|
RTA - 'Real Substance of Transaction' [s.202(1)]. Akbari et al. v. Blenkinsop et al.
In Akbari et al. v. Blenkinsop et al. (Div Court, 2024) the Divisional Court considered the 'real substance of transaction' [RTA 202]provision:[22] Section 202 requires the LTB to take a careful look at the nature of the relationship. This was not done in this instance. [SS: IMHO this last sentence is a summation of the appellant's submissions, not the court's conclusion]
[23] Section 202 of the RTA provides as follows:202(1) 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; and
(c) may have regard to the pattern of activities, relating to the residential complex or rental unit. [24] The appellant submits it was an error of law for the LTB not to examine the nature of the relationship between the Landlords and the Appellant as required by s. 202 and allocate responsibility accordingly.
....
[38] The purpose of s. 202 of the RTA is to assist the Tribunal in determining the real nature of the relationship between Landlords and Tenants. It is not to require the Tribunal to determine the relationship between multiple Landlords in the event of a breach of the RTA. . Elkins v. Van Wissen
In Elkins v. Van Wissen (Ont CA, 2023) the Court of Appeal considers (and allows) an appeal from an earlier Divisional Court RTA s.210 appeal on an RTA 57(1) ['Former tenant’s application where notice given in bad faith'] compensation application.
In these quotes the court considers the RTA 202 'real substance' ['Findings of Board'] provisions:[27] Section 202(1) of the RTA directs the Board, when making findings on an application, to ascertain the real substance of all transactions and activities relating to a rental unit and the good faith of the participants. Section 202(1) reads as follows:202 (1) 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. ....
[57] Section 202(1) of the RTA reinforces my interpretation of the legislation. It requires the Board, when making findings on an application, to ascertain the “real substance of all transactions” relating to a rental unit and “the good faith of the participants”. The transaction in s. 49(1) is an agreement of purchase and sale. There are two participants to such a sale transaction: the vendor landlord and the purchaser. A consideration of both participants is necessary to ascertain the “real substance” of the transaction between them and the “good faith” of each in evicting the tenant. . Pelletier v. Bloorston Farms Ltd.
In Pelletier v. Bloorston Farms Ltd. (Div Court, 2023) the Divisional Court considered the RTA 'real substance' interpretive provisions [RTA s.202]:Other Issues: Section 202 of the RTA and the Unconscionability of the Agreement
[22] Mr. Pelletier also submits that the Board erred in its failure to apply s. 202 of the RTA which requires that the Board “in making findings 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, may disregard the outward form of a transaction or the separate corporate existence of participants; and may have regard to the pattern of activities relating to the residential complex or the rental unit.”; RTA, s. 202(1)(b).
[23] As with the submissions under s. 77(8), the landlord does not dispute the application of these remedial portions of the legislation but relies on the findings of credibility by the Board as applying equally to the aspects of the evidence relative to misrepresentations that are absent from any discussion in the Board’s reasons. For the reasons provided above in the analysis under s. 77(8), I do not accept this submission as it relates to the Board’s duty to consider s. 202 of the RTA. There is no indication that the Board considered the good faith of the landlord given the evidence of misrepresentation before it, and circumstances that suggested that the agreement was at the landlord’s instance, for the landlord’s objective benefit.
[24] As the Divisional Court noted at para. 40 of Pinto v. Regan:Section 202 of the RTA imposed a statutory duty on the Member to determine questions of fact and to apply governing principles of law to ascertain the real substance of the transactions and activities regarding the rental units at issue, and the good faith of the parties to the N11. The Member did not consider all the evidence to determine the element of good faith on the part of the respondent other than making a passing reference in the Reasons. The Member did not take the totality of the evidence into account when he applied the substantive law. This amounted to an error of law. I adopt this reasoning and apply it in the instant case. . Gykan Enterprises Inc. v Pourshian
In Gykan Enterprises Inc. v Pourshian (Div Court, 2023) the Divisional Court considered an RTA LL appeal (dismissed) where the LL argued that the tenancy was commercial, and that there was a physical lock-out which achieved eviction before the LTB applications (one to determine RTA application and another for the lock-out). In these quotes the LL argues that the tenancy was established under a commercial lease and that the property was zoned industrial, in support of their unsuccessful position that the tenancy was commercial:[15] Gykan submits that the Board failed to attach significance to its evidence that the tenancy was commercial. Among other evidence, it relies on the facts that (1) the property was zoned as an industrial commercial building and not as residential; and (2) the lease between the parties stated that the unit was leased for commercial use.
[16] Gykan has not demonstrated an error of law. The Board relied on the relevant provisions of the Act. Specifically, s. 2(1) defines a “tenancy agreement” to apply to a “rental unit.” A “rental unit” means “any living accommodation used or intended for use as rented residential premises.” Section 202 directs the Board to “ascertain the real substance of transactions.” In doing so, it “may disregard the outward form of a transaction.”
[17] The Board correctly stated that the fact that Mr. Pourshian signed a commercial lease is not determinative. Looking to the intention of the parties, it found Mr. Pourshian’s evidence to be more credible and reliable than the evidence Gykan’s witness. This conclusion was well founded in the evidence. Gykan has not identified any error of law in the Board’s conclusion on this issue. . Amini v Blue Stellar Real Estate
In Amini v Blue Stellar Real Estate (Div Court, 2023) the Divisional Court considered a tenant's appeal arguing that the LTB lacked jurisdiction to order $18k rent arrears as the tenancy was actually commercial. The case turned on RTA s.202(1), which reads:Findings of Board
202 (1) 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. The court considers this argument as follows:[2] Mr. Amini does not dispute the fact that he defaulted on his rent payments. Rather, he takes the position that the Residential Tenancies Act, 2006, S.O. 2006, c.17 (“RTA”) does not apply to his tenancy of the basement unit because his lease was part of a larger commercial transaction, and he never lived in the unit. The Board considered and rejected this argument.
[3] Mr. Amini argues that the Board erred in law by failing to ascertain the real substance of the transaction between the parties, as required by s. 202(1) of the RTA. Blu Stellar submits that the Board’s decision is correct in law and requests that the appeal be dismissed with costs.
....
Analysis
[21] Section 3 of the RTA provides that the Act “applies with respect to rental units in residential complexes”. 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 for Ontario has ruled that this definition must be interpreted liberally to promote the remedial objectives of the statute, namely, to protect residential tenants from unlawful rent increases and evictions: Matthews v. Algoma Timberlakes Corp., 2010 ONCA 468, at paras. 22-23.
[22] The parties agree that s. 202(1) of the RTA applies when determining whether a unit satisfies this statutory definition: Matthews, at para. 24. Substance, not form, governs the determination of the true nature of a tenancy: OnTheGoShipping Inc. v. Khan Medical Corp., 2020 ONSC 2789, at para. 22; Sterling Studio Lofts, at para. 35.
[23] Mr. Amini argues that, although the Board referred to s. 202(1) in its decision, it failed to apply the section. He submits that the Board reached its decision based solely on the form of the lease and failed to consider the actual use of the basement unit as storage space for the businesses operated on the upper floors, the clause in the APS that restricts use of the property to “current professional office use,” and other factors that suggest the space was uninhabitable as living quarters.
[24] The plain language of the RTA (i.e., the definition of “rental unit”) and the relevant jurisprudence make it clear that a living accommodation will satisfy the definition of “rental unit” if it is intended for use as rented residential premises, even if it is not actually used for that purpose. The Board therefore did not err when it decided that, in the circumstances of this case, it did not matter whether anyone resided in the basement unit.
[25] Section 202(1)(b) of the RTA provides that the Board “may have regard to the pattern of activities” relating to the rental unit in ascertaining the real substance of a transaction (emphasis added). However, those activities are not determinative. Other relevant factors may also be considered. In this case, the Board examined the Residential Tenancy Agreement and the circumstances surrounding its execution. It looked at the substance of the transaction, which changed after the APS was executed. It determined that the parties agreed to enter into two separate lease agreements, including a residential lease for the basement unit, for the purpose of reducing the amount of HST payable by the tenant. The parties’ intentions, the fact that a Residential Tenancy Agreement was executed, and the fact that the landlord did not charge HST on the rent for the basement unit are all circumstances relevant to the determination of the “real substance” of the transaction under s.202(1) of the RTA: OnTheGoShipping, at para. 24. The Board did not err when it took these factors into account in deciding that the RTA applies to Mr. Amini’s tenancy.
[26] Moreover, s.202(1) of the RTA states that 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” (emphasis added). In this case, the Board found that Mr. Amini “cannot rely on an agreement for one purpose and then seek to resile from this agreement when it is no longer convenient.” The Board thereby implicitly considered the good faith of the parties, as required by the statute: Akelius Canada Ltd. v. Barrett, 2018 ONSC 7144 (Div. Ct.), at paras. 29-30.
[27] Mr. Amini benefitted from the execution of a Residential Tenancy Agreement, which spared him the obligation to pay HST on $3,000 monthly in rent. He also benefitted from the protection of the RTA when he defaulted on his rent payments for the basement unit. Indeed, during the appeal hearing, he stated that the reason he continued to pay rent under the commercial lease is because he knew that the landlord could come onto the property and evict him and his subtenants if he defaulted. He exploited the fact that Blu Stellar could not evict him so swiftly from the basement unit because of the protections afforded to tenants under the RTA. In the circumstances, his assertion now that the RTA does not apply constitutes bad faith.
|
