Category: Real Estate Law

Couple Wins Oppression Claim Against Condominium Board

Post author By Written on behalf of Baker & Company
Post date August 20, 2020
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In a recent Ontario Court of Appeal decision, a couple’s claim for oppression was upheld against their condominium board for imposing harsher agreement terms on them than on other unit owners.

Couple Buys Adjoining Unit with Board’s Approval

A husband and wife purchased a unit in a condominium development (the “condominium”) in Muskoka in May 2014. In February 2016 their immediate neighbour advised them that his unit, which adjoined theirs, was to be sold. The couple were interested in purchasing it, but only if they could make an opening from their unit into the adjoining unit.

The husband thus asked the condominium’s board of directors for permission to make the alterations.

His request was addressed at the board meeting on March 25, 2016. The husband was then a director and did not vote on the proposal. The board approved the proposal with several conditions.

The conditions imposed on the approval by the board were:

that the unit owner pay all the costs;
that the alteration not affect the use and enjoyment of other unit owners;
that the alteration not affect the symmetry of the building;
that the alteration not affect the condominium’s budget;
that all the necessary engineering and town approval be given before the work commenced;
that the wall be returned to its existing state if the unit owner (the husband) was to sell one of the units and at no cost to the condominium; and,
that the two units “could never be sold as one unit.”

Following this, and despite the fact that s. 98 of the Condominium Act required the condominium to enter into and register on the title to the units an agreement with the couple before they made “an addition, alteration or improvement to the common elements,” the condominium did not register the agreement. The condominium’s past practice was to not register any such agreements.

Based on the board’s approval, the couple bought the adjoining unit and completed the renovations in early 2018.

However, the membership of the board of directors then changed, and the new board sought to unravel all that had gone before regarding the two units owned by the couple, largely on the basis that there was no s. 98 agreement covering the alterations.

The board created new identical s. 98 agreements for all past unit owners, with the exception of the agreement with the couple, which included a different clause stating:

“The Improvements shall be removed by the Unit Owner, at the Unit Owner’s sole expense, before the Unit is sold. Specifically, the Unit shall be restored to the condition before the Improvements were made, including but not limited to the reinstallation of the common element demising wall within the Unit and any changes that were made by the Unit Owner related thereto.”

Couple Claims Oppression Remedy

As a result, the couple brought an application under s. 135 of the Condominium Act for an oppression remedy on the basis that they were “targeted” after their relationship with members of the new board began to break down.

Section 135(2) and (3) of the Condominium Act provides:

(2) On an application, if the court determines that the conduct of an owner, a corporation, a declarant or a mortgagee of a unit is or threatens to be oppressive or unfairly prejudicial to the applicant or unfairly disregards the interests of the applicant, it may make an order to rectify the matter.
(3) On an application, the judge may make any order the judge deems proper, including,
(a) an order prohibiting the conduct referred to in the application; and
(b) an order requiring the payment of compensation.

The application judge granted the couple’s oppression application, ordering that the additional clause in the couple’s s. 98 agreement be changed to:

“The changes to the demising wall should be removed by the Unit Owner, at the Unit Owner’s sole expense, before the unit is sold. Specifically, the Unit shall be restored to the condition before the demising wall was altered.”

Additionally, the application judge awarded the couple $10,000 in damages for oppression.

The condominium appealed.

Court of Appeal Upholds Decision

The Court of Appeal began by describing the two-part test for oppression as set out by the Supreme Court of Canada:

“First the claimant must establish that there has been a breach of reasonable expectations and second, the conduct must be oppressive, unfairly prejudicial or unfairly disregard the interests of the claimant. […]
At its heart, the oppression remedy is equitable in nature and seeks to ensure what is “just and equitable”.”

After reviewing the application judge’s conclusions, the Court of Appeal stated:

“The Condominium had provided s. 98 agreements to the other unit owners who had completed alterations but the one prepared for the [couple] to sign was both onerous and different. […] The application judge’s remedy served to rectify the Condominium’s oppressive conduct, which seeped through all its actions, including its approach to this litigation. The Condominium’s real interests were entirely protected by the s. 98 agreement ordered by the application judge, which simply incorporated the conditions imposed when the Board originally approved the [couple’s] proposal.”

As a result, the appeal was dismissed.

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Baker & Company has adopted all of the COVID-19 safety precautions and vulnerable employees have been invited to work from home. We are fully operational and continuing to work on client assignments. Where possible, meetings are being held via video link or by telephone conference.

At Baker & Company in Toronto, our real estate lawyers take the time to speak with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential. We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of leasing issues. Call us at 416-777-0100 or contact us online for a consultation.

Commercial Leases

Commercial Tenant Not Required to Pay Rent During COVID-19 Closure, Quebec Court Rules

Post author By Written on behalf of Baker & Company
Post date August 13, 2020
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In a decision that made headlines, a Quebec court recently issued a ruling in which it excused a commercial tenant from paying rent during the closure of its business due to the COVID-19 pandemic.

In July 2020, the tenant and landlord went to court over a number of issues, including the validity of the tenancy and the landlord’s claim for unpaid rent.

Bankruptcy, Assignment of Lease and Tenancy

The landlord, who owns a commercial building in Montreal, Quebec, had entered into a 5-year lease with a company in 2017. After the company made an assignment in bankruptcy in December 2017, the company assigned the lease to a new company (the “tenant”) in January 2018, who began operating a gym on the premises.

One of the first issues the court addressed was the landlord’s claim that the tenant was never allowed to occupy the premises.

The landlord’s claim stemmed from the fact that the original lease was signed with a company that subsequently declared bankruptcy and only then assigned its lease to the current tenant.

The landlord claimed that if it had been aware that the first company had gone bankrupt, it would never have allowed another company to take possession of the premises and would have immediately sought to have it evicted. It claimed that as soon as it became aware of the bankruptcy it sought an order of eviction. The court rejected this claim, finding that the landlord was well-aware of the bankruptcy and consented to the assignment.

The landlord further claimed that a company in bankruptcy was not legally capable of assigning the lease and only a trustee in bankruptcy would be allowed to do so.

However, the court rejected the landlord’s argument, finding that while a creditor of the bankrupt company might have had grounds to contest the transfer, the landlord did not.

Claims for Unpaid Rent and COVID-19

According to the landlord, the tenant owed $145,311 in unpaid rent as of June 15, 2020.

In response, the tenant made claims for reductions in rent and damages. One of the tenant’s claims for a reduction in rent stemmed from the time during which it was unable to operate its business on the premises due to the COVID-19 pandemic.

Pursuant to the Quebec government’s emergency decree on the COVID-19 pandemic, the tenant was forced to close its gym as of March 24, 2020 because its business operation was not on the list of essential services allowed to remain open. As a result, the tenant asked for a reduction of rent for the period of March to June 2020.

The tenant claimed that it was excused from paying rent because the COVID-19 pandemic constituted superior force, while the landlord denied that the pandemic qualified as superior force. Additionally, the landlord submitted that the lease included a provision which required the tenant to pay rent notwithstanding an event of superior force.

Superior Force (Force Majeure)

As we discussed in a previous post, a force majeure clause is included in a contract in case an unforeseen event occurs, making it impossible for one or more parties to carry out their obligations under the contract. This clause is usually contemplated with respect to what are often referred to as “acts of God”, such as earthquakes or hurricanes.

In Quebec, force majeure is called “superior force” and is defined in Art. 1470 of the Civil Code of Québec (the “CCQ”) as:

1470. A person may free himself from his liability for injury caused to another by proving that the injury results from superior force, unless he has undertaken to make reparation for it.
Superior force is an unforeseeable and irresistible event, including external causes with the same characteristics.

Court Finds in Favour of Tenant

The court rejected the tenant’s argument that it had been prevented from paying rent due to superior force cause by the COVID-19 pandemic, instead finding that superior force caused by the pandemic had prevented the landlord from fulfilling its part of lease, thus relieving the tenant from paying rent. The court explained:

“In the Court’s view, it is the Landlord that was prevented by superior force from fulfilling its obligation to [the tenant] to provide it with peaceable enjoyment of the Premises. While it is true that [the tenant] still had access to the Premises, continued to store its equipment there and benefited, to some extent, from services, the Lease provides that the Premises are to be used “solely as a gym” and this activity was prohibited by virtue of the Decree. As a result, it is the Court’s view that [the tenant] had no peaceable enjoyment of the Premises during this period.
According to Article 1694 [of the] CCQ, a “debtor released by impossibility of performance may not exact performance of the correlative obligation of the creditor”. Consequently, while the Landlord was prevented by superior force from providing peaceable enjoyment, it could not insist that [the tenant] pay rent.”

For similar reasons, the court found that the lease’s provision relating to superior force did not apply.

As a result, the court concluded that the tenant was not liable for unpaid rent for the months of March, April, May and part of June, 2020. Consequently, the court ordered a reduction of rent in the amount of $26,950 for those months.

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Residential Real Estate

Court Refuses to Reinstate Ontario’s Moratorium on Residential Evictions

Post author By Written on behalf of Baker & Company
Post date August 6, 2020
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On July 31, 2020, an Ontario court heard a motion by the Advocacy Centre for Tenants Ontario (“ACTO”) and two residential tenants for an order setting aside Chief Justice Geoffrey B. Morawetz’s order dated July 6, 2020 which varied his order dated March 19, 2020.

The March 19, 2020 order had effectively placed a moratorium on residential evictions in Ontario. As a result of the order made on July 6, 2020, the moratorium ended July 31, 2020.

ACTO sought to reinstate the moratorium by setting aside the July 6, 2020 order.

ACTO’s Arguments

ACTO is a legal clinic governed by the Legal Aid Services Act, 1998, which works to advance the rights and systemic concerns of low-income tenants and other vulnerable “precariously housed and homeless Ontarians.” It has a long history of advocating for the interests of the homeless, for eviction prevention, and for affordable housing.

ACTO argued that it was premature to lift the moratorium on evictions and that the Chief Justice was not told of the continuing risks to individuals facing eviction and to others in the community. ACTO adduced evidence of the continued threat posed by COVID-19 to people in Ontario, especially low-income tenants facing eviction, and even more so to vulnerable, homeless people, and people in government shelters.

ACTO was in the process of looking for tenants facing evictions and loss of their homes; it said that these individuals had a direct interest in the issues before the court and ought to be heard. ACTO proposed to be recognized as a class representative going forward.

In addition, for the motion before the court, ACTO put forward the evidence of two tenants.

Evidence Given by the Two Tenants

The first tenant works as a cashier. She is 53 years old and suffers from chronic medical issues. After a dispute with her landlord that resulted in claims by both sides before the Landlord and Tenant Board, the first tenant and her landlord reached a settlement. They consented to an order dated March 18, 2020 under which she agreed to leave the rented premises on June 1, 2020.

The first tenant testified that she had no place to go. She had no friends or family who had extra space where she could live. She stated that if she was evicted, she would likely become homeless or have to enter the shelter system.

The second tenant’s sole source of income is from Ontario Works. She also qualifies for a housing subsidy from the City of Toronto. The second tenant had experienced homelessness before and did not want to undergo that trauma again.

In January, 2020, the Landlord and Tenant Board had ordered the second tenant evicted without notice based on a prior written agreement to terminate the tenancy. At a subsequent hearing, the second tenant settled with her landlord and agreed to vacate the rental unit by May 31, 2020.

The second tenant stated that she too had no place to go and that she expected to be forced to live on the streets because she understood that the shelter system would not have room for her.

Court Refuses Motion

The court began by stating:

“I have no doubt that a tenant who is evicted and exposed to an increased risk of COVID-19 on the streets or in shelters suffers harm that cannot be readily compensated in money. That is the definition of “irreparable harm” for the purpose of this type of motion.”

However, the court continued:

“The balance of convenience test compares the harm to the moving parties if a stay is denied against the harm to the responding parties if a stay is granted. None of the landlord associations or tenant groups are parties as yet. But I am asked to balance the risk of COVID-19 to the subset of evicted, vulnerable tenants and mortgagors who may end up homeless or in shelters against the economic risk to landlords and mortgagees of a further delay of evictions for all tenants and mortgagors for a few weeks or months.
That equation defines the difficulty with the issues argued before me by both the purported landlord and tenant representatives. I do not believe that this is an issue for the court nor an issue that was properly before the Chief Justice. Questions of how the Province should battle the pandemic and the necessary policy choices among competing views – all good, decent, and honestly-held – are for the government. The Chief Justice never embarked on a legal determination of whether Ontario should stop residential evictions because the danger to some vulnerable tenants outweighed the risks to landlords. [T]hat would mix the court in the government’s business and cross the lines separating the respective branches of government.”

Ultimately, the court refused to grant the motion. The court found that ACTO and the two tenants’ concerns were not properly directed at the Chief Justice’s order re-opening court enforcement services. The court concluded that while there may be individual concerns for individual eviction proceedings and there may be systemic concerns that are properly addressed with the government, it did not find any issue raised that could properly lead to a stay of the Chief Justice’s order.

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Commercial Leases

Tenant Entitled to Damages for Loss of Share Value After Landlord Locked Business Out of Premises

Post author By Written on behalf of Baker & Company
Post date July 30, 2020
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In a recent Ontario Court of Appeal decision, the court found that a tenant was entitled to damages for the loss of share value in her corporation after the landlord locked her and her business out of the premises.

Tenant Lock-Out and Loss of Share Value

In 2006, the tenant’s sister entered into a lease with the then-owner of a building in Toronto. The lease was for premises on the ground floor of the building and contemplated that the premises would be used as a restaurant. It required payment of “Minimum Rent” and “Additional Rent” for the tenant’s share of taxes, utilities and services to the building.

In 2010, the tenant’s sister assigned the lease to her. An agreement with the then-landlord made amendments to the amount of Minimum Rent and also specified the square footage of the leased premises (1,120 square feet). The other terms and conditions of the lease remained unchanged.

From December 1, 2010 to April 1, 2014, the tenant’s corporation, of which the tenant was the sole shareholder, operated a restaurant on the leased premises.

The building was purchased by a new landlord in March 2014.

On April 1, 2014, the new landlord demanded the payment of increased amounts of Minimum Rent and Additional Rent, based on an architect’s evaluation that the leased premises covered a larger area than stated in the original lease. The tenant opposed this increase in rent.

On April 25, 2014, the landlord terminated the tenant’s tenancy for her failure to pay the increased amounts demanded. The locks on the premises were changed, and other than being allowed a brief period to retrieve property from the premises, the tenant was denied the benefit of the premises for the balance of the term of the lease.

As a result, the tenant’s corporation’s restaurant business ceased to operate.

Claiming that the termination of her lease was wrongful, the tenant sued the landlord for the return of her deposit and for damages arising from the breach of the lease.

Motion Judge Sides with Tenant

The motion judge found in favour of the tenant, finding that the landlord had wrongfully terminated the lease when it locked the tenant out of the premises.

The motion judge then turned to the issue ofwhether the tenant could claim for the loss of value of her shares. The motion judge found that the termination of the lease caused the restaurant to close, as a result of which the tenant’s shares in the corporation became worthless. He rejected the landlord’s argument that the tenant was not entitled to damages for that loss based on the rule in Foss v. Harbottle. He held that there was an exception to that rule when the company suffers a loss but has no cause of action to recover the loss; in such circumstances the shareholder may sue for the loss of the value of the shares.

The motion judge awarded the tenant damages of $145,702, made up of the lost share value ($140,614) and a deposit that the landlord was holding ($5,088).

The landlord appealed.

Foss v. Harbottle Rule

The rule in Foss v. Harbottle prevents shareholders from suing for a loss in the value of their shares brought about by a wrong done to the corporation. The rule, which is well-entrenched in Canadian law, is a consequence of the separate legal personality of the corporation. Just as shareholders (subject to limited exceptions) cannot be sued for acts, debts, defaults or obligations of the corporation, only the corporation has a cause of action for wrongs done to it.

Issue on Appeal

The primary issue in the appeal was whether the Foss v. Harbottle rule should have been applied to deny the tenant’s claim for the diminution in the value of her shares in the corporation.

The landlord submitted that the rule in Foss v. Harbottle is part of Ontario law and barred the tenant’s claim for diminution in share value.

Ontario Court of Appeal Sides with Tenant

The court dismissed the appeal, finding that the wrong had not been done to the corporation, but to the shareholder personally. Only she was a tenant under the lease and only she had a cause of action for its wrongful termination. In such circumstances, the court explained that neither the rule in Foss v. Harbottle nor its rationale applied, stating:

“The rule in Foss v. Harbottle does not preclude an individual shareholder from pursuing a claim for harm done directly to her, assuming the shareholder can make out all the elements of her own cause of action.”

As a result, the court found that the motion judge did not err in allowing the tenant’s claim for diminution in share value.

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Real Estate Law

Ontario Court of Appeal: Real Estate Litigation Allowed to Proceed Despite Nine-Year Delay

Post author By Written on behalf of Baker & Company
Post date July 16, 2020
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In a recent Ontario Court of Appeal decision, a real estate case was allowed to proceed despite a nine-year delay.

What Happened?

The action was based on an Agreement of Purchase and Sale dated September 6, 2011, for a 12-unit apartment building in Toronto for the sum of $1.28 million.

The agreement called for a $50,000 deposit and was conditional on the buyer obtaining financing. The buyer was allegedly unable to do so and purported to terminate the agreement.

On December 6, 2011, the buyer commenced an action for recovery of his $50,000 deposit. He claimed an additional $50,000 for loss of opportunity to invest the deposit.

On January 11, 2012, the sellers delivered a statement of defence and counterclaim, claiming damages of $100,000 for breach of contract. Nine months later, the buyer delivered a reply and defence to counterclaim.

At that point, the action stalled: no steps were been taken by any party to move the action forward for over four years until 2017 when the buyer requested a status hearing to prevent an administrative dismissal, at which the Master allowed the proceeding to continue. However, the buyer still took no steps to move the action forward.

As a result, in January 2018, the sellers served a motion to dismiss the action for delay or, in the alternative, for summary judgment dismissing the buyer’s claim and granting the sellers judgment on the counterclaim.

On March 20, 2018, a motion schedule was set for a return date for the sellers’ motion on September 11, 2018. However, the motion did not go ahead because the matter had not been listed.

Finally, on February 27, 2019, the buyer’s counsel appeared in court to schedule a motion to vary the timetable set by the Master and for summary judgment. The motion, which resulted in the order at issue, was scheduled for July 24, 2019.

Both parties delivered materials on the July 24, 2019 motion. The sellers’ materials addressed both the merits of the claim and counterclaim and responded to the buyer’s request for variance of the timetable.

Lower Court Decision

The motion judge noted the buyer’s failure to take any steps to move the action forward for several years after the exchange of pleadings.

In considering the motion to vary the timetable, the motion judge made reference to the test in Reid v. Dow Corning Corp. and laid out the four Reid factors, namely:

the explanation for the litigation delay;
inadvertence in missing the deadline;
efforts to move promptly to set aside the dismissal; and
absence of prejudice to the defendant.

Considering the Reid factors, the motion judge found that the buyer:

had not provided a satisfactory explanation for the delay;
did not demonstrate that he failed to prosecute the action due to inadvertence;
did not move promptly to bring a motion to vary the timetable; and
had not proven that the sellers would not suffer prejudice.

On September 23, 2019, the motion judge therefore dismissed the buyer’s action for delay. She did not address the sellers’ counterclaim.

On October 21, 2019, after the dismissal of the action, the sellers served a notice of election to proceed with their counterclaim.

The buyer appealed.

Court of Appeal Decision

The Court of Appeal found that while the motion judge identified the need for a contextual analysis, she failed to consider a critical contextual factor: the dismissal of the buyer’s claim left the sellers’ counterclaim alive. The court stated:

“[I]t was not in the interests of justice to dismiss the [buyer]’s claim while permitting the [sellers] to litigate the very same issues in their counterclaim. The order did not promote the timely and efficient resolution of the proceeding. While the claim and counterclaim were well past their “best before” dates, neither party had displayed any diligence in moving the proceedings forward and there was no evidence of prejudice. When the litigation was finally ready for determination, the motion judge erred in failing to consider the fact that dismissing the claim would leave the counterclaim outstanding, exposing the [buyer] to liability in relation to the very same issue he was litigating.”

As a result, the appeal was allowed, the dismissal of the action was set aside, and the matter was remitted to the Superior Court for determination.

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Tags counterclaim, delay, ontario court of appeal, real estate litigation

Residential Real Estate

Tenant Ordered to Allow Landlord Access to Apartment, Subject to COVID-19 Health and Safety Directions

In a recent Quebec case, a tenant was ordered to allow her landlord access to her apartment, subject to COVID-19 health and safety directions.

What Happened?

The tenant lives in a four-and-a-half room apartment located in the basement of a building, which is owned by the landlord. The landlord and tenant had entered into a lease, which had been renewed until June 30, 2020. The monthly rent was $510.

The landlord had been attempting to sell the building, which required that he show potential purchasers the inside of the building and its apartments.

However, the landlord claimed that, since June 2019, the tenant had systematically refused to give him access to the building despite the 24-hour advance notices he had given her, as required by law.

More recently, a potential purchaser wanted to conduct a pre-purchase inspection of the building. The landlord claimed that the tenant’s refusal to allow access could result in the loss of the sale.

To this effect, the landlord sent a demand letter to the tenant in March 2020.

However, due to the circumstances surrounding the COVID-19 pandemic, the tenant’s reluctance to provide access to the unit was even more resolute.

The landlord therefore filed an application with Quebec’s Régie du logement requesting the issuance of an access order against the tenant. The landlord sought an order that the tenant give him access to the dwelling to verify the state of the premises and that he might show it to potential purchasers. He also sought damages for harm suffered.

Issue

At issue was whether the landlord was justified in requesting access to the tenant’s apartment.

Decision

The tribunal began by setting out the relevant provisions of the Civil Code of Québec that deal with access to housing:

1931. The lessor is bound, except in case of emergency, to give the lessee a prior notice of 24 hours of his intention to ascertain the condition of the dwelling, to carry out work in the dwelling or to have it visited by a prospective acquirer.
1932. The lessee may, except in case of emergency, refuse to allow the dwelling to be visited by a prospective lessee or acquirer before 9 a.m. or after 9 p.m.; the same rule applies where the lessor wishes to ascertain the condition of the dwelling.
The lessee may, in all cases, refuse to allow the dwelling to be visited if the lessor is unable to be present.
1934. No lock or other device restricting access to a dwelling may be installed or changed without the consent of the lessor and the lessee.
If either party fails to comply with his obligation, the court may order him to allow the other party to have access to the dwelling.

The tribunal explained that under the law, the only valid grounds for the denial of access by a tenant to a landlord are: the absence of 24 hours’ prior notice, the fact that the hours of visitation are contrary to the requirements of art. 1932, or the absence of the landlord or his or her authorized agent during the visits.

Conversely, the tribunal stated that where the legal requirements have been met by the landlord, a tenant must allow the required access so that the dwelling can be visited.

The tribunal stated:

“Consequently, and with respect, the law does not allow a tenant who has been duly notified of a visit to refuse access to the dwelling because of his or her own schedule or absences from the dwelling, regardless of the reason for such absences. […]
The reasons raised by the tenant cannot justify her refusal to allow the landlord access to the dwelling, even in a period of pandemic.” [translated]

As a result, the tribunal issued an order requiring the tenant to give access to the landlord, subject to compliance with the legal formalities by the landlord.

Additionally, the tribunal ordered that the landlord or any person accompanying him must respect certain formalities imposed by the COVID-19 pandemic, namely:

Wash (or disinfect) hands before entering the dwelling;
Avoid touching surfaces and disinfect if necessary;
Wear gloves and a mask; and
Respect the rules of social distancing of two meters.

Finally, the tribunal refused to award any damages for harm suffered, explaining that moral damages cannot be awarded to a landlord in the context of a residential housing application before the Régie du logement.

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Tags access, coronavirus, COVID-19, residential rental issues

Residential Real Estate

Court Orders Sale of Parents’ Two Properties as a Result of COVID-19-Related Economic Difficulties

Post author By Written on behalf of Baker & Company
Post date July 2, 2020
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In a recent, and at times strongly-worded, court decision, two parents were ordered to sell their jointly-owned matrimonial home and investment property to alleviate economic difficulties created by the COVID-19 pandemic.

Court’s Opening Remarks

Before getting to the facts of the case, the court began its endorsement by making the following remarks:

“COVID-19 has instantly made most of our “He Said/She Said” disputes sound pretty petty.
We’re still in the midst of an existential crisis. Medically. Economically. Socially.
But rather than brace together against the common enemy, parents are pounding on the family court door, begging us to open up so they can get a few more kicks in – as if a judge has the power to wake anyone from this pandemic nightmare.
Business as Usual? Gone.
Nonsense as Usual? Here to stay.”

What Happened?

The father brought a motion to force the immediate sale of two jointly-owned properties, including the matrimonial home where the mother resided with their two children ages seven and four. The mother did not want either property sold.

The equity in the matrimonial home was about $1 million and the value of their Toronto investment property had a fair market value of approximately $700,000.

Parties’ Positions

The father advanced that COVID-19 had drastically and unexpectedly decreased his income. As a result, he claimed he could not longer afford to pay the mortgage and carrying costs in relation to the matrimonial home. Additionally, he could no longer afford to pay child and spousal support. Between 2016 and 2019 his annual personal income averaged $132,000; he estimated that his total 2020 earnings would be about $66,000. The father argued that neither he nor the mother couldafford the carrying costs in relation to either of the two properties.

The mother argued that while the father claimed COVID-19 had resulted in a reduction in his income, he had made no reference to his personal savings, investments or other sources of income from which he could meet his financial obligations. Additionally, the mother argued that the COVID-19 restrictions were being reduced, so any reduction in the father’s business income would soon be resolved. The mother also claimed that the father could have applied for government financial assistance to help small businesses and employees during COVID-19, but he had elected not to pursue these options. Finally, the mother argued that the father was taking a scorched earth litigation strategy, seeking to sell properties when the real estate market was depressed.

Decision

The court accepted that both parents were experiencing financial hardship and that COVID-19 had unexpectedly and unavoidably created a profound and indefinite financial crisis for the family. The court found no reason to doubt the father’s estimate that his income for 2020 would be about half of what it had been in previous years. The court stated:

“[T]his pandemic has created such immediate financial crisis for so many individuals and businesses, that it would be unrealistic and inhumane not to understand that people are really hurting – and they need help now. […]
COVID-19 has at least temporarily ruined the financial prospects of both of these parties. And neither of them is to blame.”

While the court wondered why, in the face of economic uncertainty, the parents were spending money to pay lawyers to debate the sale of their homes, it acknowledged that the parents simply did not have enough money and that the sale of the two properties would free up at least $1.3 million dollars of joint funds, after clearing the parents’ debts.

The court then stated:

“I find that both of these parties are frightened, angry and stubborn. That’s not enough to either force a sale or block a sale.
They are both acting so strategically and aggressively that they have lost sight of the harm they are doing to their children and to their bank accounts.
And they definitely don’t seem to understand that in this COVID-19 economy, financially wasteful litigation is an indulgence they can no longer afford.”

However, the court concluded that the mother had not established any reason why either of the properties should not be sold. To the contrary, the court found that the father had clearly established that economic necessity required that both properties be sold, to alleviate a crippling debt load, and to free up significant available equity so that the parents can both get on with their lives.

As a result, the court ordered the immediate listing for sale of both properties.

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Baker & Company’s lawyers have a reputation for closing residential purchase, sale and refinance transactions smoothly and without surprises. Whether you are buying or selling your home, cottage, investment property or vacant land, we can assist you from the beginning to the end of your transaction. We represent individuals and families in all kinds of real estate matters. We act diligently to ensure you have a positive and stress-free experience.

At Baker & Company in Toronto, we take the time to meet with you and understand your unique needs in order to guide you through your next residential real estate transaction. We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management. Call us at 416-777-0100 or contact us online for a consultation.

Tags coronavirus, COVID-19, economic difficulties, matrimonial home

Residential Real Estate Uncategorized

No Right of First Refusal in the Sale of a Matrimonial Home

Post author By Written on behalf of Baker & Company
Post date June 25, 2020
No Comments on No Right of First Refusal in the Sale of a Matrimonial Home

In a recent Ontario Court of Appeal decision, the court reiterated the principle that spouses may not be granted a right of first refusal in a matrimonial home.

A right of first refusal in real estate is a mechanism that gives a party the right to be the first allowed to purchase a particular property if it is offered for sale.

What Happened?

The husband and wife separated and went to trial to resolve the ensuing financial issues. After a four-day trial, the trial judge ordered the husband to pay the wife an equalization payment of $226,670.

Additionally, the trial judge ordered that, after a fair market value assessment, the husband had the “right to conclude the purchase” of the wife’s interest in the jointly-owned matrimonial home within 30 days, and to obtain the release of the wife from her obligations under the existing first mortgage registered against the matrimonial home.

Parties’ Positions

The wife appealed and asked the Court of Appeal to vary the trial judge’s order to omit the husband’s right to conclude the purchase of the matrimonial home. She sought the sale of the matrimonial home and the division of its net proceeds.

The husband contested the appeal, first, because he argued that the appeal should instead be heard by the Divisional Court and that it was on the trial judge to explain his order. Also, the husband wanted to purchase the wife’s interest in the matrimonial home. Finally, he stated that he had been required to live in a trailer while the matrimonial home sat vacant as the wife was living with her mother; the husband sought compensation for his resulting expenses and hardship.

Court of Appeal Decision

After dismissing the husband’s procedural objections, the court stated that the case raised a single issue: the arrangements for selling the matrimonial home.

The court explained that a right of first refusal is a substantive right that has economic value. It cited previous case law which has established that, absent consent between the parties, one spouse does not have a special right to purchase the matrimonial home and that once the matrimonial home is ordered to be sold, each spouse is entitled to receive fair market value for his or her interest in it. In the cited 1992 case, the Ontario Court of Appeal had previously stated:

“A right of first refusal will most often work to discourage other interested buyers. If a spouse is granted a right of first refusal, the effect of it is to remove that spouse from the competitive market for the matrimonial home. The existence of a right of first refusal distorts the market, because it provides a benefit to one party, which eliminates the need for that party to compete with any other interested purchaser. Finally, if the spouse with a right of first refusal is in possession, the existence of the right of first refusal will provide a disincentive to maintaining the property, so as to increase its value and saleability.”

Consequently, the court explained that a right of first refusal falls outside the boundaries of what is ancillary or what is reasonably necessary to implement the order for sale of the matrimonial home. It distorts the market for the sale of the matrimonial home by eliminating the need to compete against any other prospective purchaser, thus potentially reducing the amount the joint owning spouse realizes on the sale.

The court found that, in the absence of consent, the right of first refusal should not have been granted by the trial judge in this case. It stated that if the husband wanted to purchase the matrimonial home, he would have to compete with any other interested purchaser.

As a result, the court allowed the appeal and ordered that the matrimonial home could be listed for sale immediately by the wife.

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Tags family law, matrimonial home, residential real estate, right of first refusal

Residential Real Estate

Ontario Court Orders Eviction of Tenant Despite COVID-19 Moratorium Due to Property Damage, Illegal Activities and Lack of Social Distancing

Despite the province-wide moratorium on evictions in Ontario due to the COVID-19 pandemic, a court recently ordered the eviction of a tenant after the landlord testified to property damage, alleged illegal activities and non-respect of social distancing directives.

What Happened?

On May 28, 2020, the Ontario Landlord and Tenant Board (“LTB”) terminated the tenant’s tenancy as of June 2, 2020 and ordered the tenant to move out of the rental unit on or before that day.

The LTB found that the landlord had satisfied both the normal test for eviction and the higher test being applied during the COVID-19 pandemic, specifically, that there were urgent circumstances which required the eviction of the tenant.

The LTB found that there had been willful damage to the leased premises and that the tenancy presented a threat to safety. The LTB based its decision on evidence that a large window at the front of the unit had been willfully broken and on the high frequency and number of visitors to the premises, which had not abated following the onset of the COVID-19 pandemic.

The LTB heard that visitors to the unit arrived throughout the day and night, that many stayed for only a few minutes and others for extended periods of time, including overnight. There was evidence that the police had been watching the property because of suspected drug-related activity. Another tenant, who cuts the lawn at the property, testified that he found both needles and small white baggies, which he said were of the type used for drugs, containing white residue. The same tenant said visitors to the tenant’s unit sometimes gathered on the driveway and that the noise from the unit disturbed him and the neighbours at all hours.

In an affidavit, the landlord said that because of the tenant’s conduct, he was concerned about the safety and well-being of his other tenants, the building’s neighbours and himself.

COVID-19 Context

The landlord applied to court to request an order enforcing the LTB’s eviction order. The court application was necessary because of Ontario’s province-wide moratorium on evictions.

Decision

While the court acknowledged the moratorium on evictions, it stated:

“I certainly accept […] that these are not ordinary times and that everyone has an interest in having a home that allows them to stay healthy and assist in preventing the spread of the COVID-19 virus. Despite the extraordinary times, however, there is no moratorium that favours willful damage to property.
In deciding whether the eviction order should be enforced, […] the court must consider the societal objectives of the eviction moratorium as they relate to the prevention of the spread of COVID-19. That a tenancy is being exploited for purposes which may actually promote the spread of the virus will weigh heavily in favour of enforcement of the eviction order.”

Based on the evidence and the submissions by the landlord, the court found that the scale in the case tipped in favour of enforcement of the eviction. The court accepted the evidence that the tenant’s unit was being used for illegal activity and further stated:

“[T]he steady stream of people entering and leaving the tenant’s unit at all hours of the day and night, which continued unabated when the pandemic began, is evidence of the tenant’s indifference to the pandemic-related physical distancing expected of all citizens, to her own health and to the health of her visitors and everyone with whom they in turn come into contact.”

As a result, the court ordered the enforcement of the eviction against the tenant.

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Tags coronavirus, COVID-19, eviction, moratorium

Commercial Leases

Rights of a Commercial Landlord in the Wake of a Tenant’s Bankruptcy

Post author By Written on behalf of Baker & Company
Post date June 11, 2020
No Comments on Rights of a Commercial Landlord in the Wake of a Tenant’s Bankruptcy

Though the dust has yet to settle following the economic shutdown due to the COVID-19 pandemic, businesses may be faced with the prospect of bankruptcy. Recently, the Ontario Court of Appeal decided a case concerning the rights of a commercial landlord as a creditor in the bankruptcy of its tenant following the disclaimer of the lease by the trustee in bankruptcy.

What Happened?

The landlord and tenant were parties to a lease dated May 26, 2017 for a space in Toronto. The lease was for a term of ten years and six months, commencing on July 1, 2017 and ending on December 31, 2027.

On March 29, 2018, and without being in default of its obligations under the lease, the tenant made an assignment in bankruptcy.

The appointed trustee occupied the leased premises and paid occupation rent of $25,698 to the landlord.

On April 20, 2018, the landlord filed a proof of claim in the bankruptcy. The landlord claimed $100,558 as a preferred claim for three months’ accelerated rent, in accordance with the priority of claims prescribed by s. 136(1)(f) of the Bankruptcy and Insolvency Act (the “BIA”). Because the realization of property on the leased premises yielded an amount that was less than the preferred claim ($24,571), the landlord asserted its right to claim the balance of the unrecovered preferred claim ($75,987) as an unsecured creditor.

The landlord also advanced an unsecured claim in the amount of $4,028,111. This represented its claim for rent payable for the balance of the unexpired portion of the term of the lease, together with amounts for tenant inducements consisting of leasehold improvements provided at the landlord’s cost under the lease and free rent for a six-month period.

In asserting its rights, the landlord relied on the tenant’s obligation under the lease to make certain payments on bankruptcy, including on termination or disclaimer of the lease.

The relevant provision of the lease provided for events of default, including the bankruptcy of the tenant. It also provided for the landlord’s remedies, which included: the payment of three months’ accelerated rent; the right to terminate the lease (with the right to obtain damages for the landlord’s deficiency for the balance of the term); and upon any termination, including disclaimer, payment of the value of the unpaid amount of any tenant inducements calculated over the unexpired term of the lease.

On April 23, 2018, the trustee issued a notice of disclaimer of the lease. Following the disclaimer, the landlord found a new tenant for the leased premises, effectively mitigating its claim for future rent.

On September 19, 2018, the trustee issued a notice of partial disallowance of claim, allowing only the landlord’s preferred claim in the amount of $24,571 (limited to the actual value of the property on the leased premises), and disallowing the landlord’s unsecured claims.

Lower Court Decision

The landlord appealed the disallowance of its unsecured claim to the Superior Court of Justice. It confined its appeal to its claims under the lease for tenant inducements in the amount of $203,442, including leasehold improvements and free rent, and the balance of the three months’ accelerated rent of $50,289, for a total unsecured claim of $253,731.

The court dismissed the landlord’s appeal.

At Issue

Two issues were raised in appeal:

1. Was the landlord entitled to assert a claim for unpaid tenant inducements under the lease as an unsecured creditor in the tenant’s bankruptcy?

2. Was the landlord entitled to assert the balance of its preferred claim for three months’ accelerated rent as an unsecured creditor in the tenant’s bankruptcy?

Court of Appeal Decision

The Court of Appeal agreed with the lower court’s finding that, in Ontario, the law on the first question was settled many years ago in the 1933 decision Re Mussens Ltd. The court explained the principle as follows:

“As between the landlord and tenant, the disclaimer of a commercial lease by the tenant’s trustee in bankruptcy brings to an end the future or ongoing obligations of the tenant under the lease. The landlord has no right of compensation or claim as an unsecured creditor for damages in respect of the unexpired term of the lease in relation to the loss of the tenancy as a result of the disclaimer; the landlord is limited to its preferred claim for up to three months’ accelerated rent.”

However, the court did allow the appeal in part to permit the landlord to rank as an unsecured creditor for the unpaid balance of its preferred claim. The court explained that s. 136 of the BIA provides for the priority of certain unsecured claims, including, under s. 136(1)(f), priority for a landlord’s claim for three months’ arrears of rent and three months’ accelerated rent. The court explained that while s. 136 of the BIA sets out a scheme of payment priorities, the landlord’s rights on a tenant’s bankruptcy are established under provincial law. The court stated:

“The Ontario law that defines a commercial landlord’s rights on a tenant’s bankruptcy is found in the Commercial Tenancies Act. The landlord’s preferential lien for rent, and the trustee’s right to retain and to assign the lease, exercisable within three months of the bankruptcy and before the trustee has disclaimed the lease, are set out in s. 38. Section 39 provides for the right of the trustee in bankruptcy, at any time before electing to retain the leased premises, to “surrender or disclaim” the lease.”

As a result, the court concluded that the landlord was not entitled to claim as an unsecured creditor in the bankrupt tenant’s estate for damages relating to the unexpired term of the lease, except to recover the balance of its preferred claim for three months’ accelerated rent, which was specifically provided for by statute.

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Tags bankruptcy, commercial lease, landlord and tenant, ontario court of appeal