Phelps v Bolster, 2014 ABQB 760

Court of Queen ’ s Bench of Alberta Citation: Phelps v Bolster, 2014 ABQB 760 Date: 20141209 Docket: 1301 10294 Registry: Calgary Between: Bill Phelps and Shelagh Phelps Plaintiffs - and - Natasha Bolster, Duane Howard and Amber Howard Defendants _______________________________________________________ Memorandum of Decision of J.T. Prowse, Master in Chambers _______________________________________________________ [ 1 ] These are my written reasons following a number of applications made in this ongoing litigation between the owners of a rural property, Mr. and Mrs.

Phelps (the “Phelps”), and three individuals who occupy that property under a lease with option to purchase. The lessees are Natasha Bolster, her spouse Dwayne Howard, and their daughter Amber Howard (the “Bolsters”). [ 2 ] All parties are self-represented, which has led to numerous difficulties due to their unfamiliarity with the litigation process and with substantive law issues. [ 3 ] As payment of rent under the lease option is now (subject to an argument about the mechanics of payment) up to date, the applications I have been considering are in essence claims for

summary judgment by the Phelps to cancel the lease/option for other alleged breaches made by the Bolsters.

[ 4 ] To this point I have declined to grant

summary judgment to the Phelps. My decisions have been rendered orally, but I thought it appropriate at this time to put my reasons in writing with the hope that those reasons might provide some ongoing guidance to the litigants. [ 5 ] The Bolsters have asserted various counterclaims but have not pressed for

summary disposition of those counterclaims, other than one counterclaim against the Phelps for interfering with the Bolsters’ harvesting of hay from the property. The claim with respect to the hay is awaiting further affidavit evidence. These reasons do not deal with the Bolsters’ counterclaims. Background to the lease/option agreement [ 6 ] Here is how the lease/option arose. The Phelps and the Bolsters were friends. The Bolsters had previously occupied a rural property upon which they kept horses, boarded horses for others, and provided riding lessons.

The Bolsters’ lease on that prior property came to an end and they were looking for another property. [ 7 ] Acting out of friendship, the Phelps borrowed the money to purchase the present acreage and then allowed the Bolsters to occupy the property under a lease with an option to purchase. [ 8 ] Unfortunately, the parties did not hire a lawyer to draft the lease/option agreement. It appears that they started with a house lease and then grafted on numerous other provisions. [ 9 ] Many, if not all, of the disputes between the parties result from the lease/option being poorly drafted.

Its provisions are inconsistent and contradictory. If this matter proceeds to trial it seems likely that a trial judge will need to hear extensive testimony as to the background and as to the expectation of the parties which are not discernable from the poorly worded lease/option. Issue regarding the true nature of the lease/option [ 10 ] One unique aspect of the lease/option agreement is that the option price payable by the Bolsters reduces over time. It seems that the rent payable was set at an amount to allow the Phelps to make mortgage payments on the funds they borrowed purchase the land.

Provided the Bolsters paid the rent, and the Phelps apply those payments to the monthly mortgage payments, then the balance owing under the Phelps’ mortgage would reduce over time. The option price also reduces over time, mirroring the drop in the balance owing under the Phelps’ mortgage. [ 11 ] The agreement seems designed to allow the Bolsters to essentially earn an equity position in the property as time goes by.

It is unclear whether, as a result, the lease/option can be construed as an “agreement for sale” which might only be determinable in a foreclosure proceeding, rather than the current proceeding to terminate the lease/option. Termination for reasons other than non-payment of rent [ 12 ] The lease/option is dated January 16, 2013.

The Phelps’ initial application to terminate the lease/option was based on nonpayment of the $5200 rent installment due on August 1, 2013. [ 13 ] The Bolsters remedied that nonpayment and, subject to an ongoing dispute as to the proper mechanism for paying the rent, the Bolsters have since made all rent payments.

Notwithstanding that, the Phelps have pressed forward with their claim to cancel the lease/option due to other alleged breaches by the Bolsters, including the following: 1) unauthorized changes to the property, primarily the addition of fencing associated with the large number of horses being kept on the property. 2) damage caused to the acreage, largely by reason of having an excessive number of horses on the property. 3) allowing other individuals to reside on the property, contrary to a provision of the lease/option restricting the occupants of the property to the Bolsters. 4) failing to organize equipment and materials stored on the property in an orderly fashion, resulting in the property insurance maintained by the Phelps being rendered voidable or subject to an increase in premium. 5) failing to obtain general liability insurance. 6) failing to comply with government regulations pertaining to the property, and specifically failure to comply with directives issued by the Natural Resources Conservation Board (“NRCB”). 1) unauthorized changes to the property [ 14 ] The Phelps object to the Bolsters’ use of the property, including the addition of fencing.

Clearly the parties from the outset had two different assumptions as to how the property would be used. [ 15 ] The Phelps assumed that the property would continue to be used as a residential acreage with an associated horse riding business. This is a relative low intensity usage of the land.

[ 16 ] The Bolsters have brought more horses onto the property then the Phelps expected. They are bringing in feed for the horses, as the land itself does not produce sufficient hay to feed all the horses. They have added fencing to accommodate the increased number of horses. This has led to some manure management issues and water quality issues. [ 17 ] In an ideal situation, the lease/option would contain provisions making it clear as to the use to which the property could be put, and the entitlement of the Bolsters to add fencing.

In other words, whose vision as to the use of the property is supported by the written provisions of the lease option? [ 18 ] As indicated earlier, the lease/option is poorly drafted and full of contradictions. [ 19 ] Clause 1 of the lease states that the premises are to be used as residential premises only. This is directly contradicted by “additional clause” number five, which states that the tenant “is permitted to operate Bar H Lazy H and Howard and Sons trucking on the leased lands”. Further, the lease option (in

Schedule “B”) provides that “agricultural livestock for the operation and security of Bar H Lazy H and Howard and Sons trucking do not require written consent nor inventory reporting to the landlord provided they are not in the main house” [ 20 ] There is nothing written in the lease which would inhibit the current intensity of livestock operations on the premises. [ 21 ] With respect to fencing, clause 5.03 of the lease option states that “the tenant will not decorate, wallpaper or make any changes or alterations to the premises without the consent of the landlord, in writing, first had and obtained”.

This provision is found in the first part of the lease which seems to be modeled on a lease of residential premises. [ 22 ] Clause 5.03 is contradicted by clause 9 of the lease option which states “the tenant/buyer shall have the right to make such repairs, maintenance, and improvements as tenant/buyer shall deem necessary, proper or desirable”.

The Bolsters take the view that the addition of fencing is something they deem desirable, and are entitled to put in place, pursuant to clause 9 of the lease option. 2) damage to the property [ 23 ] Even if the Bolsters are entitled to bring onto the land the number of horses that they have brought onto the land, and to make improvements such as fencing, they are not entitled to damage the property.

Schedule B to the agreement states that “tenant agrees to be responsible for any and all damages to the premises and property, as a result of having a pet and/or agricultural livestock on the property”. [ 24 ] Further, pursuant to

schedule F, the Bolsters covenant to “surrender and deliver up the property, at the end of the term or any extensions thereof, should the option herein not be exercised, in as good order and condition as the same now exists, reasonable use and natural wear and tear excepted”. [ 25 ] In their submissions to the court, the Phelps maintain that the Bolsters are damaging the property. The court invited the Phelps on a number of occasions to submit affidavit evidence of an agricultural expert to support this assertion.

To date they have not supplied such evidence and accordingly they have been unsuccessful in terminating the lease/option on the basis of damage to the land. 3) unauthorized occupants of the property [ 26 ] Clause 5.06 of the lease/option states that “the tenant shall use the premises only as a residence for the tenant listed on the application to lease”.

Again, the restriction to residential use is obviously inconsistent with other language in the agreement and inconsistent with the apparent intention of the parties. [ 27 ] Perhaps clause 5.06 was intended to be restricted to the use of the house on the property, rather than the balance of the 106 acres. [ 28 ] The house on the property is being used as a residence by people other than the Bolsters. Ms. Bolster has some health issues and a friend/companion has been living in the house to provide housekeeping assistance to her. In addition, Amber Howard, the daughter, is about to give birth.

It is intended that her child will reside in the house along with the daughter’s fiancé. [ 29 ] Pursuant to clause 5.06, should the court order that, unless these other individuals leave the premises, the lease/option is to be terminated? [ 30 ] This raises a legal issue. Is the portion of the lease/option dealing with the house subject to the provisions of the Residential Tenancies Act ? The lease/option expressly states that it is “governed by the Residential Tenancies Act of Alberta and if there is a conflict between this Agreement and the Act, the Act prevails”. [ 31 ] Section 26(1)(

c) of the Act states that a landlord may apply to terminate a residential tenancy where there has been a substantial breach. A substantial breach on the part of a tenant is defined to be “a breach of a covenant specified in

section 21 or a series of breaches of a residential tenancy agreement, the cumulative effect of which is substantial”. The substantial breaches listed in

section 21 of the Act do not include permitting individuals other than the tenants to reside on the property. In other words, if the Act is applicable, the presence of these other individuals on the premises would not be sufficient to allow the Phelps to apply for a termination of the tenancy, as opposed to claiming damages. [ 32 ] To date parties have not argued this issue in detail, particularly the applicability of the Residential Tenancies Act and so I have not made a ruling in this regard. 4) storage of equipment causing insurance issues

[ 33 ] The Phelps say that their insurer inspected the property and objected to the haphazard storage of some equipment and other materials, and in particular the failure to rope off areas where storage is taking place in order to prevent someone from being injured by tripping on or falling on those materials. The Bolsters state that they have corrected this issue, something which the Phelps dispute.

I do not know how I can rule on this claim without having the Phelps’ insurer conduct a follow-up inspection and submit further evidence in that regard. 5) failure to obtain liability insurance [ 34 ] The Phelps complain as to the inadequacy of the liability insurance obtained by the Bolsters. The clause in question, clause 6.02, is quite general. It simply requires that the Bolsters “obtain general liability insurance”. It does not state that this liability insurance is to insure the Phelps.

Presumably it is in the lease so that, if an occupant is injured on the property and sues both the Phelps and the Bolsters, the Bolsters will be able to pay any judgment awarded against the Bolsters from the liability insurance, and the successful plaintiff will not need to seek recourse from the Phelps. [ 35 ] The Phelps have been provided with insurance cover notes indicating that Bolsters do have liability insurance, but the Phelps are unsatisfied as to the particulars of that insurance.

However, clause 6.02 simply directs the Bolsters to obtain “general liability insurance” and does not permit the Phelps to demand any particular provisions in such a policy. Accordingly I have not found any breach by the Bolsters of clause 6.02. 6) failure to comply with government regulations [ 36 ] At some point in time the Bolsters clearly failed to comply with government regulations as required by clause 5.05 of the lease/option. The NRCB directed that the Bolsters make remedial efforts to prevent horse manure from contaminating water on the land.

Although the Bolsters were somewhat tardy in doing so, they appear now to be in compliance with the NRCB directives. In other words, the Bolsters remedied this apparent breach and it does not constitute grounds for termination of the lease/option. Of course, if future noncompliance is brought to the attention of the court that issue will be revisited. Conclusion [ 37 ] To date, for the reasons set out above, the court has declined the

summary judgment applications made by the Phelps. The matter will proceed on to trial unless either of the parties, on further application or evidence, satisfies the onus of establishing an entitlement to

summary judgment. [ 38 ] These reasons were prepared so that the litigants, who are self-represented, can have a clear understanding of the reasons for the rulings made to date. The court encourages the litigants to retain counsel, if not for the purpose of conducting this litigation, at least for the purpose of reviewing these reasons and assisting them in guiding this litigation forward in an efficient manner.

Heard on September 9, 2013; November 20, 2013; January 9, 2014; February 27, 2014; March 25, 2014; April 25, 2014; May 7, 2014; May 21, 2014; June 26, 2014; July 29, 2014; August 26, 2014; September 8, 2014; September 30, 2014; and November 14, 2014. Dated at the City of Calgary, Alberta this 9 th day of December, 2014 J.T. Prowse M.C.C.Q.B.A.