient to deal with the issue raised in this appeal, I consider it prudent to address the alternative basis for the application of s. 18(1) – that there are two “tenants” of the land (as that term is defined in the Assessment Act), namely, CDC and Loyalist, and that Loyalist, as the paramount occupier of the land, should be liable for the assessments under the Act. On that issue, the application judge found that CDC was neither an occupier nor a paramount occupier for the purposes of the Act. As I have said, the application judge undertook his analysis from the wrong perspective in arriving at this conclusion. He analyzed the question from the perspective of the occupation of the Residence, instead of the occupation of the land. Given that error on a question of mixed fact and law, the standard of review falls closer to the correctness end of the spectrum of review than it does to the palpable and overriding error end. As Iacobucci and Major JJ. said, on this point, in Housen, at para. 36:
Where the legal principle is not readily extricable, then the matter is one of “mixed law and fact” and is subject to a more stringent standard.
[32] When the four part test referred to Mount Sinai is applied from the perspective of the land, a different conclusion necessarily follows. The land is actually occupied by CDC. Indeed, CDC constructed the Residence, a multi-story building, on that land. It cannot be credibly suggested that, in doing so, CDC did not occupy the land especially since CDC owns the Residence. The application judge appears to have only considered the fact that CDC did not have any employees at the Residence. However, as this court found in Clear Channel Outdoor Company Canada v. Municipal Property Assessment Corporation (2013), 2013 ONSC 7014, 117 O.R. (3d) 664 (Div. Ct.) at para. 26: “Occupation does not require physical presence”.
[33] Further, CDC’s occupation of the land, in this respect, is for the very business in which CDC is exclusively engaged, that is, the business of developing, owning and leasing residential accommodation. CDC also receives value for its occupation of the land. It has a 99 year term to lease out the Residence and generate income by so doing. Indeed, after twenty-five years, CDC must share its profits from its use of the land with Loyalist.
[34] Finally, the land is leased, and the Residence is owned, by CDC for that 99 year term. Ownership of the Residence only reverts to Loyalist at the end of that 99 year term. While CDC’s occupation of the land may not be absolutely permanent, it is about as close to permanent as one can get, from a practical point of view. All four parts of the test for occupation support a finding that CDC is an occupier of the land and is, therefore, a tenant under the Assessment Act.
[35] I allow for the possibility, as did the application judge, that Loyalist also occupies the land insofar as it is involved in the operation of the Residence. A determination would then have to be made as to which of the two is the paramount occupier. The three elements for that determination are also referred to in Mount Sinai.
[36] Applying those three elements to the facts here while, as I have already noted, CDC may not have a physical presence on the land (in terms of having employees present), it still has a physical presence in the sense that it owns the building that sits on the land. In any event, as noted in Gottardo Properties (Dome) Inc. v. Toronto (City), 1998 6184 (ON CA), [1998] O.J. No. 3048 (C.A.) at para. 51:
In short, in my view, physical presence by itself does not determine paramount occupancy.
[37] In terms of controls, I accept that Loyalist has imposed some controls on CDC’s use of the land, but they are not the type of extensive controls that existed, for example, in Gottardo. As noted in that case, some measure of control by the owner of the land is to be expected. Here, the nature of the controls is no different than would be expected in any commercial lease, that is, some restriction on the use to which the property can be put.
[38] In terms of the relative significance of the activities on the land, the provision of student housing is an important, but ancillary, activity of Loyalist. It is not its prime activity, which is the provision of a college education to its students. On the other hand, the Residence is central to the business of CDC, as I have already mentioned. The situation is, consequently, similar to the one found in Re Saga Canadian Management Services Ltd. and City of Ottawa et al. (1977), 1977 1382 (ON SC), 16 O.R. (2d) 65 (H.C.), which was cited with approval in Gottardo, in the following terms, at para. 58:
Similarly, in Saga, the business conducted on the land was catering, which was the business of the tenant who was assessed. Its use of the land was central to its business interests. The university’s use of the land was incidental to its business of providing education.
[39] In the end result, the analysis of who is the occupier of the land favours CDC. The analysis of who is the paramount occupier of the land also favours CDC.
[40] In addition to those analyses, I would add one other factor that supports the conclusion that CDC is the tenant of the land. The plain wording of s. 18(1) demonstrates that where Ontario is either the owner of land that it has leased to another person, or has an interest in land with others, that land is to be assessed as if Ontario did not hold that interest. Concluding that Loyalist is the tenant of the land, would lead to the result that Loyalist would be both the tenant of the land and the owner of the land, since Ontario only owns the land as a result of the fact that Loyalist is an agency of Ontario. To the outside world, Loyalist is the legal owner of the land. It would completely distort the language, and intent, of s. 18(1), on the facts of this case, to come to a conclusion that Loyalist can be both tenant/occupier and owner of the same land, all as a means to the end of trying to fit the factual situation here into the exemption under s. 3(1)1.
[41] In my view, the specific exemption for educational institutions, like Loyalist, is to be found in s. 3(1)4. Loyalist chose to enter into a commercial relationship with CDC, the result of which was that Loyalist was no longer the sole occupier of the land on which the Residence sits. Rather, Loyalist took on the role of the landlord of the land in terms of its lease of that land to CDC as tenant. Upon entering into that commercial arrangement, Loyalist lost its specific exemption under the Assessment Act for the land because it no longer solely occupied the land. Under s. 18(1), CDC, as tenant, is deemed to be the owner of the land and thus is properly assessed for taxation under the Assessment Act.
[42] The appeal is allowed. The judgment below is set aside and the application is dismissed. As agreed between the parties, the appellant is entitled to its costs of the original application, fixed at $10,000, and its costs of the appeal, fixed at $5,000, all inclusive of disbursements and HST.
NORDHEIMER J.
SACHS J.
C. HORKINS J.
Date of Release: December 10, 2014
CITATION: Loyalist College of Applied Arts and Technology. v. The Municipal Property Assessment Corporation, 2014 ONSC 7152
DIVISIONAL COURT FILE NO.: 199/14
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
SACHS, NORDHEIMER & C. HORKINS JJ.
BETWEEN:
THE LOYALIST COLLEGE OF APPLIED ARTS AND TECHNOLOGY and CAMPUS DEVELOPMENT CORP.
Applicants
(Respondents on Appeal)
– and –
THE MUNICIPAL PROPERTY ASSESSMENT CORPORATION and THE CORPORATION OF THE CITY OF BELLEVILLE
Respondents
(Appellant on Appeal)
REASONS FOR JUDGMENT
NORDHEIMER J.
Date of Release: December 10, 2014