CITATION: Firm Capital Management v. Heather Tessier, 2019 ONSC 55
DIVISIONAL COURT FILE NO.: 193/17
DATE: 2019-01-08
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
MARROCCO ACJ, RSJ MORAWETZ and RSJ GORDON
BETWEEN:
FIRM CAPITAL MANAGEMENT INC., and STERLING STUDIO LOFTS INC.
Appellants
– and –
HEATHER TESSIER
Respondent
Shawna Sosnovich, for the Appellants
Eli Fellman, for the Landlord and Tenant Board
David S. Strashin, for the Respondent (Tenant)
HEARD: October 24, 2018
Morawetz, RSJ
Nature of Proceedings
[1] Firm Capital Management Inc. and Sterling Studio Lofts Inc. (the “Appellants”) appeal the order of Member Codjoe of the Landlord and Tenant Board (“LTB”), dated March 14, 2017 finding that the Residential Tenancies Act, 2006, S.O. 2006, c. 17 (“RTA”) applied to the tenancy of Ms. Heather Tessier at 227 Sterling Road, Toronto – Unit 214 (the “Rental Unit”).
[2] Pursuant to the Order dated October 4, 2017, Perell J. ordered that this appeal be heard before eight consolidated appeals dealing with similar issues. Reasons for Judgment in Sterling Studio Lofts v. Clayton Stel, 2019 ONSC 91 are being released concurrently with these reasons.
[3] The appellant, Sterling Studio Lofts Inc. (“Sterling”) is the landlord of the property at 227 Sterling Road (the “Property”).
[4] The Appellants argue that the lease agreement between the parties was, at all material times, a commercial lease in form and substance. The Appellants request that Member Codjoe’s order be set aside and that this court order that the RTA does not apply to the Rental Unit. In the alternative, the Appellants requests that the matter be remitted to the LTB for a de novo hearing.
Background Facts
[5] Sterling entered into a written lease agreement with the Respondent, operating as “The Hanged Man Fine Arts” on February 10, 2014 (the “Lease”) and the tenancy commenced on February 15, 2014. The lease was styled as a “Commercial Lease Agreement”.
[6] The parties entered into a commercial lease renewal agreement on September 20, 2015.
[7] The Respondent named Firm Capital Management Inc. (“Firm Capital”) as a landlord, but the Appellants submit that Firm Capital was not a landlord of the Property nor a signatory to the Lease.
[8] The form of the lease agreement is as a commercial lease and various provisions in the lease agreement specify that the Rental Unit is not to be used for residential purposes. Specifically:
Section 4.03 Use and Compliance:
The Premises shall be continuously and actively used and occupied only for the purpose of painting and artwork, and for no other purpose whatsoever. (emphasis in original)
Tenant shall not use or permit to be used the Premises for residential purposes as defined in the applicable zoning by-law or, any future replacement Act(s) in the Landlord and Tenant Act, the Residential Tenancies Act, or the Rental Housing Protection Act.
Section 10.03 No Waiver of Default:
No condoning, excusing, overlooking or delay in acting on by Landlord of any default, breach or non-observance by Tenant at any time or times in respect of any provision in this Lease shall operate as a waiver of Landlord’s rights under the Lease in respect of any such or continuing subsequent default, breach or non-observance, and no waiver shall be inferred from or implied by anything done or omitted by Landlord except an express waiver in writing.
Section 10.11 Entire Agreement:
Tenant agrees that, if it has been in occupancy of the Premises prior to the execution of this Lease, this Lease supercedes any other tenancy, agreement, arrangement or understanding relating to the Premises and the Building, and hereby creates a new tenancy between Landlord and Tenant. Tenant acknowledges that there are no representations, warranties, agreements or conditions, express or implied, collateral or otherwise, forming part of or in any way relating to this Lease save as expressly set out in the Lease, and that this Lease constitutes the entire agreement between Landlord and Tenant with respect to the Premises. No amendment, alteration or addition to this Lease shall be binding on Landlord or Tenant unless it is in writing and signed by both parties.
[9] The Schedule of Rules and Regulations attached to the Lease states:
- No one shall use the Premises for sleeping apartments or residential purposes, for the storage of personal effects or articles other than those required for business purposes, or for any illegal purpose.
[10] The Respondent obtained a business licence, indicated that she would be paying HST to the Appellant, and created artwork in the Rental Unit, some of which was sold. The Respondent had a full time job as an operations manager at a software company. She is now employed in a different role with another technical firm. The Respondent paints as a hobby and never filed business taxes.
[11] The Respondent’s evidence at the hearing was that “she told DW and Mr. David Pruss (employees of the property management company that manages the building) that she intended to live in the unit. Mr. Pruss told her that she required a business licence, but that this as well as the lease was a formality. The Respondent’s evidence was that she was told that if she kept her mouth shut and did not bother the Landlords, they would not bother her.
[12] The core issue before Member Codjoe was whether the RTA applied to the Rental Unit. In determining this issue, Member Codjoe considered sections 5(j) and 202(1) of the RTA which read as follows:
- This Act does not apply with respect to,
(j) premises occupied for business or agricultural purposes with living accommodation attached if the occupancy for both purposes is under a single lease and the same person occupies the premises and the living accommodation;
202(1) In making findings on an application, the Board shall ascertain the real substance of all transactions and activities relating to a residential complex or a rental unit and the good faith of the participants and in doing so,
(a) may disregard the outward form of a transaction or the separate corporate existence of participants; and
(b) may have regard to the pattern of activities relating to the residential complex or the rental unit.
[13] Member Codjoe concluded that, pursuant to the case law, the Rental Unit did not fall within the exemption in s. 5(j), since the primary use of the space was not business-related. Rather, she found that the Rental Unit was used predominantly as a living space, and any use related to the creation and sale of her artwork was merely incidental. The Member also found that, the burden being on the Landlords claiming an exemption, the Appellants had not adduced sufficient evidence at the LTB hearing to demonstrate that the pattern of activities related to the premises were commercial in nature.
[14] Member Codjoe found that, “it appears more likely than not that the Landlords were wilfully blind and/or fully aware of what was transpiring in the unit after the Tenant moved in.”
[15] Member Codjoe concluded that the RTA did apply to the Rental Unit, having accepted the Respondent’s evidence that the parties agreed the true nature of the tenancy was residential.
Issues
[16] On appeal, the Appellants submitted the following issues:
i. whether the Member erred in law in finding that the RTA applies to the Rental Unit;
ii. whether the Member erred in law by applying the predominant purpose test to determine if the RTA applies to the Rental Unit;
a. whether the Member, if she was correct in deciding to apply the predominant purpose test, erred in law in her application of that test; and
iii. whether the Member erred in law in permitting certain evidence of the Respondent and in concluding that the Respondent complied with the rule in Browne v. Dunn.
Jurisdiction
[17] The court has jurisdiction to hear this appeal under s. 210(1) of the RTA, which reads: “Any person affected by an order of the Board may appeal the order to the Divisional Court within 30 days after being given the order, but only on a question of law”. [emphasis added]
Standard of Review
[18] The Appellants submit that this appeal raises an issue of central importance to the legal system and outside the adjudicator’s specialized area of expertise, therefore demanding a correctness standard. The Appellants argue the issue at the core of this appeal relates to interpreting leases and contracts, which is of central importance to the legal system and the LTB may not have expertise in contract law. The Appellants also submit that the identification of a party’s argument and applying the correct legal test, as well as applying the rule from Browne v. Dunn, are also questions of central importance, for which the LTB may not have expertise. The Appellants rely on Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, at para. 62 and Onyskiw v. CJM Property Management Ltd., 2016 ONCA 477, 132 O.R. (3d) 295, at paras. 28-29.
[19] The LTB submits that the issues on appeal should be reviewed on a standard of reasonableness, with deference to be afforded to the LTB due to its expertise in adjudicating residential tenancy disputes. The LTB submits that at issue is whether the RTA applies to the Rental Unit, which involves interpreting the LTB’s home statute and falls squarely with the LTB’s specific expertise
[20] The LTB submits that Member Codjoe appropriately considered all of the evidence and applied s. 202 of the RTA, as mandated and deference should be afforded to the LTB’s determination.
Position of the Parties
[21] The Appellants submit that in determining that the RTA applied, the LTB erred in law in the following ways:
a. by making an improper determination of the intent of the parties and the scope of their understanding with respect to the Lease;
b. by permitting the surrounding circumstances to overwhelm the words in the Lease;
c. by mischaracterizing the Appellants position as asserting an exemption under subsection 5(j) of the RTA and applying the predominant purpose test as a result;
d. concluding that the Respondent was in compliance with the rule in Browne v. Dunn.
[22] The Appellants referenced that the only written agreement in connection with the Rental Unit is the Lease and its renewal, which they argue demonstrates that the parties agreed to be governed by commercial tenancy legislation. The Appellants also submit that at the time the Lease was entered into, the parties had turned their minds to a commercial tenancy and that the Respondent lived and created some artwork in a part of the Rental Unit. The Appellants submit that the clear intention of the Lease was that the Respondent was to use the Rental Unit solely for a commercial space and be bound by commercial tenancy legislation.
[23] The Appellants rely on Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 67 for the proposition that while the surrounding circumstances will be considered in interpreting the terms of the contract, they must never be allowed to overwhelm the words of that agreement.
[24] In this case, the Appellants submit that the Member erred in law in permitting selected surrounding circumstances to overwhelm the written contract, which in turn resulted in a finding that the Respondent could unilaterally change the nature of the relationship to which the parties were bound by the agreement they signed.
[25] The Appellants also point to a previous application before the LTB involving another property at 227 Sterling Road and a similar written lease agreement, where the LTB held that the RTA did not apply in the circumstances (see: Steele v. Sterling Studio Lofts Inc., TST-62470-15).
[26] The Appellants also submit that the Member incorrectly stated in her decision that the Appellants took the position that the tenancy was commercial and fell within the exemption outlined in subsection 5(j) of the RTA and, as a result, undertook an analysis of the predominant purpose test to determine if the tenancy fell within that exemption. The Appellants submit that they did not argue that the tenancy fit within the intention set out in subsection 5(j).
[27] The Appellants also argue that the Respondent adduced evidence that contradicted evidence given by the Appellant’s witness, Mr. Pruss, without giving him the opportunity to speak to those issues, contrary to the evidentiary rule from Browne v. Dunn. Mr. Pruss’ evidence was that there was no communication with the Respondent that the tenancy would be residential, however the Respondent’s evidence was that she had discussed with him that she intended to use the Rental Unit for residential purposes.
[28] Member Codjoe reasoned that the parties had previously attended a case management hearing and so the Respondent’s evidence was not unanticipated by the Appellants. However, the Appellants argue that the order from the case management hearing makes no reference to discussions between Mr. Pruss and the Respondent about the nature of the tenancy, and so the Member erred in allowing and accepting the Respondent’s evidence when it did not comply with the rule in Browne v. Dunn.
Analysis
[29] We disagree with the thrust of the submissions put forth by the Appellants and for the following reasons the appeal must be dismissed.
[30] The LTB has exclusive jurisdiction to hear and determine all applications under the RTA with respect to all matters in which jurisdiction is conferred on the LTB under the RTA (RTA, s. 168(2)).
[31] Further, the LTB has the authority to deal and determine all questions of law and fact with respect to all matters within its jurisdiction (RTA s. 174).
[32] The RTA applies to all “rental units” despite any term in a tenancy agreement that suggests otherwise. “Rental Unit” is defined in s. 2(1) of the RTA as “any living accommodation used or intended for use as rented residential premises.” The LTB has exclusive authority to determine whether a premise is a “rental unit” and hence subject to the RTA.
[33] In addition, any term in a tenancy agreement that is purported to exclude the application of the RTA is not determinative. Section 3(1) of the RTA provides:
Application of Act
3(1) This Act, except Part V.1, applies with respect to rental units in residential complexes, despite any other Act and despite any agreement or waiver to the contrary.
[34] In addition, s. 202 of the RTA also has application. In Matthews v. Algoma Timberlakes Corporation, 2010 ONCA 468, 102 O.R. (3d) 590, the Court of Appeal stated that s. 202 is to be applied when determining whether a unit is intended for use as a residential premises. At paragraph 24 the Court states:
Definition of a “Rental Unit” in s. 2(1) contained two components. First, the unit must be “living accommodation”. Second, it must be used or intended for use as “rented residential premises”. As I have indicated, s. 3(1) provides that the Act applies despite any term in the Lease to the contrary and s. 4 provides that “a provision in a tenancy agreement that is inconsistent with this Act or the regulations is void”. Section 2.2 requires the Board to “ascertain the real substance of the activity” relating to the rental unit and to do so disregarding “the outward form of [the] transaction”. Accordingly, a term in the Lease providing that a site is not residential nor a rental unit will not have the effect of avoiding the application of the Act, provided that the premises otherwise fit within the statutory definition of a “rental unit”.
[35] Accordingly, we are of the view that determinations respecting the application of the RTA falls squarely within the LTB’s area of expertise (RTA s. 2(1), s. 4(1) and s. 9): First Ontario Realty Corporation v. Deng, 2011 ONCA 54, 330 D.L.R. (4th) 461, at paras. 16-22; and Onyskiw, supra at paras. 29 and 31.
[36] In our view, the issue of whether or not the RTA applies to a given rental unit lies squarely within the expertise of the LTB and should be reviewed on a standard of reasonableness.
[37] The Appellants take issue with how the Member assessed the evidence. The Member found that the Rental Unit was used predominantly as a living space, and any use related to the creation or sale of her artwork was merely incidental. The Member accepted the Respondent’s evidence that the parties agreed that the true nature of the tenancy was residential, and concluded that the RTA did apply to the Rental Unit.
[38] In our view, the foregoing are findings of fact or findings of mixed fact and law, which are not reviewable by this court because the Court’s jurisdiction is pursuant to section 210 of the RTA confined to questions of law.
[39] A correctness standard may apply in rare cases where the questions of law at issue are both of central importance to the legal system and outside the adjudicator’s specialized area of expertise. Yet, the issue in this case concerns the application of the RTA – the LTB’s home statute – and this determination, in our view, falls wholly within the LTB’s specialized expertise as the adjudicative tribunal explicitly mandated to adjudicate applications under the RTA.
[40] In accordance with s. 202, the terms of the agreement signed by the parties are not determinative with respect to the application of the RTA and, in our view, the LTB was entitled to find upon consideration of all the evidence that the true nature of the agreement was for use as a rented residential premise. To hold otherwise would result in a triumph of form over substance.
[41] We also reject the Appellants argument that the Member erred in finding that the rule in Browne v. Dunn was not violated.
[42] The Appellants submit that the evidence of Mr. Pruss was that there had been no communications between the Respondent and himself or the Landlord that the tenancy was residential in nature or would be governed by the RTA. Mr. Pruss was not cross-examined with respect to any alleged correspondence he may have had with the Respondent on this issue.
[43] The evidence given by the Respondent was that Mr. Pruss was well-aware of the Respondent’s residential intentions and plans for the Unit because he had been provided with a list of renovation materials and costs.
[44] We are of the view that the argument of the Appellants on this issue is without merit. The Appellants did not include the full transcript of the examination and cross-examination of the Appellants witness. Without the full transcript, we cannot be satisfied that the Browne v. Dunn rule was not complied with and deference should be given to the reasons of the Member, who was alive to the issue and even provided the parties with the opportunity to make further submissions.
[45] In our view, the Member gave due consideration to each party’s position on the matter and the applicable jurisprudence, and came to a reasonable conclusion.
Conclusion
[46] In conclusion, we are of the view that the LTB was entitled to find the Rental Unit was predominantly used by the Tenant for residential living, not business or commercial activities, and such findings of fact cannot be challenged in an appeal of an LTB order. The Appellants appeal seeks merely to interfere with the LTB’s fact finding and discretionary powers, both of which fall outside the scope of s. 210 of the RTA.
[47] In the result, the appeal is dismissed. By agreement of the parties, the costs of this appeal and the appeal in Sterling v. Clayton Stel, 2019 ONSC 91, are payable in the total amount of $8,000 inclusive, to all Respondents.
Morawetz, RSJ
I agree _______________________________
Marrocco, ACJ
I agree _______________________________
Gordon, RSJ
Released: January 8, 2019
CITATION: Firm Capital Management v. Heather Tessier, 2019 ONSC 55
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Marrocco ACJ, RSJ Gordon, RSJ Morawetz
BETWEEN:
Firm Capital Management Inc. and Sterling Studio Lofts Inc.
Appellants
– and –
Heather Tessier
Respondent
REASONS FOR JUDGMENT
MORAWETZ, RSJ
Released: January 8, 2019