Pieckenhagen v. 1030553 Ontario Limited [Indexed as: 1030553 Ontario Ltd. v. Pieckenhagen]

51 O.R. (3d) 763

[2000] O.J. No. 4016

Docket No. C33524

Court of Appeal for Ontario

Charron, MacPherson and Sharpe JJ.A.

November 1, 2000

Landlord and tenant--Residential tenancies--Mortgages --Mortgagee selling under power of sale--Purchaser from mortgagee being person "who obtains title by power of sale"-- Purchaser deemed by Mortgages Act to be landlord--Purchaser, as landlord, bound by existing tenancy agreement--Provisions of Mortgages Act providing security of tenure prevailing over provisions in Land Titles Act about registration of leases --Land Titles Act, R.S.O. 1990, c. L.5, s. 44--Mortgages Amendment Act, 1991, S.O. 1991, c. 6--Mortgages Act, R.S.O. 1990, c. M.40, ss. 46, 47.

Mortgages--Landlord and tenant--Residential tenancies --Mortgagee selling under power of sale--Purchaser from mortgagee being person "who obtains title by power of sale"-- Purchaser deemed by Mortgages Act to be landlord--Purchaser, as landlord, bound by existing tenancy agreement--Provisions of Mortgages Act providing security of tenure prevailing over provisions in Land Titles Act about registration of leases --Land Titles Act, R.S.O. 1990, c. L.5, s. 44--Mortgages Amendment Act, 1991, S.O. 1991, c. 6--Mortgages Act, R.S.O. 1990, c. M.40, ss. 46, 47.

1030553 Ontario Limited ("the purchaser") purchased an apartment building from O'Shanter Development Ltd., which was a mortgagee in possession selling the apartment pursuant to the power of sale contained in its mortgage. The appellant P was a tenant in the apartment under a lease that had a renewal provision "on every suite anniversary date for a 12 (twelve) month period on a yearly basis subject to the statutory guideline increase as set by the Ministry of Housing annually". The purchaser did not see or obtain a copy of this lease before completing the purchase, nor was the lease registered on title. After the closing, the purchaser discovered that P's rent was substantially below the market rent, and it served notices of rent increase on him. Despite these notices, P continued to pay monthly rent in the amount of $250, and the purchaser brought an application under the Landlord and Tenant Act for: (a) arrears of rent; (b) an order terminating the tenancy; and (c) a writ of possession. The application was dismissed, and the purchaser appealed to the Divisional Court. On the appeal, the Divisional Court, on its own motion, raised the question of the application of s. 44 of the Land Titles Act, under which leases "for a period yet to run that does not exceed three years, where there is actual occupation under it" need not be registered. From this provision, the Divisional Court concluded that P's lease, because of its renewal provision, should have been registered under the Land Titles Act and, since it had not been, the purchaser had acquired the apartment free of P's lease. Further, the Divisional Court rejected P's argument that he had security of tenure under what are now ss. 46 and 47 of the Mortgages Act, which provisions had been introduced by the Mortgages Amendment Act, 1991. The Divisional Court held that a purchaser who buys from a mortgagee selling under power of sale was not subject to these provisions of the Mortgages Act. P appealed.

Held, the appeal should be allowed and the matter sent back to the Divisional Court.

The Divisional Court erred in determining that what are now ss. 46 and 47 of the Mortgages Act did not apply in circumstances where there is a purchaser pursuant to a power of sale. The "mischief" addressed by the Mortgages Amendment Act, 1991 was the vulnerability of tenants in residential complexes to being disrupted in their tenancy by changes in possession and title resulting from mortgage default by the landlord or owner of the property. The amendments provide tenants with security of tenure in the event of mortgage default by the landlord. The Divisional Court erred in concluding that a purchaser from a mortgagee exercising a power of sale was not a person "who obtains title by power of sale" within the meaning of s. 47 of the Mortgages Act and, accordingly, "deemed to be a landlord under the tenancy agreement". Therefore, s. 47 of the Mortgages Act applied and, in accordance with s. 46, it prevailed to the extent that there was a conflict with the Land Tit les Act. It further followed that it was not necessary to consider whether the Divisional Court exceeded its appellate function by raising, on its own motion, the application of the Land Titles Act since that Act could not prevail over the provisions of the Mortgages Act. However, by raising the Land Titles Act, the Divisional Court never did address the grounds raised by the purchaser in its appeal and, therefore, the matter should be remitted to the Divisional Court for consideration of those grounds.

APPEAL of a judgment of the Divisional Court (O'Leary, Aitken and Swinton JJ.)(1999), 1999 ON SC 19930, 45 O.R. (3d) 282 in proceedings for payment for arrears of rent.

Cases referred to Canada Trustco Mortgage Co. v. Hurst (1989), 1989 ON SC 4222, 71 O.R. (2d) 294 (H.C.J.); Grand Trunk Pacific Railway Co. v. Dearborn (1919), 1919 CanLII 47 (SCC), 58 S.C.R. 315, 47 D.L.R. 27, [1919] 1 W.W.R. 1005; Williams v. Box (1910), 1910 CanLII 42 (SCC), 44 S.C.R. 1 Statutes referred to Interpretation Act, R.S.O. 1990, c. I.11, s. 10 Land Titles Act, R.S.O. 1990, c. L.5, s. 44, as am. Landlord and Tenant Act, R.S.O. 1990, c. L.7 [renamed Commercial Tenancies Act by S.O. 1997, c. 24, s. 213], Part IV Mortgages Act, R.S.O. 1990, c. M.40, Part V, ss. 46, 47, 50(2), 52(1), as am. Mortgages Amendment Act, 1991, S.O. 1991, c. 6, ss. 2, 3 Residential Rent Regulation Act, R.S.O. 1990, c. R.29 [rep. S.O. 1992, c. 11, s. 137] Tenant Protection Act, 1997, S.O. 1997, c. 24

Robert A. Maxwell, for appellant. Jack Greenberg, for respondent.

The judgment of the court was delivered by

[1] SHARPE J.A.:--The issue on this appeal is whether a purchaser of leased residential premises who acquired title from a mortgagee exercising a power of sale is bound by the terms of existing tenancies.

Facts

[2] The appellant is a tenant in an apartment building pursuant to a written lease for the period from October 1, 1991 to September 30, 1992. The appellant entered this lease with the previous corporate owner of the building, an entity controlled by the appellant's family. The lease specifies a monthly rent of $212 with an additional $2 charge for parking privileges. The lease contains the following renewal provision:

This tenancy agreement will renew itself on every suite anniversary date for a 12 (twelve) month period on a yearly basis subject to the statutory guideline increase as set by the Ministry of Housing annually.

[3] The rental amount specified in the lease was the legal maximum rent allowed by the Residential Rent Regulation Act, R.S.O. 1990, c. R.29. The legal maximum rent was increased by subsequent orders of the Rent Review Hearings Board, but the appellant continued to pay the rent specified by his lease.

[4] On June 1, 1993, the first mortgagee of the building took possession pursuant to its mortgage. O'Shanter Development Company Ltd. ("O'Shanter") managed the building on behalf of the mortgagee in possession. In early 1994, O'Shanter commenced proceedings for arrears of rent. When the appellant produced a copy of his lease to O'Shanter, the proceedings were withdrawn. On May 15, 1994, O'Shanter gave the appellant a notice of rent increase in accordance with the lease advising of a monthly rent of $244.58 (including parking) for the period September 1, 1994 to August 31, 1995.

[5] On June 6, 1994, the respondent, 1030553 Ontario Limited, purchased the building on a "no vendor representations" basis pursuant to the exercise of a power of sale initiated by the second mortgagee. The respondent did not see or obtain a copy of the appellant's lease prior to closing, nor was the lease registered on title. An agent of the respondent had inspected O'Shanter's records prior to purchasing the property that showed the amount of rent the appellant was paying. The respondent did not ask for a copy of the appellant's lease.

[6] After the closing, the respondent discovered that the appellant was occupying his apartment at a monthly rent substantially below the market rate. The respondent served notices of rent increase in May of 1995, 1996 and 1997, based on the rent review orders. Despite these notices, the appellant continued to pay rent in the amount of $250.

[7] The respondent brought an application pursuant to the Landlord and Tenant Act, R.S.O. 1990, c. L.7, Part IV for arrears of rent of $17,007.66, for an order terminating the tenancy, and for a writ of possession.

General Division (Ground J.)

[8] The application judge concluded that the written lease was valid and binding on the applicant respondent and dismissed the respondent's application:

. . . I find that the written lease was a valid lease . . . The tenancy agreement created by the written lease was, in my view, a year to year tenancy at a monthly rental of $214 per month for the period October 1, 1991 to September 30, 1992, and with statutory guideline increases annually thereafter. The rent payable for the period commencing September 1, 1995 and thereafter should be based upon the rent of $244.58 for the year September 1, 1994 to August 31, 1995, as set out in the rental increase notice from O'Shanter to the respondent dated May 15, 1994.

He further concluded that this holding was not unfair to the respondent:

[T]he applicant purchased the building from a mortgagee in possession on the basis of "no vendor representations". This did not prevent the applicant from undertaking adequate due diligence and determining the status of the various apartment leases and apartment rents. . . . It seems to me that, in all the circumstances, more adequate due diligence by the applicant . . . would have resulted in the applicant becoming aware of the situation with respect to the disputes as to the rent for Apartment 109, and ultimately becoming aware of the written lease, and taking that into account in negotiating the purchase price for the building. The applicant cannot now come to court and ask the court to remedy the results of its failure to adequately investigate the situation with respect to the lease of Apartment 109 prior to closing its purchase of the building.

Divisional Court (O'Leary, Aitken and Swinton JJ.)

[9] The respondent appealed the dismissal of the application to the Divisional Court. The Divisional Court raised, on its own motion, an argument not advanced by the parties. The court noted that the lands in question are subject to the Land Titles Act, R.S.O. 1990, c. L.5, s. 44:

44(1) All registered land, unless the contrary is expressed on the register, is subject to such of the following liabilities, rights and interests as for the time being may be subsisting in reference thereto, and such liabilities, rights and interests shall not be deemed to be encumbrances within the meaning of this Act:

4. Any lease or agreement for a lease, for a period yet to run that does not exceed three years, where there is actual occupation under it.

[10] Writing for a unanimous court, O'Leary J. found that the renewal provision rendered the term of the lease to be "for a period yet to run" of more than three years. He held that it followed that as the lease was not registered, and as the respondent had no knowledge of its terms, the respondent was not bound by the lease by virtue of the Land Titles Act, s. 44. The court concluded, accordingly, that the respondent was entitled to deal with the appellant as if the appellant did not have the benefit of the lease in question.

[11] Following the release of the Divisional Court's reasons for judgment, counsel for the appellant drew to the court's attention ss. 44 and 45 [of the Mortgages Act, added by ss. 2 and 3] of the Mortgages Amendment Act, 1991, S.O. 1991, c. 6 (now Mortgages Act, R.S.O. 1990, c. M.40, ss. 46, 47 as amended by S.O. 1991, c. 6, s. 2, as further amended by S.O. 1997, c. 24, s. 215), the relevant portions of which provide as follows:

46(1) In the event of a conflict between this Part and any other provision of this Act or any other Act, this Part prevails unless the provision or the Act states that it is to prevail over this Part.

47(1) A person who becomes the mortgagee in possession of a mortgaged residential complex which is the subject of a tenancy agreement between the mortgagor and a tenant or who obtains title to the residential complex by foreclosure or power of sale shall be deemed to be the landlord under the tenancy agreement.

(3) A person who is deemed to be a landlord is subject to the tenancy agreement and to the provisions of the Tenant Protection Act, 1997 which apply to residential complex.

[12] The Divisional Court rejected the appellant's argument that these provisions gave the appellant security of tenure against the respondent and overcame the effect of the Land Titles Act. In an addendum to his earlier reasons [(1999), 1999 ON SC 19930, 45 O.R. (3d) 282 at p. 285], O'Leary J. held [at p. 287] that the Mortgages Amendment Act, 1991 had no application where the landlord had acquired title by purchasing the lands pursuant to the exercise of a power of sale:

A purchaser who buys property from a mortgagee does not obtain title by power of sale. The mortgagee may have sold the property by exercising his power of sale rights, but in neither legal nor colloquial language is it said nor can it be said that the purchaser obtained title or acquired the property by power of sale. The purchaser has nothing to do with nor is he granted any rights by the power of sale provisions in the mortgage. . . . A person who buys from a mortgagee selling under power of sale, never becomes a mortgagee in possession. . . . Section 45(1) [now s. 47(1) ] then does not apply to a person that buys property from a mortgagee who sold under power of sale.

Issues

[13] Leave to appeal to this court was granted on the following issues:

1. Did the Divisional Court err in law by determining that the Mortgages Amendment Act, 1991 did not apply in circumstances in which there is a purchaser pursuant to a power of sale?

2. Did the Divisional Court exceed its appellate function by determining that the Land Titles Act was dispositive of this matter, given that it had not been raised in the pleadings, nor before the trial judge, and was not raised in the notice of appeal to the Divisional Court?

Analysis

Issue 1: Did the Divisional Court err in law by determining that the Mortgages Amendment Act, 1991 did not apply in circumstances in which there is a purchaser pursuant to a power of sale?

[14] In my view, it is apparent that the "mischief" addressed by the Mortgages Amendment Act, 1991 was the vulnerability of tenants in residential complexes to being disrupted in their tenancy by changes in possession and title resulting from mortgage default by the landlord or owner of the property. Before the Mortgages Amendment Act, 1991, tenants lacked security of tenure as against mortgagees in possession, those who obtained title by foreclosure, and subsequent purchasers who acquired title in power of sale proceedings. It was held in Canada Trustco Mortgage Co. v. Hurst (1989), 1989 ON SC 4222, 71 O.R. (2d) 294 (H.C.J.) that a mortgagee in possession was not a party to and was not bound by the terms of a tenancy agreement between the mortgagor and the tenant. It followed that a mortgagee in possession was not a "landlord" and, accordingly, was not caught by the terms of the Landlord and Tenant Act (see now the Tenant Protection Act, 1997, S.O. 1997, c. 24) protecting tenants by restricting the right of the "landlord" to terminate a residential tenancy. Accordingly, a party who obtained possession or title by virtue of mortgage default could obtain vacant possession despite the existence of a landlord and tenant relationship between the mortgagor and its tenants.

[15] The purpose and intent of the Mortgages Amendment Act, 1991 was to overcome this state of affairs and to provide tenants with security of tenure in the event of mortgage default by the landlord. The Mortgages Act, s. 47 specifically puts those persons described in the position of the landlord under the tenancy agreement.

[16] The section embraces three classes of persons who are to be subject to the rights and obligations of a landlord, namely: (1) a "mortgagee in possession", (2) a person "who obtains title . . . by foreclosure", and (3) a person who obtains title by "power of sale". The specific issue raised in this appeal is the meaning to be given the words "a person . . . who obtains title by power of sale".

[17] It is my respectful view that in light of the language and purpose of this legislation, the Divisional Court erred in its interpretation of the words "a person . . . who obtains title by power of sale". While I agree that it would have been possible for the legislature to use more precise language, as I read the words of the section, the language is adequate to embrace a party who acquires title by purchasing lands from a mortgagee exercising a power of sale. If the words of the legislation do not convey that meaning, it is difficult to see what they do mean. A mortgagee who exercises a power of sale does not "obtain title by power of sale". If these words include anyone, the only candidate seems to be a person who purchases the property through the exercise of the power of sale. A court should strive to give some meaning to the words of a statute rather than interpret [it] in a way that renders it meaningless: Grand Trunk Pacific Railway Co. v. Dearborn (1919), 1919 CanLII 47 (SCC), 58 S.C.R. 315 at pp. 320-21, 47 D.L.R. 27; Williams v. Box (1910), 1910 CanLII 42 (SCC), 44 S.C.R. 1 at p. 24.

[18] I accept the contention that a purchaser under the power of sale is in a different, perhaps more vulnerable, position than a mortgagee. However, as noted by the appellant, such purchasers are not bereft of protection. The mortgagee exercising power of sale has the right to obtain a copy of the lease (s. 50(2)) or to set aside tenancy agreements entered into after default with the object interfering with the mortgagee's rights (s. 52(1)). It would be open to the purchaser under power of sale to insist that these rights be exercised as a condition of the agreement to purchase the property. As noted, the respondent chose to purchase the property on a "no vendor representations" basis.

[19] The respondent relies on the statutory heading "Mortgagees in Possession of Rental Residential Premises" to Part V of the Mortgages Act, the part of the Act containing ss. 46 and 47. I do not accept the respondent's submission that this heading restricts the reach of the section. Headings may be resorted to as an interpretive aid, but they do not trump the actual language of the section, nor should they frustrate its purpose. In my view, the language of the section indicates a legislative attempt to deal comprehensively with the security of tenure of tenants in the event of mortgage default and consequent change in possession or title. The section should be given "such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Act according to its true intent, meaning and spirit": Interpretation Act, R.S.O. 1990, c. I.11, s. 10.

[20] I conclude, therefore, that the Divisional Court erred in finding that the respondent was not bound by the terms of the appellant's lease. The Mortgages Act, s. 47 applies and, in accordance with s. 46, prevails to the extent there is any conflict with the Land Titles Act in the absence of any explicit provision to the contrary. It follows that it is not necessary to consider the alternative submission advanced by the appellant that the Divisional Court erred in finding that the renewal clause rendered this lease subject to the Land Titles Act.

Issue 2: Did the Divisional Court exceed its appellate function by determining that the Land Titles Act was dispositive of this matter, given that it had not been raised in the pleadings, nor before the trial judge, and was not raised in the notice of appeal to the Divisional Court?

[21] In view of my disposition of the first issue, it is not necessary to consider the second. However, an issue does arise under this heading. By raising the Land Titles Act issue on its own motion, the Divisional Court avoided addressing the issues that the respondent did raise in its appeal. In its factum, the respondent submits that if the appeal is allowed, the matter should be sent back to the Divisional Court for a determination of the grounds of appeal the respondent did raise. In my view, in the unusual circumstances of this case, the respondent is entitled to this relief. The respondent had an appeal as of right to the Divisional Court from the dismissal of its application, and if the matter were not remitted to the Divisional Court, the respondent would, through no fault of its own, effectively be denied its right of appeal.

Conclusion

[22] Accordingly, I would allow the appeal, set aside the order of the Divisional Court, and direct that the matter be sent back to the Divisional Court for consideration of the grounds of appeal raised by the respondent in its notice of appeal from the judgment of the applications judge. The appellant is entitled to his costs of this appeal and of the appeal to the Divisional Court.

[23] The appellant also seeks an order for the return of the additional rental moneys paid in accordance with the decision of the Divisional Court. As I would allow the appeal and restore the judgment of the applications judge, it follows that the appellant is entitled to the return of rental payments in excess of the amount he was required to make by virtue of the judgment restored.

Order accordingly.