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Real Estate - Occupation Rent

Crate Marine Sales Limited (Re) (Ont CA, 2016)

In this bankruptcy case the Court of Appeal commented as follows on the nature of occupation rent:
[13] The motion judge determined that the Receiver was not obliged to pay occupation rent. He recognized that court-appointed receivers are bound by the same general principle that applies to anyone occupying another’s property – there is an implied agreement by the occupier, subject to a rebuttable presumption, to pay rent for the use of the occupied property: Beatty Ltd. Partnership, Re (1991), 1991 CanLII 7260 (ON SC), 1 C.B.R. (3d) 225, [1991] O.J. No. 6 (Ct. J. Gen. Div.), at para. 6; B.L. Armstrong Co. v. Kisluk (1981), 39 C.B.R. (N.S.) 230 (Ont. S.C.); Bank of Montreal v. Steel City Sales Ltd. (1983), 148 D.L.R. (3d) 585 (N.S.S.C (T.D.)). He concluded, however – relying on Beatty – that the act of occupation required “some form of deprival of use” and that the Receiver’s conduct did not cross that threshold in the circumstances.

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Law and Analysis

[19] In my opinion, the motion judge misapprehended the nature of the test for determining whether the Receiver was liable to pay occupation rent. The appellant contends that the motion judge imported a requirement for “deprivation of use” in addition to “occupation” of the premises before the obligation to pay occupation rent is triggered. While that may be, I think it is more accurate to say that he erred by focussing primarily on “deprivation of use” – when there was admitted possession and evidence of actual occupation – and by conflating “deprivation of use” in the real property sense with “deprivation of use” in a more general strategic or economic benefit/detriment sense. This skewed his approach to whether the Receiver’s activities crossed the occupation threshold for purposes of liability for occupation rent.

[20] The motion judge did not deal with either the rebuttable presumption or the equitable arguments, presumably because he concluded that the Receiver had not crossed the initial “occupation” threshold. However, he dealt with a number of the considerations upon which the respondents rely in this context in his “deprivation of use” analysis. For the reasons outlined below, this was an erroneous approach, in my view. That said, I am not persuaded that the record supports either a finding that the presumption in favour of the obligation to pay occupancy rent has been rebutted, or that equitable considerations would work against a finding of liability.

[21] Finally, I agree with the motion judge’s finding that there is a sufficient nexus between CMSL and 212 Ontario in relation to the lease to provide the necessary privity between 212 Ontario and the Receiver for the liability to pay occupation rent to flow from the Receiver to 212 Ontario: see Checkout Foodmarts Ltd., Re (1975), 21 C.B.R. (N.S.) 151 (Ont. S.C.).

Occupation/Deprivation of Use

[22] As the jurisprudence referred to above establishes, there is a long-standing principle that where a person occupies the property of another, that occupation gives rise to a rebuttable presumption, based on an implied contract, that the occupier will pay rent to the owner for the use of the property. Receivers, liquidators and trustees in bankruptcy and others with similar obligations who occupy the premises of the debtors are bound by that principle: see Beatty, at para. 6; Kisluk; Steel City Sales; Young v. Bank of Nova Scotia (1915), 34 O.L.R. 176 (C.A.); Zalev v. Harris (1924), 27 O.W.N. 197 (C.A.); Christopher A.W. Bentley, John McNair, and Mavis Butkus, Williams and Rhodes’ Canadian Law of Landlord and Tenant, loose-leaf (2015–Rel. 9), 6th ed. (Toronto: Carswell, 2013), vol. 1, at p. 7-11.

[23] This presumption may be rebutted where there is evidence that the parties intended the occupier would use the land without an expectation of paying compensation to the owner: Canadian Law of Landlord and Tenant; Steel City Sales, at pp. 588-89; Rossiter v. Swartz, 2013 ONSC 159 (CanLII), at para. 41.

[24] I agree that the jurisprudence does not support the view – to the extent it may have been adopted by the motion judge – that the obligation to pay occupation rent requires “some form of deprivation of use” in addition to occupation of the premises. However, the notion of “deprivation of use” led to considerable discussion on the appeal about the interaction between it and the concepts of “occupation” and “possession” raising several questions. Is deprivation of use the equivalent of occupation, or one of the indicia of occupation, or something in addition to occupation, for these purposes? Is possession the same as occupation for these purposes? Does taking possession constitute a sufficient deprivation of use to constitute occupation for these purposes?

[25] While these questions may generate an interesting debate at a certain esoteric level, they need to be kept in perspective for purposes of determining whether a trustee or receiver has occupied premises in the context of liability for occupation rent. The threshold test for occupation rent is “occupation”. It is not deprivation of use or possession. However, deprivation of the right of use, or possession, to the exclusion of the landlord will no doubt – in most cases at least – be tantamount to occupation for these purposes.

[26] Beatty illustrates this, it seems to me. In that case, the trustee took possession and changed the locks to prevent theft and vandalism, but did not provide the landlord with a key until much later, thereby excluding the landlord from the premises. The trustee did not assume actual occupation of the premises, nor did it continue to operate the bankrupt’s business from them.

[27] The issue was whether, by reason of this conduct, the trustee had “occupied” the premises. The issue was not whether, in addition to occupation, the landlord had otherwise been deprived of a right of use. Steele J. concluded that the trustee’s taking of possession, leading to the deprivation of the landlord’s use, was the equivalent of occupation. At para. 13, he said:
The issue in the present case is whether the trustee has occupied the premises. It was argued that the trustee never went into occupation of the premises and in fact that he expressly stated that he had no intention of so doing. However, the landlord was deprived of his right of use of the premises because he did not have the keys until some period of time later. In my opinion the deprivation by the trustee of the landlord’s right of possession is the same as actual occupation by the trustee. It is a question of fact in each case whether or not the trustee actually occupied or deprived the landlord of his right of use of the premises. [Emphasis added.]
[28] This approach makes sense to me. Where deprivation of use, through the taking of possession or otherwise, is tantamount to actual occupation, the liability to pay occupation rent is engaged. That is what Steele J. meant when he referred to the trustee having “actually occupied or deprived the landlord of his right of use of the premises”.

[29] “Right of use” in this context is a real property concept, however. A landlord’s right to receive occupation rent stems from the landlord’s real property interest in the lands. It is not tethered to whether that use gives rise to a net benefit or detriment to the landlord in an overall economic benefit or other sense. This is where the motion judge’s analysis of the factual basis for occupation led him down an impermissible path, in my view. Respectfully, he erroneously conflated “deprivation of the use of the premises” in the real property sense, with “deprivation of use” in a more general cost/benefit or economic sense.

[30] The respondents are right when they submit that determining “occupation” is a factual exercise and that the motion judge correctly referred to, and to some extent dealt with, the general factors found in the jurisprudence to be relevant to that exercise: (i) changing the locks; (ii) keeping assets of the estate on the premises; (iii) bringing prospective buyers to the premises; (iv) employing persons to perform maintenance work on the premises; and (v) employing persons to take inventory of the premises: Sasso v. D. & A. MacLeod Co. (1991), 1991 CanLII 7170 (ON SC), 3 O.R. (3d) 472, [1991] O.J. No. 676 (Ct. J. Gen.Div.), at paras. 32-37; Sawridge Manor Ltd. v. Western Canada Beverage Corp. (1995), 1995 CanLII 641 (BC CA), 61 B.C.A.C. 32 (C.A.), 1995 CarswellBC 169, at paras. 16-20. With the possible exception of (iii), all of these factors, and more, were present here. But the motion judge downplayed them, and his treatment of their impact appears to have been subsumed in his overall view that 212 Ontario had not suffered any economic or strategic disadvantage as a result of what had happened.


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