INFILLING ON MULTI-RESIDENTIAL PROPERTY? WATCH OUT! It is generally acknowledged that intensification of residential uses in urban areas and along public transportation corridors constitutes sound land use planning. Owners of multi-residential properties with ample room to expand coverage on existing lands have sought and obtained infill development approvals; however, when implementing development, they may face substantial liability under Provincial Landlord and Tenant laws or common law “nuisance” claims. Most Provinces have Landlord and Tenant statutes prohibiting landlords from “interference with reasonable enjoyment” of the tenant’s occupancy of their rental units, so some recent cases in Ontario should resonate with courts and boards and tribunals across the country. In addition, the common law of nuisance applies across Canada. Statutory and civil liability of owners for infilling on multi-residential properties is not just restricted to Ontario. The Ontario Court of Appeal recently held that lands surrounding a high rise apartment building in downtown Toronto are a “facility” which, if “withdrawn” from use by tenants and used for infill development purposes, can trigger a permanent rent reduction for tenants of the building [First Ontario v. Deng, 2011, ONCA 54]. The Ontario Landlord and Tenant Board (LTB), recently held that infill construction activity by a Landlord warrants the award of a rent abatement for tenants of an adjacent apartment building owned by the same landlord because the construction activity and “loss of view” interfere with the tenants’ “reasonable enjoyment” of their rented premises [First Ontario v. Tenants; LTB file # TST-03202, under appeal to Div. Ct.]. Under the common law of nuisance, activity on adjoining property which unreasonably interferes with a property owner’s use and enjoyment of their own property may form the basis for an action in damages against the developer. The implications of those decisions extend well beyond simple infill situations. In large multi-residential developments, it is common for
14 may / june 2012
By John Hoffer
property to be developed in “phases”: after the first building is built and substantially rented, construction of the next building begins, and so on until all phases of the development are complete. It is clear from the two First Ontario decisions that developers in Ontario are exposed to liability for rent reductions and rent abatements to tenants of existing buildings because of the loss of “facilities”, view, and the inconvenience caused by construction activity. The liability arises because the developer is the “landlord” of the “residential complex”. Ontario legislation authorizes a permanent rent reduction where a facility is withdrawn and a rent abatement where construction activity by a landlord is found to “substantially interfere” with a tenant’s use and enjoyment of their unit. Before infilling or otherwise developing existing residential complexes, landlords need to identify the risk of liability to existing tenants and take measures to avoid those risks. In the case of infilling, landlords should ensure that existing residents are given notice of the municipal planning approval process and that any leases entered into pending redevelopment give notice to tenants of the proposed development. In Provinces where there are no rent controls, there is an opportunity for landlords to “claw back” any awards given to tenants in statutory or civil proceedings but if stricter rent controls are in place any rent loss should be factored into the business plan unless precautions are in place to mitigate against rent reductions. In the Deng case the Court ultimately disallowed a rent reduction because improvements to retained lands made as part of the development approval process were found to offset the value of the facility withdrawn and used for infill development. The LTB decision which awarded abatements for “loss of view” and inconvenience arising from neighbouring construction activity is under appeal to Divisional Court but if the decision stands, landlords will have to factor the cost of abatements into their development costs. Selling the development
[ Legal ]
lands to a third party won’t help because the LTB found the landlord breached the law by choosing to sever and sell the lands, and reasoned that it ought to have known that when construction occurred on the adjoining lands, tenants would be inconvenienced and views from their windows would change.
their buildings. The Federation of Rental Housing Providers of Ontario (FRPO) successfully lobbied for regulations to protect landlords from rent abatements where disruptive maintenance and repair work is undertaken; however, such regulations do not protect landlords where the disruption occurs as a result of infill development.
Ontario legislation gives the LTB the power to prohibit a landlord from interfering with tenants’ reasonable enjoyment of their rental units by engaging in activities which are found to have that effect, such as construction activity. There is also a power to award rent abatements and “administrative fines� for engaging in such activities.
The effect of conflicting Provincial rules on the prospects for continuing development of much needed apartment and residential development in urban areas will remain uncertain until the courts conclusively decide the issues, most likely later this year. Regardless of where your properties are located, before commencing infill development owners should ensure that prudent steps are taken to minimize statutory and civil liability to existing tenants as a result of the disruption, loss of space, and inconvenience associated with the redevelopment on existing residential complexes. RHB
There is a perceived unfairness when one set of Provincial statutes (in Ontario, the Planning Act and related Provincial Policy Statements) encourages intensification of residential uses and another Provincial statute (the Residential Tenancies Act) can seriously inhibit intensification of residential uses on the lands best suited for such development. The proximity of urban infrastructure and institutions to existing multi-residential development and the presence of public transit create optimum conditions for infill development approval; however, the RTA has the opposite effect. At one time Ontario landlords were penalized for disruptions to existing tenants where major work (balconies, garage repair) was undertaken on
Joe Hoffer is a Partner with the London law firm, Cohen Highley LLP, and represents owners of leased properties before Courts, Boards and Tribunals throughout Ontario. If you need services relating to redevelopment of property; condo conversions; or legal issues involving commercial or residential properties contact Joe Hoffer: hoffer@cohenhighley.com
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