Legal Blog

Conflict

What happens when the provisions of one statute seemingly conflict with the provisions of another? The answer is that the courts do the best that they can to interpret the two statutes in a manner that will explain away the conflict. If they cannot do this, the courts determine which statute should take precedence. This situation arose in Canada Trustco Mortgage Company v. Park, a 2005 decision of the Ontario Court of Appeal.

Turfing Tenants 

Two statutes square off against each other. The Tenants Protection Act (TPA) attempts to provide a balance between landlords and tenants. It gives tenants rights to remain in their premises, subject to a landlord’s rights to obtain possession of the premises under defined circumstances. A landlord may terminate a tenancy at any time for specified reasons (e.g. the tenants do not pay the rent or the tenants’ conduct themselves in a manner that disturbs the peaceful enjoyment of the premises of other tenants or the landlord). A landlord may terminate a tenancy at the end of a term, whether month-to-month or fixed, for other specified reasons (e.g. if individual landlords need the premises for their own personal use).

Residential tenancies never automatically terminate at the end of a term. A tenancy for a fixed term (e.g. one year) automatically becomes a month-to-month tenancy at the end of the term. A fixed term tenancy cannot be terminated, under normal circumstances, until the end of the term. A month-to-month tenancy can be terminated with 60 days’ notice only if one of the enumerated reasons for termination exists.

The Mortgages Act (MA) deals with, among other things, the termination of tenancies once a mortgagee attempts to take possession of mortgaged premises. A mortgagee takes this step after the mortgagor has defaulted under the mortgage and the mortgagee is selling the premises under power of sale provisions contained in the mortgage.

Section 53(4) of the MA allows a mortgagee to terminate a tenancy with at least 60 days’ notice, “regardless of any fixed term of the tenancy.” Accordingly, under the MA, a mortgagee selling under power of sale, who has to give possession to a purchaser, needs only give a 60-day notice and the tenant must give up possession even if the tenant has, say, a one-year term.

Which Act 

Section 46(1) of the MA states that “In the event of a conflict between this Part and any other provision of this Act or any other Act, this Part prevails unless the provisions of the Act states that it is to prevail over this Part.” This seems simple.

Section 2 of the TPA states that “If a provision of this Act conflicts with a provision of another Act, other than the Human Rights Code, the provision of this Act applies.” This also seems simple.

We have a conflict. Under the TPA, power of sale or not, a mortgagee cannot terminate a tenancy until the end of a fixed term tenancy. Under the MA, a mortgagee can terminate with only 60 days’ notice. Which Act applies?

Case Facts 

The mortgagee became a mortgagee in possession on March 15, 2001. By that time, the mortgagor had already signed a one-year lease with the tenant commencing April 1, 2001. On June 28, 2001, the mortgagee sold the property and on July 31, 2001, gave a 60-day notice of termination to the tenant effective September 30, 2001. The tenant did not vacate and the mortgagee brought an application under the TPA before the Ontario Rental Housing Tribunal to terminate the tenancy. The mortgagee was unsuccessful. The mortgagee appealed to the Divisional Court. Between the date of the application and the date of appeal, the end of the fixed term came and went on March 31, 2002 and the tenant vacated the property. Technically, the appeal was moot; however, the court agreed to hear the appeal anyway because it involved an important point of law. The tenants, who had already received the extra time that they wanted, had no interest in and did not appear at the appeal.

Decision 

The Court was split in its decision. The majority decided that section 2 of the TPA prevailed. They held that although the MA gave the mortgagee a better remedy than was available to the mortgagor/landlord, it was insufficient to give the mortgagee the right to ignore fixed term tenancies. They agreed that the words “regardless of any fixed term of tenancy” were difficult to explain, but decided that they should be interpreted to mean that 60 days’ notice was necessary even if the fixed term was less than 60 days, but not if the fixed term was more than 60 days.

The minority disagreed. He noted that the TPA was enacted after the MA and could have specified, but did not, that the TPA took priority to the MA, rather than using general language applying to all Acts. Accordingly, he felt that section 53(4) of the MA prevailed over the provisions of the TPA. Further, since the MA dovetailed with the TPA and specifically talked about possession of property being sold by power of sale under the MA, the MA should govern over the general sections of the TPA.

Appeal 

The mortgagee appealed to the Court of Appeal. It would seem that the Court of Appeal felt that the issues were serious enough that it wanted to hear from an opposing lawyer and appointed a lawyer to argue the case on behalf of tenants in general. In this situation, the Attorney General pays for the fees of the appointed lawyer.

The Court of Appeal dismissed the appeal in a short decision. It held simply that the TPA governed over the MA and that the rules in the TPA, regarding the termination of a fixed term tenancy, were paramount.

The Court also ordered the mortgagee to pay $7,500 towards the costs of the lawyer that the Court had appointed to represent the interests of tenants.

Result 

It is not unusual for a mortgagor to rent a portion of the property to another person and continue to live in the rest of the property. If the mortgagee cannot gain possession of all of the property, the mortgagee cannot sell the property. Accordingly, by renting out a portion of the property for a fixed term, the mortgagor can squat in the property and not pay the mortgage payments. The mortgagee has no remedies until the fixed term tenancy is over.

For example, if a mortgagor, in good faith, enters into a five-year tenancy with a family member for the basement apartment, the mortgagee will be helpless. The mortgagor will live rent-free for the remainder of the 5 years. The best that the mortgagee can do is to attorn the rent.

What can the mortgagee do to ensure that this does not happen? Probably nothing. It seems that it is now a cost of doing business.