



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 Citys claim.

[4]

The issue on this appeal is whether the Citys 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 Citys
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
    Citys 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 Citys
    statutory right to collect rents to defray the expenses incurred in providing
    the vital services on the previous owner/landlords 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
    landlords rental units.  The City of Hamiltons
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 tenants 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 Citys
    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 Citys right to collect rents takes
    priority over Equitable Trusts 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
    Trusts rights in this regard prevail because it registered first and the
    Citys 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 Trusts mortgage is previously
    registered, our lien is subsequent to the priority of your clients 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 Citys 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 Citys 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 Citys collection of the rents up to the
    point of sale. In any event, I see no reason to interfere with the application
    judges 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
    judges 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 Citys 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 Citys 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 Citys
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 Citys right to have the rents directed
    to it a priority over the new owners 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 municipalitys 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 municipalitys 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 purchasers 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 landowners 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 owners 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 purchasers 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 owners 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 Citys 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
    Citys 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 citizens 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 owners 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 legislatures
    express decision to limit a municipalitys 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 owners claim to rents is an interest in the lands.  A
    municipalitys 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 owners 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
    municipalitys 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 landlords 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 municipalitys 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 tenants leasehold interest if the tenant
    refuses to pay.

[41]

The
    Citys 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
Blacks 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 owners 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 Citys 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 municipalitys 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 Citys s. 221(1) remedy as either some sort of personal property claim or
    as a stand-alone creature of statute, does not advance the Citys 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 owners 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 municipalitys right to intervene under s. 219(1) is not obligatory,
    but discretionary.  Is there a public interest concern that a municipalitys
    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/landlords default and of the
    municipalitys 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 tenants 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 Citys 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 Citys 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





[1]
While the
Land Titles Act
recognizes the existence of some unregistered
    interests, none of those are present in this appeal.


