COURT FILE NO.: DC-06-137
DATE: 20080222
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
CUMMING, SWINTON and r. SMITH JJ.
B E T W E E N:
GRAMERCY APARTMENTS LIMTIED c/o GREENWIN PROPERTY MANAGEMENT INC.
Landlord
(Appellant)
- and -
ALEXANDER ANTHONY AND THE TENANTS LISTED IN SCHEDULE “A” HERETO
Tenants
(Respondents)
Robert G. Doumani and Patrick J. Harrington for the Appellant
Bruce Best, for the Respondents
HEARD at Toronto: January 7, 2008
CUMMING J.
The Appeal
[1] The Appellant Landlord, Gramercy Apartments Limited (“Gramercy” or “Landlord”), appeals an order of Adjudicator Najibullah Tahiri (the “Adjudicator”) of the Ontario Rental Housing Tribunal (the “Tribunal”) issued February 17, 2006. Section 196(1) of the Tenant Protection Act, 1997, S.O. 1997, c. 24 (“TPA”), provides for an appeal to this Court, but only on questions of law.
[2] The Adjudicator dismissed part of Gramercy’s application for a rent increase in an amount above the statutory guideline. The Adjudicator refused to recognize $200,697 in claimed capital expenditures by Gramercy relating to lobby and corridor renovations of the rental residential complex located at 59 Isabella Street, Toronto (the “building”).
[3] Section 138(1)2 of the TPA allows a landlord to apply for an order allowing the rent charged to be increased by more than the guideline where capital expenditures have been incurred respecting a residential complex. An adjudicator may disallow a capital expenditure if s/he finds it is unreasonable (s. 138(7)); however, if the expenditure meets certain criteria listed in s. 138(8) an adjudicator must not find the capital expenditure to be unreasonable.
The Hearing before the Adjudicator
[4] There is common ground that the owner of the building is Gramercy. The contract for the renovation was signed by Greenwin Property Management Inc. (“Greenwin”) acting as agent for the Landlord and by Verdiroc Construction Corporation (“Verdiroc” or the “Contractor”).
[5] Ms. Teresa Ascencao, a tenant, suggested at the hearing that Greenwin and the Contractor might not be acting at arms length through her observation of the Verdiroc website. Greenwin is owned by three families in equal shares. Verdiroc is owned by one of those three families. Ms. Ascencao testified that the website indicates that the CEO and President of Verdiroc is also the Vice President of Greenwin. Ms. Ascencao speculated that the lobby renovation may be “a job to subsidize unnecessary job creation for Greenwin satellite companies.” She speculated further that there is a relationship between Greenwin and Gramercy.
[6] This fact of overlapping ownership between the Contractor and Greenwin does not in itself mean the owner, Gramercy, and the contractor, Verdiroc, are not acting at arms length.
[7] More significantly, the uncontradicted evidence on behalf of the Landlord by Mr. Ivan Murgic, Vice President of Rental Operations for Greenwin, established that Gramercy was owned by persons unrelated to the ownership of Greenwin or Verdiroc. There was no meaningful evidence to suggest that Gramercy was not acting at arms length from Greenwin and the Contractor. Mr. Murgic was not cross-examined on this issue. Ms. Acencao admitted in cross-examination that she did not have any evidence as to the ownership of Gramercy and that the tenants had proceeded upon the understanding that Greenwin was the landlord. This was a misunderstanding on the part of the tenants.
[8] Mr. Douglas Geldart, an architect employed as the building project manager for Greenwin, testified that the hiring of the Contractor would have been subject to a bidding process. The Adjudicator noted that there was no documentation presented to confirm the Landlord’s claim that the hiring of the Contractor was through a bidding process. However, the Adjudicator did not make any finding of disbelief of Mr. Geldart’s testimony.
[9] Moreover, the uncontradicted documentary evidence was that Gramercy had paid $200,697 to the Contractor to complete the lobby renovation. This amount had been tendered in periodic payments for work done under the contract after the Contractor submitted invoices and the progress work had been approved by Mr. Geldart.
[10] The Adjudicator expressed concerns about the Landlord’s good faith as a result of the presumed non-arms-length relationship between Greenwin and Verdiroc:
What makes the decision about this item more complicated is the relationship between the Verdiroc, the company that carried out this renovation, and Greenwin Corporation, which is named along with the Landlord as the applicant in this action. Agents for the Tenants presented a document establishing that Kevin Green, President and C.E.O. of the Verdiroc Development Corporation, is also Vice President of Greenwin Property Management. Mr. Murgic, vice president for rental issues, confirmed that the principals of Greenwin were also principals of Verdiroc. Both Mr. Gildart [sic] and Mr. Murgic who appeared at this hearing testified that they were employees of the Greenwin and that they were involved in monitoring of this renovation. They also stated that they were engaged in the recommending to the Landlord the need for such a renovation. They also testified that they were part of the group who made recommendations to the Landlord about who to be hired for this renovation. While both Mr. Gildart and Mr. Murgic maintained that despite their recommendations the Landlord had the ultimate say in deciding who the contract should go to, however, the involvement of Greenwin in the recommendations of the contractor in my opinion creates concerns whether the contract, have in deed been an arm length transaction.
The panel notes that the agreement for this renovation signed between Greenwin Property Management Inc, acting as agent for the Landlord, Gramercy Apartments Limited called the “Owner” and Verdiroc Construction Corporation hereinafter called the “Contractor”, both operated by the same principals. The evidence reveals that the contract had been signed by Mr. Geldart acting as agents for the “Owner” and the “Contractor” i.e. Verdiroc. The contract sets out that “Contractor shall: Perform the Work as described in the scope of work in schedule A and B appended here”, however these schedules are missing from both the Tribunal’s file as well as the Tenants’ package.
While both Mr. Gildart and Mr. Murgic, submitted that the decision to hire a contractor for the job was made through a bidding process, however, no document was presented to substantiate such allegation and to assist the panel to examine whether the contract was given to Verdiroc purely on merits. In fact the Landlord had not disclosed any information about the connection between the two companies until the Tenants exposed this relationship. Had the Tenants not provided the Tribunal with documents establishing relationship between Greenwin and the Verdiroc, such relationship would have remained unexposed. In my opinion, the Landlord had a responsibility to volunteer this information rather than being confronted by the Tenants about the same. The Landlord should have also disclosed all the documents concerning the betting [sic] processes etc. so that the panel and the Tenants could have a fair opportunity to review and form an informed opinion about the process. The Landlord’s silence on this important issue raises concerns about the transparency of the Landlord’s actions and brings the Landlord’s good faith into question.
[11] Gramercy asserted that all of the capital expenditures in question were protected under s. 138(8) of the TPA.
[12] The Adjudicator noted that the contract dated May 31, 2004, between Gramercy and the Contractor, that was filed in the Landlord’s application for a rent increase, was missing Schedules A and B. These Schedules presumably contained the details of work to be performed under the contract. Hence, the claimed expenditure for the lobby renovation, totaling $200,697, was “entirely dismissed due to the lack of important information.” The Adjudicator found that none of the items, “which are dissimilar in nature and have different useful lives and characteristics,” were itemized in the Landlord’s application. The Adjudicator found that the Landlord had not presented the cost breakdown for various components of the renovation, which would have enabled the Adjudicator to “assess whether the costs have been feasible.”
[13] Mr. Geldart testified before the Adjudicator regarding the “lobby renovations” involved in Item 6 of Gramercy’s application. He stated that there were missing tiles in the entry vestibule and lobby and that the remaining tiles were easily 40 years old. He stated that the tiles were replaced. Mr. Geldart testified further that there were “deteriorated wall conditions” in the common corridor areas and the lobby, with the old stucco walls having extensive patches and repairs throughout, requiring a new drywall finish and repair of the crown mould and baseboards. He stated that it was necessary to “improve the overall illumination” and gain energy efficiency by replacing the lighting fixtures. The elevator buttons required relocation. Mr. Geldart testified that the major expenditure was in respect of removing worn and stained carpet in the corridors and that there were safety concerns with the existing conditions.
[14] The Adjudicator asked for a breakdown of the claimed expenditures for “lobby renovations.” Mr. Geldart responded that he could provide a breakdown of the contract and the agent appearing for Gramercy advised the Adjudicator that “if that’s available then I propose we file it along with a written submission.” The Adjudicator was asked by Gramercy’s agent to make a note of his stipulation in this regard and the Adjudicator responded that he would.
[15] The Adjudicator suggested that it would help if there were photographs of the condition of the building. Mr. Geldart stated that he may have some pictures which if required could be filed. Gramercy’s agent did put in photographs of the lobby before and after the renovations in reply. This was done in Mr. Murgic’s testimony.
[16] The tenants’ representative cross-examined Mr. Geldart, asking if he had any documentation to show that the work was necessary and specifically what was done. The representative pointed out that Item 6 of Gramercy’s application did not include an itemized list.
[17] As mentioned above, one representative for the tenants, and a tenant herself, Teresa Ascencao, testified. She stated that the application was incomplete, as Schedules A and B (itemizing the work actually done) of the contract were missing and that she did not understand why that was not in the application. She wondered whether the landlord “is trying to hide something.” Ms. Ascencao responded to the Adjudicator’s question as to whether she had at any time raised this issue of an incomplete document with Gramercy by saying, “It is the onus on the landlord to prove their case. This is not our responsibility.”
[18] Gramercy’s agent responded to the Adjudicator by suggesting that an application should be determined on its merits and not defeated for technical reasons. The application (with the missing pages) had been posted for some 60 days without any query from a tenant or tenant’s representative.
[19] On cross-examination, Ms. Ascencao acknowledged that there was new carpeting, the lights had been changed, there was new drywall installed and the elevator buttons were repositioned.
[20] The Adjudicator noted that the Landlord’s position before the Adjudicator was that Greenwin did not need to present any evidence in addition to the sworn testimony of Mr. Geldart, the building project manager.
[21] However, just prior to making submissions, the agent for Gramercy again stated to the Adjudicator that it was obvious some pages were missing which itemize the costs. He stated that he regretted the pages were not filed and that it had been an oversight. He stated that “we’re quite willing to file those pages, if it would assist in your determination.” He pointed out there was no witness who factually rebutted the viva voce evidence of Mr. Geldart. He then again said “If you require any further documents, we are happy to provide those. So therefore I think that what may be missing is certainly technically a defect, but only so.”
[22] In his later submissions the agent for Gramercy again referred to the missing pages, saying:
…[T]hat’s a technical error, which we’ve undertaken to rectify if you so direct. That’s in your hands, sir. But it bears saying that the tenants knew of this application since at least the 28th day of November. If at any time there was something they were ill at ease about, they could have made a request, and the documents would have been provided.
[23] Gramercy then made reference to Rule 1 of the Tribunal, submitting that a decision should be made on the merits rather than on technical error. After further submissions, Gramercy concluded by asking the Adjudicator, “whether you request further documentation or not, to look at the totality of the evidence.”
[24] The closing submission of Ms. Ascencao and Ms. Clark, another representative of the tenants, emphasized the missing pages in the context of their suspicion of some impropriety because of a supposed relationship between the corporations.
[25] The Tribunal concluded:
In view of the above I am not satisfied that I have sufficient information to make an informed decision, and I therefore, reject this item in its entirety. Section 138(8) sets out numerous criteria to be applied in order to decide whether a capital expenditure is reasonable, and in the absence of information about the nature, and costs of each component such determination would be impossible.
Rule 17.4 (1) provides that a Landlord who applies for an above guideline rent increase related to capital expenditures shall file, along with the information required under section 18, paragraph 2 of O. Reg. 194/98, details about the invoices and payment for each capital expenditure item, and in my opinion those details are missing in this application. (Emphasis added).
When the deficiency was brought to the attention of the Landlord’s agent he requested to be permitted to file these information as post hearing documentation. I refused this request. I note that the nature of applications to increase the rent above the guideline requires that most of the evidence to support the application be submitted with the application, so that the member and the other party would have a reasonable opportunity to assess the documents and to prepare for the hearing. Section 18 of O.Reg. 194/98 provides for timely disclosure of supporting material by requiring that evidence of the expenditures claimed must be filed with the application. In my opinion granting the Landlord’s request to file this important information after the conclusion of the hearing would be gravely unfair to the Tenants, as this approach would practically deprive them of the opportunity to cross-examine the Landlord on various components of this renovation.
In conclusion, in my opinion, the Landlord failed to establish on a balance of probabilities that the lobby renovation was “reasonable”. This item, therefore, does not meet the definition of “capital expenditures” as set out in Ontario Regulation 194/98.
Disposition
[26] We find, with respect, that the Adjudicator made two errors of law. As a result, the Adjudicator’s decision must in part be set aside. Our reasons follow.
[27] First, we infer from the Adjudicator’s decision that one operative reason for rejecting the Landlord’s application was a supposed non-arms-length relationship between Greenwin and Verdiroc. Indeed, the Adjudicator had no reason to refer at considerable length to this relationship unless it was seen as relevant to his decision.
[28] However, as stated above, there was no evidence of any common ownership in respect of Gramercy. The representative for the Landlord before the Adjudicator, Greenwin, was simply the agent of Gramercy. In fact, the evidence was to the contrary of the tenants’ suspicion, and the evidence as to some (non-controlling) common ownership between Greenwin and Verdiroc was irrelevant.
[29] In our view, and we so find, the Adjudicator’s finding as to bringing “the Landlord’s good faith into question” was an error of law. Because it was an operative reason for dismissing the Landlord’s application, the ultimate determination of the Adjudicator is flawed and must be set aside.
[30] In our view, the decision of the Adjudicator is also fundamentally flawed for a second reason, in that he acted in a procedurally unfair manner in dealing with the matter of the missing Schedules A and B in the Landlord’s application for a rent increase.
[31] Section 18(1) of the applicable regulations, O. Reg. 194/98, provides that an application under s. 138 must be accompanied by certain material, including “evidence of all costs and payments for the amounts claimed for capital work…” The global cost was provided and proven in the case at hand in respect of the lobby renovations. However, the application did not include an itemized list of the costs of the components of the renovation. Such itemization may be relevant to the determination of reasonableness and, indeed, may be required for an adjudicator to make findings related to capital expenditures and calculate the quantum of any consequential rent increase under ss. 22 and 23 of the regulations.
[32] Moreover, Rules 17.4(1) and (2) of the Tribunal’s Rules of Procedure provide that the information filed pursuant to s. 18 of the regulations shall include “details about the invoices and payment for each capital expenditure item” in the requisite form. This was not done due to the oversight of not including the missing pages of the contract between Gramercy and Verdiroc. An adjudicator may refuse to consider any capital expenditure item for which the landlord fails to file such form: sub-Rule 17.4(2). Interpretation Guideline 14 of the Tribunal stipulates that s. 18 of the regulation provides for timely disclosure. Landlords are required to file evidence of the costs claimed and proof of payment of the costs with the application, and non-compliance may result in a refusal to allow a landlord to rely on documents that were not filed in a timely manner. Hearings will not normally be adjourned to allow for additional time for a landlord to file. However, a landlord can seek permission to file documents after it has filed its application. In such circumstances, the landlord should seek leave to extend the time requirement for filing.
[33] In our view, it was an error of law for the Adjudicator to fail to address Gramercy’s several requests to file the missing pages. While Gramercy did not formally “seek leave” to file the omitted documents, its offers to do so can be seen as informal requests in the context of the oral hearing before the Adjudicator. As such, the Adjudicator should have considered whether it would be appropriate to allow the Landlord to file the documents in issue. The Adjudicator’s failure to consider these requests amounts to an “unreasonable exercise of the discretion conferred” by the legislation: Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817 at para. 65. This failure to exercise the discretion conferred upon the Adjudicator by the legislation is unreasonable, amounts to an improper refusal of jurisdiction and therefore, constitutes an error of law: Léonelli v. Canada (Attorney General), [2003] F.C.J. No. 1756 (ct.?) at para. 44. The reasons for decision of the Adjudicator incorrectly state that the Adjudicator “refused this request” of Gramercy. The transcript indicates the Adjudicator in fact never made any ruling at all on the request.
[34] Had the requests been considered, the Adjudicator should have, at the least, stated his concerns to Gramercy and that there might be a dismissal of the Application for this reason, thereby allowing Gramercy to respond with submissions. The inability of the Landlord to make proper submissions in response to such a possible finding, if in fact this would have been the Adjudicator’s finding, amounts to a denial of its right to be heard and a denial of procedural fairness. Breaches of procedural fairness constitute errors of law subject to a standard of review of correctness: Canadian Union of Public Employees (C.U.P.E.) v. Ontario (Minister of Labour), 2003 SCC 29, [2003] 1 S.C.R. 539 at para. 100; Ellis-Don Ltd. v. Ontario (Labour Relations Board), 2001 SCC 4, [2001] 1 S.C.R. 221 at para. 65.
[35] More appropriately, the Adjudicator in the circumstances should have given Gramercy the opportunity to file the missing pages before the hearing concluded. Section 188 mandates a Tribunal to ascertain the “real substance of all transactions.” It is quite possible that this could have been done by fax or delivery through a very short adjournment of a few minutes or, at most, an hour or so. If the Adjudicator considered that the tenants were disadvantaged by late access to the itemized costs data in terms of their cross-examination, a longer adjournment could have been given so that they could adequately prepare. However, it seems doubtful the itemized costs data would be so complicated as to require a longer adjournment.
[36] If the Adjudicator foresaw that the mere failure of Gramercy to file the itemized cost data could result in a dismissal of Gramercy’s application, the Adjudicator should have weighed the possible prejudice to the respective parties that would result from alternative courses of action (dismissal or an adjournment with an opportunity to file the missing pages) before dismissing the application.
[37] For the reasons given, in our view and we so find, the Adjudicator committed errors of law that require the parts of the Order dismissing the lobby renovation part of the Landlord’s application to be set aside. This part of the Landlord’s application shall be sent back to the Tribunal to be put before a different adjudicator for consideration of the Landlord’s request under s. 138 of the TPA related to Item 6, the “lobby renovations.” The Landlord is to be given the opportunity to add the missing pages to the original application in advance of the rehearing. If the Landlord adds these materials, it shall provide them to the tenants as well to prevent possible disadvantage to them in the context of the rehearing.
[38] Submissions have been made in respect of costs. Although the normative approach is for costs to follow the event, given all the circumstances in respect of the matter at hand, we are of the view there should not be any award of costs.
CUMMING J.
SWINTON J.
R. SMITH J.
Released: February 22, 2008
COURT FILE NO.: DC-06-137
DATE: 20080222
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
CUMMING, SWINTON AND R. SMITH jj.
B E T W E E N:
GRAMERCY APARTMENTS LIMTIED c/o GREENWIN PROPERTY MANAGEMENT INC.
Landlord
(Appellant)
- and -
ALEXANDER ANTHONY AND THE TENANTS LISTED IN SCHEDULE “A” HERETO
Tenants
(Respondents)
REASONS FOR DECISION
CUMMING J.
Released: February 22, 2008