The recent decision of the Ontario Court of Appeal in Crate Marine Sales 1 serves as a reminder regarding the trigger for the obligation of a court appointed receiver to pay occupation rent. A receiver that is in possession of the premises of an insolvent corporation in order to continue to operate the insolvent’s business in the ordinary course, and not merely with a view to securing or protecting property, will be liable to pay rent for the occupation of those premises.
In Crate Marine Sales, the “Crate Marine” group of companies (“Crate Marine”) operated marinas in Ontario, including the “Lagoon City Marina” on Lake Simcoe (the “Marina”). Crate Marine became insolvent and a receiver (the “Receiver”) was appointed by court order. The Receiver took possession of the properties of Crate Marine; which included the Marina. Insurance and utility costs associated with the operation of those properties were also funded by the Receiver. In addition, the Receiver continued Crate Marine’s boat storage operations at the Marina and collected accounts receivable from various customers.
As part of the process of taking possession, the Receiver changed the locks and entered into an agreement (the “Key Agreement”) with the landlord of the Marina whereby the landlord was provided with a key to the Marina and access, on prior notice, to deal with potential emergencies or damage to the Marina. In addition, as part of the Key Agreement, the landlord agreed not to use the access permitted by the Key Agreement to assert any of its rights as landlord against the Marina.
The Receiver did not pay occupation rent for the period that the Receiver was in possession of the Marina. The landlord later took action to recover the rent for the period the Receiver was in possession of the Marina to conduct the Marina’s operations.
At trial, the judge determined that the Receiver was not obligated to pay any occupation rent. The trial judge determined that the act of “occupation” required a form of deprivation of use and that the Receiver’s conduct had not met this test.
The Ontario Court of Appeal found that the motion judge had erred in concluding that the Receiver did not occupy the Marina. Specifically, the Court determined that the trial judge erred in erroneously focusing on a requirement of a “deprivation of use” and then conflating that requirement in a “real property sense” with the concept of a deprivation of use in the context of an economic benefit or detriment.
The Court of Appeal determined that the relevant case law established a long standing principle that the occupation by a person of the property of another will give rise to a rebuttable presumption, based on an implied contract, that the occupier will pay rent to the property’s owner for the use of that property. The presumption is rebutted where it is established that the parties intended that the occupier would use the property without paying rent to the owner.
In considering the facts of the case, the Court concluded that the Receiver had taken control of the Marina to the exclusion of others, including the landlord. The terms of the Key Agreement were restrictive and effectively precluded the landlord from accessing the Marina. The Court determined the Receiver had in fact occupied the Marina; and that occupation gave rise to a requirement to pay rent.
The Court provides an important reminder that the threshold test for the payment of occupation rent is occupation, not the deprivation of use of property, in any sense of that term.