Court File and Parties

Court File No.: CV-20-00638983-000 Date: 2020-05-04 Ontario Superior Court of Justice

Between: ONTHEGOSHIPPING INC., and KWOK-WAI LEUNG, aka HARRY LEUNG, Applicant – and – G. KHAN MEDICINE PROFESSIONAL CORPORATION, Respondent

Counsel: Peter Askew, for the Applicant Ronald Allan, for the Respondent

Heard: April 30, 2020

Before: G. Roberts J.

[1] The applicant leases premises from the respondent at 6882 Fourteenth Avenue in Markham which include a two-story heritage house, yard and garage (the premises). On March 24, 2020, a week after the Premier declared a state of emergency in Ontario due to COVID-19, the respondent locked the applicant out of the house on the premises. The applicant also asserts that the respondent damaged the front door, and some of the respondent's property inside the house.

[2] The applicant brings an application pursuant to Rules 14.05 and 40 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and s.101 of the Courts of Justice Act, R.S.O. 1990, c. C.43, for a declaration that the Residential Tenancies Act, 2006, S.O. 2006, c.17 (the RTA) applies and governs the tenancy. He also seeks to continue an interim injunction restraining the respondent from interfering with his reasonable enjoyment of the premises pending a determination of the status of his tenancy. (On March 26, 2020, Justice Myers granted an interim injunction restraining the respondent, and anyone acting on behalf of the respondent, from taking any step to exclude the applicant from exclusive possession of the premises. On April 3, 2020 Justice Myers extended the interim injunction until the final outcome of this application.) Further, the applicant seeks damages in relation to the damage he alleges the respondent caused on March 24, 2020, and an order that he is owed $22,428.23 in relation to a set-off agreement with the respondent.

[3] For its part, the respondent seeks a declaration that the Commercial Tenancies Act, R.S.O. 1990, c.L.7 (the CTA) applies and governs the tenancy. He also seeks an order for possession of the premises after the March 19, 2020 Order of Chief Justice Morawetz suspending all evictions and/or writs of possession is lifted. In addition, among other things, he seeks judgment that he is owed $26,732.39 in relation to unpaid rent.

[4] During the hearing, both parties agreed that the nature of the tenancy was the central issue to be decided on the application. If I decided that the tenancy was commercial, this Court has jurisdiction, and I can consider the other issues, including whether it is possible to decide them on an application, or whether it is necessary to order the trial of an issue. If I decided that the tenancy was not commercial, the Landlord and Tenant Board (the LTB) has exclusive jurisdiction, and the remaining issues of "who owes what" must be decided by the LTB. In these circumstances, both parties agreed that it was appropriate to get an initial ruling on the nature of the tenancy. These are my reasons.

Factual Background

[5] On March 23, 2019 the applicant, Harry Leung, signed a two-year commercial lease for the premises municipally known as 6882 Fourteenth Avenue in Markham. The lessee was the applicant, described as "ONTHEGOSHIPPING INC. (Harry Kwok-Wai Leung)". The lessor was the respondent, described as "G.Khan Medicine Professional Corporation". As noted at the outset, the premises consist of a two-story heritage house, a yard including a large driveway, and a large two-car garage (approximately 25' x 25'). The property is zoned "rural residential housing", but a "business office" is explicitly permitted. The lease began April 1, 2019, and the agreed upon monthly rent was $3,500.00 plus HST for a total of $3,955.00.

[6] The applicant explains in his affidavit that he has lived at the premises from the outset of the lease, running his business out of a home office on the first floor, and using the garage to park his truck and store a forklift. His fiancée Paula lives with him at the premises and, as some point, also two dogs.

[7] There is no signage for OnTheGoShipping at the premises, and no customers, employees or workers regularly come to the premises. Thick shrubbery shields the house from the street.

[8] The applicant affirms that the respondent knew of, and approved, these living arrangements. He affirms that the respondent told him that a commercial lease was required if any business activity was conducted at the premises. The applicant was asked in cross-examination about his claim that the landlord insisted that he sign a commercial lease. He responded as follows:

It was at the day I signed. He said, "This is a commercial form." As long as I pay my rent on time, they don't care what I do with the property. They even stated the last tenant was living there once in a while as well.

[9] The applicant did not obtain independent legal advice before signing the lease. When it was put to him in cross-examination that the MLS listing for the rental property indicated that it was a commercial property, he explained that he did not see the MLS listing. He noticed the property while driving by, thinking it was a good location, close to where he planned to marry, and it had space to park his large work truck so he could go directly to and from work sites. He explained further in re-examination that he did not understand the difference between a residential lease and a commercial lease.

[10] The applicant upgraded the house. He converted the pantry to a kitchen, installed appliances, and put down hardwood floor upstairs. The applicant affirms that the respondent knew about these improvements and consented to them, noting that the respondent visited the home in May or June of 2019 and simply asked why he paid to clean the carpet if the applicant was just going to remove it. The applicant acknowledged that he did not get the respondent's written consent for the upgrades, explaining it was a verbal consent. Schedule A to the lease notes, among other things:

The Tenant covenants to comply with all applicable government by-laws and codes governing the use of the demised premises. The Tenant may make any necessary alteration and improvements to said premises, at Tenant's own expense, subject to the Landlord's written consent, and such consent shall not be unreasonably withheld.

The Landlord agrees to shampoo clean the carpet flooring of the office on or before the 29th of March 2019 and leave the premises in a clean and debris free condition. The Landlord will also provide paint needed to paint the interior walls and basement floor and stain the outside walls. The Tenant will be responsible for the painting job.

[11] There is no question that at the time the respondent attempted to lock the applicant out, on March 24, 2020, the applicant and his fiancée and dogs were living in the house. Pursuant to an undertaking he gave on cross-examination, the applicant has provided photographs of the house from the same angle as the photographs shown in the original MLS listing. They show that the entire house, apart from an 8'x8' office on the ground floor, was being used as a residence, including a kitchen, bathroom, bedroom, and dining room.

[12] The respondent swears that all the parties contemplated a commercial rental. This was how the premises were being used when the respondent purchased them in 2017, and how they were used by the previous tenant (a landscape architecture business). It was how the premises were described in the MLS listing, which included "Spacious office building & Garage Space for lease". The photographs attached to the listing showed the interior of a house being used as office space.

[13] The lease agreement is a commercial long form agreement to lease. It describes the "use" of the premises as "Entire building being leased, Main Building for office and Garage for Storage". It explicitly includes a charge for HST, which I understand would not be charged on a residential lease. It permits the tenant to erect signage. The lease contains an "Entire Agreement" clause. It does not contain a clause explicitly restricting the use of the property to a commercial purpose, or prohibiting it from being used as a residence.

[14] The respondent notes that when the applicant corresponded with the respondent and his real-estate agent, Nathan Sivapathasundaram (Mr. Siva), the applicant did so on behalf of himself and his company OnTheGoShipping. As noted, the lease showed the tenant as "ONTHEGOSHIPPING INC. (Harry Kwok-Wai Leung)". The respondent notes that the applicant introduced himself in March 3, 2019 communication with Mr. Siva as "OntheGo". But I also note that prior to this communication Mr. Siva asked the applicant for articles of incorporation. Further, in an email from the applicant to Mr. Siva, dated March 7, 2019, the applicant wrote "current address for me and corporation is 1-3264 Danforth Avenue in Scarborough." [emphasis added]

[15] Mr. Siva swore an affidavit in support of the respondent's position. He swears that the premises were always intended to be leased for a commercial purpose. He also swears that the applicant never said he planned to live in the premises. While Mr. Siva was not cross-examined on his affidavit, the respondent was cross-examined about his relationship with Mr. Siva: the two are long-time friends and business partners. The applicant also affirmed a second affidavit, describing Mr. Siva's claim that the applicant never advised that he intended to reside at the premises as "completely untrue".

[16] The respondent denied knowing that the applicant was living at the premises until he took steps to lock him out on March 24, 2020. The respondent was cross-examined about the fact that his medical office is next door to the premises, where he works full-time, and he has to enter his medical office by walking down a driveway that is parallel to the driveway to the premises, and nothing separates the two driveways, or obstructs the view of the premises.

[17] The respondent was also cross-examined about the fact that, in a letter dated March 13, 2020, the applicant's lawyer explicitly put the respondent's then lawyer [not Mr. Allan] on notice that the applicant was living at the premises, writing:

[A]s the landlord is aware, Mr. Leung resides in the second floor of the leased premises. If any steps are taken by the landlord to lock out or otherwise prevent Mr. Leung from accessing the premises, my clients will seek all available remedies under both the Residential Tenancies Act and the Commercial Tenancies Act, and will seek full indemnity costs against the Landlord for same.

The respondent denied seeing this part of the letter, or his lawyer telling him about it, but he acknowledged that his lawyer's responding letter, dated March 19, 2020, was sent on his instructions. The March 19 responding letter included the following:

The lease agreement signed between the parties are limited to use the premises for commercial purpose only and it is illegal and contravene his covenants under lease agreement signed if he use the premises for residential purposes as well. And my client did not aware this breach. In this respect my client has right to terminate the lease and can ask your client to vacate the premises immediately for such breach. [emphasis and language as in the original]

The applicant's counsel responded in an email dated March 23, 2020, which included the following:

My clients reiterate that the Landlord was fully aware that the leased premises were to be used in part for residential purposes at the time the Lease was executed. Moreover, I note that there is no term in the Lease forbidding or otherwise precluding Mr. Leung from living at the leased premises.

Mr. Leung is a residential tenant and cannot be evicted unilaterally by the Landlord, especially in light of the dispute over the outstanding invoices.

I again caution you that if any steps are taken by the Landlord to lock my clients out of the leased premises, we have instructions to bring this matter into court on an urgent basis and seek full indemnity costs against the Landlord.

The respondent testified that he did not recall seeing or discussing his lawyer's letter, or the email in response.

[18] The respondent did recall that his lawyer told him that there was a blanket order against residential evictions because of COVID-19, explaining "We know that. That was for residential purposes, not for commercial purposes." When asked why he changed the locks on March 24, he explained:

This is a commercial property. I have a commercial lease with that guy. I don't have any residential lease with him. He is not paying rent for many months. I keep on asking him about paying rent. He is not paying rent. What should I do?

The correct approach for determining whether a tenancy is commercial

[19] Section 3 of the Residential Tenancies Act, 2006, S.O. 2006, c.17 (the RTA) provides that the Act "applies with respect to rental units in residential complexes, despite any other Act and despite any agreement or waiver to the contrary." Section 2(1) of the RTA defines “rental unit” as "any living accommodation used or intended for use as rented residential premises". The Court of Appeal in Matthews v. Algoma Timberlakes Corporation, 2010 ONCA 468 at para.23 noted that the broad definition of "rental unit" in the RTA is intentional, reflecting the fact that the legislation is remedial, and is designed to protect tenants from unlawful rent increases and evictions.

[20] Section 168(2) of the RTA provides that the Landlord and Tenant Board (the LTB) "has exclusive jurisdiction to determine all applications under this Act and with respect to all matters in which jurisdiction is conferred on it by this Act." However, s. 5(j) of the RTA provides that the RTA does not apply with respect to:

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...

[21] In interpreting and applying s.5 (j) of the RTA, this court has considered the predominant purpose of the occupation or use of the premises. As Justice Cory explained in Hahn v. Kramer (1979), 23 O.R. (2d) 689 (Div.Ct.) at para.9:

It is to be noted that the exemption clause specifies that the premises be occupied for business purposes with living accommodation attached. To me, the wording of the section seems to indicate that the business purposes should predominate. The Act appears to specifically and carefully proceed in a manner which emphasizes the business use to be made of the combined premises so as to take them outside the definition of residential premises.

For more recent examples of this court considering the predominant purpose test in interpreting and applying s.5 (j) of the RTA, see Toronto Community Housing v. Bryant Didier, 2018 ONSC 5158 at para.29; Tauro v. Yu, 2018 ONSC 7319 at paras.32-37; and Firm Capital Management v. Heather Tessier, 2019 ONSC 55 (Div.Ct.).

[22] Substance, not form, governs when considering the true nature of a tenancy. Both the Court of Appeal and the Divisional Court have held that s. 202 of the RTA applies when determining whether or not a unit is residential: Matthews, at para.24, quoted with approval in Firm Capital, at para.34. Section 202(1) provides:

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.

[23] Parties cannot contract out of the RTA. The fact that a commercial lease is used is a relevant circumstance, but it is not determinative: Fiset v. Di Geso, [1998] O.J. No.3466 (Ont.(Gen.Div.)). Nor is a "whole agreement" clause, or a clause forbidding a non-commercial purpose, determinative, or any other clause for that matter: Firm Capital, at para.8. As the Court of Appeal in Matthews explained after noting that s.202 of the RTA applies when determining the nature of a tenancy:

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 [RTA], provided that the premises otherwise fit within the statutory definition of a "rental unit".

[24] All the circumstances must be considered to determine the predominant purpose or use of the tenancy. This Court in Fiset, provided examples of circumstances which may be relevant. The circumstances could include:

• The historical use of the premises.
• The intention of the parties.
• Whether the landlord knew the tenant was living at the premises.
• The zoning for the premises.
• The form and wording of the lease.
• Whether the landlord charged GST in relation to the rent.
• Whether the premises are a single unit or whether they were divided into distinct residential and commercial areas, such that the residential area is "attached" to the commercial area.
• Whether or not amenities one would expect in a residential tenancy, such as a stove and a refrigerator, are in the premises.
• The relative share of the premises devoted to commercial use as opposed to residential use.
• How business was conducted at the premises. Was there a "walk-in" trade? Did employees or workers attend the premises in relation to the conduct of the business?
• Whether there are any signs indicating a commercial use.
• The terms of the lease, such as its length, and any provisions for rent increase.

[25] The respondent accepts that the party claiming to come within a s.5 exception to the application of the RTA bears the burden of proving on a balance of probabilities that the exception applies: Fiset, at para.21.

The positions of the parties

[26] It is the applicant's position that the predominant purpose of the tenancy was to provide residential accommodation for himself and his fiancée and their two dogs. He was attracted to the property because it was close to where he planned to get married, he could have an office there, and it would accommodate his large truck, so that he could go directly to and from work sites from home. The respondent was aware of the applicant's intention from the outset, but, in any event, it was abundantly apparent in the course of the year that the applicant was living on the premises with his fiancée and their two dogs prior to being locked out.

[27] It is the respondent's position that the intention of the parties at the outset should be the most important factor in applying the predominant purpose test as a tenant should not be permitted to unilaterally change the nature of the tenancy. He argues that this is particularly true in the circumstances of this case, where the respondent did not know that the applicant was living on the premises before attempting to lock him out.

Analysis

[28] Neither party raised any objection that the written record they presented provided an insufficient or inappropriate basis to determine the nature of the tenancy. And I am satisfied that I can decide this issue based on the written record presented by the parties. The respondent's position implicitly invokes Part III of the Commercial Tenancies Act, R.S.O. 1990, c. L.7 (CTA), which permits a landlord to terminate a commercial tenancy. Part III of the CTA gives the Court broad powers to hear and resolve related issues summarily. In addition, I am satisfied that the application power under Rule 14.05 is broad enough to fairly resolve the issue of the nature of the tenancy in the circumstances of this case. The parties have provided detailed material, including affidavits from the parties, who have both been cross-examined. Even though there are credibility issues, I am satisfied that the central issue of the nature of the tenancy can be fairly resolved on the record provided, and there is no suggestion otherwise. See e.g. A.M. Machining Inc. v. Silverstone marble & Granite Inc., 2010 ONSC 71 at paras.4-14; Rubner v. Bistricer, 2019 ONCA 733 at para.89, reversing 2018 ONSC 3038, but accepting this point, discussed at paras.104-108.

[29] The uncontradicted evidence is that the applicant and his fiancée Paula have been living at the premises since the outset of the lease. They use the majority of the two-story heritage house as a residence, with only an 8' x 8' space on the ground floor reserved as an office. The large two-car garage is used to park the applicant's work truck and forklift.

[30] There is a factual dispute about whether the respondent knew that the applicant was living in the premises. Notwithstanding that I only have a paper record before me, I believe the evidence is overwhelming that the respondent knew that the applicant was living at the premises. This evidence includes the following circumstances:

• At the time the lease was negotiated in March of 2019, the applicant explicitly described himself and his company as occupying the same premise. The applicant was looking not just for a place for his company but for himself as well.
• The applicant affirmed in his affidavit that the respondent saw the renovations he performed when the respondent visited the premises in May or June 2019, and simply questioned why he paid for carpet cleaning given that the applicant put down hardwood flooring. This evidence is confirmed by the term of the lease requiring the respondent to clean the carpet before the beginning of the lease.
• The respondent worked full-time in the building next door to the premises, and had to enter his office by going down a driveway which ran parallel to the driveway into the premises. There was nothing in between these two driveways, and nothing obstructing the view of the premises from the driveway. The respondent argues that seeing activity on the premises would not necessarily alert the respondent that the applicant was living there. In the circumstances of this case, I do not agree. It is undisputed that there was no commercial walk-in trade conducted at the premises, and no employees or workers regularly attending the premises. The only people using the property were the applicant, his fiancée and their two dogs. Any activity the respondent would have seen on the premises would have been activity more consistent with residential than commercial use.
• The respondent was explicitly put on notice that the applicant was living at the premises by the applicant's lawyer.

[31] The other point of contention is the intention of the applicant. I accept the applicant's evidence that he always intended to live on the premises. He maintained this position under cross-examination, and it is consistent with the circumstances around the signing of the lease, and what the applicant actually did. I also accept the applicant's evidence that he was open about this with the respondent from the outset, and the respondent assured him he did not care as long as the applicant paid the rent.

[32] I agree with the respondent that the intention of the parties is an important circumstance to consider in applying the predominant purpose test. But I do not agree that it is controlling or determinative of the result of the test. In any event, I do not find that the intention of the parties supports the respondent's position in this case, as I am satisfied that the applicant always intended to live in the premises, and made this clear from the outset. In this sense the case is closer to Firm Capital than Bindex Engineering Corp. v. Elliott, 1987 CarswellOnt 848, on which the respondent places great reliance. In other words, I find that this is not a case of a tenant unilaterally changing the terms of the tenancy without the landlord's knowledge. Rather it is a case of the landlord knowing about, and accepting, at least until there was an issue, the residential use a tenant made of leased premises.

[33] In the circumstances of this case, I am not satisfied that respondent has established on a balance of probabilities that the predominant purpose of the tenancy is commercial, and the exemption in s5(j) of the RTA applies. The circumstances include the following:

• While the lease was a commercial lease, the applicant did not have independent legal advice before signing it. I accept his evidence that he did not appreciate the difference between a commercial lease and a residential lease in terms of his rights. In any event, I must look to the substance of the tenancy, not the form.
• The premises consist of a two-story heritage house, yard and garage, zoned "Rural Residential Heritage", subject to Markham By-law 2011-209 which explicitly permits the premises to be used for a "business office".
• While the entire premises were covered by a single lease, signed by the applicant, on behalf of himself and his company, there is no distinct residential part of the premises separate from the commercial use of the premises.
• The majority of the premises is devoted to residential use. Of the two-story house, only an 8' x 8' office on the ground floor is used for commercial activity. The balance of the two-story house is used as a residence for the applicant, his fiancée and their two dogs. The two-car garage is used to store the applicant's truck and forklift, and the evidence is that he uses this truck to drive to and from work sites.
• There is no commercial signage in front of the premises, and no walk-in trade. Nor do any employees or workers regularly attend the premises. The only people who regularly attend the premises were the applicant and his fiancée (and their two dogs.)

Conclusion

[34] For the reasons set out above, I conclude that the respondent has not discharged his onus of proving on a balance of probabilities that the tenancy falls within the exemption set out in s.5 (j) of the RTA. As a result, the RTA applies to the tenancy, and the LTB has exclusive jurisdiction over all applications in relation to the tenancy.

[35] In light of my conclusion, there is no need to continue the interim injunction, granted by Justice Myers, restraining the respondent, and anyone acting on behalf of the respondent, from taking any step to exclude the applicant from exclusive possession of the premises. Given my conclusion that the tenancy is not a commercial tenancy falling with the s.5(j) exemption in the RTA, the tenancy is subject to the exclusive jurisdiction of the LTB, and clearly subject to the March 19, 2020 Order of Chief Justice Morawetz, suspending all evictions and/or writs of possession issued by the LTB.

[36] Upon the courthouse reopening to the public, each party shall file with the Civil Motions Office a copy of all the material delivered electronically for this proceeding, with proof of service, and pay the appropriate fees, if that has not already been done.

[37] Notwithstanding Rule 59.05, this Endorsement is effective from the date it is made, and is enforceable without any need for entry and filing.

[38] I encourage the parties to agree on costs, particularly in the current environment of diminished court services due to COVID-19. If the parties are unable to agree on costs, they may each provide a five-page submission, double spaced, in addition to any costs outline, on or before May 6, 2020. In addition, the parties may use the court time we reserved on May 7, 2020, for any additional submissions on costs.

Gillian Roberts J.

Date: May 4, 2020

Citation: OnTheGoShipping Inc., and Kwok-Wai Leung, aka Harry Leung v. G. Khan Medicine Professional Corporation, 2020 ONSC 2789

Court: ONTARIO SUPERIOR COURT OF JUSTICE Between: ONTHEGOSHIPPING INC., and KWOK-WAI LEUNG, aka HARRY LEUNG, Applicant – and – G. KHAN MEDICINE PROFESSIONAL CORPORATION, Respondent

Reasons for Judgment: G. Roberts J.

**Released:** May 4, 2020