First Ontario Realty Corporation Ltd. v. Deng, 2011 ONCA 54

CITATION: First Ontario Realty Corporation Ltd. v. Deng, 2011 ONCA 54

DATE: 2011-01-21

DOCKET: C51723

COURT OF APPEAL FOR ONTARIO

Weiler, Watt and Karakatsanis JJ.A.

BETWEEN

First Ontario Realty Corporation Ltd.

Landlord/Respondent

and

Liangrui Deng, Guizhi He, Dustin Yang, Jenny Yang and Yi Yang

Tenants/Appellants

Counsel:

Richard A. Fink, for the tenants/appellants

Chris G. Paliare and Michael Fenrick, for the landlord/respondent

Heard: December 16, 2010

On appeal from the order of Associate Chief Justice Cunningham, and Justices Swinton and Smith of the Superior Court of Justice (Divisional Court), dated October 29, 2009.

Karakatsanis J.A.:

[1] This is an appeal from the decision of the Divisional Court, reversing the decision of the Landlord and Tenant Board that the tenants were entitled to a 2.5% reduction in rent due to the reduction of facilities provided in respect of the rental unit in a residential complex.

[2] This appeal involves the interpretation of “facilities” and “common recreational facilities” within the meaning of the Tenant Protection Act, 1997, S.O. 1997, c. 24 (the Act) and the proper method of calculating rent reduction prescribed under s. 30 of Tenant Protection Act, 1997, O. Reg. 194/98 (the Regulation).

[3] The Board found that the landlord’s removal of fenced-in gardens, lawns and walkways from the apartment complex was a “reduction” in “common recreational facilities” within the definition of “services and facilities” under ss. 1(1) and 142(1) of the Act (now ss. 2(1) and 130(1) of the Residential Tenancies Act, 2006, S.O. 2006, c. 17). In determining the rent reduction prescribed under s. 30 of the Regulation, the Board based the quantum of its order upon the amount claimed by the tenants, discounted to reflect partial success.

[4] Applying a standard of review of correctness, the Divisional Court held that the Board erred in finding that the former landscaped areas of the apartment complex were “common recreational facilities” under the Act. The Divisional Court further stated that the Board erred in its approach to calculating the amount of rent reduction under s. 30 of the Regulation.

[5] This appeal raises the following issues:

i) What standard of review applies to the Board’s decision?

ii) Was the Board’s decision that the former landscaped areas were a “common recreational facility” reasonable?

iii) Was the Board’s decision that there was a “reduction” in the recreational facility reasonable?

iv) Was the Board’s calculation of the rent reduction reasonable?

[6] I have concluded that the Divisional Court erred in reviewing the Board’s decision on a standard of correctness. For the reasons that follow, I conclude that the Board’s decision that the former landscaped areas were “common recreational facilities” was reasonable. However, the Board’s failure to determine the extent to which the tenants’ loss was a “reduction” in the “common recreational facilities” and the Board’s determination of the amount of the rent reduction were unreasonable. I have concluded, however, that there was no reduction in the facilities. Therefore, I agree with the result and would dismiss the appeal.

Background facts

[7] The appellants are family members renting a unit in a large apartment complex at 50 Rosehill Avenue in Toronto. The appellants have leased a unit in this building since December 13, 2003.

[8] In 2005, the landlord entered into an agreement with the City of Toronto to amend the City’s Official Plan in order to permit the construction of 32 townhouses on the same property as the residential complex. This required a severance of a portion of the landscaped land at the rear of the complex. That land was formerly fenced in for the tenants’ use and included two lawns, approximately 20 mature trees, pedestrian pathways, a garden and a stone bench.

[9] There was a public consultation process initiated as a result of the proposed construction. It provided the tenants, as well as the broader community, with the opportunity to express their concerns. As part of the agreement reached with the City, the landlord was required to make improvements on the remaining grounds of the complex at 50 Rosehill Avenue and to contribute over $250,000 to improve the community facilities. The landlord further agreed not to seek an above-guideline rent increase from the tenants to recover the cost of such improvements.

[10] As a result of the ongoing construction of the new townhouses, the appellants applied for a 10% reduction of their rent pursuant to s. 142(1) of the Act on the basis of a reduction or discontinuance of the following services or facilities: a quiet and clean living environment; visitor and tenant parking; and building safety.

[11] The Board found that the tenants had failed to establish a reduction in services or facilities on the three grounds set out in their application. However, the Board assessed a fourth and separate ground for a rent reduction and found that the loss of the fenced-in garden, lawns and walkways constituted a reduction in “common recreational facilities”, within the definition of “services and facilities” in s. 1 of the Act. The Board ordered that the rent be reduced by 2.5%.

[12] The landlord filed a request to review the Board’s decision, pursuant to rule 29 of the Board’s Rules of Practice and s. 21.2 of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22. Upon review, the Board upheld the rent reduction.

[13] On appeal to the Divisional Court, the court determined that the former landscaped areas did not constitute a “service or facility” within the meaning of the Act and set aside the rent reduction. The Divisional Court further noted that the Board had erred in its calculation of the reduction in rent under s. 30 of the Regulation.

Standard of Review

[14] The Divisional Court found that the appropriate standard of review was correctness.

[15] Counsel for the respondent quite fairly submitted that the Divisional Court erred in applying a standard of correctness to the issue of whether the severed land constituted a “service or facility” under the Act. The respondent submits, however, that the court did not err in applying a correctness standard to the issue of the quantum of rent reduction because that issue involved a pure question of law; the Board was asked to apply general principles of statutory interpretation and consider mandatory language in the Regulation.

[16] The standards of review established by the Supreme Court of Canada in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 apply not only to judicial review but also to statutory appeals from tribunals: see Coffey v. College of Licensed Practical Nurses (Manitoba) (2008), 2008 MBCA 33, 291 D.L.R. (4th) 723 (C.A.), at para. 34; Salway v. Assn. of Professional Engineers & Geoscientists (British Columbia) (2010), 2010 BCCA 94, 3 B.C.L.R. (5th) 213 (C.A.), at para 22; and Flora v. Ontario Health Insurance Plan (2008), 2008 ONCA 538, 238 O.A.C. 319 (C.A.), at paras. 36-37. Indeed, prior to Dunsmuir, the Supreme Court noted that “[t]he term ‘judicial review’ embraces review of administrative decisions by way of both application for judicial review and statutory rights of appeal.”: Dr. Q. v. College of Physicians & Surgeons of British Columbia, 2003 SCC 19, [2003] 1 S.C.R. 226, at para. 21 (emphasis added).

[17] As noted in Dunsmuir at paras. 54-55 and para. 60, the standard of review for questions of law may depend upon the nature of the legal question in issue. Where the question is one of true jurisdiction or one of general law that is of central importance to the legal system as a whole and outside the adjudicator’s specialized area of expertise, a standard of correctness will apply. However, deference will usually be afforded where a tribunal is interpreting its own statute or statutes closely connected to its function, with which it will have particular familiarity (see Canadian Broadcasting Corp. v. Canada (Labour Relations Board), [1995] 1 S.C.R. 157, at para. 48). Deference may also be warranted where an administrative tribunal has developed particular expertise in the application of a general common law or civil law rule in relation to a specific statutory context. Finally, deference applies to questions of fact, discretion or policy and where the legal and factual issues are intertwined and cannot be readily separated: Dunsmuir, at para. 53.

[18] Although the Divisional Court relied upon the fact that previous courts had consistently applied the standard of correctness to decisions of the Board on questions of law, decisions prior to Dunsmuir may be of limited assistance. Prior to Dunsmuir, questions of law generally attracted a correctness standard of review. As noted by this court in Investment Dealers Assn. of Canada v. Taub (2009), 2009 ONCA 628, 255 O.A.C. 126, at para. 27, the Supreme Court in Dunsmuir recognized the difficulty that courts may have in applying the reasonableness standard of review to a question of law, since traditionally courts are used to deciding questions of law and statutory interpretation on the basis that the interpretation must be correct. Furthermore, while it is clear under a Dunsmuir analysis that the exercise of statutorily-mandated discretion attracts a standard of review of reasonableness, it does not necessarily follow that where the language of a statutory provision is mandatory, the standard of review is correctness.

[19] It is important to identify the category of question under review. A tribunal may attract different standards of review, depending on the issue involved.

[20] In Dunsmuir, the Supreme Court noted at paras. 55, 62 and 64 that the process of determining the standard of review involves two steps. It may be that the jurisprudence has already satisfactorily examined the standard of review in light of the factors set out in Dunsmuir. A post-Dunsmuir analysis that has determined the degree of deference to be accorded with regard to a particular category of question will end the inquiry. If not, the court should assess: (1) the presence or absence of a privative clause; (2) the purpose of the tribunal under the enabling legislation; (3) the nature of the question at issue; and (4) the expertise of the tribunal relating to the issue. At para. 55, the Supreme Court in Dunsmuir observed that the court should determine whether the legislation establishes a discrete and special administrative regime in which the decision maker has special expertise.

[21] In this case, the Board was required to interpret its “home statute” and Regulation in determining a tenant application for a rent reduction. The Board’s governing statute provides for a specialized adjudicative regime for resolving disputes. Under the Act, the determination of whether services or facilities to tenants have been reduced by the landlord and the determination of the corresponding rent reduction are core functions of the Board. It applied statutory and regulatory provisions with which it has particular familiarity. As well, with respect to whether the facts established a “common recreational facility”, the legal and factual issues are intertwined and cannot be readily separated. Although there is no privative clause, appeals are limited to questions of law. The interpretation of “service and facility” as it relates to the former landscaped areas or the calculation of the “value” of that service or facility is not one of central importance to the legal system. In these circumstances, I am satisfied that the deferential standard of reasonableness applies to these determinations. While the use of mandatory language in the Regulation prescribes the Board’s approach to its calculation of the appropriate rent reduction, it does not, in these circumstances, convert the standard of review from one of deference to one of correctness.

[22] As a result, I conclude that the Divisional Court erred in applying a standard of review of correctness. The Board’s decision in this case should be reviewed on the basis of reasonableness. As explained in Dunsmuir at para 47, “reasonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process. But it is also concerned with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law”.

Relevant Legislation

[23] The Act permits tenants to seek a rent reduction if a service or facility that was provided for the unit or residential complex is reduced or discontinued. This is achieved by way of application to the Board.

[24] Section 142(1) of the Act provides:

142. (1) A tenant of a rental unit may apply to the Tribunal for an order for a reduction of the rent charged for the rental unit due to a reduction or discontinuance in services or facilities provided in respect of the rental unit or the residential complex.

[25] “Services and facilities” is defined in s. 1(1) of the Act to include “common recreational facilities”:

“services and facilities” includes,

(a) furniture, appliances and furnishings,

(b) parking and related facilities,

(c) laundry facilities,

(d) elevator facilities,

(e) common recreational facilities,

(f) garbage facilities and related services,

(g) cleaning and maintenance services,

(h) storage facilities,

(i) intercom systems,

(j) cable television facilities,

(k) heating facilities and services,

(l) air-conditioning facilities,

(m) utilities and related services, and

(n) security services and facilities;

[26] “Residential complex” is also defined in s. 1(1) of the Act to include all “common areas and services and facilities”:

“residential complex” means,

(a) a building or related group of buildings in which one or more rental units are located,

…and,

includes all common areas and services and facilities available for the use of its residents;

[27] Finally, s. 30 of the Regulation provides the remedy for a finding that services and facilities have been reduced or discontinued:

30. (1) The provisions of this section are prescribed as rules for making findings relating to a reduction of the rent charged under section 142 of the Act, based on a discontinuance or reduction in services or facilities. O. Reg. 194/98, s. 30 (1).

(2) If a service or facility is discontinued, the rent shall be reduced by an amount that is equal to what would be a reasonable charge for the service or facility based on the cost of the service or facility to the landlord or, if the cost cannot be determined or if there is no cost, on the value of the service or facility. O. Reg. 194/98, s. 30 (2).

(4) If a service or facility is reduced, the amount of the reduction of rent shall be a reasonable proportion, based on the degree of the reduction of the service or facility, of the amount determined under subsection (2) or (3). O. Reg. 194/98, s. 30 (4).

(5) If the discontinuance or reduction is temporary and its duration is reasonable, taking into account the effect on the tenant, there shall be no reduction of rent. O. Reg. 194/98, s. 30 (5).

Was the Board’s decision that the former landscaped areas constituted “common recreational facilities” reasonable?

[28] The evidence before the Board was that the sizable former landscaped areas were severed from the residential complex to create 32 new townhouses. The tenant Deng described the landscaped areas as two large pieces of lawn with approximately 20 mature trees, small pedestrian paths and a stone bench. She testified that the area was fenced in so that all the tenants had full access to that land. She also testified that in the summer they probably used the landscaped areas every day and that her young son would run and play on the grass. After construction started, if the appellant’s son wanted to play, she would take him to a nearby public park.

[29] Although the respondent suggested that the only evidence of the tenants’ use of those landscaped areas was incidental to their use of the pathway as access to the street and that there was no evidence that other tenants used the area for recreational purposes, the tenant’s evidence was un-contradicted. In any event, an appeal from the Board’s decision is restricted to questions of law.

[30] The Board concluded:

The definition of “services and facilities” set out in the Act is not an exhaustive list but explicitly includes “common recreational facilities”. A facility is generally speaking, something that is built or installed to perform some particular function. Clearly the gardens, lawns and walkways around the residential complex were installed to perform particular functions. One of the common functions of a lawn is for recreational purposes – for children to run across and play on. The lawn herein was part of the common areas formerly enjoyed by the Tenants and it is uncontested it was used by them for recreational purposes. Therefore, I find that the grass, garden and walkways around the residential complex are a “service and facility” as defined in the Act with respect to these Tenants.

[31] Applying the standard of correctness, the Divisional Court found at para. 21 that the Board had erred in its finding that the severed areas constituted a “recreational facility” within the meaning of “services and facilities” defined in s. 1 of the Act:

Read in its ordinary sense, common recreational facility would entail something that is built or installed to serve a recreational function. The lands surrounding a building, while they may be used for recreation, do not meet the requirement of being built or installed to fulfill that particular function. We accept the Landlord’s submission that these lands are a “necessary incident” to the construction of the building itself. Unless the lands surrounding a building have been specifically landscaped to serve a recreational purpose, by adding a playground, for instance, they will not meet the definition of common recreational facility.

[32] The appellants submit that the Divisional Court erred in substituting its own interpretation for that of the Board and in holding that additional facilities, such as a playground, were required before fenced-in gardens with lawns, trees, pathways and a bench could be considered a “common recreational facility”.

[33] The respondent’s position is that the Divisional Court’s decision was correct and that when viewed objectively, the fence, lawns, pathways and bench were not built or installed for a recreational function. The respondent submits that the Board’s decision was unreasonable for the following reasons: the set-back areas were a necessary incident to the construction of the building; the Board failed to view the functionality of the landscaped areas from an objective basis and instead permitted the tenants’ use of the areas to unilaterally convert the areas to a recreational facility; the Board equated common areas with common recreational facilities; and “common recreational facilities” encompass purpose built amenities such as pools, spas or exercise rooms.

[34] As noted by the Divisional Court, the accepted approach to statutory interpretation is that “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: Bell ExpressVu Ltd. Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559, at para 26.

[35] The Act permits tenants to seek a rent reduction from the Board if services or facilities provided for the unit or residential complex are reduced or discontinued. Conversely, the Act permits the landlord to seek a rent increase for capital expenditures made with respect to the creation of new and additional services or facilities. The definition of “services and facilities” is not exhaustive and enumerates a wide range of residential benefits to tenants that are maintained and paid for by the landlord. In the context of this legislative scheme, it is presumed that a reasonable charge for the “services and facilities” is included in the rental value of the units and that the rent reduction is equal to a reasonable charge for the reduction or discontinuance of those services or facilities. The Regulation provides that the reasonable charge is determined, if possible, by the cost of that service or facility to the landlord. In other words, the Act and Regulation seek to ensure that if tenants lose some part of the services or facilities that were provided to them as part of their rent, any cost savings by the landlord is passed on to the tenants. However, the Regulation also provides for a rent reduction even where there are no cost savings to the landlord, or where they cannot be determined. In these circumstances, the tenant is still entitled to a rent reduction that is equal to what would be a reasonable charge for the service or facility based on their value.

[36] The definition of “facility” is not in dispute. Both the Board and the Divisional Court accepted that in the context of the Act and in accordance with dictionary definitions, a “facility” is “something that is built or installed upon to perform some particular function” and, therefore, that “recreational facility” would entail “something that is built or installed to serve a recreational function.”

[37] While the parties agree on the definition of “facility”, they disagree as to whether the facts of this case meet that definition, and specifically whether the facts are capable of meeting the definition of “common recreational facilities”.

[38] The Divisional Court accepted the landlord’s submission that the lands, as a required set-back, were a necessary incident to the construction of the residential complex. However, the fact that a set-back was required did not preclude the landlord from building or installing features on the lands to serve a recreational function.

[39] Further, the Divisional Court accepted the landlord’s submission that the tenants’ unilateral choice to use the common area for recreational purposes did not convert it into a facility within the meaning of the Act. I would also agree with this submission. However, the key issue of whether the common area included facilities which were built or installed for a recreational use or function remains.

[40] In this case, the Board found that the lawns, trees, walkways and the fence that excluded the public had been built or installed to fulfill a recreational function. The Board noted that a common function of a lawn is for children to run across and play on – an observation of the objective functionality of lawns. The installation of a bench made the area more than a means of egress and ingress to the street but a place that was meant for people to enjoy. The Board also relied upon its factual finding that the tenants previously enjoyed the lawn area.

[41] I do not agree with the respondent’s submission that the Board equated or conflated the concepts of common areas and common recreational facilities. The respondent argues that the distinction drawn between “common areas” and “services and facilities” in the definition of “residential complex” in s. 1 of the Act, supports the conclusion that common areas are separate and distinct from services and facilities. A common area is not necessarily a facility or a recreational facility; however, there is no reason why a common area cannot also constitute or include services or facilities available to the rental units or residential complex. Indeed, common recreational facilities, by their very nature, would be common areas for the tenants.

[42] In effect, the Divisional Court disagreed with the Board’s factual characterizations and its conclusion that fenced-in areas with landscaped lawns, walkways and mature trees constituted a “common recreational facility”. The court held at para. 21 that “[u]nless the lands surrounding a building have been specifically landscaped to serve a recreational purpose, by adding a playground, for instance, they will not meet the definition of common recreational facility.” Implicit in this reasoning is that the fences, lawns, bench and pathways were not specifically built or installed by the landlord for the particular purpose of recreation.

[43] The Divisional Court observed that its conclusion was supported by reference to the list of other services and facilities found in s. 1(1) of the Act. The court emphasized at para. 22: “All of the items on the list are features of residential complexes that are installed or built to perform a particular function, such as security, laundry, elevators, garbage, and parking facilities.”

[44] The respondent argues that the Divisional Court was correct because the evidence could not reasonably support the conclusion that the areas were built or installed to perform a recreational function. The respondent submits that the enumerated list of services and facilities as defined in the Act all have operating costs associated with them which, upon discontinuance, would result in a cost savings to the landlord and a corresponding loss of rental value to tenants, which can be measured on an objective basis. Thus, it argues, when read in the immediate context of the features listed under the definition of “services and facilities”, the term “common recreational facilities” encompass purpose built amenities such as pools, spas or exercise rooms that have operating costs associated with them.

[45] The appellants submit that the Board’s finding that the tenants’ enjoyment of the areas represented recreational functions, including the fact that their son ran on and played on the lawns and that their infant daughter could be expected to do so in the future, is supported by the ordinary definition of the word “recreation”.

[46] Webster’s defines recreation as: “1. Refreshment in body or mind, as after work, by some form of play, amusement or relaxation. 2. Any form of play amusement, or relaxation used for this purpose, as games, sports, hobbies, reading, walking, etc.” (Webster’s New Twentieth Century Dictionary, 2d ed., s.v. “recreation”). The Concise Oxford English Dictionary definition of recreation is “enjoyable leisure activity” (Concise Oxford English Dictionary, 11th ed., s.v. “recreation”).

[47] The Board was entitled to find as a fact that the sizable landscaped lands, fenced in for the use of the tenants, with the lawns, pathways and trees, were built and installed for a recreational function. The Board’s findings of fact are not subject to appeal. Whether these facts, as found, are reasonably capable of meeting the definition of recreational facilities within the meaning of the Act is the question of law to be determined.

[48] The Board’s determination that the landscaped areas were a common recreational facility was reasonable. The Board was entitled to, and did, consider the objective nature and function of what was “built or installed” on the landscaped areas as well as evidence of its actual use. As counsel for the appellants submitted, residential gardens and lawns provide space for relaxation and leisure activity. Residential landscaped areas available to tenants require installation and upkeep and thus have costs to the landlord and corresponding value to the residents as recreational facilities.

[49] The Board’s determination is entitled to deference. The Board articulated its decision-making process with reasons which were justified, transparent and intelligible. Its legal conclusion was within the range of reasonable outcomes defensible upon the facts and the law. I conclude that the Divisional court erred in holding that the Board’s conclusion that the severed landscaped areas constituted common recreational facilities was incorrect. The Board’s decision on that issue was reasonable.

[50] The appellants submitted before this court that a breach of the covenant for quiet enjoyment in the demised premises under the common law and pursuant to s. 23 of the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34 (as distinct from the reasonable enjoyment under s. 26 of the Act) entitled the tenants to a rent reduction. They submitted that the “right to quiet enjoyment” was a “service or facility” in an application under s. 142(1) of the Act. This argument was not made before the Board or before the Divisional Court. Accordingly, it is not open to the appellants to raise this additional ground on appeal.

Was the Board’s decision that there was a reduction in the recreational facility reasonable?

[51] The Divisional Court stated that even if the land in question was a common recreational facility, it was questionable whether the facility had been reduced. It noted at para. 25: “Reduction can refer to a reduction of the quality, quantity, or both of a service or facility.” The court observed that although the quantity of the land had clearly been reduced, the landlord had an obligation by its agreement with the City to improve the remaining land.

[52] On this issue, the Board held:

Furthermore, I do not agree that the permanent loss of a significant portion of the garden, lawn and walkways behind the residential complex is not a reduction. It may well be that the loss of this recreational area is not a “discontinuance” as landscaped areas around the building continue to exist and will in fact be improved, but as a matter of logic, the significant decrease in recreational space available to the Tenants is clearly a “reduction”.

[53] Having noted that the remaining common landscaped lands would be improved following the construction, the Board did not consider the effect of the landlord’s obligation to improve those lands. The Board did not consider the extent of the reduction in the common recreational facility, even though it was required to do so in order to determine the rent reduction under s. 30(4) of the Regulation.

[54] While the size of the recreational facility is clearly relevant in determining the extent of any reduction in the facility, it cannot reasonably be the only factor in these circumstances. Not every change in a “service or facility” or in “common recreational facilities”, viewed objectively, will necessarily be a reduction of the common recreational facility, even if some aspect of it is removed or changed. Thus, the Board was required to consider not only the reduction in the metes and bounds of the recreational facility but also the nature of the changes in the remaining landscaped areas in order to determine the extent of the reduction of the “common recreational facilities”.

[55] Given the Board’s failure to consider the relevance of the landlord’s obligation to improve the remaining lands, and to consider the extent, if any, of the reduction in the common recreational facilities, the Board’s decision on this issue does not meet the criteria of a reasonable decision-making process; it is not an outcome that is within the range of reasonable possible outcomes.

[56] In this case, there was a negotiated process, between the landlord and the City of which the tenants were given notice and in which they were entitled to participate. This process bears upon the issue of whether and to what extent a reduction in rent was warranted because the size of the common recreational facility was reduced. The agreement between the landlord and the City ultimately required that in return for the severance and the loss of the land to the residential complex, the landlord was required to invest significant funds on improvements to the complex, including the remaining landscaped areas. The agreement also provided that the landlord would not seek to recoup those expenditures from its tenants by seeking an above-guideline rent increase before the Board.

[57] In these circumstances, the negotiated settlement is evidence that the loss of the landscaped area to the tenants was compensated for by the investment in the remaining landscaped areas. The amenities, including the common recreational facilities have been changed, rather than reduced. The process reflects the interests of the tenants of the apartment complex as a whole and is therefore a better reflection of the value and compensation for the lost common recreational lands, rather than the evidence of the impact upon individual use by the tenants of one unit.

[58] The Divisional Court opined that it was questionable whether the lands in this case should be considered “reduced” based on a reduction in quantity alone, given the fact that the landlord was obliged to spend a significant amount on improving the remaining land. In these circumstances, there is ample evidence in the record to find that the common recreational facility was not “reduced” but was replaced with other upgrades. As a result, the Board erred in ordering a rent reduction.

Was the Board’s calculation of the rent reduction reasonable?

[59] Although it is not necessary to the appeal, it is nonetheless appropriate to provide some guidance with respect to the Board’s calculation of the rent reduction.

[60] Section 30 of the Regulation sets out a mandatory approach to determining the amount of rent reduction. The Board is directed to determine the “reasonable charge” for the service or facility based on the cost of the service or facility to the landlord. If the cost cannot be determined or if there is no cost, then the Board is directed to determine the reasonable charge for the service or facility based on the value of the service or facility. If the service or facility is reduced, the amount of the rent reduction will be a reasonable proportion of that “reasonable charge”, depending on the degree to which the service or facility was reduced.

[61] The evidence at the hearing was that the annual costs of operating the green space had consisted of property taxes, insurance and landscaping costs, and that the costs for each of these did not change as a consequence of the severance. The tenants led no evidence on the value of the facility in the context of their monthly rent payment nor did this claim form part of the original application before the Board.

[62] The Board found that because the evidence of the landlord was that there was no reduction in its costs once the landscaped area was reduced, the cost to the landlord of the reduced portion of the service or facility was zero, or could not be determined. Based upon the limited evidence before it, it was reasonable for the Board to conclude in these circumstances that the cost to the landlord was zero, or could not be determined.

[63] However, upon making that determination, the Regulation required the Board to determine the “reasonable charge” for the service or facility based on the “value of the service or facility”. Instead, the Board concluded:

The only evidence of the value of the reduced common recreational area to the Tenants was the statement that they believed they were entitled to a 10% reduction in the rent because of all of their claims. It seems to me from the evidence before me that the claim with respect to the reduction in the common recreational area constituted was one-quarter of the Tenants’ total claims. Therefore, I find that an appropriate reduction in the rent for the reduction in the common recreational area is 2.5% of the rent charged. [Emphasis in original.]

[64] The respondent submits that in the context of the language of s. 30 of the Regulation, the “value of the facility” must be determined in relation to the cost savings or resulting benefit to the landlord rather than on the value of the service to the tenants. It argues that if there was no cost savings to pass on to the tenants, there should be no rent reduction.

[65] However, such an interpretation ignores the plain language of s. 30. By prescribing an alternative approach where there are no cost savings to pass on to the tenants, the Regulation clearly contemplates a rent reduction even where there is no resulting benefit to the landlord. Thus, the value of the service or facility must be based upon the rental value of such service or facility. In any event, the landlord benefited from the construction and sale of 32 townhouses upon the former recreational lands.

[66] The appellants submit that the Board acted reasonably and in accordance with the Regulation when it relied on the tenants’ perceived value of the loss of the former landscaped area in arriving at a figure of 2.5% for rent reduction. They referenced other decisions in which the Board has assessed the value of the rebate without a formula. Counsel submitted that over time, the decisions of the Board have established a ‘tariff’ based upon the nature and extent of the reduction in services or facilities. It was submitted that the Board’s assessment in this case represented a type of rough justice based upon its expertise.

[67] However, this is not such a case. The Board did not purport to rely upon past precedent or upon its expertise. Nor did the appellants provide any evidence of their perceived value of a reasonable charge for the lost landscaped lands. Instead, the Board’s reasoning related entirely to the initial amount of the claim made by the tenants, for grounds that were not successful. In doing so, the reasoning of the Board was deeply flawed.

[68] The appellants further submit that the result itself was reasonable given the value of the severed land. On the review hearing, the appellants filed a valuation opinion that the severed land had a value of $3.84 million, representing almost 12% of the total value of the apartment complex.

[69] The appellants’ submission that the Board’s outcome was reasonable based on the valuation of the land, or the best and highest value of the land, must also fail. The Regulation mandates an inquiry into a reasonable charge for the service or facility based upon its cost to the landlord or the value of the service or facility. The Board does not have discretion to adopt an alternative method of calculating the quantum of rent reduction, regardless of whether the amount arrived at is reasonable.

[70] As a result, the Board’s decision on quantum is not reasonable.

Conclusion

[71] In conclusion, I agree with the decision of the Divisional Court, although for different reasons. I would dismiss the appeal.

RELEASED: January 21, 2011 “KMW”

“Karakatsanis J.A.”

“I agree K. M. Weiler J.A.”

“I agree David Watt J.A.”