Getting A Move On

Redeveloping a site can be attractive when land is scarce, but a challenge when residents are involved

BY TED McINTYRE WITH DAKK MARRELLO AND JOEY JAMIL

TIME IS PRECIOUS. You’ve submitted the required zoning and site-plan applications and have closed on a land deal with the intention of redeveloping a site. However, there are tenants in the existing building who don’t feel they’re obliged to leave.

OHB discussed two such examples and the lessons that can be learned from such redevelopments with Joey Jamil, an associate with Robins Appleby Barristers + Solicitors, and Dakk Marrello, an independent paralegal with whom Robins Appleby regularly consults on problematic landlord-tenant files.

OHB: NOT ALL TENANT RELOCATION NEGOTIATIONS GO SMOOTHLY.

DAKK MARRELLO: “I had a case where a developer purchased an Ontario property that offered temporary lodging. Let’s call it Motel X. Motel X had rooms that were rented by the day, with weekly and monthly discounts if the occupant stayed for longer periods of time.

“With the intention of building a fair-sized low-rise condominium building, the developer purchased Motel X with the assumption that, since the property was a motel, Ontario tenancy laws did not apply. However, this is not a black-and-white issue.

“Many developers, including the one in this scenario, have attempted to remove occupants from properties without seeking proper legal advice as a way to save time and/or money. If the removal goes well, a developer may save a few hundred dollars. But if the removal goes sideways, a developer may incur project delays, fines and legal bills totalling tens of thousands of dollars.

“The developer approached me after taking steps to remove the occupants from their rooms. At the time I got involved, there was one occupant left who refused to leave and threatened to delay the project indefinitely.

“Assuming the occupants were not tenants seemed a fair position, given that the Residential Tenancy Act (RTA) clearly states that it does not apply to hotels or motels. But this isn’t actually always the case, and a determination of whether or not a tenancy exists could take months, if not years.

“If a tenancy is in question, the Landlord and Tenant Board (LTB) is the governing body responsible for making the final determination. And the LTB is always backlogged.

“In Motel X’s case, one of their missteps was referring to the occupants as ‘residents’ in the letters they sent out, and reminding them that they would still have to pay ‘rent’ until the day they left. If a notice is being provided to occupants of temporary lodgings, it’s advisable to refer to them as guests who are paying a daily, weekly or monthly rate. But that wasn’t the case with Motel X, and copies of the letters were provided to police by the remaining occupant as a way of proving that she was a tenant, preventing her immediate removal.

“Motel X also didn’t keep records of how long each occupant was in each room. The developer purchased the property for the sole intention of developing it, and didn’t check previous records of the property. This created a problem, as the remaining occupant claimed that she had lived there for years, in the same room, and the developer could not prove otherwise.

“The lesson is that when purchasing a property, it’s helpful for the developer to know which rooms are occupied, how long they’ve been occupied by the same occupant and dates on which the occupants are scheduled to leave the property.

“From my experience, the LTB will bend over backwards to help tenants. The best action a developer can take is to separate themselves from the process of removing occupants and to be careful what they tell occupants—verbally and in writing.

“I’m finding these type of scenarios are becoming more common as the cost of living—and specifically the cost of rent—increases.

“In another matter I advised on, the owner of a small building had to pay the occupant $20,000 to leave, after going to the LTB on their own and losing. Paying occupants a cash settlement to leave is generally not something that is published or widely discussed.”

JOEY JAMIL: “I had a developer client that purchased a tenanted building, with the intention to demolish a large part of it and build a new condo. The developer was assigned landlord’s rights at the time of purchase. The leases were all commercial and had been this way for years, so the developer believed all tenants were commercial tenants. The landlord-developer provided eviction notices to the tenants.

“It turned out that most tenants were living in the units in addition to using them for some commercial purpose. But the vast majority moved out, pursuant to the eviction notice. Many were unaware of their legal rights as tenants under the Residential Tenancies Act. A few stayed back in protest, filing LTB applications for compensation and other remedies, claiming, among other things, that they were being illegally evicted and that they were residential tenants. Many LTB applications were also filed by tenants who had moved out, which they are allowed to do.

“The developer became concerned with reputational damage, as some of these tenants were going to their MPPs and media. As counsel to the developer, we had to address every LTB application individually, which became very costly for the client.

“The message is that the lease is not determinative of whether a tenant is a commercial or a residential tenant. It’s just one of the factors in determining the predominant purpose or use of the tenancy. So in negotiating the purchase of a building, the developer may want some assurances, warranties or representations regarding the leases.”

HOW RARE ARE THESE KINDS OF MISSTEPS?

JOEY JAMIL: “It’s not uncommon to see LTB decisions concerning developer landlords who try to evict tenants outside of the Residential Tenancies Act regime. That said, in most cases, I don’t think the developers are doing so in bad faith or are looking to circumvent the law. When they buy a tenanted property and are assigned rights under contracts that state they are commercial leases, they simply don’t take the extra step of due diligence to look at the predominant purpose or use of the tenancy.”

ANY FINAL ADVICE?

JOEY JAMIL: “Never make assumptions that what may appear to be a non-residential use is actually a residential use, like a motel or a livework unit. The analysis to determine the predominant use of a unit generally doesn’t consider whether the occupancy use is lawful, but rather the actual or perceived use.

“Speak with the owner/landlord of the property to understand the use of the tenanted premises, and have a lawyer review the leases. You can also file an A1 Application to determine whether the Residential Tenancies Act applies and go before the LTB for a determination. There are also N11 forms that landlords may consider having a tenant sign when thinking about purchasing a tenanted property.”

DAKK MARRELLO: “From an email I received from police regarding Motel X, law enforcement often considers a unit to be residential if it has a kitchen and bathroom. Some hotels/motels and commercial areas have these facilities, which makes them grey areas.

“Bottom line, where there is any occupant in the building that a developer is purchasing, precautions should be taken, as contracts and agreements of purchase may not protect the developer from claims of residential tenancy and the appearance of bad faith in the eyes of the LTB. And even if the developer is correct and their contracts are valid, the delays and expense an occupant may cause can be avoided or lessened by covering all the bases in advance.” OHB