Non-Application of the RTA (5.(j))

From Riverview Legal Services

OnTheGoShipping Inc., and Kwok-Wai Leung, aka Harry Leung v. G. Khan Medicine Professional Corporation, 2020 ONSC 2789 (CanLII)

[5] On March 23, 2019 the applicant, Harry Leung, signed a two-year commercial lease for the premises municipally known as 6882 Fourteenth Avenue in Markham. The lessee was the applicant, described as "ONTHEGOSHIPPING INC. (Harry Kwok-Wai Leung)". The lessor was the respondent, described as "G.Khan Medicine Professional Corporation". As noted at the outset, the premises consist of a two-story heritage house, a yard including a large driveway, and a large two-car garage (approximately 25' x 25'). The property is zoned "rural residential housing", but a "business office" is explicitly permitted. The lease began April 1, 2019, and the agreed upon monthly rent was $3,500.00 plus HST for a total of $3,955.00.

The correct approach for determining whether a tenancy is commercial

[19] Section 3 of the Residential Tenancies Act, 2006, S.O. 2006, c.17 (the RTA) provides that the Act "applies with respect to rental units in residential complexes, despite any other Act and despite any agreement or waiver to the contrary." Section 2(1) of the RTA defines “rental unit” as "any living accommodation used or intended for use as rented residential premises". The Court of Appeal in Matthews v. Algoma Timberlakes Corporation, 2010 ONCA 468 at para.23 noted that the broad definition of "rental unit" in the RTA is intentional, reflecting the fact that the legislation is remedial, and is designed to protect tenants from unlawful rent increases and evictions.

[20] Section 168(2) of the RTA provides that the Landlord and Tenant Board (the LTB) "has exclusive jurisdiction to determine all applications under this Act and with respect to all matters in which jurisdiction is conferred on it by this Act." However, s. 5(j) of the RTA provides that the RTA does not apply with respect to:

premises occupied for business or agricultural purposes with living accommodation attached if the occupancy for both purposes is under a single lease and the same person occupies the premises and the living accommodation...

[21] In interpreting and applying s.5(j) of the RTA, this court has considered the predominant purpose of the occupation or use of the premises. As Justice Cory explained in Hahn v. Kramer (1979), 1979 CanLII 2111 (ON SC), 23 O.R. (2d) 689 (Div.Ct.) at para.9:

It is to be noted that the exemption clause specifies that the premises be occupied for business purposes with living accommodation attached. To me, the wording of the section seems to indicate that the business purposes should predominate. The Act appears to specifically and carefully proceed in a manner which emphasizes the business use to be made of the combined premises so as to take them outside the definition of residential premises.

For more recent examples of this court considering the predominant purpose test in interpreting and applying s.5(j) of the RTA, see Toronto Community Housing v. Bryant Didier, 2018 ONSC 5158 at para.29; Tauro v. Yu, 2018 ONSC 7319 at paras.32-37; and Firm Capital Management v. Heather Tessier, 2019 ONSC 55 (Div.Ct.).

[22] Substance, not form, governs when considering the true nature of a tenancy. Both the Court of Appeal and the Divisional Court have held that s. 202 of the RTA applies when determining whether or not a unit is residential: Matthews, at para.24, quoted with approval in Firm Capital, at para.34. Section 202(1) provides:

In making findings on an application, the Board shall ascertain the real substance of all transactions and activities relating to a residential complex or a rental unit and the good faith of the participants and in doing so,
(a) may disregard the outward form of a transaction or the separate corporate existence of participants; and
(b) may have regard to the pattern of activities relating to the residential complex or the rental unit.

[23] Parties cannot contract out of the RTA. The fact that a commercial lease is used is a relevant circumstance, but it is not determinative: Fiset v. Di Geso, (1998) O.J. No.3466 (Ont.(Gen.Div.)). Nor is a "whole agreement" clause, or a clause forbidding a non-commercial purpose, determinative, or any other clause for that matter: Firm Capital, at para.8. As the Court of Appeal in Matthews explained after noting that s.202 of the RTA applies when determining the nature of a tenancy:

Accordingly, a term in the lease providing that a site is not residential nor a rental unit will not have the effect of avoiding the application of the [RTA], provided that the premises otherwise fit within the statutory definition of a "rental unit".

[24] All the circumstances must be considered to determine the predominant purpose or use of the tenancy. This Court in Fiset, provided examples of circumstances which may be relevant. The circumstances could include:

  • The historical use of the premises.
  • The intention of the parties.
  • Whether the landlord knew the tenant was living at the premises.
  • The zoning for the premises.
  • The form and wording of the lease.
  • Whether the landlord charged GST in relation to the rent.
  • Whether the premises are a single unit or whether they were divided into distinct residential and commercial areas, such that the residential area is "attached" to the commercial area.
  • Whether or not amenities one would expect in a residential tenancy, such as a stove and a refrigerator, are in the premises.
  • The relative share of the premises devoted to commercial use as opposed to residential use.
  • How business was conducted at the premises. Was there a "walk-in" trade? Did employees or workers attend the premises in relation to the conduct of the business?
  • Whether there are any signs indicating a commercial use.
  • The terms of the lease, such as its length, and any provisions for rent increase.

[25] The respondent accepts that the party claiming to come within a s.5 exception to the application of the RTA bears the burden of proving on a balance of probabilities that the exception applies: Fiset, at para.21.

[34] For the reasons set out above, I conclude that the respondent has not discharged his onus of proving on a balance of probabilities that the tenancy falls within the exemption set out in s.5(j) of the RTA. As a result, the RTA applies to the tenancy, and the LTB has exclusive jurisdiction over all applications in relation to the tenancy.

[35] In light of my conclusion, there is no need to continue the interim injunction, granted by Justice Myers, restraining the respondent, and anyone acting on behalf of the respondent, from taking any step to exclude the applicant from exclusive possession of the premises. Given my conclusion that the tenancy is not a commercial tenancy falling with the s.5(j) exemption in the RTA, the tenancy is subject to the exclusive jurisdiction of the LTB, and clearly subject to the March 19, 2020 Order of Chief Justice Morawetz, suspending all evictions and/or writs of possession issued by the LTB.

Toronto Community Housing v. Bryant Didier, 2018 ONSC 5158 (CanLII)

[11] The Landlord and Tenant Board reached its decision on January 19, 2016. The Board determined that it had no jurisdiction over Unit B3 because from the onset of Mr. Didier’s tenancy, Unit B3 was used “predominantly, if not exclusively, for commercial purposes.” The jurisdiction of the Landlord and Tenant Board is restricted to residential premises.

[12] Mr. Didier decided to appeal the decision of the Landlord and Tenant Board, but did not do so in time. Mr. Didier brought a motion to the Divisional Court seeking an extension of time to appeal the Board’s decision. On August 30, 2017, while the motion before the Divisional Court was pending, the TCHC served Mr. Didier with a second Notice to Quit to terminate his tenancy of Unit B3. This August 2017 Notice to Quit demanded that Mr. Didier vacate Unit B3 by September 30, 2017. The TCHC delayed enforcement of the August 2017 Notice to Quit while the Divisional Court had Mr. Didier’s motion under consideration.

[13] On October 19, 2017, the Divisional Court dismissed Mr. Didier’s motion to extend the time for his appeal on the basis that Mr. Didier’s appeal of the Landlord and Tenant Board’s decision had no merit. The Divisional Court held that the Landlord and Tenant Board’s determination that Unit B3 was not used as a residence “was amply supported by the evidence before it.” Appeals from the Board lie to the Divisional Court only on questions of law, and none were raised by Mr. Didier’s appeal.

[22] In cases where there is no written lease and where the parties dispute the type of tenancy that was agreed upon, the onus is on each party to establish, on a balance of probabilities, their respective positions concerning the term of the tenancy. In this regard, the Court must look at the surrounding circumstances, including the actions of the parties, to determine what the parties intended their contractual relationship to be: Manitouwadge General Hospital v. Kudlak, 2000 CarswellOnt 3243 (Ont. S.C.J.), at para. 28. All matters considered, in assessment of all evidence regarding Mr. Didier’s rental history, I have determined that Mr. Didier’s rental of Unit B3 is a monthly tenancy. I do not find in the current record any agreement on implied terms between the parties pertaining to the rental of Unit B3.

[24] The Landlord and Tenant Board determined that Mr. Didier’s rental of Unit B3 was exempted from the Residential Tenancies Act because it came within section 5(j), which exempts “premises occupied for business or agricultural purposes with living accommodation attached if the occupancy for both purposes is under a single lease and the same person occupies the premises and the living accommodation.” The Landlord and Tenant Board has the exclusive jurisdiction to determine and terminate a residential tenancy: section 168(2) of the Residential Tenancies Act; Toronto-Dominion Bank v. Hosein, 2016 ONCA 628, 133 O.R. (3d) 225; Warraich v. Choudhry, 2018 ONSC 1275, 2018 CanLII 1275 (Div. Ct.).

Tauro v. Yu, 2018 ONSC 7319 (CanLII)

[1] The applicant owns a building, which she leases to the respondent, Kedan Yu. The respondents operate a convenience store on the ground floor of the building, and live in an apartment above the store.

[2] The applicant seeks to terminate the lease on the basis of numerous alleged defaults by the respondents, including a claim that the respondents are behind on the rent, that they have failed to maintain insurance on the building, that they have failed to pay their share of property taxes, that they are renting out rooms in the apartment contrary to the permitted uses under the lease, and that they have failed to make necessary repairs to the building.

[3] The respondents deny that they are in default, and claim that it is the applicant who has failed to keep the building in a proper state of repair. The respondents also argue that the upstairs portion of the building is subject to the Residential Tenancies Act, 2006, S.O. 2006, c. 17, and, therefore, any matters related to the rental of the apartment do not fall within the jurisdiction of this Court.

[4] For the reasons that follow, I find that this Court has jurisdiction over the lease for the whole building pursuant to section 5(j) of the Residential Tenancies Act, 2006, which exempts properties from the application of the Act where residential premises are attached to a business and are under one lease. In addition, I find that the respondents are in default under the lease in a number of respects. However, as detailed further below, the respondents are to be given an opportunity to remedy the defaults pursuant to section 20(1) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7.

[33] Accordingly, the courts look for the predominant use of the property. In addition, the courts have stated on a number of occasions that the lease of a store with associated living accommodation is a typical situation to which the exemption created by section 5(j) of the Residential Tenancies Act, 2006 applies. In fact, in Hahn, the Divisional Court held that "the case of a lease of a store with living accommodation combined is relatively easy. That would clearly fall within the definition of premises occupied for business purposes with living accommodation attached."

[34] Accordingly, based on the language in section 5(j) of the Residential Tenancies Act, 2006 and a review of the cases that have considered the provision, in my view, there is no doubt that, in this case, the exemption applies to the apartment above the convenience store. The convenience store and apartment are under one lease, the convenience store and apartment are attached, and the same person, namely Ms. Yu and her husband, occupy the convenience store and the apartment.

[36] Therefore, I find that the applicant is entitled to a declaration that the whole tenancy is subject to the commercial lease, and that it is exempt from the Residential Tenancies Act, 2006, in accordance with section 5(j) of that Act.

[37] While I am satisfied that the applicant is entitled to this declaratory relief, as reviewed below, in my view the applicant's conduct in first seeking an order from the Landlord and Tenant Board and in later ignoring an order made by the Board may be relevant to consideration of the appropriate remedy in this case.

[47] In particular, I find as follows:

a. January 2018 rent is outstanding. While Ms. Yu argues that she made this payment, she also acknowledges that the cheque for the December 2017 rent did not go through. Accordingly, I accept the applicant's evidence that the January 5, 2018 cheque was applied to the outstanding December 2017 rent.
b. February 2018 to April 2018 rent is outstanding. As indicated above, Ms. Yu argues that she sought to offset the rent owing in this time period against the $2,050 ordered by the Landlord and Tenant Board. I do not accept this excuse. Three months rent is equivalent to $9,000, and therefore the outstanding amount ordered by the Board does not account for the failure to pay rent in this time period. While section 35 of the Commercial Tenancies Act does allow a tenant to offset rent against a debt of the landlord, this does not account for $6,950 of unpaid rent for this period of time. (I note that the applicant cannot argue that she does not owe the $2,0505 to Ms. Yu. While the Board may not have had jurisdiction to make the order, in the absence of an appeal or an application to set the order aside, it is still a valid order.)
c. May 2018 to August 2018 has been paid, although the cheques were not cashed. It was the applicant who chose not to cash the cheques, and therefore I do not count this portion of the rent as outstanding.

[75] Section 20(1) of the Commercial Tenancies Act gives the Court broad powers to relieve a defaulting tenant from re-entry or forfeiture:

Where a lessor is proceeding by action or otherwise to enforce a right of re-entry or forfeiture, whether for non-payment of rent or for other cause, the lessee may, in the lessor's action, if any, or if there is no such action pending, then in an action or application in the Superior Court of Justice brought by the lessee, apply to the court for relief, and the court may grant such relief as, having regard to the proceeding and conduct of the parties under section 19 and to all the other circumstances, the court thinks fit, and on such terms as to payment of rent, costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future as the court considers just.

[76] In this case, while Ms. Yu's breaches are serious and not isolated, there are a number of factors that lead me to conclude that this is an appropriate case for relief under section 20(1) of the Commercial Tenancies Act.