Can you be a tenant and an equitable owner of a property? Absolutely! Read how you can have it all in Warraich v Choudhry et al, 2019 ONSC 2656.
In March 2012, Choudhry purchased a property for $519,000.00. In April 2012, Warraich, one of Choudhry’s friends, moved into the property with his family. As sometimes happens, the friendship broke down. When he was asked to move out, Warraich commenced an action against Choudhry for a declaration that he held an equitable interest in the property. Choudhry counterclaimed seeking rental arrears.
Question #1 – Was Warraich a tenant? Yes!
In March 2013 (around a year after moving into the property), Warraich signed a rental tenancy agreement confirming he would pay $2,400/month in rent to Choudhry. This formalized a prior oral agreement about rent.
In 2016, Warraich stopped paying rent. Choudhry took Warraich to the Landlord and Tenant Board (the “LTB”). Despite Warraich’s protestations, the LTB confirmed that Warraich was a tenant based on the 2013 rental agreement. The LTB ordered Warraich’s eviction and payment of rental arrears. Warraich appealed both LTB decisions and lost.
It is notable that the definition of “tenant” at s. 2(1) of the Residential Tenancy Act, 2006, SO 2006, C. 17, specifically excludes co-owners of a property. The meant that if Warraich was a co-owner of the property, the LTB would have lost jurisdiction over the matter.
Question #2 – Having been found to be a “tenant” in the proceedings before the LTB, can Warraich pursue his claim to be an equitable co-owner of the property? Yes!
After Warraich brought his action for a declaration that he held an equitable interest in the property, Choudhry argued that the relief Warraich was seeking was subject to issue estoppel – since the LTB found that Warraich was a tenant, he could not also be a co-owner of the property.
The Court disagreed. Each time the Divisional Court heard Warraich’s appeals of the LTB decisions, it specifically noted that the issue of equitable co-ownership had not resolved – the LTB had only looked at how legal title was held when determining ownership and tenancy relationships.
As a result, the Court held that Warraich was free to move forward with his claim to hold an equitable interest in the property.
Question #3 – Was there a binding oral agreement re: Warraich’s interest in the property? Yes!
After Choudhry purchased the property in March 2012, Warraich directed three payments totalling $62,000.00 to be made to Choudhry. In addition, Warraich paid a consulting service $20,025.88 to assist him and Choudhry to navigate the Committee of Adjustments process and obtain the necessary permits to redevelop the property.
As a result of the $62,000.00 payments, as well as the time and money Warraich spent helping Choudhry get the permits to redevelop the property, the Court found that there existed a “purchase money resulting trust” which gave Warraich an interest in the property.
The Court further held that the oral agreement between Warraich and Choudhry about co-ownership of the property existed at the same time as Warraich’s agreement to occupy the property as a tenant. The Court drew an analogy to rent-to-own agreements where the courts have also found that an equitable interest in land may co-exist with a rental agreement.
In other words, you really can have it all!
Question #4 – Did a handwritten “trust agreement” resolve the value of Warraich’s interest in the property? Yes!
In April 2016, Choudhry finally received the building permits to redevelop the property. In order to move forward with the renovations, Warraich would need to move out. In September 2016, with the assistance of a mutual business associate, Warraich and Choudhry signed a handwritten, point-form “trust agreement.”
The trust agreement was bare bones. An example of some of the terms: “Less – 3 months – 2400”; and “(184,500.00) Agreed Amount.”
Warraich and Choudhry disagreed about how the trust agreement should be interpreted. Did the “Agreed Amount” confirm the value of Warraich’s equitable interest in the property (as Warraich argued), or the amount Warraich would be paid to work as a general contractor redeveloping the property (as Choudhry argued)?
The Court sided with Warraich – the trust agreement valued Warraich’s interest in the property at $184,500.00, which took into account a set-off for three months of rent arrears.
However, the Court acknowledged that the bare-bones agreement was difficult to interpret without taking into account surrounding circumstances and the 2012 oral agreement.
Question #5 – Could the Court take into consideration the 2012 oral agreement to interpret the 2016 trust agreement? Yes!
The Statute of Frauds, RSO 1990, c S.19 requires any agreement for the sale of land to be in writing. However, an exception is made where there is part performance of the oral contract.
In this case, the Court held that there was part performance of the 2012 oral agreement: Warraich paid Choudhry $62,000.00 as an investment in the property, he hired a consulting company to help obtain the building permits, and he attended the Committee of Adjustment hearings to obtain approval for the redevelopment.
In addition, the Court held that it could consider surrounding circumstances to held interpret the trust agreement, as long as the surrounding circumstances were not being used to add, subtract, or vary the written agreement.
For these reasons, the Court held it could consider the 2012 oral agreement to help understand the meaning of the 2016 trust agreement.
Question #6 – Did Warraich owe rental arrears? Yes!
Warraich was not entirely successful on his claim. Choudhry was able to show that the 2016 trust agreement only dealt with 3 months of rental arrears – Warraich owed more than that. The Court held that Choudhry was also entitled to recover utility payments from Warraich in accordance with the 2013 rental tenancy agreement.
This is the downside of having it all – you will be held to all of your obligations.