In a recent Ontario decision, the court had to decide whether a tenancy was residential or commercial after the lessor locked the lessee out of the premises during the COVID-19 pandemic.
On March 23, 2019, the lessee signed a two-year commercial lease for the premises in Markham. The premises consisted of a two-story heritage house, a yard including a large driveway, and a large two-car garage. The property was zoned “rural residential housing”, but a “business office” was 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 lessee lived at the premises from the outset of the lease, running his business out of a home office on the first floor, and using the garage to park his truck and store a forklift. His fiancée lived with him and their two dogs.
The lessee stated that the lessor knew of, and approved, these living arrangements but had told him that a commercial lease was required if any business activity was conducted at the premises. The lessee did not obtain independent legal advice before signing the lease.
The lessor claimed that all the parties contemplated a commercial rental. The lessor also denied knowing that the lessee was living at the premises until he took steps to lock him out.
On March 24, 2020, a week after the Premier declared a state of emergency in Ontario due to COVID-19, the lessor locked the lessee out of the house on the premises. The lessor stated that he locked him out for using the premises as residential and for unpaid rent.
The lessee asserted that the lessor damaged the front door, and some of the lessee’s property inside the house.
The lessee brought an application for a declaration that the Residential Tenancies Act, 2006 (the “RTA”) applied and governed the tenancy. He also sought to continue an interim injunction restraining the lessor from interfering with his reasonable enjoyment of the premises pending a determination of the status of his tenancy. Finally, the lessee sought damages in relation to the damage he alleges the lessor caused on March 24, 2020, and an order that he was owed $22,428 in relation to a set-off agreement with the lessor.
For his part, the lessor sought a declaration that the Commercial Tenancies Act (the “CTA”) applied and governed the tenancy. He also sought an order for possession of the premises after the March 19, 2020 Order suspending all evictions and/or writs of possession is lifted. In addition, among other things, he sought judgment that he was owed $26,732 in relation to unpaid rent.
The central issue was the nature of the tenancy.
If the court decided that the tenancy was commercial, it had jurisdiction and could consider the other issues. If the court decided that the tenancy was not commercial, the Landlord and Tenant Board (the “LTB”) would have exclusive jurisdiction and the remaining issues would have to be decided by the LTB.
The court found that the evidence overwhelmingly proved that the lessor knew that the lessee was living at the premises. Among other facts, the court accepted the lessee’s evidence that he had always intended to live on the premises, that he was open about this with the lessor from the outset, and the lessor assured him he did not care as long as the lessee paid the rent. Additionally, the court found that the lessor had not established on a balance of probabilities that the predominant purpose of the tenancy was commercial.
As a result, the court found that the RTA applied to the tenancy, and the LTB had exclusive jurisdiction over all applications in relation to the tenancy.
Given the court’s conclusion that the tenancy was residential and subject to the exclusive jurisdiction of the LTB, the tenancy was also subject to the March 19, 2020 Order of Chief Justice Morawetz suspending all evictions and/or writs of possession issued by the LTB.
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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.