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  • Petar Guzina

Lease Language Does Not Determine Tenancy is Exempt From the Residential Tenancies Act

The Residential Tenancies Act (RTA) applies to all residential tenancies in Ontario despite any agreement or waiver to the contrary. Parties cannot simply contract out of the provisions of the RTA. Yet there are exemptions to the Act; for example, s. 5(j) of the RTA exempts "premises occupied for business or agricultural purposes with living accommodation attached if the occupancy of for both purposes is under a single lease and the same person occupies the premises and the living accommodation."

This exemption was recently considered in the case of OnTheGoShipping Inc., and Kwok-Wai Leung, aka Harry Leung v. G. Khan Medicine Professional Corporation, 2020 ONSC 2789. In that case the parties signed a commercial lease for premises that consisted 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 landlord claims rent arrears are at nearly $27,000.00, which is nearly 7 months rent. The landlord attempted to lock the tenant out on March 24, 2020. The tenant obtained interim injunction at the Superior Court of Justice restraining the landlord or anyone actin on behalf of the landlord from excluding the tenant from the exclusive possession of the premises. The matter was set for a hearing on April 30 and the issue of whether or not the RTA applies was considered.

The Court followed the predominant purpose test set out by Justice Cory 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.

As noted by the Court, the predominant purpose test has been followed by the Superior Court and by Divisional Court in interpreting and applying s. 5(j). The Court also relied on section 202 of the RTA which permits the Landlord and Tenant Board to disregard the outward form of a transaction, which in this case meant looking past the fact that the lease was clearly labelled and structured as a commercial lease. At paragraph 24 the Court set out a list of potential circumstances that could be considered in in determining the predominant purpose test:

  • 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.

In the case at hand the Court ultimately determined that the landlord did not discharge his onus and that the RTA applied to this tenancy.

Whenever the issue of the whether the RTA applies to a particular tenancy arises advocates should always remember that the RTA will apply despite any agreement or waiver to the contrary, that the Board and Courts may (and often will) look past the outward form of any transaction to make determinations in applications, and it is always the party claiming the tenancy is exempt from the provisions of the RTA that bears the onus to prove on a balance of probabilities that the tenancy falls within the exemption. The facts will always drive the analysis in these situations.

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