Non-Application of the RTA (5.(j))

OnTheGoShipping Inc., and Kwok-Wai Leung, aka Harry Leung v. G. Khan Medicine Professional Corporation, 2020 ONSC 2789 (CanLII)

[5] On March 23, 2019 the applicant, Harry Leung, signed a two-year commercial lease for the premises municipally known as 6882 Fourteenth Avenue in Markham. The lessee was the applicant, described as "ONTHEGOSHIPPING INC. (Harry Kwok-Wai Leung)". The lessor was the respondent, described as "G.Khan Medicine Professional Corporation". As noted at the outset, the premises consist of a two-story heritage house, a yard including a large driveway, and a large two-car garage (approximately 25' x 25'). The property is zoned "rural residential housing", but a "business office" is 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 correct approach for determining whether a tenancy is commercial

[19] Section 3 of the Residential Tenancies Act, 2006, S.O. 2006, c.17 (the RTA) provides that the Act "applies with respect to rental units in residential complexes, despite any other Act and despite any agreement or waiver to the contrary." 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 in Matthews v. Algoma Timberlakes Corporation, 2010 ONCA 468 at para.23 noted that the broad definition of "rental unit" in the RTA is intentional, reflecting the fact that the legislation is remedial, and is designed to protect tenants from unlawful rent increases and evictions.

[20] Section 168(2) of the RTA provides that the Landlord and Tenant Board (the LTB) "has exclusive jurisdiction to determine all applications under this Act and with respect to all matters in which jurisdiction is conferred on it by this Act." However, s. 5(j) of the RTA provides that the RTA does not apply with respect to:

premises occupied for business or agricultural purposes with living accommodation attached if the occupancy for both purposes is under a single lease and the same person occupies the premises and the living accommodation...

[21] In interpreting and applying s.5(j) of the RTA, this court has considered the predominant purpose of the occupation or use of the premises. As Justice Cory explained in Hahn v. Kramer (1979), 1979 CanLII 2111 (ON SC), 23 O.R. (2d) 689 (Div.Ct.) at para.9:

It is to be noted that the exemption clause specifies that the premises be occupied for business purposes with living accommodation attached. To me, the wording of the section seems to indicate that the business purposes should predominate. The Act appears to specifically and carefully proceed in a manner which emphasizes the business use to be made of the combined premises so as to take them outside the definition of residential premises.

For more recent examples of this court considering the predominant purpose test in interpreting and applying s.5(j) of the RTA, see Toronto Community Housing v. Bryant Didier, 2018 ONSC 5158 at para.29; Tauro v. Yu, 2018 ONSC 7319 at paras.32-37; and Firm Capital Management v. Heather Tessier, 2019 ONSC 55 (Div.Ct.).

[22] Substance, not form, governs when considering the true nature of a tenancy. Both the Court of Appeal and the Divisional Court have held that s. 202 of the RTA applies when determining whether or not a unit is residential: Matthews, at para.24, quoted with approval in Firm Capital, at para.34. Section 202(1) provides:

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.

[23] Parties cannot contract out of the RTA. The fact that a commercial lease is used is a relevant circumstance, but it is not determinative: Fiset v. Di Geso, (1998) O.J. No.3466 (Ont.(Gen.Div.)). Nor is a "whole agreement" clause, or a clause forbidding a non-commercial purpose, determinative, or any other clause for that matter: Firm Capital, at para.8. As the Court of Appeal in Matthews explained after noting that s.202 of the RTA applies when determining the nature of a tenancy:

Accordingly, a term in the lease providing that a site is not residential nor a rental unit will not have the effect of avoiding the application of the [RTA], provided that the premises otherwise fit within the statutory definition of a "rental unit".

[24] All the circumstances must be considered to determine the predominant purpose or use of the tenancy. This Court in Fiset, provided examples of circumstances which may be relevant. The circumstances could include:

• The historical use of the premises.
• The intention of the parties.
• Whether the landlord knew the tenant was living at the premises.
• The zoning for the premises.
• The form and wording of the lease.
• Whether the landlord charged GST in relation to the rent.
• Whether the premises are a single unit or whether they were divided into distinct residential and commercial areas, such that the residential area is "attached" to the commercial area.
• Whether or not amenities one would expect in a residential tenancy, such as a stove and a refrigerator, are in the premises.
• The relative share of the premises devoted to commercial use as opposed to residential use.
• How business was conducted at the premises. Was there a "walk-in" trade? Did employees or workers attend the premises in relation to the conduct of the business?
• Whether there are any signs indicating a commercial use.
• The terms of the lease, such as its length, and any provisions for rent increase.

[25] The respondent accepts that the party claiming to come within a s.5 exception to the application of the RTA bears the burden of proving on a balance of probabilities that the exception applies: Fiset, at para.21.

[34] For the reasons set out above, I conclude that the respondent has not discharged his onus of proving on a balance of probabilities that the tenancy falls within the exemption set out in s.5(j) of the RTA. As a result, the RTA applies to the tenancy, and the LTB has exclusive jurisdiction over all applications in relation to the tenancy.

[35] In light of my conclusion, there is no need to continue the interim injunction, granted by Justice Myers, restraining the respondent, and anyone acting on behalf of the respondent, from taking any step to exclude the applicant from exclusive possession of the premises. Given my conclusion that the tenancy is not a commercial tenancy falling with the s.5(j) exemption in the RTA, the tenancy is subject to the exclusive jurisdiction of the LTB, and clearly subject to the March 19, 2020 Order of Chief Justice Morawetz, suspending all evictions and/or writs of possession issued by the LTB.