COURT OF APPEAL FOR ONTARIO

CITATION: Hamilton (City) v. The Equitable Trust Company, 2013 ONCA 143

DATE: 20130311

DOCKET: C54762

Laskin, Blair and Epstein JJ.A.

BETWEEN

City of Hamilton

Applicant (Appellant)

and

The Equitable Trust Company

Respondent (Respondent)

Martin G. Banach and Elissa Banach for the appellant

Byrdena M. MacNeil for the respondent

Heard: October 3, 2012

On appeal from the order of Justice James A. Ramsay of the Superior Court of Justice dated December 5, 2011, with reasons reported at 2011 ONSC 7149.

R.A. Blair J.A.:

Overview

[1]          An owner/landlord defaulted in its obligation to pay for the supply of natural gas to its tenants in a residential apartment complex in Hamilton. 

[2]          As it was entitled to do under its Vital Services By-law, the City of Hamilton stepped in and took over payment to ensure the delivery of gas to the residents.  As it was also entitled to do under the Residential Tenancies Act, 2006, S.O. 2006, c. 17 (the “Act”), the City sought to enforce its claim for recovery of those payments in two ways: it registered a lien against the property (s. 219), and it directed the tenants to pay their rent to the City instead of to the owner/landlord (s. 221).

[3]          The property was ultimately sold by the first mortgagee under power of sale to a bona fide purchaser for value, but the proceeds of sale were insufficient to satisfy the City’s claim.  

[4]          The issue on this appeal is whether the City’s right under the Act to direct the tenants to pay their rent to it instead of the owner/landlord, survives the sale of the lands.  In my view, it does not, and for the reasons that follow I would allow the appeal.

Facts

[5]          In July 2008, gas service was discontinued at 355 Melvin Ave., Hamilton, Ontario, an apartment building consisting of some 60 residential units.  The owner/landlord was in financial trouble and had defaulted on the required payments to Union Gas. 

[6]          This failure to provide what constitutes a “vital service” to tenants triggered the provisions of Part XIII of the Act and of the City’s Vital Services By-law (by-law no. 05-322). In the event that a landlord fails to provide such services, they enable a municipality to arrange for the vital services to be provided and to recuperate the costs of doing so. More specifically, the City may enforce its right to reimbursement both by way of a notice of lien registered against the property and by directing the tenants to pay their rents directly to the municipality instead of to the landlord.

[7]          The City of Hamilton arranged for Union Gas to resume the gas services at 355 Melvin Ave. and paid for them.  After paying for a number of months, the City filed a notice of lien against the property in early March 2009, and in late March gave the tenants notice to pay their rents to it, which the tenants did effective April 1, 2009.

[8]          At the time the default occurred, the property was subject to a first charge in favour of the appellant, The Equitable Trust Company.  Equitable Trust also had a first registered assignment of rents, but had not exercised its rights under that assignment.  In June 2009, Equitable Trust exercised its power of sale rights and the property was sold to a bona fide purchaser for value. 

[9]          As of June 20, 2009, the City had a shortfall of approximately $80,000 between the rents it had collected as reimbursement for payment of the gas services and the amount it had paid to Union Gas.  Recognizing that Equitable Trust as first chargee had priority over its lien, and that the proceeds of sale would be insufficient to enable it to recover in full, the City took the position that its statutory right to collect the rents survived the closing of any sale and that it was entitled to continue collecting rent from the tenants until its claim was satisfied in full.

[10]       Equitable Trust did not agree with this position.  To facilitate the sale, however, the parties responsibly entered into an agreement.  The agreement was that the sale would go through and that the City would not continue to assert its claim for the payment of rents following the sale to the new owner.  Either of the parties would be entitled to apply to the court for a determination of the City’s claim to continue to do so; if the City succeeded, it would be paid the outstanding balance by Equitable Trust.

[11]       The City brought such an application, and Ramsay J. ruled in its favour.  Equitable Trust now appeals, but Equitable Trust is not truly the party interested in the legal issue to be determined.  It is an interested party, of course, but only because of the agreement. The legal issue to be determined – whether the City’s statutory right to collect rents to defray the expenses incurred in providing the vital services on the previous owner/landlord’s default – is really between the City and the new owner.  Because of the agreement, however, the new owner is not a party to the proceedings. 

The Statutory Framework

[12]       Section 216(1)(a) of the Act empowers a municipality to pass by-laws “requiring every landlord to provide adequate and suitable vital services to each of the landlord’s rental units”.  The City of Hamilton’s Vital Services By-Law is such a by-law.  There is no dispute that the landlord breached this by-law when gas services at 355 Melvin Ave. were discontinued for lack of payment.

[13]       As noted above, when such an event occurs, a municipality may take steps to ensure the vital services are provided, pay for them, and protect its right to reimbursement for those payments by filing a notice of lien against the property and by directing the tenants of the property to pay their rents to the City, instead of to the landlord.  The relevant statutory framework governing this procedure, for purposes of this proceeding, is found in Part XIII of the Act:

219.  (1)  If a landlord does not provide a vital service for a rental unit in accordance with a vital services by-law, the local municipality may arrange for the service to be provided.

(2)  The amount spent by the local municipality under subsection (1) plus an administrative fee of 10 per cent of that amount shall, on registration of a notice of lien in the appropriate land registry office, be a lien in favour of the local municipality against the property at which the vital service is provided.

(3)  Subsection 349 (3) of the Municipal Act, 2001 and subsection 314 (3) of the City of Toronto Act, 2006 do not apply with respect to the amount spent and the fee, and no special lien is created under either subsection.

...

221.  (1)  If the local municipality has arranged for a vital service to be provided to a rental unit, an official named in the vital services by-law may direct a tenant to pay any or all of the rent for the rental unit to the local municipality.

(2)  Payment by a tenant under subsection (1) shall be deemed not to constitute a default in the payment of rent due under a tenancy agreement or a default in the tenant’s obligations for the purposes of this Act.

222.  (1)  The local municipality shall apply the rent received from a tenant to reduce the amount that it spent to provide the vital service and the related administrative fee.

(2)  The local municipality shall provide the person otherwise entitled to receive the rent with an accounting of the rents received for each individual rental unit and shall pay to that person any amount remaining after the rent is applied in accordance with subsection (1).

[14]       The “special lien” provision of s. 349(3) of the Municipal Act, 2001, S.O. 2001, c. 25, which is specifically excluded by s. 219(3) of the Act, is also relevant:

349 (3)  Taxes are a special lien on the land in priority to every claim, privilege, lien or encumbrance of every person except the Crown, and the lien and its priority are not lost or impaired by any neglect, omission or error of the municipality or its agents or through taking no action to register a tax arrears certificate.

Issues

[15]       The only issue that needs to be determined on this appeal is whether the City’s right, under s. 221(1) of the Act, to direct the tenants to pay their rent to it survives the sale of the premises to a bona fide purchaser for value and entitles the City to continue to collect those rents until it has been reimbursed in full.  As noted above, in the legal sense, this issue is really a matter between the City and the new owner.

[16]       Equitable Trust advanced arguments about whether the City’s right to collect rents takes priority over Equitable Trust’s interest as first chargee.  I do not think this question is properly in play here, however.  Any issues between Equitable Trust, as first chargee, and the City, as a subsequent encumbrancer, are resolved based on their priority rights in relation to the proceeds of sale.  Equitable Trust’s rights in this regard prevail because it registered first and the City’s right to register a lien does not create a “special lien” capable of defeating a previously registered mortgage.  The City conceded as much in a letter to Equitable Trust dated April 22, 2009:

This will confirm that the lien created under section 219 of the Residential Tenancies Act, 2006 … and our Vital Services By-Law does not have special lien status as provided for in section 349(3) of the Municipal Act, so it therefore does not have priority over a mortgage registered on title prior to the lien.  As I understand Equitable Trust’s mortgage is previously registered, our lien is subsequent to the priority of your client’s mortgage on this property.

[17]       In its factum, Equitable Trust also raised a second argument in this context, claiming that its first registered Notice of Assignment of Rents gave it priority over the City’s claim to receive those rents.  This argument cannot apply to post-sale rents since the Notice of Assignment of Rents was deleted from the register upon the sale to the new owner, as was the City’s lien.  To the extent that the argument relates to the rent collected by the City prior to the sale, the application judge ruled that it was “not part of the application.”  Equitable Trust had not brought a counter-application putting the issue properly before the court, but had simply raised the issue in its responding material.  In oral argument before this Court, Mr. Banach advised that there was no complaint about the City’s collection of the rents up to the point of sale. In any event, I see no reason to interfere with the application judge’s decision in that regard.

[18]       Finally, Equitable Trust raised an estoppel argument, which was rejected by the application judge.  The argument is based on the premise that Equitable Trust abandoned an appeal contesting the quantum of the lien, and that it had done so substantially on the basis of the foregoing letter.  Equitable Trust submitted that the City had represented that if it abandoned its appeal, the City would not continue to collect rent after the sale of the property.  The application judge’s finding that the City did nothing that amounted to a representation, express or implied, is supported on the record, and I see no basis for interfering with it.  Therefore, I would not give effect to the estoppel argument either.

[19]       I turn, then, to the question of whether the City’s right to collect rent to recover its costs of vital services survives the sale of the property to a bona fide purchaser for value.

Analysis

[20]       The City does not rely on its lien to give any kind of priority effect to its right to collect rents, recognizing that the lien claim is subsequent to the Equitable Trust charge and that it is extinguished by the transfer to the new owner.  Ms. McNeil argues on the City’s behalf, instead, that the lien and the right to collect rents are separate and different remedies. The City is entitled to rely upon the latter despite the sale because the legislature did not say the right terminates on a sale of the property, she submits.  At the end of the day, the new owner simply takes subject to the City’s Vital Services By-law: caveat emptor.

[21]       I do not agree. 

[22]       However the dispute is characterized, it involves competing claims to an interest arising out of the newly-transferred lands – the rental stream flowing from them.  That interest is a real property right in the hands of the new owner.  The dispute is, therefore, a priority dispute relating to an interest in the land between the City and the new owner.  Calling it something else does not change that reality.

[23]       For the following reasons, I do not accept that the language of s. 221(1) of the Act – viewed in context, and having regard to the purpose and scheme of the Act and of Part XIII of the Act – gives the City’s right to have the rents directed to it a priority over the new owner’s interest in the land.  Claims to an interest touching these lands are subject to, and governed by, the land titles regime in Ontario.  Nothing in the language of s. 221(1), or in the scheme and purpose of the Act, suggests that the legislature intended to oust this regime.  Indeed, they suggest the contrary.

[24]       The fundamental principle of statutory interpretation today is that the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of the legislature: see Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 21; R v. Gladue, [1999] 1 S.C.R. 688, at para. 25; and Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, at para. 26.  Respectfully, the interpretation adopted by the application judge is not consistent with that principle.

[25]       I agree with the application judge that the purpose of the Act is generally to protect tenants and, in particular, that the purpose of Part XIII is to shield residential tenants from disruptions of vital services by encouraging municipalities to step up and “bridge the gap” when an owner or landlord defaults in its obligation to provide them.  I also agree that Part XIII gives a municipality two distinct and independent means of recovering the expenses incurred by the municipality when it does intervene in such circumstances: (i) a lien against the lands in question (s. 219); and (ii) the right to collect rents from the tenants to defray those expenses (s. 221(1)).  What I disagree with is the notion that the s. 221(1) remedy was intended to create (by whatever name it is called) a type of super-priority claim to an interest in land, when the legislature expressly dealt with a municipality’s land-attached rights in a much less sweeping fashion in s. 219.  Section 221(1) is a statutory collection device; it is not a priority device.  

[26]       Section 219 demonstrates that the legislature intended to provide municipalities with a claim for recovery that attached to the land itself. However, in providing this remedy, the legislature expressly declined to give the s. 219 lien the super-priority referred to above (or any priority, save for priority of registration).

[27]       Subsections 219(2) and (3) make this clear by stating that the municipality’s lien is not a “special” lien and that “subsection 349(3) of the Municipal Act, 2001 and subsection 314(3) of the City of Toronto Act, 2006” do not apply. The Municipal Act and City of Toronto Act provisions relate to the recovery of municipal taxes and are examples of what the legislature does when it intends to create a super-priority claim over a subsequent purchaser’s interest in the land.  For instance, s. 349(3) of the Municipal Act stipulates the following:

Taxes are a special lien on the land in priority to every claim, privilege, lien or encumbrance of every person except the Crown, and the lien and its priority are not lost or impaired by any neglect, omission or error of the municipality or its agents or through taking no action to register a tax arrears certificate.  [Emphasis added.]

[28]       That taxes, as a special lien or claim against the land, survive a transfer of the land is reinforced by s. 44(1) of the Land Titles Act, R.S.O. 1990, c. L.5. Section 44(1) provides that registered land remains liable to certain easements and other rights that are deemed not to be encumbrances.  The first of these is municipal taxes.  

[29]       Without explicit language from the legislature, courts have refused to interpret a provision so as to give municipalities a claim against the land with tax-like super priority. Some statutory provisions deem amounts owing to municipalities for expenses incurred due to a landowner’s failure to conform to municipal requirements to be taxes. Courts have held that this deeming is sufficient to create the same priority as property taxes: see e.g., Re Scarbim Realty Ltd. and City of Toronto (1978), 21 O.R. (2d) 558 (H.C.).  On the other hand, where the legislature has been less clear – providing only that the expenses may be recovered in the same fashion as taxes – courts have held that such provisions create only a collection mechanism, without a property tax priority: see Guaranty Trust Company of Canada v. Quality Steels (Canada) Limited et al., [1953] O.R. 434 (H.C.), at pp. 443-447 (amounts owing for public utilities supplied); Canadian Imperial Bank of Commerce v. City of Burlington (1984), 49 O.R. (2d) 265 (H.C.) (costs of demolition of a building not conforming to the Building Code); CIBC Mortgage Corp. v. Belle River (Town) (1993), 36 R.P.R. (2D) 133 (Ont. C.J. Gen. Div.), at para. 9 (costs of demolition); and Jones v. Gomez et. al. (1978), 20 O.R. (2d) 89 (H.C.) (claim by a municipality to recover a loan made pursuant to the Housing Development Act).

[30]       Thus, when the legislature has intended to give a municipality a super priority that overrides land claim interests and survives the transfer of the property to a bona fide purchaser for value, it has done so expressly.  Here, however, the legislature has expressly disavowed such an intention.

[31]       The City argues, nonetheless, that its s. 221(1) right overrides the new owner’s interest in the rents.  The argument may be summarized succinctly as follows:  Nothing in the Act says that the statutory collection device does not override the purchaser’s interest or continue until the municipality has been reimbursed in full; therefore, it does.  This is confirmed by the effect of ss. 222(1) and (2), which stipulate that after applying the rent received “to reduce the amount [the municipality] spent to provide the vital service”, the municipality is to account to “the person otherwise entitled to receive the rent” and pay over “any amount remaining”.  Since a new owner would be a “person otherwise entitled to receive the rent”, the City interprets these provisions as entitling it to recover its expenses fully, regardless of a transfer of the lands by the defaulting owner – or, in this case, by the defaulting owner’s first chargee under power of sale – to a bona fide purchaser for value.

[32]       The argument has some appeal at first blush.  It is not difficult to fit a new owner into the expression “[a] person otherwise entitled to receive the rent”.  However, I do not think that a mechanism for returning the surplus collected by the municipality to the owner/landlord or someone else otherwise entitled to the rents (e.g., a mortgagee, assignee, or garnishor standing behind the municipality) can be interpreted to give the City a statutory priority not otherwise clearly given.

[33]       As explained above, that interpretation runs up squarely against the land titles regime governing claims to interests in transferred lands in this province. Moreover, it is inconsistent with the scheme of Part XIII of the Act, which expressly declines to give the City’s claim that sort of priority.  It is an interpretation that grants a municipality by the back door a remedy the legislature specifically declined to grant it by the front door, turning the otherwise applicable land title scheme of priorities on its head in the process. 

[34]       In addition to the foregoing considerations, it would be contrary to another well-entrenched principle of statutory interpretation to give effect to the City’s submissions.  The legislature is presumed not to intend to abolish, limit, or otherwise interfere with the established common law or statutory rights, including property rights, in the absence of explicit statutory language that it intends to do so: see Parry Sound (District) Social Services Administration Board v. Ontario Public Services Employees Union, [2003] 2 S.C.R. 157, at para. 39; Morguard Properties Ltd. et. al. v. City of Winnipeg, [1983] 2 S.C.R. 493, at pp. 508-511; Crystalline Investments Ltd. v. Domgroup Ltd., 2004 SCC 3, [2004] 1 S.C.R. 60, at para. 43; and 80 Mornelle Properties Inc. v. Mala Properties Ltd., 2010 ONCA 850, 99 R.P.R. (4th) 21, at para. 42.  Estey J. expressed the principle in this fashion, in Morguard at p. 509:

In more modern terminology the courts require that, in order to adversely affect a citizen’s right, whether as a taxpayer or otherwise, the Legislature must do so expressly.  Truncation of such rights may be legislatively unintended or even accidental, but the courts must look for express language in the statute before concluding that these rights have been reduced.  This principle of construction becomes even more important and more generally operative in modern times because the Legislature is guided and assisted by a well-staffed and ordinarily very articulate Executive.  The resources at hand in the preparation and enactment of legislation are such that a court must be slow to presume oversight or inarticulate intentions when the rights of the citizen are involved.  The Legislature has complete control of the process of legislation, and when it has not for any reason clearly expressed itself, it has all the resources available to correct that inadequacy of expression.  This is more true today than ever before in our history of parliamentary rule.

[35]       Here, the bona fide purchaser for value is a citizen in exactly the position contemplated by Estey J.  To interpret s. 221(1) of the Act in a fashion that would permit the City to reach through the transfer directly interferes with the new owner’s proprietary interest in the rents.  Respectfully, I can see no clear and unambiguous language in s. 221(1) or in Part XIII of the Act that would permit us to do so.

[36]       Finally, the City submits that the provisions of s. 3(4) of the Act suggests otherwise.  That section states that, if the provisions of the Act conflict with a provision of another Act, the provisions of the Act apply.  I do not think this assists the City, however.  First, I do not think there is a conflict between s. 221(1) and the provisions of the Land Titles Act.  The Land Titles Act does not prevent the s. 221(1) collection device from operating.  Its registration regime simply caps that recovery at the point of sale to a bona fide purchaser for value.  Secondly, I would be reluctant to interpret the general language of s. 3(4) as sufficient to oust the prevailing land registry regime in Ontario, particularly as I view the legislature’s express decision to limit a municipality’s direct claim respecting the land as the predominant indicator of intention.

[37]       While the foregoing is sufficient to dispose of the appeal, in my view, a comparison of the type of legal right created by s. 221(1) and the legal right of the new owner in the rents is instructive and also reinforces a restricted interpretation of that provision:  The new owner’s claim to rents is an interest in the lands.  A municipality’s remedy under s. 221(1) is not.

[38]        Rent has long been viewed as an incorporeal interest in land because of its close affinity with land, being payable to an owner/landlord as an incident of ownership of the land: see Anne Warner La Forest, Anger & Honsberger Law of Real Property, loose-leaf (consulted on 3 February 2013), (Toronto, Ontario: Canada Law Book, 2012), at pp. 1-6 to 1-8, 7-24, and Bruce Ziff, Principles of Property Law, 5th ed. (Toronto: Thomson Reuters Canada Ltd., 2010), at pp. 74-77, for a discussion of the classifications of real and personal property and other rights, including the incidents of real property. 

[39]       The new owner’s proprietary right to rents is therefore a “real property” right flowing from an interest in the lands.  But the same cannot be said of the municipality’s right to recover rents under s. 221(1).  The s. 221(1) right is more akin to an assignment of rents – a statutory assignment as it were – or to rights of garnishment, in my view.  Neither gives rise to an interest in land.

[40]       An assignee of the landlord’s right to collect rent does not have an interest in the land that is the source of the rental flow.  That is because an assignee has no right to the reversionary interest in the land, and therefore no right to recover the land should the tenant default: see Canada Trustco Mortgage Company v. Skoretz (1983), 45 A.R. 18 (Q.B.), at paras. 34-35; Lifescan Canada Ltd. v. Hogg (1999), 44 O.R. (3d) 593 (S.C.), at pp. 596-97; Northland Bank v. Van de Geer and Bank of Montreal (1986), 75 A.R. 201 (C.A.), at para. 14; and Finch v. Gilray (1889), 16 O.A.R. 484 (C.A.), at p. 493, per Osler J.A.  A municipality’s right to direct tenants to pay rent under s. 221(1) is not supported by any underlying property interest either.  The municipality does not become the landlord upon exercising its right (and, in all likelihood, does not wish to become one).  It has no reversionary right in the property and no right to seize a tenant’s leasehold interest if the tenant refuses to pay. 

[41]       The City’s s. 221(1) remedy might also be characterized as akin to a right of garnishment.  It is a statutory mechanism requiring a third party (a tenant) who is indebted to the principal debtor (the defaulting owner/landlord) to turn over to the creditor (the City) property of the principal debtor held by the third party (rent): see Black’s Law Dictionary, 9th ed., sub verbo “garnishment”.  In Alberta (Treasury Branches) v. M.N.R.; Toronto-Dominion Bank v. M.N.R., [1996] 1 S.C.R. 963, at para. 5, the Supreme Court of Canada held that a similar right of the Minister of National Revenue to divert payments due to a defaulting taxpayer to it was a form of statutory garnishment.  Like an assignment, however, the right to garnish rents does not carry with it a right to attach the underlying leasehold interest of the garnishee, nor does it continue once the principal debtor no longer owns the property: Lifescan Canada, at p. 596-97; and FCA Sales Ltd. v. Niagara Falls Big Brothers Big Sisters Assn. Inc. (2004), 40 C.P.C. (6th) 24 (Ont. Div. Ct.), at para. 19.  In the same way, once a sale is completed to a bona fide purchaser for value, the third-party tenant is no longer indebted to the principal debtor. Accordingly, the rents generated by the property, no longer property of the principal debtor, become out of reach of the creditor.

[42]       No matter how it is viewed, the City is attempting to claim priority to the rental flow from the new owner’s property in order to satisfy a claim against the prior owner/landlord.  But the defaulting owner/landlord no longer has any claim to those proceeds following the sale.  The tenants do not owe the defaulting owner/landlord the post-sale rents.  They are the property of the new owner.  To adopt the City’s submission would be to adopt an interpretation of the Act that interferes with those rights.  Thus, in my opinion, like an assignment of rents or a right to garnishee a debt, a municipality’s “right” under s. 221(1) is not an incorporeal interest that runs with the land, whatever else that right may be.

[43]       Even if were, however, it would be an unregistered claim to an interest in land.  A bona fide purchaser for value takes the land free and clear of all such claims, in the absence of fraud or of actual notice amounting to fraud:  see Anger & Honsberger, at pp. 30-18 to 30-22; Land Titles Act, s. 87; and Farah v. Glen Lake Mining Co. (1908), 17 O.L.R. 1 (C.A.), at pp. 19-20.[1]  There is no suggestion of fraud on the part of the new owner here, nor is there anything in the record to indicate that the new owner had actual notice that the City had exercised its s. 221(1) right (as opposed to claiming its lien).  An unregistered claim to an interest in the land would not help the City here, then.

[44]       Characterizing the City’s s. 221(1) remedy as either some sort of “personal property” claim or as a stand-alone creature of statute, does not advance the City’s position either.  A claim to personal property, not registered against the land, cannot trump the interest a bona fide purchaser for value acquires in the real property.  And, for the reasons I have explained above, the language of the section – assuming it provides a stand-alone remedy – is not sufficiently explicit to create a statutory, super-priority scheme that would deprive the new owner’s real property interests in the transferred lands.

[45]       That interpretation is reinforced by the underlying public and commercial contexts, as well.  

[46]       “Public interest” concerns push municipalities to intervene where an owner/landlord has defaulted in providing vital services to tenants – as they should.  At the same time, a municipality’s right to intervene under s. 219(1) is not obligatory, but discretionary.  Is there a public interest concern that a municipality’s inability to ensure complete recovery of the public funds utilized to “bridge the gap” may act as a disincentive to intervene?  Perhaps.  But communities work when political leaders and legislatures respond to their needs, and other factors have to be weighed in crafting a measured response to those needs.  Here, the legislature has chosen to respond to those needs by not providing municipalities with the ultimate assurance of recovery.

[47]       That resolution reflects a balancing of the other side of the equation – the protection of private proprietary rights.  There is social value in that as well.  Shifting the burden of the previous owner/landlord’s default and of the municipality’s intervention to a new owner/landlord would lead to significant problems in the financing market.  Potential buyers would have no way of knowing whether a municipality has a bridging the gap claim (apart from any lien that may have been registered).  Nor would potential mortgagees.  To require them to assume ultimate liability for any shortfall would create uncertainty in the financing market, in addition to being contrary to the notice regime so important to land transfer issues.

[48]       If investors are reluctant to invest, and lenders are reluctant to lend against properties in distress, because there is insecurity and lack of finality as to their prospective interests in the land, that reluctance does not help either the municipality (which will continue to have to “bridge the gap” during the period of uncertainty) or the tenants (who will remain in a state of disruption until more financially stable ownership is in place).  Such a result is not consistent with the purposes and objects of Part XIII or of the Act as a whole, in my opinion.

Conclusion and Disposition

[49]       The City has no claim against the new owner personally.  The City has no claim against the tenants personally.  It only has the right, pursuant to s. 222(1) of the Act, to divert the tenant’s rental payments to it in order to “reduce the amount it spent to provide the vital service” that the defaulting previous owner/landlord failed to provide.  However, with the sale of the property, the previous owner/landlord lost the right to the rental income.  By whatever name it is called, the claim to deprive the new owner of that right is to say – in the absence of some personal claim against the new owner – that the purchased lands are encumbered by the City’s statutory claim.  That is no different than saying the City has a prior claim to a right or interest in the land superior to that of anyone else, even a subsequent purchaser who takes the property on the basis of a clean registered title. 

[50]       On a fair reading of the Act and the provisions of Part XIII, the language of s. 221(1) cannot be read as expressing such an intention.  Indeed, as I have noted, the contrary is the case.

[51]       I would therefore allow the appeal, set aside the order below, and declare that the City’s remedy under s. 221(1) of the Act to direct that rents owing by tenants at the apartment building known municipally as 355 Melvin Ave., Hamilton, be paid to the City, ceased upon registration of the transfer of those premises to the new owner.  It follows, pursuant to the agreement entered into between the City and Equitable Trust, that Equitable Trust is not required to pay to the City the amount of the shortfall unrecovered by the City from its payment for vital services.

[52]       The parties have agreed that there should be no costs of the appeal.

“R.A. Blair J.A.”

“I agree John Laskin J.A.”

“I agree Gloria J. Epstein J.A.”

Released: March 11, 2013