Samuel Property Management Ltd. v. Nicholson

Samuel Property Management Ltd. v. Nicholson; Federation of Metropolitan Toronto Tenants' Association, Intervenor [Indexed as: Samuel Property Management Ltd. v. Nicholson]

61 O.R. (3d) 470

[2002] O.J. No. 3571

Docket No. C37636

Court of Appeal for Ontario,

Carthy, Laskin and Borins JJ.A.

September 19, 2002

Landlord and tenant -- Residential tenancies -- Eviction -- Unauthorized transfer of occupancy of rental unit grounds for eviction of unauthorized [page471] occupant -- Abandonment not test for transfer of occupancy -- Tenant Protection Act, 1997, S.O. 1997, c. 24, ss. 81(1), 196(1).

Landlord and tenant -- Residential tenancies -- Termination -- Construction of basement apartment without building permit and in contravention of building and fire codes illegal act sufficient to justify termination of tenancy -- Tenant Protection Act, 1997, S.O. 1997, c. 24, ss. 62(1), 196(1).

In 1975, the respondent N leased the main floor and basement of a house from the University of Toronto at a monthly rent of $487.15. In 1996 he moved out but, without the University's permission, he permitted two friends to move in. He charged them slightly more rent ($500) than he was paying. He also constructed a self-contained bedroom in the basement that he used occasionally when his business brought him to Toronto. The bedroom in the basement was constructed without a building permit. The University's property manager, SPM Ltd., brought two applications under the Tenant Protection Act, 1997 ("TPA") to evict the two friends and to terminate the tenancy. The Ontario Rental Housing Tribunal granted the applications, but the Tribunal's orders were set aside by the Divisional Court. SPM Ltd. appealed. The appeal raised two issues: first, did the Tribunal err in law in concluding that N transferred occupancy to his two friends?; and second, did the Tribunal err in law in concluding that N committed an illegal act justifying the termination of the tenancy?

Held, the appeal should be allowed.

Under s. 81(1) of the TPA, the landlord may apply to evict unauthorized occupants if a tenant transfers the occupancy of a rental unit other than by an authorized assignment or sublease. Since the University did not consent, the narrow issue was whether N had transferred the occupancy of his unit. The TPA did not define "transfers the occupancy" but the verb "transfer" has a well-understood meaning, including to hand over from one to another. On the largely undisputed facts, N handed over the occupancy of his rental unit to his two friends. The Divisional Court incorrectly concluded that N had not handed over occupancy because he used the unit from time to time, but abandonment is not the test under s. 81(1). Abandonment is dealt with separately in the Act. Further, the Court of Appeal's decision in TTC v. City of Toronto, which had been relied on by the Divisional Court, was not relevant because no issue of transfer arose in that case. In that case, the only possible occupant was the tenant, while in the case at bar, the friends also occupied the rental unit. Where a tenant and others occupy a unit, the court must focus on whether a transfer of the occupancy occurred. The tenant's use of the unit may be relevant, but it is not decisive. In the immediate case, when N moved to a new home, he handed over the day-to-day occupancy of the rental unit to his friends. The Tribunal made no error in concluding that there had been a transfer of occupancy.

Pursuant to s. 81(1) of the TPA, the unauthorized transfer of occupancy permits the landlord to evict the unauthorized occupants but does not terminate the tenancy. The tenancy, however, could be terminated under s. 62(1) of the TPA, if the tenant commits an illegal act. In this case, the Tribunal did not err in law in concluding that N had committed an illegal act justifying termination. Under s. 62(1), the illegal act must be serious; trivial illegality does not warrant termination. While N may have charged an illegal rent, that illegality was not serious enough to warrant terminating the tenancy. However, the construction of a self-contained bedroom in the basement without a building permit and in contravention of the building and fire codes was a serious illegality sufficient to [page472] warrant terminating the tenancy. Accordingly, the Tribunal's order terminating the tenancy should be restored.

APPEAL from an order of the Divisional Court setting aside two orders of the Ontario Rental Housing Tribunal.

Cases referred to Hampstead Way Investments Ltd. v. Lewis-Weare, [1985] 1 All E.R. 564, [1985] 1 W.W.R. 164 (H.L.); R. v. St. Pancras Assessment Committee (1877), [1876-77] 2 Q.B.D. 581, 25 W.R. 827, 46 L.J.M.C. 243, 41 J.P. 662, Ryde Rat. App. [1971-85] 188 (sub nom. Willing v. St. Pancras Assessment Committee); Swansea Village Co-operative Inc. v. Balcerzak (1988), 1988 4844 (ON SC), 63 O.R. (2d) 741, 27 O.A.C. 297, 49 D.L.R. (4th) 141 (Div. Ct.); Toronto Transit Commission v. Toronto (City), 1969 30 (ON CA), [1969] 2 O.R. 637, 6 D.L.R. (3d) 353 (C.A.), varg 1968 409 (ON SC), [1968] 2 O.R. 481 (H.C.J.) Statutes referred to Rent Act 1977 (U.K.), c. 42 Tenant Protection Act, 1997, S.O. 1997, c. 24, ss. 17, 62, 63(1), 64, 66, 78, 81, 196

S. John Page and Jody McCormack, for appellant. Gregory M. Sidlofsky, for respondent. Toby G. Young, for intervenor.

The judgment of the court was delivered by

LASKIN J.A.: --

A. Introduction

[1] In 1975, the respondent Gary Nicholson leased the main floor and basement of a house (the "rental unit") from the University of Toronto. In 1996, Nicholson and his family moved to their own home in Orangeville. Nicholson, however, kept the rental unit. He permitted two friends to move into it and charged them slightly more rent than he paid to the University. He also converted the basement storage area into a self- contained bedroom where he occasionally stayed when his business brought him to Toronto. The bedroom was constructed without a building permit and did not comply with the building code.

[2] Nicholson did not obtain the University's consent to his two friends' occupancy of the rental unit, or to his construction of a bedroom in the basement. The University's property manager, the appellant Samuel Property Management Ltd., subsequently brought two applications under the Tenant Protection Act, 1997: one to evict the two friends on the ground that Nicholson had transferred the occupancy of the unit to them without the University's consent; the other to terminate the tenancy on the grounds that Nicholson had committed an illegal act in building [page473] the bedroom and in charging an excess rent. The Ontario Rental Housing Tribunal granted both applications.

[3] On appeal, however, the Divisional Court set aside both of the Tribunal's orders. The appellant now appeals to this court with leave. For the reasons that follow, I would allow its appeal and restore the orders of the Tribunal.

B. Appellate Jurisdiction

[4] A person may appeal an order of the Tribunal to the Divisional Court only on a question of law. See Tenant Protection Act, 1997, S.O. 1997, c. 24 ("TPA"), s. 196(1). The Divisional Court may either affirm, rescind, amend or replace the Tribunal's order; or may remit the matter to the Tribunal with the court's opinion. See TPA, s. 196(4). The parties acknowledge that the Tribunal was not entitled to deference on questions of law. The standard of review is correctness.

[5] Thus, this appeal has two issues: first, did the Tribunal err in law in concluding that Nicholson transferred the occupancy of the unit to his two friends?; second, did the Tribunal err in law in concluding that Nicholson committed an illegal act justifying the termination of the tenancy?

C. The Issues

1. Did the Tribunal err in law in concluding that Nicholson transferred the occupancy of the rental unit to his two friends?

[6] If a tenant transfers the occupancy of a rental unit other than by an authorized assignment or sublet, under s. 81(1) of the TPA, the landlord may apply to evict the unauthorized occupants. Section 81(1) provides:

81(1) If a tenant transfers the occupancy of a rental unit to a person in a manner other than by an assignment authorized under section 17 or a subletting authorized under section 18, the landlord may apply to the Tribunal for an order evicting the person to whom occupancy of the rental unit was transferred.

Section 17(1) states:

17(1) Subject to subsections (2), (3) and (6), and with the consent of the landlord, a tenant may assign a rental unit to another person.

And s. 18(1) states:

18(1) With the consent of the landlord, a tenant may sublet a rental unit to another person, thus giving the other person the right to occupy the rental unit for a term ending on a specified date before the end of the tenant's term or period and giving the tenant the right to resume occupancy on that date. [page474]

[7] Here, the University did not consent to an assignment or a sublet. Thus, the narrow question on this branch of the appeal is whether Nicholson transferred the occupancy of his rental unit. If he did, the appellant is entitled to evict the unauthorized occupants; if he did not, then this branch of the appellant's appeal must fail.

[8] The phrase "transfers the occupancy" is not defined in the Act. The verb "transfer", however, has a well-understood meaning. It means:

1. To convey or remove from one place or one person to another; to pass or hand over from one to another, esp. to change over the possession or control of. 2. To sell or give.

(Black's Law Dictionary, 7th ed. (St. Paul: West Group, 1999) at p. 1504)

[9] Did Nicholson hand over the occupancy of his rental unit to his two friends? The facts are largely undisputed. Nicholson leased the rental unit at 8 Washington Avenue from the University of Toronto in 1975. The unit is in the Bloor Street/ Spadina Avenue area of Toronto near the University. It consists of the main floor and the basement of a house. The main floor contained a bedroom, a living room, a dining room and a kitchen; the basement contained a storage area and laundry facilities. Nicholson's lease expired years ago and he is now a month-to-month tenant. He pays the University monthly rent of $487.15, including parking and maintenance.

[10] In 1996, Nicholson left the rental unit and bought a house in Orangeville, where he runs his business. He lives in this house with his wife and son. In 1997, one of Nicholson's close friends, Kathryn Arnason, moved into the rental unit. In 1999, another of Nicholson's close friends, Gunther Kroeg, moved into the unit as well. They pay Nicholson $500 a month to stay there. The University did not become aware that Ms. Arnason and Mr. Kroeg occupied the rental unit until June 2000. It then applied to evict them.

[11] Although Nicholson now lives with his family in Orangeville and his two friends now occupy the rental unit, Nicholson testified that he stays in the unit when his business requires him to be in Toronto. For these overnight stays, he constructed a second bedroom in the basement, where he keeps some clothes and furniture. He still has a key and a parking permit. He gave evidence that, on average, he stays in the unit one or two nights a week, but conceded that for long periods of time, he does not stay there at all.

[12] On these facts, the Tribunal concluded that Nicholson had transferred the occupancy of the unit to his two friends. In the [page475] Tribunal's words"although the tenant maintains some connection to the unit, I find that the connection is not substantial enough to support a finding that he maintains a residence there."

[13] The Divisional Court concluded, however, that the reason for the Tribunal's finding -- "that the tenant did not maintain a substantial enough connection to the unit" -- was wrong in law. Cameron J., writing for the court, noted that "a transfer of the occupancy under s. 81 is not determined solely because the tenant is using the premises only part of the time." Although the court did not expressly set out what it considered to be the correct approach to determining a transfer of the occupancy, it did cite this court's decision in Toronto Transit Commission v. Toronto (City), 1969 30 (ON CA), [1969] 2 O.R. 637 at pp. 642-43, 6 D.L.R. (3d) 333 (C.A.) ["TTC"].

[14] In TTC, this court had to decide whether the tenant of a commercial lease was entitled to the exemption from municipal assessment for unoccupied property. The property in question was vacant land. Although the tenant paid rent and had a right to immediate possession, it had not occupied the property. This court held that the tenant was exempt from assessment because the right to possession was not equivalent to occupation. In so holding, this court -- and the Divisional Court in the present appeal -- relied on the following passage from the reasons of Lush J. in R. v. St. Pancras Assessment Committee (1877), [1876-77] 2 Q.B.D. 581 at p. 588, 25 W.R. 827 on the meaning of occupation:

Occupation includes possession as its primary element, but i[t] also includes something more. Legal possession does not of itself constitute an occupation. The owner of a vacant house is in possession . . . but as long as he leaves it vacant he is not rateable for it as an occupier. If, however, he furnishes it, and keeps it ready for habitation whenever he pleases to go to it, he is an occupier, though he may not reside in it one day in a year.

[15] The Divisional Court seems to have interpreted TTC to mean that as long as Nicholson kept the rental unit ready for his use -- and indeed used it from time to time -- he had not transferred the occupancy of it. Nicholson and the intervenor, the Federation of Metropolitan Tenants' Association, take essentially the same position. They submit that no transfer of the occupancy can take place unless Nicholson abandons the rental unit.

[16] In my opinion, the submission of Nicholson and the Federation, and the view of the Divisional Court, reflect two related errors: making abandonment the test under s. 81(1) of the Act; and focusing on whether Nicholson continued to occupy the unit, instead of on whether he transferred the occupancy of it.

[17] Abandonment cannot be the test of whether a transfer of the occupancy has occurred. Abandonment is dealt with separately in [page476] the statute. Under s. 78"if a landlord believes that a tenant has abandoned a rental unit, the landlord may apply to the Tribunal for an order terminating the tenancy." Had the legislature intended that a transfer of the occupancy under s. 81(1) could only take place if the tenant abandoned the rental unit, it could have said so.

[18] Moreover, the TTC case, relied on by the Divisional Court, is not relevant to the present appeal because no issue of transfer arose in that case. The only possible occupant of the property was the tenant. Thus, this court properly focused on whether the tenant "occupied" the property at all.

[19] Here, on the other hand, two other persons also "occupied" the rental unit. Where a tenant and others occupy a unit, the court must focus on whether a transfer of the occupancy occurred. The tenant's use of the unit may be relevant, but it is not decisive.

[20] Thus, in this case, the question is whether Nicholson's two friends were the recipients of a transfer of the occupancy of the unit even though Nicholson at times slept overnight there. The objective and common sense answer to this question is "yes". Although Nicholson could take on a roommate without transferring the occupancy of the unit, that is not what happened here, as the Tribunal recognized. Nicholson and his family have a home elsewhere. When he moved into that home, he handed over to his two friends -- without the knowledge or consent of the University -- the day-to-day occupancy of the rental unit.

[21] Finding a transfer of occupancy on these facts is consistent with the purpose of s. 81(1) of the TPA. Its purpose is to protect the landlord's expectation that the person with whom it contracted has a sufficient level of interest in the rental unit and the landlord's right to approve of anyone else who wishes to take over the unit.

[22] I find support for my conclusion in the approach taken by the House of Lords to determining similar questions of occupancy under England's rent control legislation. In Hampstead Way Investments Ltd. v. Lewis-Weare, [1985] 1 All E.R. 564, [1985] 1 W.L.R. 164 (H.L.), the tenant had leased a two-bedroom flat where he lived with his wife and daughter, his stepson and stepdaughter. Several years later, the tenant and his wife bought a house a half a mile away and moved there and occupied it as their home. The tenant was employed by a night club and worked five nights a week. In order not to disturb his wife when he returned from work early in the morning, he kept a room in the flat and stayed there after work. His stepson occupied the rest of the flat "for all usual living activities". The tenant kept his working clothes at the flat and had his mail sent there, but ate his meals and entertained at his house. [page477]

[23] The landlord sought possession of the flat under the Rent Act 1977 (U.K.), c. 42, on the ground that the tenant no longer occupied it as his residence after he moved to his house. The trial judge dismissed the landlord's application, but the Court of Appeal reversed, and the House of Lords dismissed the appeal by the tenant and stepson. In the House of Lords' view, where a person owned one house, which he occupied as his home for most of the time, and at the same time was the tenant of a flat, which he occupied for limited purposes"it is a question of fact and degree" whether he occupied the flat as his second home.

[24] In finding for the landlord, Lord Brandon concluded with these words, at p. 570 All E.R., which are apt for the present appeal:

If one treats the question as one of fact and degree, as the authorities require that a court should do, it is, in my opinion, impossible to conclude that that limited use of the flat made by the tenant was sufficient to make the flat his second home. The flat was in truth the home, not of the tenant, who slept there on five nights a week and kept his clothes there, but that of the adult stepson, who carried out all an ordinary person's living activities there.

Here, Nicholson's limited use of the rental unit makes it impossible to conclude that he had not transferred the occupancy of it to his two friends. The unit is, in truth, not the home of Nicholson, who occasionally stays there and keeps his clothes there, but of his two friends, who carry on all usual living activities there.

[25] Although the Tribunal did not use the phrase "it is a question of fact and degree", it took much the same approach as the House of Lords in Hampstead, in concluding that Nicholson's connection to the rental unit was "not substantial enough to support a finding that he maintains a residence there". I see no error of law in the Tribunal's reasoning. Its finding that Nicholson transferred the occupancy of the rental unit to his two friends is a finding of fact, from which no appeal lies. I would, therefore, set aside the Divisional Court's order on this branch of the appeal and restore the order of the Tribunal.

2. Did the Tribunal err in law in concluding that Nicholson committed an illegal act justifying the termination of the tenancy?

[26] Under s. 81(1) of the TPA, an unauthorized transfer of the occupancy of a unit permits the landlord to evict the unauthorized occupant. But the tenancy is not otherwise affected. If the unauthorized transfer were the appellant's only complaint, Nicholson would remain a tenant of the rental unit.

[27] The appellant, however, also complains that Nicholson committed illegal acts. If a tenant commits an illegal act, the [page478] landlord may apply to terminate the tenancy. Section 62(1) of the TPA provides:

62(1) A landlord may give a tenant notice of termination of the tenancy if the tenant commits an illegal act or carries on an illegal trade, business or occupation or permits a person to do so in the rental unit or the residential complex.

[28] Unlike other sections of the TPA that permit the landlord to terminate a tenancy for cause, s. 62(1) contains no curative provision. By contrast, for example, under s. 63(1) of the Act, a landlord may give notice to terminate a tenancy if the tenant wilfully or negligently causes undue damage to the rental unit. But under subsection (3), the tenant may void the notice by repairing the damage or by paying the reasonable cost of repair. See also ss. 64 and 66 of the TPA. Section 62 does not contain a provision allowing the tenant to void the notice by remedying the illegal act or ceasing any illegal activity. Thus, I accept that to justify the termination of a tenancy under s. 62(1), the illegal act must be serious. Trivial illegality does not warrant termination. Campbell J. put it this way in Swansea Village Co-operative Inc. v. Balcerzak (1988), 1988 4844 (ON SC), 63 O.R. (2d) 741, 49 D.L.R. (4th) 141 (Div. Ct.) at p. 745 O.R.:

Unless the offence has the potential to affect the character of the premises or to disturb the reasonable enjoyment of the landlord or other tenants, the landlord in my view does not have the right to evict.

[29] The appellant relies on two illegal acts to terminate Nicholson's tenancy: Nicholson's charging of an illegal rent, and his conversion of the basement to a second bedroom without complying with municipal building code by-laws or obtaining a building permit.

[30] Nicholson paid the appellant monthly rent of $487.15. In turn, Nicholson charged his two friends $500 monthly to occupy the rental unit. The evidence conflicted on whether the $500 included utilities and the Tribunal did not resolve this conflict.

[31] Nonetheless, the Tribunal found that Nicholson charged his friends an illegal rent because the "excess" over the amount he paid to the appellant was not authorized in the Act. The Divisional Court concluded that any difference in rent was inconsequential and, therefore, was not serious enough to justify termination.

[32] In this court, Nicholson and the intervenor put forward various arguments why the $500 charge was not illegal. I do not find it necessary to consider these arguments. I agree with the Divisional Court that, even if the $500 charge was an illegal rent, the illegality was not serious enough to warrant terminating the tenancy. [page479]

[33] I take a different view, however, of the conversion of the basement storage area to a second bedroom. The appellant led uncontradicted evidence that Nicholson, in the words of the Tribunal"had illegally constructed a self-contained basement unit apartment . . . without the landlord's permission, without a building permit and in contravention of the related building codes and fire code". This illegal construction included drywalling, plumbing and electrical systems. According to the appellant's witness, its on-site manager, the construction of this new bedroom violated the applicable building codes because the drywall was too thin, the window was too small, the ceiling and doors were too low, and the room had no smoke alarm. Although Nicholson testified that he told the University's previous property manager about the work, the University did not consent to this illegal construction.

[34] The Tribunal found that the appellant's on-site manager was "professional and credible". The Tribunal relied on his evidence to find that Nicholson had committed an illegal act, which was serious enough to warrant terminating the tenancy. The Divisional Court properly held that the Tribunal was entitled to accept the on-site manager's evidence concerning the breach of the municipal by-law and building permit requirements. Nonetheless, the Divisional Court set aside the Tribunal's order terminating the tenancy on this ground because "there is no evidence of the degree or severity of the by- law breach".

[35] In my view, the Divisional Court erred in its conclusion. Although it might have been preferable had the appellant given particulars of the breaches it relied on, I see no basis for interfering with the Tribunal's order. When a tenant constructs a self-contained bedroom in a storage area and does so without getting a building permit and without complying with the applicable building-code and fire-code requirements, the tenant commits an illegal act serious enough to justify terminating the tenancy. Here, Nicholson's illegal act exposed the University to penalties for building-code and fire-code violations and to the risk of claims in the case of fire or other incident in the unit. I would, therefore, restore the order of the Tribunal terminating Nicholson's tenancy.

D. Conclusion

[36] I would set aside the order of the Divisional Court.

[37] I would restore the order of the Rental Housing Tribunal evicting Ms. Arnason and Mr. Kroeg from the rental unit at 8 Washington Avenue. Consistent with the reasons of the Tribunal, I would give Ms. Arnason and Mr. Kroeg time to find another place to live by postponing the effective date of this order until six weeks after the release of the court's judgment. If the unit is [page480] not vacated by then, the appellant may file this order with the Court Enforcement Office, which is directed to give the appellant vacant possession of the unit.

[38] I would also restore the order of the Tribunal terminating Nicholson's tenancy. Nicholson must move out of the rental unit within six weeks of the release of this court's judgment, failing which the appellant may file this order with the Court Enforcement Office.

[39] The Divisional Court ordered the appellant to pay costs of $3,500. I would therefore order that Nicholson pay this amount to the appellant for the costs of the appeal in the Divisional Court. The appellant is also entitled to the costs of the appeal in this court, including the cost of the motion for leave to appeal. I would fix these costs at $6,500 plus assessable disbursements and GST.

Order accordingly.