





CITATION: First Ontario Realty Corporation             Ltd. v. Deng, 2011 ONCA 54



DATE: 20110121



DOCKET: C51723



COURT OF APPEAL FOR ONTARIO



Weiler, Watt and Karakatsanis JJ.A.



BETWEEN



First Ontario Realty Corporation Ltd.



Landlord/Respondent



and



Liangrui Deng, Guizhi He, Dustin Yang, Jenny Yang and
          Yi Yang



Tenants/Appellants



Richard A. Fink, for the tenants/appellants



Chris G. Paliare and Michael Fenrick, for the
          landlord/respondent



Heard:  December 16, 2010



On appeal from the order of Associate Chief Justice
          Cunningham, and Justices Swinton and Smith of the Superior Court of Justice (Divisional
          Court), dated October 29, 2009.



Karakatsanis J.A.:



[1]

This is an appeal from the decision of the Divisional Court, reversing
    the decision of the Landlord and Tenant Board that the tenants were entitled to
    a 2.5% reduction in rent due to the reduction of facilities provided in respect
    of the rental unit in a residential complex.

[2]

This appeal involves the interpretation of facilities and common
    recreational facilities within the meaning of the
Tenant Protection Act,
    1997
, S.O. 1997, c. 24 (the Act) and the proper method of calculating rent
    reduction prescribed under s. 30 of
Tenant Protection Act, 1997
,

O.
    Reg. 194/98 (the Regulation).

[3]

The Board found that the landlords removal of fenced-in gardens, lawns
    and walkways from the apartment complex was a reduction in common
    recreational facilities within the definition of services and facilities
    under ss. 1(1) and 142(1) of the Act (now ss. 2(1) and 130(1) of the
Residential
    Tenancies Act, 2006
, S.O. 2006, c. 17).  In determining the rent reduction
    prescribed under s. 30 of the Regulation, the Board based the quantum of its
    order upon the amount claimed by the tenants, discounted to reflect partial
    success.

[4]

Applying a standard of review of correctness, the Divisional Court held
    that the Board erred in finding that the former landscaped areas of the
    apartment complex were common recreational facilities under the Act. The
    Divisional Court further stated that the Board erred in its approach to
    calculating the amount of rent reduction under s. 30 of the Regulation.

[5]

This appeal raises the following issues:


i)
What
      standard of review applies to the Boards decision?

ii)
Was
      the Boards decision that the former landscaped areas were a  common
      recreational facility reasonable?

iii)
Was
      the Boards decision that there was a reduction in the recreational
      facility reasonable?

iv)
Was
      the Boards calculation of the rent reduction reasonable?


[6]

I have concluded that the Divisional Court erred in reviewing the
    Boards decision on a standard of correctness. For the reasons that follow, I
    conclude that the Boards decision that the former landscaped areas were
    common recreational facilities was reasonable. However, the Boards failure
    to determine the extent to which the tenants loss was a reduction in the
    common recreational facilities and the Boards determination of the amount of
    the rent reduction were unreasonable. I have concluded, however, that there was
    no reduction in the facilities. Therefore, I agree with the result and would dismiss
    the appeal.

Background facts

[7]

The appellants are family members renting a unit in a large apartment
    complex at 50 Rosehill Avenue in Toronto. The appellants have leased a unit in
    this building since December 13, 2003.

[8]

In 2005, the landlord entered into an agreement with the City of Toronto
    to amend the Citys Official Plan in order to permit the construction of 32 townhouses
    on the same property as the residential complex. This required a severance of a
    portion of the landscaped land at the rear of the complex. That land was
    formerly fenced in for the tenants use and included two lawns, approximately
    20 mature trees, pedestrian pathways, a garden and a stone bench.

[9]

There was a public consultation process initiated as a result of the
    proposed construction. It provided the tenants, as well as the broader
    community, with the opportunity to express their concerns.

As part of
    the agreement reached with the City, the landlord was required to make improvements
    on the remaining grounds of the complex at 50 Rosehill Avenue and to contribute
    over $250,000 to improve the community facilities. The landlord further agreed
    not to seek an above-guideline rent increase from the tenants to recover the
    cost of such improvements.

[10]

As a result of the ongoing construction of the new townhouses, the
    appellants applied for a 10% reduction of their rent pursuant to s. 142(1) of
    the Act on the basis of a reduction or discontinuance of the following services
    or facilities: a quiet and clean living environment; visitor and tenant
    parking; and building safety.

[11]

The Board found that the tenants had failed to establish a reduction in
    services or facilities on the three grounds set out in their application. However,
    the Board assessed a fourth and separate ground for a rent reduction and found
    that the loss of the fenced-in garden, lawns and walkways constituted a reduction
    in common recreational facilities, within the definition of services and
    facilities in s. 1 of the Act. The Board ordered that the rent be reduced by
    2.5%.

[12]

The landlord filed a request to review the Boards decision, pursuant
    to rule 29 of the Boards Rules of Practice and s. 21.2 of the
Statutory
    Powers Procedure Act
, R.S.O. 1990, c. S.22. Upon review, the Board upheld
    the rent reduction.

[13]

On appeal to the Divisional Court, the court determined that the former
    landscaped areas did not constitute a service or facility within the meaning
    of the Act and set aside the rent reduction. The Divisional Court further noted
    that the Board had erred in its calculation of the reduction in rent under s.
    30 of the Regulation.

Standard
    of Review

[14]

The Divisional Court found that the appropriate standard of review was
    correctness.

[15]

Counsel for the respondent quite fairly submitted that the Divisional
    Court erred in applying a standard of correctness to the issue of whether the
    severed land constituted a service or facility under the Act. The respondent
    submits, however, that the court did not err in applying a correctness standard
    to the issue of the quantum of rent reduction because that issue involved a
    pure question of law; the Board was asked to apply general principles of
    statutory interpretation and consider mandatory language in the Regulation.

[16]

The standards of review established by the Supreme Court of Canada in
Dunsmuir
    v. New Brunswick
, [2008] 1 S.C.R. 190 apply not only to judicial review but
    also to statutory appeals from tribunals: see
Coffey v. College of Licensed
    Practical Nurses (Manitoba)
(2008), 291 D.L.R. (4th) 723 (C.A.), at para.
    34;
Salway v. Assn. of Professional Engineers & Geoscientists (British
    Columbia)
(2010), 3 B.C.L.R. (5th) 213 (C.A.), at para 22; and
Flora v.
    Ontario Health Insurance Plan
(2008), 238 O.A.C. 319 (C.A.), at paras.
    36-37. Indeed, prior to
Dunsmuir
, the Supreme Court noted that
[t]he term judicial review embraces review of
    administrative decisions by way of
both application for judicial review and
    statutory rights of appeal
.:
Dr. Q. v. College of Physicians &
    Surgeons of British Columbia
, [2003] 1 S.C.R. 226, at para. 21 (emphasis
    added).

[17]

As noted in
Dunsmuir
at paras. 54-55 and para. 60, the standard
    of review for questions of law may depend upon the nature of the legal question
    in issue. Where the question is one of true jurisdiction or one of general law
    that is of central importance to the legal system as a whole and outside the
    adjudicators specialized area of expertise, a standard of correctness will
    apply. However, deference will usually be afforded where a tribunal is interpreting
    its own statute or statutes closely connected to its function, with which it
    will have particular familiarity (see
Canadian Broadcasting Corp. v. Canada
    (Labour Relations Board)
, [1995] 1 S.C.R. 157, at para. 48).

Deference
    may also be warranted where an administrative tribunal has developed particular
    expertise in the application of a general common law or civil law rule in
    relation to a specific statutory context. Finally, deference applies to
    questions of fact, discretion or policy and where the legal and factual issues
    are intertwined and cannot be readily separated:
Dunsmuir
, at para. 53.

[18]

Although the Divisional Court relied upon the fact that previous courts
    had consistently applied the standard of correctness to decisions of the Board
    on questions of law, decisions prior to
Dunsmuir
may be of limited
    assistance. Prior to
Dunsmuir
, questions of law generally attracted a
    correctness standard of review. As noted by this court in
Investment Dealers
    Assn. of Canada v. Taub
(2009), 255 O.A.C. 126, at para. 27, the Supreme
    Court in
Dunsmuir
recognized the difficulty that courts may have in
    applying the reasonableness standard of review to a question of law, since
    traditionally courts are used to deciding questions of law and statutory
    interpretation on the basis that the interpretation must be correct.
    Furthermore, while it is clear under a
Dunsmuir
analysis that the
    exercise of statutorily-mandated discretion attracts a standard of review of
    reasonableness, it does not necessarily follow that where the language of a
    statutory provision is mandatory, the standard of review is correctness.

[19]

It is important to identify the category of question under review. A
    tribunal may attract different standards of review, depending on the issue
    involved.

[20]

In
Dunsmuir
, the Supreme Court noted at paras. 55, 62 and 64 that
    the process of determining the standard of review involves two steps. It may be
    that the jurisprudence has already satisfactorily examined the standard of
    review in light of the factors set out in
Dunsmuir
. A post-
Dunsmuir
analysis that has determined the degree of deference to be accorded with regard
    to a particular category of question will end the inquiry. If not, the court
    should assess: (1) the presence or absence of a privative clause; (2) the purpose
    of the tribunal under the enabling legislation; (3) the nature of the question
    at issue; and (4) the expertise of the tribunal relating to the issue. At para.
    55, the Supreme Court in
Dunsmuir
observed that the court should
    determine whether the legislation establishes a discrete and special
    administrative regime in which the decision maker has special expertise.

[21]

In this case, the Board was required to interpret its home statute and
    Regulation in determining a tenant application for a rent reduction. The Boards
    governing statute provides for a specialized adjudicative regime for resolving
    disputes. Under the Act, the determination of whether services or facilities to
    tenants have been reduced by the landlord and the determination of the
    corresponding rent reduction are core functions of the Board. It applied
    statutory and regulatory provisions with which it has particular familiarity.
    As well, with respect to whether the facts established a common recreational
    facility, the legal and factual issues are intertwined and cannot be readily
    separated. Although there is no privative clause, appeals are limited to
    questions of law. The interpretation of service and facility as it relates to
    the former landscaped areas or the calculation of the value of that service
    or facility is not one of central importance to the legal system. In these
    circumstances, I am satisfied that the deferential standard of reasonableness
    applies to these determinations. While the use of mandatory language in the Regulation
    prescribes the Boards approach to its calculation of the appropriate rent
    reduction, it does not, in these circumstances, convert the standard of review
    from one of deference to one of correctness.

[22]

As a result, I conclude that the Divisional Court erred in applying a
    standard of review of correctness. The Boards decision in this case should be
    reviewed on the basis of reasonableness. As explained in
Dunsmuir
at
    para 47, reasonableness is concerned mostly with the existence of
    justification, transparency and intelligibility within the decision-making
    process. But it is also concerned with whether the decision falls within a
    range of possible, acceptable outcomes which are defensible in respect of the
    facts and law.

Relevant Legislation

[23]

The Act permits tenants to seek a rent reduction if a service or
    facility that was provided for the unit or residential complex is reduced or
    discontinued. This is achieved by way of application to the Board.

[24]

Section 142(1) of the Act provides:

142.
(1)  A tenant of a
    rental unit may apply to the Tribunal for an order for a reduction of the rent
    charged for the rental unit due to a reduction or discontinuance in services or
    facilities provided in respect of the rental unit or the residential complex.

[25]

Services and facilities is defined in s. 1(1) of the Act to include
    common recreational facilities:

services and facilities includes,

(a) furniture, appliances and furnishings,

(b) parking and related facilities,

(c) laundry facilities,

(d) elevator facilities,

(e) common recreational facilities,

(f) garbage facilities and related services,

(g) cleaning and maintenance services,

(h) storage facilities,

(i) intercom systems,

(j) cable television facilities,

(k) heating facilities and services,

(l) air-conditioning facilities,

(m) utilities and related services, and

(n) security services and facilities;

[26]

Residential complex is also defined in s. 1(1) of the Act to include
    all common areas and services and facilities:

residential complex means,

(a) a building or related group of buildings in
    which one or more rental units are located,

and,

includes all common areas and services and
    facilities available for the use of its residents;

[27]

Finally, s. 30 of the Regulation provides the remedy for a finding that
    services and facilities have been reduced or discontinued:

30.
(1)  The provisions
    of this section are prescribed as rules for making findings relating to a
    reduction of the rent charged under section 142 of the Act, based on a
    discontinuance or reduction in services or facilities. O. Reg. 194/98,
    s. 30 (1).

(2)  If a service or facility is
    discontinued, the rent shall be reduced by an amount that is equal to what
    would be a reasonable charge for the service or facility based on the cost of
    the service or facility to the landlord or, if the cost cannot be determined or
    if there is no cost, on the value of the service or facility. O. Reg.
    194/98, s. 30 (2).



(4)  If a service or facility is reduced,
    the amount of the reduction of rent shall be a reasonable proportion, based on
    the degree of the reduction of the service or facility, of the amount
    determined under subsection (2) or (3). O. Reg. 194/98,
    s. 30 (4).

(5)  If the discontinuance or reduction
    is temporary and its duration is reasonable, taking into account the effect on
    the tenant, there shall be no reduction of rent. O. Reg. 194/98,
    s. 30 (5).



Was the Boards decision that the former landscaped
    areas constituted common recreational facilities reasonable?

[28]

The evidence before the Board was that the sizable former landscaped areas
    were severed from the residential complex to create 32 new townhouses. The
    tenant Deng described the landscaped areas as two large pieces of lawn with
    approximately 20 mature trees, small pedestrian paths and a stone bench. She
    testified that the area was fenced in so that all the tenants had full access
    to that land. She also testified that in the summer they probably used the landscaped
    areas every day and that her young son would run and play on the grass. After
    construction started, if the appellants son wanted to play, she would take him
    to a nearby public park.

[29]

Although the respondent suggested that the only evidence of the tenants
    use of those landscaped areas was incidental to their use of the pathway as
    access to the street and that there was no evidence that other tenants used the
    area for recreational purposes, the tenants evidence was un-contradicted. In
    any event, an appeal from the Boards decision is restricted to questions of
    law.

[30]

The Board concluded:

The definition of services and facilities set out
    in the Act is not an exhaustive list but explicitly includes common
    recreational facilities. A facility is generally speaking, something that is
    built or installed to perform some particular function. Clearly the gardens,
    lawns and walkways around the residential complex were installed to perform
    particular functions. One of the common functions of a lawn is for recreational
    purposes  for children to run across and play on.  The lawn herein was part of
    the common areas formerly enjoyed by the Tenants and it is uncontested it was
    used by them for recreational purposes. Therefore, I find that the grass,
    garden and walkways around the residential complex are a service and facility
    as defined in the Act with respect to these Tenants.

[31]

Applying the standard of correctness, the Divisional Court found at
    para. 21 that the Board had erred in its finding that the severed areas constituted
    a recreational facility within the meaning of services and facilities defined
    in s. 1 of the Act:

Read in its ordinary sense, common recreational
    facility would entail something that is built or installed to serve a
    recreational function. The lands surrounding a building, while they may be used
    for recreation, do not meet the requirement of being built or installed to
    fulfill that particular function. We accept the Landlords submission that
    these lands are a necessary incident to the construction of the building
    itself. Unless the lands surrounding a building have been specifically landscaped
    to serve a recreational purpose, by adding a playground, for instance, they
    will not meet the definition of common recreational facility.

[32]

The appellants submit that the Divisional Court erred in substituting
    its own interpretation for that of the Board and in holding that additional
    facilities, such as a playground, were required before fenced-in gardens with
    lawns, trees, pathways and a bench could be considered a common recreational
    facility.

[33]

The respondents position is that the Divisional Courts decision was
    correct and that when viewed objectively, the fence, lawns, pathways and bench
    were not built or installed for a recreational function. The respondent submits
    that the Boards decision was unreasonable for the following reasons: the set-back
    areas were a necessary incident to the construction of the building; the Board
    failed to view the functionality of the landscaped areas from an objective
    basis and instead permitted the tenants use of the areas to unilaterally
    convert the areas to a recreational facility; the Board equated common areas
    with common recreational facilities; and common recreational facilities
    encompass purpose built amenities such as pools, spas or exercise rooms.

[34]

As noted by the Divisional Court, the accepted approach to statutory
    interpretation 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 Parliament:
Bell
    ExpressVu Ltd. Partnership v. Rex
, [2002] 2 S.C.R. 559, at para 26.

[35]

The Act permits tenants to seek a rent reduction from the Board if
    services or facilities provided for the unit or residential complex are reduced
    or discontinued. Conversely, the Act permits the landlord to seek a rent
    increase for capital expenditures made with respect to the creation of new and
    additional services or facilities. The definition of services and facilities
    is not exhaustive and enumerates a wide range of residential benefits to
    tenants that are maintained and paid for by the landlord. In the context of
    this legislative scheme, it is presumed that a reasonable charge for the
    services and facilities is included in the rental value of the units and that
    the rent reduction is equal to a reasonable charge for the reduction or
    discontinuance of those services or facilities. The Regulation provides that
    the reasonable charge is determined, if possible, by the cost of that service
    or facility to the landlord. In other words, the Act and Regulation seek to
    ensure that if tenants lose some part of the services or facilities that were
    provided to them as part of their rent, any cost savings by the landlord is
    passed on to the tenants. However, the Regulation also provides for a rent
    reduction even where there are no cost savings to the landlord, or where they
    cannot be determined. In these circumstances, the tenant is still entitled to a
    rent reduction that is equal to what would be a reasonable charge for the
    service or facility based on their value.

[36]

The definition of facility is not in dispute. Both the Board and the
    Divisional Court accepted that in the context of the Act and in accordance with
    dictionary definitions, a facility is something that is built or installed
    upon to perform some particular function and, therefore, that recreational
    facility would entail something that is built or installed to serve a
    recreational function.

[37]

While the parties agree on the definition of facility, they disagree
    as to whether the facts of this case meet that definition, and specifically
    whether the facts are capable of meeting the definition of common recreational
    facilities.

[38]

The Divisional Court accepted the landlords submission that the lands,
    as a required set-back, were a necessary incident to the construction of the
    residential complex. However, the fact that a set-back was required did not
    preclude the landlord from building or installing features on the lands to
    serve a recreational function.

[39]

Further, the Divisional Court accepted the landlords submission that
    the tenants unilateral choice to use the common area for recreational purposes
    did not convert it into a facility within the meaning of the Act. I would also
    agree with this submission. However, the key issue of whether the common area
    included facilities which were built or installed for a recreational use or
    function remains.

[40]

In this case, the Board found that the lawns, trees, walkways and the
    fence that excluded the public had been built or installed to fulfill a
    recreational function. The Board noted that a common function of a lawn is for
    children to run across and play on  an observation of the objective
    functionality of lawns. The installation of a bench made the area more than a
    means of egress and ingress to the street but a place that was meant for people
    to enjoy. The Board also relied upon its factual finding that the tenants
    previously enjoyed the lawn area.

[41]

I do not agree with the respondents submission that the Board equated
    or conflated the concepts of common areas and common recreational facilities.
    The respondent argues that the distinction drawn between common areas and
    services and facilities in the definition of residential complex in s. 1 of
    the Act, supports the conclusion that common areas are separate and distinct
    from services and facilities.  A common area is not necessarily a facility or a
    recreational facility; however, there is no reason why a common area cannot
    also constitute or include services or facilities available to the rental units
    or residential complex. Indeed, common recreational facilities, by their very
    nature, would be common areas for the tenants.

[42]

In effect, the Divisional Court disagreed with the Boards factual
    characterizations and its conclusion that fenced-in areas with landscaped
    lawns, walkways and mature trees constituted a common recreational facility. The
    court held at para. 21 that [u]nless the lands surrounding a building have
    been specifically landscaped to serve a recreational purpose, by adding a
    playground, for instance, they will not meet the definition of common
    recreational facility. Implicit in this reasoning is that the fences, lawns,
    bench and pathways were not specifically built or installed by the landlord for
    the particular purpose of recreation.

[43]

The Divisional Court observed that its conclusion was supported by reference
    to the list of other services and facilities found in s. 1(1) of the Act. The
    court emphasized at para. 22: All of the items on the list are features of
    residential complexes that are installed or built to perform a particular
    function, such as security, laundry, elevators, garbage, and parking
    facilities.

[44]

The respondent argues that the Divisional Court was correct because the
    evidence could not reasonably support the conclusion that the areas were built
    or installed to perform a recreational function. The respondent submits that
    the enumerated list of services and facilities as defined in the Act all have
    operating costs associated with them which, upon discontinuance, would result
    in a cost savings to the landlord and a corresponding loss of rental value to
    tenants, which can be measured on an objective basis. Thus, it argues, when
    read in the immediate context of the features listed under the definition of
    services and facilities, the term common recreational facilities encompasses
    purpose built amenities such as pools, spas or exercise rooms that have
    operating costs associated with them.

[45]

The appellants submit that the Boards finding that the tenants
    enjoyment of the areas represented recreational functions, including the fact that
    their son ran on and played on the lawns and that their infant daughter could
    be expected to do so in the future, is supported by the ordinary definition of
    the word recreation.

[46]

Websters defines recreation as: 1. Refreshment in body or mind, as
    after work, by some form of play, amusement or relaxation. 2. Any form of play
    amusement, or relaxation used for this purpose, as games, sports, hobbies,
    reading, walking, etc. (Websters New Twentieth Century Dictionary, 2d ed.,
s.v.
recreation). The Concise Oxford English Dictionary definition of
    recreation is enjoyable leisure activity (Concise Oxford English Dictionary,
    11th ed.,
s.v.
recreation).

[47]

The Board was entitled to find as a fact that the sizable landscaped
    lands, fenced in for the use of the tenants, with the lawns, pathways and
    trees, were built and installed for a recreational function. The Boards
    findings of fact are not subject to appeal. Whether these facts, as found, are
    reasonably capable of meeting the definition of recreational facilities within
    the meaning of the Act is the question of law to be determined.

[48]

The Boards determination that the landscaped areas were a common
    recreational facility was reasonable. The Board was entitled to, and did,
    consider the objective nature and function of what was built or installed on
    the landscaped areas as well as evidence of its actual use. As counsel for the
    appellants submitted, residential gardens and lawns provide space for
    relaxation and leisure activity. Residential landscaped areas available to tenants
    require installation and upkeep and thus have costs to the landlord and corresponding
    value to the residents as recreational facilities.

[49]

The Boards determination is entitled to deference. The Board
    articulated its decision-making process with reasons which were justified,
    transparent and intelligible. Its legal conclusion was within the range of
    reasonable outcomes defensible upon the facts and the law. I conclude that the
    Divisional court erred in holding that the Boards conclusion that the severed landscaped
    areas constituted common recreational facilities was incorrect. The Boards decision
    on that issue was reasonable.

[50]

The appellants submitted before this court that a breach of the covenant
    for quiet enjoyment in the demised premises under the common law and pursuant
    to s. 23 of the
Conveyancing and Law of Property Act
, R.S.O. 1990, c.
    C.34 (as distinct from the reasonable enjoyment under s. 26 of the Act)
    entitled the tenants to a rent reduction. They submitted that the right to
    quiet enjoyment was a service or facility in an application under s. 142(1)
    of the Act. This argument was not made before the Board or before the
    Divisional Court. Accordingly, it is not open to the appellants to raise this
    additional ground on appeal.

Was the Boards decision that there was a reduction in
    the recreational facility reasonable?

[51]

The Divisional Court stated that even if the land in question was a
    common recreational facility, it was questionable whether the facility had been
    reduced. It noted at para. 25: Reduction can refer to a reduction of the
    quality, quantity, or both of a service or facility. The court observed that
    although the quantity of the land had clearly been reduced, the landlord had an
    obligation by its agreement with the City to improve the remaining land.

[52]

On this issue, the Board held:

Furthermore, I do not agree that the permanent loss
    of a significant portion of the garden, lawn and walkways behind the
    residential complex is not a reduction. It may well be that the loss of this
    recreational area is not a discontinuance as landscaped areas around the
    building continue to exist and will in fact be improved, but as a matter of
    logic, the significant decrease in recreational space available to the Tenants
    is clearly a reduction.

[53]

Having noted that the remaining common landscaped lands would be
    improved following the construction, the Board did not consider the effect of
    the landlords obligation to improve those lands. The Board did not consider
    the extent of the reduction in the common recreational facility, even though it
    was required to do so in order to determine the rent reduction under s. 30(4)
    of the Regulation.

[54]

While the size of the recreational facility is clearly relevant in
    determining the extent of any reduction in the facility, it cannot reasonably
    be the only factor in these circumstances. Not every change in a service or
    facility or in common recreational facilities, viewed objectively, will
    necessarily be a reduction of the common recreational facility, even if some
    aspect of it is removed or changed. Thus, the Board was required to consider
    not only the reduction in the metes and bounds of the recreational facility but
    also the nature of the changes in the remaining landscaped areas in order to
    determine the extent of the reduction of the common recreational facilities.

[55]

Given the Boards failure to consider the relevance of the landlords
    obligation to improve the remaining lands, and to consider the extent, if any,
    of the reduction in the common recreational facilities, the Boards decision on
    this issue does not meet the criteria of a reasonable decision-making process; it
    is not an outcome that is within the range of reasonable possible outcomes.

[56]

In this case, there was a negotiated process, between the landlord and
    the City of which the tenants were given notice and in which they were entitled
    to participate. This process bears upon the issue of whether and to what extent
    a reduction in rent was warranted because the size of the common recreational
    facility was reduced. The agreement between the landlord and the City
    ultimately required that in return for the severance and the loss of the land
    to the residential complex, the landlord was required to invest significant
    funds on improvements to the complex, including the remaining landscaped areas.
    The agreement also provided that the landlord would not seek to recoup those
    expenditures from its tenants by seeking an above-guideline rent increase
    before the Board.

[57]

In these circumstances, the negotiated settlement is evidence that the loss
    of the landscaped area to the tenants was compensated for by the investment in
    the remaining landscaped areas. The amenities, including the common
    recreational facilities have been changed, rather than reduced. The process
    reflects the interests of the tenants of the apartment complex as a whole and
    is therefore a better reflection of the value and compensation for the lost
    common recreational lands, rather than the evidence of the impact upon
    individual use by the tenants of one unit.

[58]

The Divisional Court opined that it was questionable whether the lands
    in this case should be considered reduced based on a reduction in quantity
    alone, given the fact that the landlord was obliged to spend a significant
    amount on improving the remaining land. In these circumstances, there is ample
    evidence in the record to find that the common recreational facility was not
    reduced but was replaced with other upgrades. As a result, the Board erred in
    ordering a rent reduction.

Was the Boards calculation of the rent reduction reasonable?

[59]

Although it is not necessary to the appeal, it is nonetheless
    appropriate to provide some guidance with respect to the Boards calculation of
    the rent reduction.

[60]

Section 30 of the Regulation sets out a mandatory approach to
    determining the amount of rent reduction. The Board is directed to determine
    the reasonable charge for the service or facility based on the cost of the
    service or facility to the landlord. If the cost cannot be determined or if
    there is no cost, then the Board is directed to determine the reasonable charge
    for the service or facility based on the value of the service or facility. If
    the service or facility is reduced, the amount of the rent reduction will be a
    reasonable proportion of that reasonable charge, depending on the degree to
    which the service or facility was reduced.

[61]

The evidence at the hearing was that the annual costs of operating the
    green space had consisted of property taxes, insurance and landscaping costs,
    and that the costs for each of these did not change as a consequence of the
    severance. The tenants led no evidence on the value of the facility in the
    context of their monthly rent payment nor did this claim form part of the
    original application before the Board.

[62]

The Board found that because the evidence of the landlord was that there
    was no reduction in its costs once the landscaped area was reduced, the cost to
    the landlord of the reduced portion of the service or facility was zero, or
    could not be determined. Based upon the limited evidence before it, it was
    reasonable for the Board to conclude in these circumstances that the cost to
    the landlord was zero, or could not be determined.

[63]

However, upon making that determination, the Regulation required the
    Board to determine the reasonable charge for the service or facility based on
    the value of the service or facility. Instead, the Board concluded:

The only evidence of the value of the reduced
    common recreational area to the Tenants was the statement that they believed
    they were entitled to a 10% reduction in the rent because of
all
of
    their claims. It seems to me from the evidence before me that the claim with
    respect to the reduction in the common recreational area constituted was
    one-quarter of the Tenants total claims. Therefore, I find that an appropriate
    reduction in the rent for the reduction in the common recreational area is 2.5%
    of the rent charged. [Emphasis in original.]

[64]

The respondent submits that in the context of the language of s. 30 of
    the Regulation, the value of the facility must be determined in relation to
    the cost savings or resulting benefit to the landlord rather than on the value
    of the service to the tenants. It argues that if there was no cost savings to
    pass on to the tenants, there should be no rent reduction.

[65]

However, such an interpretation ignores the plain language of s. 30. By
    prescribing an alternative approach where there are no cost savings to pass on
    to the tenants, the Regulation clearly contemplates a rent reduction even where
    there is no resulting benefit to the landlord. Thus, the value of the service
    or facility must be based upon the rental value of such service or facility. In
    any event, the landlord benefited from the construction and sale of 32
    townhouses upon the former recreational lands.

[66]

The appellants submit that the Board acted reasonably and in accordance
    with the Regulation when it relied on the tenants perceived value of the loss
    of the former landscaped area in arriving at a figure of 2.5% for rent
    reduction. They referenced other decisions in which the Board has assessed the
    value of the rebate without a formula. Counsel submitted that over time, the
    decisions of the Board have established a tariff based upon the nature and
    extent of the reduction in services or facilities. It was submitted that the
    Boards assessment in this case represented a type of rough justice based upon
    its expertise.

[67]

However, this is not such a case. The Board did not purport to rely upon
    past precedent or upon its expertise. Nor did the appellants provide any
    evidence of their perceived value of a reasonable charge for the lost
    landscaped lands. Instead, the Boards reasoning related entirely to the
    initial amount of the claim made by the tenants, for grounds that were not
    successful. In doing so, the reasoning of the Board was deeply flawed.

[68]

The appellants further submit that the result itself was reasonable
    given the value of the severed land. On the review hearing, the appellants filed
    a valuation opinion that the severed land had a value of $3.84 million,
    representing almost 12% of the total value of the apartment complex.

[69]

The appellants submission that the Boards outcome was reasonable based
    on the valuation of the land, or the best and highest value of the land, must
    also fail. The Regulation mandates an inquiry into a reasonable charge for the
    service or facility based upon its cost to the landlord or the value of the
    service or facility. The Board does not have discretion to adopt an alternative
    method of calculating the quantum of rent reduction, regardless of whether the
    amount arrived at is reasonable.

[70]

As a result, the Boards decision on quantum is not reasonable.

Conclusion

[71]

In conclusion, I agree with the decision of the Divisional Court,
    although for different reasons. I would dismiss the appeal.

RELEASED:  January 21, 2011 KMW

Karakatsanis
    J.A.

I
    agree K. M. Weiler J.A.

I
    agree David Watt J.A.


