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Residential Tenancies

Lease_Tenancy Agreement imageResidential tenancies are a combination of a business relationship and a personal tinderbox.

The Tenant occupies the Landlord’s personal property over which the Landlord considers its interests paramount.  And the Tenant is vested with certain rights of exclusive possession and use.

Normally, the relationship is governed by the Residential Tenancies Act or by way of a Lease Agreement, the latter, usually provided by the Landlord.  And usually the Tenant just signs it.

But given the overlay of the Residential Tenancies Act (the “Act”), all residential tenancy leases are also bound by the law of Ontario.

A few of the events of potential conflict between the Landlord and the Tenant arise with respect to:

  1. Who does what for maintenance/repairs/breakdown of equipment/snow removal/grass cutting and a host of other issues?
  2. What happens when the Tenant wishes to move out — or doesn’t, leaving the Landlord with the potential of having no rental stream for a period of time after the Tenant unexpectedly moves out?
  3. The Landlord wishes to sell.
  4. Access to the premises while the Tenant lives there.

And there are a ton of other issues.

In almost every case, either the Act or the lease provides direction to a situation.

But, more particularly, the relationship between the Landlord and the Tenant is a human relationship which admittedly has a business connotation, but it is still a human relationship and is fraught with all of the issues of personal orientation (and personal confrontation).

There are some simple solutions.

  1. Be sure there is a Lease.
  2. Be sure the Lease sets out who does what.
  3. Even if you agree on numbers 1 and 2, the Act still applies.
  4. Even if you agree on 1, 2 and 3, common sense should prevail.
  5. Lastly, if you ignore 1, 2, 3 and 4 above you will most assuredly spend money on lawyers which, without doubt, is non-revenue producing and a pain to endure and all too frequently takes longer for resolution than any of the parties might have anticipated.

Estate Administration

Welsh Law Estate PlanningOne of the complexities (in fact, it may be the most severe) in the administration of estates is the lack of information about what the Testator (the Deceased) had in his head regarding his business affairs before the Testator died.

All too frequently, the Widow (or Executor) is left with picking up pieces of the Deceased’s business, sometimes (and all too frequently) up in th air, not documented and accordingly relying upon personal connections or, more frequently, “understood” relationships.

Unfortunately for the Executor, these “loose ends”also result all too frequently in little estate recovery, legally uninforceable “relations”, loss of estate value and, most disturbingly for the Testator’s successors, little to show for the business of the Deceased.

So, the warning is:  Every business transaction needs records.  Every business “understanding” needs paper flow.  Every “gentlemens’ agreement” needs a record.  Every businessman who doesn’t is both foolish and actively prejudicing the family for which he is, in the first place, undertaking his business.

Warning expressed.

Family Businesses

http://www.dreamstime.com/royalty-free-stock-image-work-family-image21612656Family businesses are the foundation of Canadian enterprises (some 80% or more of all businesses are family businesses).  Likewise, family businesses in a family dispute are the cannon fodder of Litigation Lawyers.  Usually, the family business works with a modicum of documentation (which, Courts, in dispute issues, seem to rely upon).  The record of the family business is usually scant and based upon verbal understandings and relationships.

Not a particular condemnation of human nature – just an observation.

In all too many cases, the costs of unwinding family businesses (and usually at the time when there is a disagreement) far exceeds the costs of setting up, at the beginning and at each instance circumstances change, records of the position/understandings/agreement among the parties.

In our experience, convincing family businesses and business persons of the necessity to document/document/document is akin to pushing bamboo shoots under fingernails…. right up to the date of dispute when literally $10’s or $100’s of thousands of dollars are spent unraveling business relationships and all of the money is non-revenue producing to the business and only feeding the lawyers.

Stop this process.

Face the facts to be addressed.

Require every step to be recorded.

Everyone will thank the fellow who pushes this — yet only at the time the disagreements develop and only then as the result of the previously irritating documentation having forced everyone to the table.

Tenants and Real Estate Agents: Beware!

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In a recent case, a Tenant, a medical doctor, leased space in a strip mall to open his office. The Agreement to Lease contained the standard clause permitting the Tenant’s lawyer to review and potentially negotiate the terms of the Lease. That was done. The Lease was eventually signed.

The shock occurred when the municipality having jurisdiction declared that the parking facilities were insufficient to permit a doctor’s office. Evidently, a higher threshold for parking spaces is necessary in the municipality for a doctor’s office which exceeded the allowable spaces in the strip centre.

On first blush, one would assume that the Lease is frustrated by the inability of the Landlord to deliver what would be required to build the doctor’s office. However, the Landlord’s lawyer took the position that, pursuant to the usual provisions in the Agreement to Lease permitting the Tenant’s lawyer to review the Lease, the failure to examine the zoning and by-law requirements was entirely the doctor’s deficiency and therefore the responsibility was that of the doctor.

This comes as a potential surprise to real estate agents and lawyers acting for tenants. The test and the confrontation addresses the responsibility of the Tenant’s lawyer mandated under the Agreement to Lease to review the Lease.
Most tenants would not underwrite the costs of a lawyer doing searches of municipal by-laws, zoning by-laws, work permits, construction completion and all sorts of building and compliance requirements when considering the provisions of the Agreement to Lease as against the draft Lease as provided. In fact, the incremental costs and the potential for the research resulting in virtually no useable information had previously been thought to have been beyond the capacity of most tenants.

In this case, the Doctor went several months paying the rent allowing the Landlord to seek municipal concessions. The Landlord even requested the Tenant to underwrite the costs of applications for by-law exemptions and zoning variances without letting the Tenant off the hook for rent.

THE BOTTOM LINE

Agreements to Lease should include a representation and warranty by the Landlord that the Landlord has full capacity to lease the intended space in full compliance with all zoning and by-law requirements. It appears not to be sufficient to merely provide that the Tenant’s lawyer has the

opportunity to review and comment upon the lease as compared to the Agreement to Lease.
The warning is to both Tenants and Real Estate Agents that this area is fraught with risk and, in the recent case, considerable expense on the Tenant’s head for not having insisted upon the Landlord complying with municipal requirements for space utilization.

If you would like to discuss this further, please don’t hesitate to contact us.

Municipal Cash Grab and Politics

Welsh Law Asset Protection and Creditor Proofing

This is largely an editorial opinion, but it is founded upon an actual case.

In 1998, sister (a doctor) and brother (an engineer), recent Canadians, acquired ½ of a duplex in Oakville, Ontario. Neither alone could, at that time, float the mortgage necessary to acquire their new home. Success followed and they acquired the other half of the duplex two years later. Sister and her direct family occupied ½ and brother, with his direct family, occupied the other half. The 2 houses, were, in reality just that: 2 houses and the title to both properties was in brother and sister as Joint Tenants in order to accommodate mortgage financing utilizing their combined incomes for credit approval.

Then an obtuse “catch-22” arose: By changing the titles (without anything else occuring) the two previously segregated and separate titles were deemed “merged” under the Planning Act (Ontario). The result was that neither sister (relative to her house) nor brother (relative to his house) could do anything with his or her own property without the other also being included. And that was notwithstanding that the two houses had separate and distinct titles at the time they acquired ownership.

The catch-22 was that the Town of Oakville by-law which had originally separated the two houses expired. The transfer of titles in 2006 occurred after the expiry of the by-law that had been in force when they acquired title which made the two houses, albeit townhouses, separate and distinct. No Plan of Subdivision had been registered by the builder of the houses prior to 1998.

The brother and sister paid their property taxes and their utilities separately metered and charged in all of the years up to 2012 (and still do).

The dilemma cried out for the Mayor and the municipal councillors to simply pass a by-law to confirm exactly what had existed in 1998 such that brother would have his house and sister would have her house. They refused to do so.

The only choices: an Application to the Town for a severance of two properties that had always been severed at a cost of approximately $13,000 or an Application for Part Lot Control Exemption at a cost of about $6,500. In all the time, the brother and the sister had paid their taxes and had separately resided in the two properties, admittedly separated only by a common wall between the two different houses. No additions were made, no pools added, no garages added, no decks added. The houses were exactly as they had been in 1998.

The Town determined that it would only address the issue by way of either a severance application or an application to exempt the properties from part lot control. In either case, at a cost between $6,500 and $13,000. The whole matter could easily have been resolved by the Town Council simply stating that the brother and sister were caught in the vortex of a Provincial law that had no intention of application to their particular case.

Accordingly, at a cost of approximately $6,500, brother and sister are making application to the Town to do what had always existed. In fact, notwithstanding solicitations to the Town to regularize this indescriminate application of disadvantageous Provincial legislation, the Town definitively states that this is a “taxing” issue and they want to collect their money before they agree that exactly what the brother and the sister had originally acquired is exactly what they have today.

To us, this is the ultimate in red-tape and bureaucracy gone mad and should not be permitted, but the law clearly indicates there is no choice but to pay the money to obtain exactly what they had always had and always intended to have.

Joint Family Ventures

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The phrase “joint family venture” is a relatively new concept developed by our Courts to address the circumstance in which life mates/husbands and wives/boy and girl carry on a business together and eventually have their relationship disintegrate.

It is not unusual to have mature mates have their personal relationship fall apart yet part of their personal relationship had been the operation of a business which one or the other or possibly both operated.

Invariably, in these business ventures, there is no documentation to record things like shareholders’ agreements, what happens if the parties split up or rights and obligations as between the parties. These are, frequently, the most vexing of issues either Family Law lawyers or Commercial lawyers face because there is no fall-back to any established procedure for resolution.

Example: Gentleman has his own business and together with is life mate establishes a second business. The life mate operates the second business while the husband carries on his venture. The secondary business is essentially 50/50 but the wife carries the bulk of the responsibilities for day to day operations.

The relationship falls apart. There is no provision for husband to buy out wife or vice versa or for that matter any resolution of the division of the secondary business. All expenditures of the household in previous years whether paid by one or the other of the mates is largely irrelevant.

In these cases, first and foremost, each mate may require clarification of their respective rights, primarily to assist in determining what their legal parameters are. Then, if communication can be had between the mates, the reasonable approach suggests trying to settle matters on your own. A Collaborative Family Law lawyer may be of great assistance. Recommendation: Verena Fraser at Feltmate Delibato Heagle.

Thereafter, recording the agreements reached is critical and each mate should get Independent Legal Advice before completion.

We’d be pleased to be of assistance.

The Bulk Sales Act – Beware!

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Two recent cases have highlighted the risks associated with buying assets from a business.

Let’s start with the normal alternatives of whether to buy the shares or assets (obviously, if a business is not incorporated, there are no shares). Normally the shareholders of a Canadian-controlled private corporation will seek to sell shares in order to take advantage of their lifetime capital gains exemption, if they are eligible. However, a Purchaser, when buying shares, automatically assumes all of the liabilities that exist within the corporation. Apprehensive about those liabilities, accordingly, many Purchasers prefer only to buy what they think are the assets on the left side of the Balance Sheet.

Not necessarily true. In fact, thanks to the Bulk Sales Act (Ontario) a Purchaser may well find himself liable to all of the creditors that existed at the date of the sale.

The Bulk Sales Act (Ontario) (one of only two provinces in which the Bulk Sales Act still exists; the other is Newfoundland), provides that a business Vendor, selling all or substantially all of its assets out of the ordinary course of business, must comply with this Act. Compliance requires a Statutory Declaration listing all secured and unsecured creditors and satisfaction of all of those creditor claims from the sale. In the event there are insufficient proceeds to satisfy all creditors (which more than just rarely occurs), there are alternatives for a Vendor (that is the subject of another message).

Essentially, to buy the assets representing all or substantially all of the assets of a business, the Purchaser must obtain that Statutory Declaration listing all of the creditors and be sure they’ve all been satisfied. Failure to do so means that the sale can be set aside and treated as void and, in addition, the Purchaser is personally liable to all of the Vendor’s creditors.

In a recent case, it would now appear that the Vendor provided the Statutory Declaration, but the Statutory Declaration was false. The Purchaser, relying upon what turned out to be a false Statutory Declaration, completed the transaction and is now facing the claims of the Vendor’s creditors.

In a second case, the Purchaser’s lawyers correctly identified all of the creditor exposure and required the Vendor to satisfy creditor claims. For whatever reason, the Purchaser not only dispatched the Purchaser’s lawyers prior to the Closing, but in addition, believed the Vendor’s personal commitment to pay out the creditors. The Vendor did not. As a result, one of the Vendor’s creditors has brought an Action to set aside the sale. The HST alone payable on the sale is $125,000 in addition to the loss by the Purchaser of all of the assets the Purchaser thought it had bought amounting to a further $954,000.

It is as simple as this: When buying the assets of any business, full compliance with the Bulk Sales Act is mandatory. Failure to comply will result in the Purchaser being personally responsible to the Vendor’s creditors in addition to the money that the Purchaser has already paid to the Vendor which may or may not ever find its way to the creditors.

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