Docket A-009-94
IN THE MATTER of the Rental of Residential Property Act, R.S.P.E.I. 1988, C. R 13.1,
Order LR95-2and
IN THE MATTER
of an appeal, under Section 25 of the Rental of Residential Property Act, by Harvey Worth (the Lessor) against Order No. LD94-154 of the Director of Residential Property dated November 16, 1994.Thursday, March 16, 1995
Linda Webber, Chair
Myrtle Jenkins-Smith, Commissioner
Emmett Kelly, Commissioner
Order
Participants
1. Appellant:Harvey Worth (Lessor)
2. Respondent:
Barry Patrick (the Lessee)
Reasons for Order
1 Background
The Lessor Harvey Worth and the Lessee Barry Patrick signed a lease agreement (undated) for the rental of a house on the Blue Shank Road, R.R.#3, Summerside, P.E.I. The agreement was for the period October 1, 1993 to October 1, 1994 at a monthly rent of $275.00. A damage deposit of $300.00 was required as part of the agreement.
While most of the documents on file with the Commission refer to Harvey and Norma Worth as Lessors, the lease was signed only by Harvey Worth, Norma Worth signing as witness for both Harvey Worth and Barry Patrick. As a result, we refer herein to Harvey Worth as the Lessor.
On or about July 1, 1994 the Lessor asked the Lessee to vacate the premises by August 1, 1994. The lease agreement had provided for earlier termination upon notice "if the property should sell".
The Lessee states he moved out on August 1, 1994 leaving some items and cleaning supplies, and discussing with the Lessor his intention to have the premises cleaned up by the end of the week. The locks were changed before the end of the week and before the cleaning was completed. The Lessor and Lessee met again on August 8, 1994 at which time a discussion took place about the condition of the premises.
On August 26, 1994 an Application for Enforcement of Statutory or Other Conditions of Rental Agreement (Form 2) was filed by the Lessee, seeking the return of the security deposit.
An Order of the Director of Residential Property was issued on November 16, 1994 ordering the security deposit returned to the Lessee. The decision was based upon the failure of the Lessor to serve the Lessee with the Notice required by ss.10(5) of the Rental of Residential Property Act, R.S.P.E.I. 1988, Cap. R-13.1 (the Act).
A Notice of Appeal (dated December 7, 1994) of this Order was filed on December 8, 1994. The reasons given in the notice were:
The Director made an error of law in failing to consider the circumstances in which the prescribed form for the intention to retain a security deposit was not used.
A hearing into this matter was held on January 4, 1995. Present were Barry Patrick, the Lessee and Robert MacNeill, legal counsel for the Lessors.
A request by Mr. MacNeill for a three-month adjournment to accommodate the Lessor's return from Florida was denied. The Commission ruled that the evidence of the Lessee and arguments on the legal issue of the requirement for Notice of Intention to Retain Security Deposit would be heard that day (the Lessor's solicitor indicating he was prepared to make such argument), and affidavit evidence could be filed later by the Lessor.
Direct evidence and cross-examination of the Lessee was then heard, as well as argument on the legal issue referred to above. The Lessor's counsel was given the opportunity to provide additional argument and/or supporting case law after the hearing but declined to do so. An affidavit of Harvey Worth dated January 23, 1995 was filed with the Commission on January 30, 1995 and is part of the record of the proceedings in this matter. As well, the response of the Lessee to the Lessor's affidavit was filed with the Commission on February 2, 1995 (unsworn statement).
Also filed at the hearing and forming part of the record (Exhibit 5) at the hearing, was a copy of a letter dated September 2, 1994 from the Lessor to the Residential Rental Property Officer stating that:
We claim the deposit, as paid, together with interest thereon as liquidated damages for injury sustained to our property due to the occupation by Barry Patrick.
As well, a copy of a Statement of Claim by Harvey Worth, Plaintiff against Barry Patrick, Defendant, filed with the Supreme Court of Prince Edward Island on September 29, 1994 formed part of the record (Exhibit 4). The Claim was in connection with alleged damages to the house rented by the Lessee from the Lessor.
2 Argument
The Lessor's legal counsel stated at the outset of the hearing that the issue for the appeal was a legal one in terms of the notice required to be given by the Lessor to the Lessee. The Commission agrees. While the evidence of both parties refers to damage claims, this was pursued by neither the Commission nor the Lessor's counsel. The appeal was against the Director's decision and that decision did not address the issue of damages, focusing instead upon the legal requirement of notice.
The position taken by the Lessor's counsel was that reliance upon the proper form to be used penalizes those who do not know the law and really fails to reflect the intention of the Act. He indicated that there should have been some obligation on either the Lessee or the Director to advise the Lessor that he had only ten days to file the notice, especially since the Lessee had telephoned the Director within that ten day period and was advised at that time that the Lessor had ten days within which to give him the notice.
Mr. MacNeill argued that the Act should be treated as remedial, designed to achieve a fair and just result. The Lessor here apparently did not have experience in the residential tenancy area. As well, Mr. MacNeill argued that the ten day limitation period for giving the notice could and should be extended in this case.
The position of the Lessor is that when he met with the Lessee on August 8, 1994, pointed out damage allegedly caused by the Lessee and indicated that the damage would have to be repaired, this was notice to the Lessee of the Lessor's intention to apply the damage deposit to those repairs (Affidavit of January 23, 1995 of the Lessor).
The Lessee's position is that he found out about his legal rights by telephoning the Director and the Lessor could have done the same. He also is firm in stating that when he met with the Lessor on August 8, 1994 there was no discussion of the security deposit or any intention to retain the security deposit. What he was told is that the Lessor would "get back" to the Lessee by the end of the week. However, the Lessee apparently never heard from the Lessor again until after the Lessee filed his Form 2.
3 Decision
The primary issue here is whether or not the apparent failure by the landlord to give the Notice of Intention to Retain Security Deposit (Form 8) required by subsection 10(5) of the Act prevents the landlord from retaining any part of that security deposit. This is the basis upon which the Director made his decision, which decision has been appealed to the Commission.
Since this issue seems to be the basis of many disputes between landlords and tenants and is the basis of two appeals presently before us, the Commission has undertaken a detailed investigation of the law in this matter.
Questions that arise in reviewing this matter include:
A. What is proper notice?
1. Must it be in writing?
2. Must it be in Form 8?
B. What is proper service?
1. Must it be by way of a method prescribed in the Act?
2. Must it be in writing?
3. Must it be within the time limits set out in the Act?
C. Are A and B preconditions to the Commission having jurisdiction to consider the merits of any dispute over the security deposit?
The Act sets out the parameters within which we must begin to answer these questions. Section 20, entitled "Security Deposit", contains 12 subsections dealing with different elements of security deposits. Subsection (5) specifies what is to be done if a lessor wants to retain all or part of a security deposit:
s.10(5) The lessor may retain all or part of a security deposit and interest thereon where he believes the lessee is liable to the lessor for damage to the residential premises caused by a breach of statutory condition 4, or for outstanding rent, provided that the lessor, within ten days of the date on which the lessee delivers up possession of the residential premises, serves the lessee with a notice of intention to retain security deposit in the form prescribed by regulation.
Therefore, the lessor must:
the lesseeserve
- with a notice of intention to retain security deposit
- in the form prescribed by regulation
- within ten days of the date on which the lessee delivers up possession of the residential premises.
A. What is proper notice?
On the face of it, the Act does not specifically state that the notice of intention to retain security deposit must be in writing, although that is implied by the reference to the notice being "in the form prescribed by regulation".
One difficulty is that other sections in the Act specifically state that "written" information is required: s.8 ("written application to the Director"); section 2 ("written rental agreement"); section 15 (3)(a) ("written notice of a termination date"); section 18(1) ("notice to terminate in writing in the form prescribed by regulation"); section 23(6) ("written notice to the lessor and lessee"), etc.
The implication that would normally be drawn from the failure of ss.10(5) to specify written notice is that such notice need not be in writing.
Does it help us to consider the requirement that the notice be "in the form prescribed by regulation"? Certainly the form prescribed by regulation is a written document. However, the law generally does not support a strict application of the requirement for a specific form.
The Interpretation Act, R.S.P.E.I. 1988, Cap. I-8 at ss.25(1) indicates that deviation from the form does not invalidate the form used 1) where the substance is not affected and 2) the form used is not calculated to mislead. That is, so long as the information given contains substantially the same information as required by the prescribed form, and is clear, then it would likely be acceptable.
As David J. Mullen notes in his text Administrative Law 2nd ed. (Toronto: Carswell, 1979) at p. 3-140, this is essentially a codification of the common law:
Many procedural provisions in statutes, regulations and by-laws prescribe details to be contained in forms or documents relating to the proceedings. It is generally accepted that slight deviations from such forms not calculated to mislead do not vitiate proceedings. However, if the form in issue is so defective as to omit material information or be misleading, the courts will hold that there has not been substantial compliance and set the decision aside. This common law rule has been given statutory force in the Ontario Interpretation Act which provides: "...where a form is prescribed, deviations therefrom not affecting the substance or calculated to mislead do not vitiate it". There is a virtually identical provision in the Federal Interpretation Act.
Could such notice be given orally? There does not appear to be any clear case law prohibiting this. Of course, the practical disadvantage of relying upon oral notice is the difficulty of proving that it was given and that it contained sufficient information, especially where there is a requirement that notice be in a certain form.
However, in interpreting this section we should give some consideration to the "trust" element of security deposits.
Subsection (2) of section 10 of the Act states:
10(2) Subject to subsection (5), a security deposit or the proceeds thereof shall be held in trust by the lessor and, if in money, shall be deposited in a trust account at a chartered bank, trust company or credit union within the province.
There appears to be substantial acceptance and recognition that there is a trust relationship between landlord and tenant in relation to the security deposit. (See Hyndman v. Mitchell (1990), 85 Nfld. & PEI R 148, 266 A.P.R. 148 (PEITD); Keltic Mortgage Corporation Ltd. v. Director of Residential Rental Property (PEI) (1989), 79 Nfld. & PEI R 288, 246 A.P.R. 288(PEITD).
The full implications of this are not totally clear but certainly suggest that if the landlord is a trustee of the security deposit and the notice of intention is, in effect, an accounting requirement, then the requirement of written notice in the form set out in the regulations may well be substantive rather than procedural.
Because of the trust element of the relationship between landlord and tenant here we cannot find that oral notice would be sufficient even if one could prove it had been given. The reporting requirements under the Act appear to us to require a form of accounting that must be in writing to be sufficient.
Overall, this leads us to conclude that proper notice is written notice in the form set out in the regulations, presently Form 8. However, a form different from Form 8 could be used and found acceptable if it provided all of the same essential information as that required on Form 8.
B. What is proper service?
Since the notice in question must be served it is appropriate to consider the methods of service set out in the Act under section 33:
33.(1) Any notice, process or document to be served by or on a lessor, lessee or the Director or the Commission is sufficiently served if
(a) delivered personally; or
(b) sent by ordinary, certified or registered mail
(i) to the lessor at the address given under section 31,
(ii) to the lessee at the address of the premises,
(iii) to the Director at the address of his office;
(iv) to the Commission at the address of its office.
(2) Where a notice cannot be delivered personally to a lessee by reason of his absence from the premises or by reason of his evading service, the notice may be served on the lessee
(a) by serving it on any adult person who apparently resides with the lessee;
(b) by posting it in a conspicuous place upon some part of the premises or a door leading thereto; or
(c) by sending it by ordinary, certified or registered mail to the lessee at the address where he resides.
(3) Where a document is delivered by ordinary mail, it is deemed to have been delivered on the third day after the date of mailing.
What should be noted is that this is not an exhaustive list of how service can be effected. This is an outline of a number of ways in which service may be effected in order to be sufficient, but not a statement that the ways outlined are the only means by which service may be effected. Other methods can be contemplated -- e.g. certified mail to a lessor's home address, which may differ from the address provided by the lessor pursuant to ss.33(1) -- which would clearly give notice to the party concerned.
This view is consistent with the Court's view that "actual notice" can't be ignored -- and can be effected many ways, including orally (see MacDormand Construction Ltd. v. Mapp (1991), 111 N.S.R. (2d) 17 (NSC Ct.)). Once again, the difficulty for any lessor claiming to have given "actual notice" by orally conveying Form 8 information to the lessee would be reconciling this type of notice with the trust elements of the relationship. Since we have concluded these trust elements are paramount, such oral notice would not be sufficient for the Notice of Intention to Retain Security Deposit.
The final element of proper service is the time limit set out in the Act. On this issue the law is more consistent than in other areas and requires that time limits be strictly adhered to.
The case of Re Kasprzycki and Abel et al. (1986), 55 O.R. (2d) 536 (Dist. Ct. of Ont.) involved rent increases from 1979 to 1985 paid by the tenant without complaint but for which the proper 90 days' notice was not given. Neither the tenant nor the landlord were aware of the required notice period. When the tenant found out, he objected to paying the increased rent. The Court held the rent increases to be void because the statutory notice requirement was not met. We also note that the judge found (at p. 542) that the Landlord and Tenant Act was, in large measure, created for the protection of tenants.
David F. Mullen in his text Administrative Law, supra, at p.3-139 states:
. Once again, however, it is impossible to generalize and on occasions, breaches of provisions as to time where there has been no substantial prejudice have not given rise to a remedy. [emphasis added]statutory requirements as to time tend to be treated as mandatory by the courts and are sometimes described as conditions precedent to jurisdiction
The Prince Edward Island Supreme Court dealt with a time requirement under the Rent Review Act in the case of White v. Thomas (1989), 6 R.P.R. (2d) 258 (PEISC, TD). In that case Mr. Justice Mullally strictly enforced the requirement that a tenant be given three months' notice of a rent increase, stating that this was a statutory requirement that the tenant could not waive.
Overall the cases lead us to conclude that the time provision for the notice must be strictly construed. Failure to give notice within the required 10-day period cannot be waived by the tenant.
C. Jurisdiction of the Commission
In light of these conclusions,
- that notice must be in writing, substantially in the form set out
by regulation, and
- that the notice must be served within the 10-day period set
out in the statute, and this cannot be waived by the tenant
the Commission has no jurisdiction to consider the merits of any dispute over a security deposit unless these preconditions have been met. The question, then, is whether or not these preconditions have been met in this case.
There is no dispute that neither Form 8 nor any other written notice of an intention to retain the security deposit was given by the Lessor to the Lessee within the required ten-day period. The verbal discussions held between the Lessor and the Lessee on August 8, 1994 are insufficient because they are verbal, but we also note that there is disagreement as to whether or not the discussions were even actual notice: the Lessee states he was not under the impression from that discussion that there was any intention to retain the security deposit.
As noted earlier, with regard to security deposits this legislation appears to create a trust relationship between lessor and lessee. This places a substantial onus on a lessor to be accountable for the funds so held and to render an accounting promptly when the premises are vacated. This requirement we believe is a substantive part of the law, only properly met by a written accounting.
We note the statute has provided a mechanism - through security deposits - for landlords to have a remedy for both nonpayment of rent and damage to premises. This is done at the lessee's expense by requiring the lessee to pay funds to the lessor prior to there being any default. The lessee must trust in the Act to protect his/her right to a prompt return of those funds at the end of the tenancy, and his/her right to have those funds treated as trust funds - protected from creditors of the landlord and from unfair claim by the landlord. In these circumstances it is reasonable to place the burden of timely proper notice on the landlord.
If rendered in the form set out by regulation, the accounting is acceptable. If rendered in another form the accounting will have to be reviewed to determine its acceptability. If not in writing, it does not meet the trust requirements for an "accounting" and so is insufficient to meet the requirements of the Act.
Having failed to give the proper notice in the form required, the Lessor has forfeited his opportunity to claim part of the security deposit.
These conclusions cannot be affected by the experience or inexperience of the Lessor. No doubt there is an advantage to lessors who continuously lease out premises and as a result have both the incentive and the opportunity to "know the law". However, such inexperience cannot be the foundation for discrimination against the Lessee by depriving him of the benefits of the Act. Many business undertakings are governed by special legal requirements and the onus is on those venturing into these businesses to become aware of these requirements.
In addition, the law does not impose any obligation on either the Lessee or the Director to take steps to advise the Lessor of his obligations under the Act. Since one could never be sure who "knew" what, this would be imposing additional notice requirements in all cases -- possibly shifting the burden from the Lessor to the Lessee.
For all the above reasons, the appeal is dismissed.
IN THE MATTER of the Rental of Residential Property Act, R.S.P.E.I. 1988, C. R 13.1,
and
IN THE MATTER
of an appeal, under Section 25 of the Rental of Residential Property Act, by Harvey Worth (the Lessor) against Order No. LD94-154 of the Director of Residential Property dated November 16, 1994.Order
WHEREAS
Harvey Worth filed an appeal against a decision of the Director of Residential Rental Property dated November 16, 1994;AND WHEREAS
The Island Regulatory and Appeals Commission heard the appeal in Charlottetown on January 4, 1995;NOW THEREFORE
, for the reasons given in the annexed Reasons for Order,IT IS ORDERED THAT
1. The appeal is dismissed;
2. The Order of the Director is affirmed; and
3. The security deposit of $300.00, plus interest to date of $15.00, is due and payable to the Lessee on or before March 30, 1995.
DATED
at Charlottetown, Prince Edward Island, this 16th day of March, 1995.BY THE COMMISSION:
Linda Webber, Chair
Myrtle Jenkins-Smith, Commissioner
Emmett Kelly, Commissioner
NOTICE
Sections 13.(1) and 13.(2) of the Island Regulatory and Appeals Commission Act provide as follows:
13.(1) An appeal lies from a decision or order of the Commission to the Appeal Division of the Supreme Court upon a question of law or jurisdiction.
(2) The appeal shall be made by filing a notice of appeal in the Supreme Court within twenty days after the decision or order appealed from and the Civil Procedure Rules respecting appeals apply with the necessary changes.