Court File and Parties

COURT FILE NO.: CV-17-4258-00 DATE: 2018-12-07

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

NELSON SOUSA FARIA Dan Rosman, for the Applicant Applicant

- and -

MARGARET ELIZABETH BUSH Beena Balsara, for the Respondent Respondent

HEARD: July 18, 2018, at Brampton, Ontario Price J.

Reasons For Order

OVERVIEW

[1] Nelson Faria and Margaret Bush sold a two-unit rental property they had bought together. They had been in a romantic relationship, but a few months after buying the house, they separated. Mr. Faria remained in exclusive possession of the lower unit of the property, until the property was sold four years later, generating a profit of $62,277.59.

[2] Mr. Faria and Ms. Bush have been unable to agree on the division of the proceeds of sale. Ms. Bush claims rent from Mr. Faria for the four years he occupied the lower unit of the property until the property was sold. Mr. Faria claims reimbursement of out of pocket expenses he says he paid while he occupied the property. He moves for an order distributing the proceeds.

BACKGROUND FACTS

[3] Mr. Faria and Ms. Bush met in 1998. They began cohabiting in 2002.

The purchase of the property

[4] On May 28, 2007, Mr. Faria and Ms. Bush entered into an agreement titled “Purchase Acknowledgement”. It included a clause which stated:

Nelson Faria will reside at the property until he wishes not to. At such time, if it is before the end of the first five year mortgage term, his residing portion will also be tenanted, until the end of that term, with any profits and expenses to be shared equally between the two parties.

[5] On June 15, 2007, Mr. Faria and Ms. Bush bought the property at 25 Crosswood Lane, Brampton, Ontario, for $259,500. They each provided $2,500 toward the down payment, and took title to the property as tenants in common, each holding a 50% ownership interest. The locks were changed after closing, and both Mr. Faria and Ms. Bush were given keys.

[6] The parties bought the property with the intention that it would generate rental income sufficient to maintain the property. Mr. Faria was not financially able to purchase the property on his own. Ms. Bush already owned a property of her own, which she rented to tenants.

The occupation of the property

[7] Mr. Faria occupied the lower unit of the property. The upper unit was occupied by tenants, who paid rent of $1,250 per month to Mr. Faria.

The parties’ separation

[8] In December 2007, Ms. Bush confronted Mr. Faria about his alleged involvement in a relationship with another woman. She asserts that Mr. Faria became enraged, and forced the keys to the property from her hands. She says that he threatened her repeatedly, told her that it was his house and that she would have nothing to do with it, and that he changed the locks to the house so that she could no longer have access to it.

[9] Ms. Bush states that as a result of Mr. Faria’s threats and intimidation, she feared him and, from that point onward, he operated the property as if it were his own. Mr. Faria disputes Ms. Bush’s account of their separation, but does not dispute that he continued to operate the property alone.

Mr. Faria’s continued occupation of the home

[10] On March 29, 2008 and July 12, 2008, Mr. Faria attended at Ms. Bush’s residence to discuss the property. Ms. Bush called the police both times. The Police advised Mr. Faria not to contact Ms. Bush again.

[11] Ms. Bush contacted Mr. Faria, on average, three times per year by telephone. In addition, she received monthly bank statements, which disclosed that the mortgage was being paid.

[12] In 2010, at Ms. Bush’s request, Mr. Faria met with her for lunch to discuss the property. Ms. Bush had been advised by a neighbor that Mr. Faria had moved out of the property and she was concerned. Mr. Faria assured her that the property was paying for itself, and did not advise her of any shortfall.

[13] In 2011, at Ms. Bush’s request, Mr. Faria met with her again to discuss the property. She asked for a list of the people who were renting and a list of the current tenants. He told her about a person that he caused the police to remove, and Ms. Bush told him that there were people at the hospital where she worked who wanted to rent the property.

[14] Ms. Bush states that she made repeated requests for a key. On April 20, 2012, Ms. Bush’s lawyer sent a formal request to Mr. Faria for a key to the property, which Mr. Faria complied with.

Sale of the property

[15] On July 9, 2012, the property was sold for $325,000. After payment of the mortgage, property taxes, real estate commission, legal fees for the sale, and closing adjustments, the sale generated net proceeds of sale in the amount of $62,277.59. That amount has been held in trust for the past six years and is the subject of the parties’ current dispute.

The income and expenses associated with the property

[16] Mr. Faria says that during the period when the parties’ owned the property, he made all mortgage and other required payments. There was no missed payment or default.

[17] The parties are in agreement that during the period of his occupation of the property, Mr. Faria paid a total of $125,940.26 toward the mortgage, property taxes, home insurance, and utilities.

[18] Mr. Faria additionally made repairs and painted the property without discussing them with, or receiving consent from, Ms. Bush. Mr. Faria says that the total property expenses over the period of the parties’ ownership was $133,644.22. Of this amount, he claims reimbursement of out of pocket expenses in the amount of $51,264.22 from Ms. Bush.

[19] Mr. Faria says that during the 60 months when the parties owned the property, they rented out the upper unit for 59 months. The rent paid was $1,250 per month, including utilities.

[20] Mr. Faria resided in the lower unit for 36 months. He then rented it for three months at $750 per month. He rented it again from May 2011 to Dec. 2011, at $800 per month. Mr. Faria occupied the property for a total of 11 months, with a shortfall, according to Ms. Bush, of $700 per month.

[21] Mr. Faria found tenants during the vacancies by advertising online and in newspapers. He states that he received a total of $8,650 toward rent for the lower unit. The property was not leased for 13 months, resulting in a shortfall, according to Ms. Bush, of $11,050 ($850 x 13 months).

[22] Over the entire period when the parties owned the property, the total rental income generated, both for the 59 months when the upper unit was rented, and the 11 months when the lower unit was rented, totaled $82,400.

[23] Ms. Bush argues that Mr. Faria should have paid and/or received $51,000, and that owing to his occupation of the lower unit, and his failure to rent it for the entire period after ceasing to occupy it, and not allowing her to assist with renting it to tenants, there was a shortfall of $42,350.

[24] Ms. Bush says that she paid $1,363.35 towards repair and renovation expenses, which Mr. Faria denies.

[25] In July 2016, Mr. Faria began an action against Ms. Bush in Small Claims Court as a self-represented litigant. An unsuccessful settlement conference was held, after which Mr. Faria retained counsel. The parties later agreed to resolve this matter by way of application to this court.

ISSUES

[26] The motion requires the court to determine the following issues:

(a) Were the parties’ partners pursuant to the Partnership Act? (b) Does the purchase acknowledgment signed by the parties disentitle the parties from reimbursement? (c) What, if any, reimbursement are the parties entitled to?

PARTIES’ POSITIONS

a) Were the parties’ partners pursuant to the Partnership Act?

Mr. Faria’s Position:

[27] Mr. Faria claims that the parties had a partnership as defined by s. 2 of the Partnership Act.

[28] Mr. Faria argues that the three criteria in s. 3 of the Act have been met, as this was a business carried out in common with the view to profit. The fact that management of the partnership rested with him does not mean that the business was not carried out in common. He further argues that the fact that the parties maintained ownership of the property for five years and shared expenses and losses indicates that they intended to carry on a business in common.

Respondent’s Position:

[29] Ms. Bush argues that she and Mr. Faria were not partners pursuant to the Act. The purchase acknowledgement is not a partnership agreement. There was no business carried out in common. Business is defined as “trade, occupation, and profession”. Even if the relationship could be defined as a business, which she denies, it was not carried on in common. Management rested solely with Mr. Faria and Ms. Bush was excluded from participation. Further s. 3(1) of the Act states that tenancy in common does not in itself create a partnership. The purchase acknowledgement does not amount to a partnership agreement because the parties only contemplated sharing expenses after Mr. Faria moved out, and not during his occupancy.

b) Does the purchase acknowledgment signed by the parties disentitle the Applicant from reimbursement?

Applicant’s Position:

[30] Mr. Faria argues he was not required to pay rent under the agreement, that he made efforts to tenant the property, and that he made a number of out of pocket expenses while managing the property. Under contract law, he argues, he should be able to recover the payments he made from the proceeds of sale. Otherwise, Ms. Bush would benefit from the increase in value of the property based on his contributions.

Respondent’s Position:

[31] Ms. Bush argues that on a plain reading of the agreement, it can be inferred that Mr. Faria was required to contribute to the property by paying rent. Alternatively, the parties orally agreed that Mr. Faria would contribute rent while residing at the property. Further, the agreement required that the lower unit be tenanted at a reasonable rate after Mr. Faria moved out. Mr. Faria did not pay rent, nor did he tenant the lower unit consistently and at a reasonable rate. Given this shortfall, Ms. Bush argues that he is not entitled to reimbursement.

c) What, if any, reimbursement is the Applicant owed?

Applicant’s Position:

[32] Mr. Faria claims reimbursement of all of his expenses before profits are shared between the partners ($51,264.22). He argues that should the court find that the parties are partners, pursuant to s. 23 of the Partnership Act, he should also be entitled to interest at the rate of 5% per year from the date of the payment. He seeks total interest of $24,301.90 on the expenses he incurred prior to the sale of the property, and on his share of the funds held in trust since 2012.

Respondent’s Position:

[33] Ms. Bush argues that as tenants in common, each party is presumed to be entitled to 50%. Therefore, each party is entitled to $31,138.79. Ms. Bush further argues that there should be no unequal division by virtue of constructive trust because of Mr. Faria’s behavior, which included abuse, threats, and exclusions of her from the property. There can be no equitable relief to Mr. Faria, she says, because he does not have clean hands. Ms. Bush argues that if the court finds that Mr. Faria should be reimbursed some amount, this should be based on an offset of the rental income that he should have paid, which would amount to $126,000.

ANALYSIS AND EVIDENCE

a) Were the parties’ partners pursuant to the Partnership Act?

Legislative framework

[34] The Partnerships Act, provides, in part:

Partnership

2 Partnership is the relation that subsists between persons carrying on a business in common with a view to profit, but the relation between the members of a company or association that is incorporated by or under the authority of any special or general Act in force in Ontario or elsewhere, or registered as a corporation under any such Act, is not a partnership within the meaning of this Act.

3 In determining whether a partnership does or does not exist, regard shall be had to the following rules:

1. Joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.

24 The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement express or implied between the partners, by the following rules:

1. All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses, whether of capital or otherwise, sustained by the firm, but a partner shall not be liable to contribute toward losses arising from a liability for which the partner is not liable under subsection 10 (2).

2. The firm must indemnify every partner in respect of payments made and personal liabilities incurred by him or her,

(a) in the ordinary and proper conduct of the business of the firm; or

(b) in or about anything necessarily done for the preservation of the business or property of the firm.

3. A partner making, for the purpose of the partnership, any actual payment or advance beyond the amount of capital that he or she has agreed to subscribe is entitled to interest at the rate of 5 per cent per annum from the date of the payment or advance.

44 In settling accounts between the partners after a dissolution of partnership, the following rules shall, subject to any agreement, be observed:

1. Losses, including losses and deficiencies of capital, are to be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits, but a partner is not required to pay any loss arising from a liability for which the partner is not liable under subsection 10 (2). [1]

[35] Where joint tenants or tenants in common are spouses, and the tenant in possession does not have an order for exclusive possession, the spouse who is out of possession may claim occupation rent under s. 122(2) of the Courts of Justice Act:

122 (2) An action for an accounting may be brought by a joint tenant or tenant in common, or his or her personal representative, against a co-tenant for receiving more than the co-tenant’s just share. [2]

Jurisprudence

[36] Where a tenant in common who is in exclusive possession of the property claims for expenses such as mortgage interest, taxes, and repairs, he/she will not be allowed reimbursement for such expenses unless he submits to be charged with occupation rent. [3]

[37] Even if no such claim is made by the tenant in occupation, the non-occupying joint tenant may claim occupation rent provided that he/she is prepared to suffer an allowance to the joint tenant in occupation for repairs, improvements, maintenance, and carrying charges. [4]

[38] Even where occupation rent is not available because the tenant in occupation has not claimed for upkeep and repairs, the court may still order compensation to the non-occupying tenant where it is equitable to do so. [5]

Applying the legal principles to the facts of this case

[39] The relationship of Mr. Faria and Ms. Bush was not that of a partnership. To determine whether a partnership exists, regard must be given to the true contract and intention based on the facts as a whole. Here, there was no business carried out in common. Business is defined as “trade, occupation, and profession”.

[40] Even if the parties’ relationship could be defined as a business, it was not carried out in common. While partners may agree that one of them will assume sole responsibility for management, the parties in the present case did not agree. Mr. Faria excluded Ms. Bush from the management of the property.

[41] Section 3(1) of the Partnerships Act provides that tenancy in common does not, by itself, create a partnership. The purchase acknowledgement in the present case does not amount to a partnership agreement because it provides that the parties will share expenses only after Mr. Faria ceased to occupy the property. I infer from this that they intended that during his occupancy, Mr. Faria was to be solely responsible for the expenses, in lieu of paying rent for the basement unit.

[42] Mr. Faria contends that he was not occupying the lower unit pursuant to an order for exclusive possession, implying that Ms. Bush is therefore not entitled to claim occupation rent. The Court of Appeal for Ontario has noted, “…the common law remedy of occupation rent is not saddled with such a prerequisite.” [6]

[43] In Higgins v. Higgins, the Court of Appeal endorsed the following principle, cited from Irrsack v. Irrsack:

Since I find that the wife is an equal joint owner thereof, it follows that she is entitled to be compensated for the sole use and occupation by the husband, which includes her half interest. [7]

[44] Occupation rent is founded on equity and reasonableness, and as a means of doing equity in the circumstances of the case. [8] Awarding occupation rent is an attempt to balance the equities when dealing with a claim. It is meant as a tool used to achieve justice in the circumstances of the case. [9]

b) Does the purchase acknowledgment signed by the parties disentitle Mr. Faria from reimbursement?

[45] As noted above, I infer from the provision in the Agreement that the parties were to share expenses after Mr. Faria ceased to occupy the basement unit that during his occupancy, Mr. Faria was to be solely responsible for the expenses, in lieu of paying rent for the basement unit.

[46] After Mr. Faria ceased to occupy the basement unit, both parties were equally responsible for the expenses.

c) What, if any, reimbursement are the parties entitled to?

[47] Instead of relying on the market rent of the property, when determining the amount of occupation rent payable, the court may rely on the monthly expenses, including mortgage payments, required for the maintenance of the property. From these amounts, the tenant in occupation may deduct any payments towards those expenses that he himself made. [10]

[48] Mr. Faria and Ms. Bush disagree as to what they intended when they bought the property. Mr. Faria says that they intended that he would reside in one of the two units on the property rent free, and that income would be generated by leasing the upper unit. Ms. Bush says that they agreed that Mr. Faria would pay rent of $850 per month, or the equivalent toward expenses, for his occupation of the basement unit during the time he resided in the property. There is no corroboration of the agreement Ms. Bush says the parties reached for rental of $850 per month to be paid.

[49] I find that the most likely understanding the parties had was that for the period when Mr. Faria was occupying the lower unit, the total rent of $1,250 per month from the occupants of the upper unit, and the rent he was to pay, was collectively to pay the carrying costs of the property. This was how Ms. Bush had structured the income and expenses for her other rental property, and the parties are in agreement that that arrangement was the model for the arrangement the parties made for this property.

[50] Ms. Bush argues that Mr. Faria’s failure to pay rent for 36 months resulted in a shortfall of $30,600 ($850 per month x 36 months).

[51] The parties agreed that each party would own 50% of the property, and that the property could not be sold for five years from the date of purchase, or until June 15, 2012. They further agreed that when Mr. Faria vacated the basement unit, that unit would also be rented, and that the profits and expenses would be equally shared by the parties.

[52] Mr. Faria resided in the lower unit for 36 months, from June 15, 2007, until approximately June 15, 2010. From that point until the property was sold approximately 24 months later, on July 9, 2012, it was Mr. Faria’s obligation either to rent the lower unit, or to notify Ms. Bush so that she could rent it.

[53] I find that Mr. Faria failed to notify Ms. Bush that he was no longer occupying the lower unit or renting it, effectively excluding her from participation in the management of the property. He is therefore liable to her for half the deficiency in rent during that 24 month period.

[54] During the 24 month period after Mr. Faria ceased occupying the lower unit until the property was sold, Mr. Faria rented the lower unit for three months at $750 per month and for another seven months from May 2011 to Dec. 2011, at $800 per month. I find that the minimum rent that could have been realized from the lower unit during the period after Mr. Faria ceased occupying it was $750 per month, and that the lost revenue was therefore $10,500 ($750 x 14 months). Ms. Bush’s shortfall was half that amount, or $5,250.

[55] I make no deduction for expenses Mr. Faria may have paid during the 14 months he neither occupied nor rented the lower unit as there is insufficient evidence to support a finding in that regard.

COSTS

[56] Ms. Bush has been successful in the application. She stated at the outset of the hearing that her costs, on a partial indemnity scale, amounted to $11,179.29, inclusive of fees, H.S.T. and disbursements (including four hours for court attendance). Mr. Faria stated that his costs, on a partial indemnity scale, amounted to $5,275.30, inclusive of fees, H.S.T. and disbursements (including five hours for preparation and attendance).

[57] I find that the costs that Mr. Faria incurred were proportional to the amount that Ms. Bush realized in the outcome, and are a measure of what he reasonably expected to pay if unsuccessful. Accordingly, he will pay that amount to Ms. Bush for her costs.

CONCLUSION AND ORDER

[58] For the foregoing reasons, it is ordered that:

1. The net proceeds of sale of the property, in the amount of $62,277.59, shall be distributed equally between Nelson Sousa Faria and Margaret Elizabeth Bush, in the amount of $31,138.79 each, subject to the deduction to be made from Mr. Faria’s portion for her share of the lost revenue after he ceased to occupy the lower unit.

2. The lawyer holding the net proceeds of sale in trust shall deduct $5,250 from Mr. Faria’s share and pay that amount to Ms. Bush as her share of the lost revenue from the lower unit after Mr. Faria ceased to reside there.

3. Ms. Bush’s costs of the Application on a partial indemnity scale, fixed in the amount of $5,275.30, inclusive of fees, HST, and disbursements, shall be deducted from Mr. Faria’s share of the net proceeds of sale and shall be paid to Ms. Bush.

Price J. Released: December 7, 2018

Footnotes

[1] Partnerships Act, R.S.O. 1990, c. P.5. [2] Courts of Justice Act, R.S.O. 1990, c. C.43. [3] Mastron v. Cotton, [1926] 1 D.L.R. 767 (Ont. C.A.) at pp. 768-767. [4] Diotallevi v. Diotallevi, [1982] 37 O.R. (2d) 106, 134 D.L.R. (3d) 477 (H.C.J.) at para. 6. [5] Zegil v. Opie, [1995] O.J. No. 4298 (Gen. Div.) at paras. 26-37, aff’d by [1997] O.J. No. 2085 (C.A.), at paras. 12-15. [6] Higgins v. Higgins, [2001] O.J. No. 3011 (Sup. Ct.), at para. 43. [7] Higgins, at para. 46, citing Irrsack v. Irrsack (1978), 22 O.R. (2d) 245 (H.C.J.), affirmed (1979), 27 O.R. (2d) 478 (C.A.), leave to appeal to S.C.C. refused [1980] 1 S.C.R. viii (note). [8] Higgins, at para. 50. [9] Higgins, at para. 54. [10] Fournier Van & Storage Ltd. v. Fournier, [1973] 3 O.R. 741, 38 D.L.R. (3d) 161 (H.C.J.), at paras. 30, 34-35.