COURT OF APPEAL FOR ONTARIO

2014 ONCA 113

DATE: 20140212

DOCKET: C57033

Doherty, Sharpe and MacFarland JJ.A.

BETWEEN

Exchange Corporation Canada Inc.

Appellant

and

The Corporation of the City of Mississauga, Municipal Property Assessment Corporation and Greater Toronto Airports Authority

Respondents

David Fleet, for the appellant

Christian Schulze, for the Municipal Property Assessment Corporation

Brad Teichman and Christopher Tanzola, for the Corporation of the City of Mississauga

Mahmud Jamal and Mary Paterson, for the Greater Toronto Airports Authority

Heard: December 17, 2013

On appeal from the order of the Divisional Court (Justices Frances P. Kiteley, Giovanna Toscano Roccamo and Todd Ducharme) dated November 28, 2012, with reasons reported at 2012 ONSC 6221, allowing an appeal from the order of Justice David Price, dated November 21, 2011, with reasons reported at 2011 ONSC 6768.

Sharpe J.A.:

[1] The appellant, Exchange Corporation Canada Inc. (“Exchange”), provides foreign currency exchange, insurance, and other travel-related services from kiosks at Pearson International Airport. The respondents, the Corporation of the City of Mississauga (“Mississauga”) and the Municipal Property Assessment Corporation (“MPAC"), assessed Exchange as a “tenant” of the respondent Greater Toronto Airports Authority (“GTAA”) for municipal realty taxes under the Assessment Act, R.S.O. 1990, c. A.31. Exchange brought this application for a declaration that it is not a “tenant” within the meaning of the Assessment Act and therefore not liable for municipal realty taxes. Exchange also sought a declaration that if it is liable, the premises are to be assessed at a more favourable rate as an “eligible property” under the Municipal Act, 2001, S.O. 2001, c. 25.

[2] The application judge concluded that Exchange was a licensee, not a tenant, and granted a declaration to that effect. He rejected Exchange’s submission that if it were a tenant, the premises it occupies would qualify as an “eligible property”.

[3] The Divisional Court allowed the respondents’ appeal, concluding that the application judge had erred in law in finding that Exchange was not a tenant, and dismissed Exchange’s cross-appeal, concluding that the application judge had properly rejected Exchange’s claim for favourable treatment as an eligible property.

[4] Exchange appeals, with leave, to this court. For the following reasons I would dismiss the appeal.

STATUTORY CONTEXT

[5] Municipalities in Ontario have the power to collect realty taxes from owners of property within their borders pursuant to the Municipal Act, 2001. Property owned by the federal government is exempt from taxation under s. 125 of the Constitution Act, 1867.

[6] Pearson Airport is owned by the federal government. However, in the 1990s, the federal government decided to privatize the operations of its airports and, in 1996, the federal government leased Pearson Airport to the GTAA for a period of 60 years.

[7] By virtue of s. 3(1)(24) of the Assessment Act, “[l]and owned or leased by a designated airport authority” is exempt from realty tax provided the designated airport authority makes payments in lieu of taxes (“PILT”) to the municipality. The GTAA is a designated airport authority and it makes PILTs to Mississauga.

[8] The designated airport authority exemption does not apply to any portion of the airport leased by a tenant: s. 3(1)(24)(iv). Generally, tenants are not liable for municipal realty taxes in Ontario. However, by virtue of s. 18(1)(a) of the Assessment Act, “the tenant of land owned by the Crown shall be assessed in respect of the land as though the tenant were the owner if rent or any valuable consideration is paid in respect of the land”.

[9] Accordingly, if Exchange is a “tenant of land owned by the Crown”, it is liable to municipal realty taxes.

[10] Section 1(1) of the Assessment Act defines a tenant to include “an occupant and the person in possession other than the owner”.

THE EXCHANGE – GTAA AGREEMENT

[11] Exchange has the right to operate its kiosks at Pearson Airport by virtue an agreement with the GTAA dated June 24, 2003 (the “Agreement”). The Agreement is a lengthy document that was the subject of detailed consideration by both the application judge and the Divisional Court.

[12] The Agreement is called a “lease”. It refers to the GTAA as the “Landlord” and to Exchange as the “Tenant”. The Agreement provides for the payment of rent. It contains the standard habendum clause, a covenant for quiet possession and expressly states in s. 13.8 that it does not “create any relationship between the Landlord and the Tenant other than the relationship of landlord and tenant”. The Agreement also contains many provisions giving the GTAA control over the manner in which the premises are used.

DECISION OF THE APPLICATION JUDGE

[13] Exchange’s primary position before the application judge was that it was a tenant of the GTAA, not a “tenant of land owned by the Crown” and therefore not liable for municipal realty taxes. The application judge rejected that argument. That finding was not appealed to the Divisional Court and Exchange advances no argument on the point before this court.

[14] The application judge invited submissions as to whether the contractual arrangement between the GTAA and Exchange made Exchange a “tenant” or a mere licensee. He concluded that the terms of the Agreement did not meet the test for a tenancy. The application judge focussed on the controls reserved by the GTAA under the Agreement regarding the use of the space which Exchange occupied.

[15] The controls which the application judge found to be decisive may be summarized as follows. The landlord retains the right to:

• terminate the lease on 60 days’ notice to accommodate the re-development of the Airport;

• approve signs and advertising visible from the outside of the leased premises;

• require the tenant to discontinue any business conduct or practice which may harm the landlord’s business or reputation;

• require the tenant to occupy and use the premises in accordance with the specified uses of selling insurance, foreign currency and related uses and not to direct business elsewhere;

• impose limits on prices charged by the tenant;

• require the tenant to operate during specified hours;

• access the premises for inspection and repairs;

• approve alterations to the premises;

• control access to the Airport and Terminal Building;

• relocate the tenant to other premises in the terminal if necessary for operational or re-development purposes;

• consent to an assignment of the lease (consent must not be unreasonably withheld).

[16] The application judge concluded that these controls deprived Exchange of the rights of a tenant, meant that the Agreement was not a lease but a “concession agreement” and made Exchange a mere licensee.

[17] The application judge then considered whether Exchange was an “occupant”, which would bring it within the statutory definition of a “tenant”. He concluded that because of the significant controls the GTAA exercised over the activities carried out on the subject property, Exchange was not an occupant and that even if Exchange were an occupant, the GTAA exercised “paramount occupancy” and Exchange was therefore not liable to pay realty taxes as an “occupant”.

DECISION OF THE DIVISIONAL COURT

[18] The Divisional Court found that the application judge had erred in law by concluding that Exchange was not a “tenant”. In the view of the Divisional Court, the application judge erred by focussing on certain provisions and by failing to consider the Agreement as a whole. In particular, the application judge failed to consider several central and important provisions that are indicative of a tenancy. These included the fact that the Agreement calls itself and takes the form of a lease, the clause granting Exchange the right to “peaceably possess and enjoy the Leased Premises for the Term without interruption by the Landlord,” and a clause assuring Exchange “the benefit of a good and sufficient leasehold interest in the Lands, sufficient to permit the grant by the Landlord to the Tenant of the leasehold interest contemplated by this lease.”

[19] Considering the document as a whole the Divisional Court concluded that “[t]he provisions of the lease are unambiguous. The intention of the parties is clear. The interpretation of the document is a question of law. The Application Judge failed to correctly apply the law.” The court also held that the application judge erred in failing to find that Exchange was also liable to taxation as an “occupant” of the property.

ISSUES

[20] Exchange submits that the Divisional Court erred by:

1. Applying correctness as the standard of review and failing to defer to the application judge’s finding that Exchange was a licensee, not a tenant;

2. Finding that Exchange was a “tenant”;

3. Failing to defer to the application judge’s finding that Exchange was not an occupant and that the GTAA was the paramount occupant;

4. Failing to find that Exchange’s premises should be assessed as an “eligible property” under the Municipal Act, 2001.

ANALYSIS

(1) Standard of review

[21] I am unable to accept the submission that the Divisional Court should have deferred to the application judge’s finding that Exchange is a licensee and not a tenant and that it erred by applying the standard of correctness to the issue of whether the Agreement was a lease.

[22] It is not necessary to engage in a lengthy examination of this court’s jurisprudence on the standard of review that applies to the interpretation of a contract: see Bell Canada v. The Plan Group (2009), 2009 ONCA 548, 96 O.R. (3d) 81 (C.A.); MacDougall v. MacDougall (2005), 2005 44676 (ON CA), 262 D.L.R. (4th) 120 (Ont. C.A.). As the Divisional Court observed, at para. 18, this was not a case involving disputed facts, nor was it a case where the interpretation of the contract required consideration of and findings as to the underlying factual matrix. The issue of whether Exchange is a tenant turned solely on the interpretation of the language of the Agreement and on an assessment of the legal character of the relationship it created: did the Agreement, in law, constitute Exchange as a tenant or as a licensee?

[23] In my view, the Divisional Court identified clear legal errors on the part of the application judge. He failed to consider the Agreement as a whole and he failed to consider provisions in the Agreement which on application of the proper legal test, as we review below, made the Agreement a lease and Exchange a tenant.

[24] The Divisional Court did not err in the standard of review.

(2) Was Exchange a “tenant”?

[25] As the Divisional Court noted, at para. 30, the application judge focussed almost exclusively on the impact of the GTAA’s reserved rights and failed to consider the Agreement as a whole.

[26] The application judge failed to consider or to give sufficient weight to the legal effect of the habendum and quiet enjoyment clauses as well as several other features of the Agreement that were important indicators of a lease, including the following:

• the Agreement is called a “lease”;

• the Agreement refers to the GTAA as the “landlord” and to Exchange as the “tenant”;

• the Agreement specifically states that it constitutes the relationship of landlord and tenant;

• the GTAA covenanted that it enjoyed the benefit of a leasehold interest in the lands sufficient to permit it to grant Exchange the leasehold interest contemplated by the lease;

• the Agreement “is a completely carefree absolutely net lease to the Landlord, except as expressly herein set out”;

• the tenant is obliged to pay rent;

• the tenant is required to pay taxes attributable to the leased premises, if separately assessed, or, if not separately assessed, as allocated by the landlord;

• the leased premises are specifically described;

• the tenant is required to surrender the leased premises on expiration or termination of the lease; and

• the lease is binding on permitted successors and assigns.

[27] I agree with the Divisional Court that when the Agreement is considered as a whole, its provisions are “unambiguous”. The intention of the parties is clear. Indeed, Exchange admitted that it was a tenant when it brought the application on the basis that it was a tenant of the GTAA and not a tenant of the Crown.

[28] While the Agreement did contain significant reservations of rights to the GTAA, when considered in the context of the lease as a whole, those rights were consistent with Exchange’s legal status as a tenant. The rights reserved by the GTAA are similar to those commonly found in commercial leases. This court has found reservations of such rights to be consistent with the degree of exclusive possession required to constitute the legal status of tenant: see Metro-Matic Services Ltd. v. Hulmann (1973), 1973 791 (ON CA), 4 O.R. (2d) 462 (C.A.); Re British American Oil Co. Ltd. and DePass (1959), 1959 125 (ON CA), 21 D.L.R. (2d) 110 (C.A.).

[29] In my view, the Divisional Court did not err in concluding that Exchange is a “tenant” and therefore liable to municipal realty taxes.

(3) Did the Divisional Court err by failing to defer to the application judge’s finding that Exchange was not an occupant and that the GTAA was the paramount occupant?

[30] I have concluded that Exchange is a “tenant”. That is sufficient to render Exchange liable for municipal realty taxes. It is therefore unnecessary for me to consider the alternate submission advanced by the respondents that even if Exchange is a licensee, it meets the extended statutory definition of “tenant” which includes “an occupant and the person in possession other than the owner”. I agree with the Divisional Court, at para. 40, that as Exchange is a tenant and therefore the only entity that occupies or uses the leased premises and as the GTAA is a landlord and does not use or occupy the leased premises, the issue of paramount occupancy does not arise.

(4) Should Exchange’s premises be assessed as an “eligible property”?

[31] Exchange submits that if it is liable to municipal realty taxes, it is entitled to the favourable treatment accorded to an “eligible property” under s. 331 of the Municipal Act, 2001. The eligible property provision was introduced to alleviate what might otherwise have been excessive tax increases resulting from the change to a system of assessment based on market value. If a property qualifies as an “eligible property”, its taxes are limited to the average effective level of taxation derived from up to six comparable properties.

[32] Section 331(20) defines “eligible property” as a property

(a) to which subsection 329 (7) applies,

(b) that ceases to be exempt from taxation for 2001 or thereafter,

(c) that was subdivided or was subject to a severance,

(d) whose classification changes for 2001 or a later year, or

(e) that is prescribed by the Minister of Finance

[33] Both the application judge and the Divisional Court rejected Exchange’s submission that its premises met the definition of “eligible property”. I agree with that conclusion.

[34] Both before the Divisional Court and before this court, Exchange failed to identify a category enumerated in the definition of “eligible property” that applies to its premises.

[35] Category (a) does not apply for the reasons explained by the Divisional Court at paras. 53-54.

[36] The property was not subdivided so as to trigger the application of (c).

[37] Exchange conceded before both the application judge and the Divisional Court that the classification of the property did not change as required by (d).

[38] The property was not prescribed by the Minister of Finance as required by (e).

[39] Exchange appeared to focus its submissions on category (b) – that the property ceased to be exempt from taxation when the GTAA leased the premises to Exchange and Exchange became liable to pay taxes as a tenant.

[40] I agree with the submission of Mississauga and the MPAC that the word “property” in s. 331(20) must refer to the entire airport property and not to the individual premises leased by Exchange: see Curtis Properties (Bridgeland) Inc. v. Toronto (City), [2006] O.J. No. 4115 (S.C.).

[41] The airport property was exempt from taxation prior to the lease to Exchange and it remained exempt after the lease took effect. The assessment of a tenant under s. 18(1) of the Assessment Act does not create a separate “property” within the meaning of s. 331 of the Municipal Act, 2001. As both the application judge and the Divisional Court observed, O. Reg 73/03, ss. 28, 29 set out the specific process and formula for the calculation of taxes where a portion of a parcel ceases to be exempt. If Exchange’s argument were to be accepted, those provisions would be unnecessary and Exchange does not meet their requirements.

[42] Exchange’s argument essentially rested on what it perceives as the unfairness or inequity of the rate at which it is taxed when compared with the rates of its competitors. As this court held in Yonge Street Hotels Ltd. v. Municipal Property Assessment Corp., Region No. 9 (2005), 2005 14438 (ON CA), 197 O.A.C. 11 (C.A.), at para. 24, “[w]e are not at liberty to overcome or ignore legislative distinctions by applying some free-standing principle of fairness.” To benefit from the treatment accorded to “eligible property”, a party must fit within one of the categories identified by the legislature and Exchange has failed to satisfy that essential requirement.

DISPOSITION

[43] I would dismiss the appeal with costs to the respondents fixed at the agreed amount of $31,000, inclusive of disbursements and taxes.

“Robert J. Sharpe J.A.”

“I agree D. Doherty J.A.”

“I agree J. MacFarland J.A.”

Released: February 12, 2014