BANK OF MONTREAL Tenant (Appellant) - v. -, 2016 NSSM 39

Claim No: 448536 IN THE SMALL CLAIMS COURT OF NOVA SCOTIA ON APPEAL FROM AN ORDER OF THE DIRECTOR OF RESIDENTIAL TENANCIES Cite as: Bank of Montreal v. Park, 2016 NSSM 39 BETWEEN: BANK OF MONTREAL Tenant (Appellant) - and - WOODBINE PARK Landlord (Respondent) REASONS FOR DECISION AND ORDER BEFORE Eric K. Slone, Adjudicator Hearing held at Halifax, Nova Scotia on May 31, 2016 Decision rendered on June 6, 2016 APPEARANCES For the Tenant Andrew Rankin, counsel

Keith Lehwald, articling student For the Landlord Heather Scott Property Manager REASONS FOR DECISION AND ORDER Introduction 1 This case raises the interesting question of whether the Bank of Montreal (hereafter “ the Bank ” ) inadvertently became a tenant, within the meaning of the Residential Tenancies Act , with all of the obligations that come with being a tenant (including the obligation to pay rent).

The Landlord ’ s theory is that the Bank, though it never agreed to a lease arrangement, is in a deemed residential lease for a lot in a land lease community owned by with Woodbine Park. 2 An order of the Director of Residential Tenancies dated February 10, 2016 made a finding to that precise effect, and ordered the Bank to pay to the Landlord the sum of $3,056.65 for arrears of rent under this alleged lease, which the Residential Tenancy Officer found to have commenced on March 1, 2015.

The Residential Tenancy Officer also ordered the Bank to provide vacant possession of the lot. 3 The Bank appeals from this Order, arguing that it could not and did not, in fact or in law, become a tenant such that the Residential Tenancies Act would govern the situation. The Bank argues that what occurred was part of a larger and more complex commercial transaction, and says that the Landlord ’ s remedy, if any, would be found in the civil courts.

The Bank insists that it owes nothing to this Landlord. 4 For reasons that were not discussed at the hearing before me, the Bank was not represented at the Residential Tenancies hearing - despite having received notice - and did not get a chance to make these arguments to the Residential Tenancy Officer. It is unclear whether the Residential Tenancy Officer turned her mind to the legal issues raised by the Application before her.

The Facts 5 For purposes of this appeal, the facts can be recited fairly simply. 6 The Landlord operates a land-lease community in Beaverbank, Nova Scotia, which in earlier times would have been referred to as a trailer park. 7 On December 1, 2011, an individual by the name of Gordon MacDonald entered into a lease with the Landlord for a site (1615 Frankie Drive) to house his mini-home, or manufactured home (hereafter “ the Home. ” ) There he resided for some period of time, paying rent to the Landlord in the amount of $330.00 per month. 8 At or about the same time, Mr.

MacDonald borrowed money from the Bank and gave security by way of a chattel mortgage on the Home. The Bank registered its security interest under the Personal Property Security Act.

9 About a year later, the Landlord, the Bank and Mr.

MacDonald entered into a three-party agreement entitled “ Model Assignment of Lease Consent Agreement For Manufactured Homes, ” (hereafter sometimes referred to as “ the Agreement. ” ) This Agreement put the Landlord on notice that if its Tenant fell into arrears, it had an obligation to advise the Lender (here the Bank) and give it a reasonable amount of time (45 days) to “ cure the default, including payment of all arrears. ” This Agreement went on to state (among other things) that the Bank “ will not be liable for any of the Tenant ’ s covenants including payment of rent, prior to such notice, or until the Lender takes possession of the Home, whichever first occurs. ” 10 Subsequent clauses speak to the right of the Lender to enter upon the land and take possession of, and/or remove the Home, where the Tenant is in default and the Lender is seeking to enforce its security.

This right only accrues “ so long as all arrears are paid and obligations under the Site Lease are upheld. ” 11 In what appears to have been early 2015, Mr. MacDonald defaulted on his loan to the Bank and also abandoned the Home. He had stopped paying rent some months earlier, giving rise to a concern in the Bank that the Landlord might step in and seize the Home, thus endangering its security. 12 The Bank made a decision on or about March 1, 2015 to cover the arrears and make several months of payments equal to Mr.

MacDonald ’ s rent, directly to the Landlord, while it made up its mind whether or not to enforce its security. After making three such monthly payments, the Bank decided that it was not commercially viable to continue spending money and stopped making payments to the Landlord. 13 There is no evidence that the Bank ever took possession of the Home, such as by changing the locks or securing it in any way. 14 Eventually, the Landlord brought an Application to Residential Tenancies, alleging that the Bank had become its tenant, and seeking both arrears of rent plus vacant possession.

In this context, vacant possession would involve removing the Home from the land, thus freeing up the lot to be rented to a new tenant. As it stands, the Home stands abandoned and deteriorating. Nobody seems really sure who has the legal authority or obligation to remove it. The issues 15 There are really two central issues, one legal and the other factual. 16 The legal issue is whether the Bank could ever be seen to be a residential tenant, subject to the provisions of the Residential Tenancies Act .

The factual issue is whether or not the Bank (assuming it could be a tenant) became a tenant, as that term is used in the Residential Tenancies Act . 17 I propose to deal with the legal issue first. Can the Bank become a tenant? 18 The Residential Tenancies Act applies to residential leases between landlord and tenants. One of the practical effects is that the Director of Residential Tenancies has exclusive jurisdiction to adjudicate disputes between landlords and tenants: 13

(1) Where a person applies to the Director (

a) to determine a question arising under this Act; or

(

b) alleging a breach of a lease or a contravention of this Act, and, not more than one year after the termination of the lease, files with the Director an application in the form prescribed by regulation, together with the fee prescribed by regulation, the Director is the exclusive authority, at first instance, to investigate and endeavour to mediate a settlement. 19 The proposition that someone, who otherwise fits the definition, may choose to bypass the Residential Tenancies process and sue in court, was rejected by the Supreme Court of Nova Scotia in Corfu Investments Ltd. v.

Oickle, 2011 NSSC 119 . 20 The corollary to the Director ’ s jurisdiction is that the question must arise “ under this Act ” or must allege “ a breach of a lease or a contravention of this Act. ” Questions that cannot be said to arise under the Residential Tenancies Act must be dealt with in another forum. The Director of Residential Tenancies cannot take jurisdiction over such a matter, no matter how expedient or convenient it may seem.

In the case here, the Bank says that the Director was wrong to entertain the claim, regardless of the merits, because the Bank was not a tenant and the Act accordingly did not apply to these parties. 21 The Bank says that for anything to arise under the Act, there must be a landlord and a tenant, as those terms are defined by the Act. 22 The Act offers the following

definitions: 2 (b) “landlord” includes a person who is deemed to be a landlord, a lessor, an owner, the person giving or permitting the occupation of premises and his and their heirs and assigns and legal representatives; (j) “tenant” includes an individual who is deemed to be a tenant and an individual who is a lessee, occupant, subtenant, under-tenant, and his or their assigns and legal representatives; 23 The main distinction to be drawn from these

definitions is that a landlord is described as a “ person ” while a tenant (at least initially) is described as “ an individual. ” 24 The language is not accidental. A “ person ” may be an individual, a corporation, a non-profit society, a partnership or any other legal entity that has some form of legal personhood. An individual is a human being. 25 Going further in the Act, we encounter s.3(1) which also makes this distinction: 3

(1) Notwithstanding any agreement, declaration, waiver or statement to the contrary, this Act applies when the relation of landlord and tenant exists between a person and an individual in respect of residential premises. 26 Later sections also refer to individuals and persons.

With one small but significant exception, which I will get to below, nowhere in the Act does it suggest that a landlord-tenant relationship consists of an agreement between two “ persons. ” 27 As such, for most purposes, it is clear that the Residential Tenancies Act has no application to arrangements made between (for example) two corporations, even if the subject of the agreement is for residential premises. In my view, the Director of Residential Tenancies would make an error to permit an application to Residential Tenancies to proceed if it involved such parties.

28 The small exception involves the wording of s.2(j), which includes in the definition of tenant not just an individual, but “ his or their assigns and legal representatives. ” What this suggests to me is that a residential tenancy necessarily begins with an individual, but may later involve another person who is the “ assign ” or “ legal representative ” of the original tenant.

As such, if a tenant makes an assignment to a corporation or other legal entity, that assignee may find itself to be a “ tenant ” within the meaning of the Act. 29 Even so, this does not answer the question whether the Director of Residential Tenancies has jurisdiction, because s.3 restricts the application of the Act to situations where “ the relation of landlord and tenant exists between a person and an individual in respect of residential premises. ” 30 Put another way, the question raised by s.3 is whether an assignee or legal representative (who is not an individual) falls within the regime of the Residential Tenancies Act, despite the apparent restriction of the Act to “ situations where “ the relation of landlord and tenant exists between a person and an individual. ” 31 If an assignee or legal representative did not fall within the jurisdiction of the Residential Tenancies regime, there would be no apparent purpose to defining “ tenant ” in such a way that included such other persons.

The language would be superfluous. Elementary principles of statutory construction dictate that an

interpretation should be favoured that gives meaning to all language in the statute. 32 The

interpretation that gives meaning to the expanded definition of tenant is this.

Section 3 provides that a residential tenancy may only come into existence when a landlord (which may be any form of person) enters into a residential tenancy (written, oral or deemed) with an individual . Once the tenancy is formed, the subsequent assignment by the tenant (to any form of person), or the assumption of responsibility by the original tenant ’ s legal representative (such as an executor, trustee, guardian etc.) does not remove the tenancy from the Residential Tenancies regime. 33 In my opinion, any other

interpretation leaves s.2(

j) gasping for meaning. 34 As such, unless the Bank here is an assignee or legal representative of Mr. MacDonald, such that it came to assume the original tenancy, the Residential Tenancies Act could not have any application to the legal relationship between the Landlord and the Bank.

Did the Bank become an assignee or legal representative? 35 The mere act of paying rent did not create a deemed tenancy between the Bank and the Landlord, under s.3(2) of the Residential Tenancies Act, because the Bank is not an individual. 36 As such, the only way the Bank could theoretically have found itself in a tenancy relationship would be as an assignee or legal representative of Mr. MacDonald. In that hypothetical scenario, the original tenancy survives with the Bank assuming responsibilities as a tenant.

In the case here, there is no question that a residential tenancy was formed between the Landlord and Mr. MacDonald. This tenancy was for the lot in the land-lease community. 37 The facts do not support any finding that the Bank was a “ legal representative ” of Mr. MacDonald. So the remaining question is whether or not there was some form of assignment. There would have to be some finding that the land-lease was somehow assigned, in order for the provisions of the Residential Tenancies Act to apply.

The security interest or chattel mortgage in favour of the Bank is on the structure, not the land, and would not in and of itself amount to an assignment of the land-lease. 38 The obvious place to look for an assignment would be the Model Assignment of Lease Consent Agreement For Manufactured Homes. There are some provisions in that Agreement that hint at such a relationship. At the very top, there is a statement that “ this

Agreement is subject to all the rights and obligations of the tenant and landlord in the Site Lease Agreement. ” In paragraph 3 the following is stated: 3.

The Landlord acknowledges and consents to the Lender’s security interest over the Tenant’s personal property, including the Home, and to the mortgage of or assignment to the Lender of the Tenant’s interest in the Site Lease and in any renewals, extensions, replacements or amendments of the Site lease. 39 Although the Landlord “ consents ” to an assignment, the language does not appear to create an assignment. 40 Later paragraphs acknowledge the right of the Lender to cure the tenant ’ s default by paying the rent and all arrears within 45 days of receiving notice of default from the Landlord.

It then states, in the last sentence of paragraph 4: The Lender will not be liable for any of the Tenant’s covenants including payment of rent, prior to such notice, or until the Lender takes possession of the Home, whichever occurs first. 41 This language suggests, without explicitly stating, that the Lender may incur some responsibility to the Landlord - including the payment of rent - on the earlier of two dates: (1) when the Landlord gives notice, or (2) when the Lender takes possession of the Home. In the case here, there is no evidence that the Bank ever took possession of the Home.

Accordingly, the date of receiving notice of the Tenant ’ s default is the date upon which the Lender may have become liable for some of the Tenant ’ s covenants. 42 But this begs two questions. Firstly, what provision in the Agreement (or in law) renders the Bank liable for Mr. MacDonald ’ s covenants? Secondly, did any of this amount to an assignment? 43 In my opinion, the Agreement does not explicitly transfer the Tenant ’ s obligations to the Lender.

It merely provides for notice to be given to the Lender, and allows the Lender to cure the default to enable it to exercise its rights against the secured property (i.e. the Home.) 44 Nor does the language of the Agreement state that the Tenant is assigning his interest in the land-lease to the Lender. 45 As such, whatever else it may do, the Agreement did not create an assignment, and the Bank is not an assignee of the Tenant. As such, it did not become a tenant within the meaning of s.1(

j) and the Residential Tenancies Act has no application. The Director of Residential Tenancies had no jurisdiction to hear the Application by the Landlord, as against the Bank. Alternative factual issue 46 If I am wrong in my

interpretation of the law, and the Residential Tenancies Act somehow applies between these parties, there is still a factual question to be determined. The Landlord ’ s claim as advanced before me is based on a theory that, by paying rent after Mr. MacDonald defaulted, the Bank entered into a verbal, or deemed tenancy. There is no question that the bank paid some arrears and monthly amounts equal to the rental payments, but its position is that this did not create a tenancy. 47 The concept of a deemed tenancy derives from the wording of s.3 of the Residential Tenancies Act : 3

(1) Notwithstanding any agreement, declaration, waiver or statement to the contrary, this Act applies when the relation of landlord and tenant exists between a person and an individual in respect of

residential premises.

(2) For the purposes of subsection (1), the relation of landlord and tenant is deemed to exist in respect of residential premises between an individual and a person when an individual (

a) possesses or occupies residential premises and has paid or agreed to pay rent to the person; (

b) makes an agreement with the person by which the individual is granted the right to possess or occupy residential premises in consideration of the payment of or promise to pay rent; (

c) has possessed or occupied residential premises and has paid or agreed to pay rent to the person. 48 The deemed tenancy provisions require a form of possession or occupation. The payment of rent is not sufficient. Each of the three verbal formulations in 3(2) includes possession or occupation and the payment of rent, or agreement to pay rent. 49 What is missing here, in my opinion, is any evidence of possession or occupation. 50 The fact that this is a land-lease community complicates the picture. Had the premises in question been a residential apartment or house,

an act of possession or occupation would logically require someone moving into the premises, or - at the very least -

an act of possession (such as securing the unit) in a way that excluded others from entering it. 51 A land-lease lot is different. The typical act of possession or occupation of a lot is to situate thereon a mini-home. In the case here, it was Mr. MacDonald ’ s Home that sits on the lot and “ occupies ” the land. There is no evidence that the ownership of the Home has ever changed. The Bank has a security interest in the Home, but on all of the evidence it has never sought to convert that into an ownership interest.

Had it done so, and wished to continue to have its mini-home sit on the Landlord ’ s lot, it might at least have been arguable that its relationship with the Landlord became a tenancy. But the facts here suggest that the Bank did nothing more than pay money to buy some time to prevent the Landlord from exercising its right to dispose of the Home, while the Bank considered whether it was worth its while to enforce its security. 52 At its highest, the actions of the Bank could be seen as a payment of rent on Mr. MacDonald ’ s behalf, for a limited period of time.

I see no basis to conclude that the Bank locked itself into doing so in some type of perpetuity. 53 It is accordingly my finding that, on the facts, the mere payment of rent by the Bank did not create a deemed tenancy. The Bank was free to stop making such payments at any time, with the only effect that the lease between the Landlord and Mr. MacDonald would fall back into arrears and the Landlord would be in a position to pursue its remedies against Mr.

MacDonald including remedies against the Home structure. 54 I am reinforced in this view by the wording of the Model Assignment of Lease Consent Agreement For Manufactured Homes which nowhere stipulates that the Bank would be entering into a tenancy upon making payments to cure the default created by the Tenant ’ s failure to pay rent. Indeed, that agreement concludes by stating that the Lender is signing this agreement “ to acknowledge receipt of a copy of this agreement and this agreement shall not impose any additional obligations on the Lender other than those stipulated in this agreement. ” Conclusions

55 In the result, for the reasons stated, I conclude that the Director of Residential Tenancies had no jurisdiction to consider the Landlord ’ s claim against the Bank, and ought to have dismissed the application. As such, the appeal is allowed and the application to Residential Tenancies is dismissed, without prejudice to any other remedies that the Landlord may wish to pursue in a different forum. Eric K. Slone, Adjudicator